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, 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 July 31, 1998, 1,806,338,000 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,
1998 1997 1998 1997
Revenues................................... $12,858 $12,728 $25,489 $25,276
Operating Expenses
Access and other interconnection........... 3,817 4,231 7,726 8,483
Network and other
communications services................... 2,181 2,261 4,445 4,395
Depreciation and amortization ............. 1,063 911 2,079 1,841
Selling, general and administrative ....... 3,547 3,814 6,998 7,407
Asset impairment and restructuring charges. 2,743 - 3,344 -
Total operating expenses .................. 13,351 11,217 24,592 22,126
Operating income(loss)..................... (493) 1,511 897 3,150
Other income - net ........................ 301 56 1,001 224
Interest expense .......................... 96 56 144 108
Income(loss) from continuing operations
before income taxes ...................... (288) 1,511 1,754 3,266
Provision for income taxes ................ (145) 583 581 1,250
Income(loss) from continuing operations ... (143) 928 1,173 2,016
Income from discontinued operations
(net of taxes of $0, $18, $6, and $43).... - 31 10 69
Gain on sale of discontinued operation
(net of tax of $799) ..................... 1,290 - 1,290 -
Net income ................................ $ 1,147 $ 959 $ 2,473 2,085
Weighted average common shares and
potential common shares (millions)*....... 1,624 1,627 1,638 1,628
Per common share - basic:
Income(loss) from continuing operations .. $ (0.09) $ 0.57 $ 0.72 $ 1.24
Income from discontinued operations....... - 0.02 0.01 0.04
Gain on sale of discontinued operation.... 0.80 - 0.79 -
Net income ............................... $ 0.71 $ 0.59 $ 1.52 $ 1.28
Per common share - diluted:
Income(loss) from continuing operations .. $ (0.09) $ 0.57 $ 0.72 $ 1.24
Income from discontinued operations....... - 0.02 - 0.04
Gain on sale of discontinued operation.... 0.80 - 0.79 -
Net income ............................... $ 0.71 $ 0.59 $ 1.51 $ 1.28
Dividends declared per common share........ $ 0.33 $ 0.33 $ 0.66 $ 0.66
*Amounts represent the weighted-average shares assuming dilution from the
potential exercise of stock options. Amounts are reduced by 0, 2 million, 14
million, and 4 million for the three month and six month periods ended June 30,
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)
June 30, December 31,
1998 1997
ASSETS
Cash and cash equivalents .............. $ 7,755 $ 145
Receivables less allowances
of $1,029 and $977
Accounts receivable................... 8,621 8,573
Other receivables..................... 404 5,684
Deferred income taxes................... 1,441 1,252
Other current assets.................... 496 525
Total current assets.................... 18,717 16,179
Property, plant and equipment, net
of accumulated depreciation of
$23,336 and $21,853 .................. 22,312 22,710
Licensing costs, net of accumulated
amortization of $1,167 and $1,076..... 8,233 8,329
Investments............................. 3,208 3,857
Long-term receivables................... 671 1,794
Prepaid pension costs................... 1,942 2,156
Other assets............................ 2,364 2,509
Net assets of discontinued operation.... - 1,101
TOTAL ASSETS............................ $57,447 $58,635
(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,
1998 1997
LIABILITIES
Accounts payable....................... $ 5,754 $ 6,243
Payroll and benefit-related
liabilities.......................... 1,570 2,348
Debt maturing within one year.......... 1,088 3,998
Dividends payable...................... 538 538
Other current liabilities.............. 5,213 3,815
Total current liabilities.............. 14,163 16,942
Long-term debt......................... 6,008 6,826
Long-term benefit-related liabilities.. 5,419 3,142
Deferred income taxes.................. 4,662 5,711
Other long-term liabilities and
deferred credits..................... 3,307 3,367
Total liabilities ..................... 33,559 35,988
SHAREOWNERS' EQUITY
Common shares - par value $1 per share. 1,625 1,624
Authorized shares: 6,000,000,000
Outstanding shares:
1,624,564,000 at June 30, 1998;
1,624,213,505 at December 31, 1997
Additional paid-in capital............. 15,847 15,751
Guaranteed ESOP obligation............. (58) (70)
Retained earnings...................... 6,526 5,380
Accumulated other comprehensive
income............................... (52) (38)
Total shareowners' equity.............. 23,888 22,647
TOTAL LIABILITIES & SHAREOWNERS' EQUITY $57,447 $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 Six Months Ended
June 30,
1998 1997
Common Shares
Balance at beginning of year............... $ 1,624 $ 1,623
Shares issued, net:
Under employee plans..................... 1 2
Under shareowner plans................... - -
Balance at end of period..................... 1,625 1,625
Additional Paid-In Capital
Balance at beginning of year............... 15,751 15,697
Shares issued(acquired), net:
Under employee plans..................... 13 46
Under shareowner plans................... - 9
Other.................................... 83 18
Balance at end of period..................... 15,847 15,770
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................................. 2,473 $2,473 2,085 $2,085
Dividends declared......................... (1,072) (1,073)
Treasury shares issued at less than cost... (257) (52)
Other changes.............................. 2 4
Balance at end of period..................... 6,526 4,035
Accumulated Other Comprehensive Income
Balance at beginning of year............... (38) -
Other Comprehensive Income
(net of taxes of $49 and $8) ............ (14) (14) (38) (38)
Total Comprehensive Income................. $2,459 $2,047
Balance at end of period..................... (52) (38)
Total Shareowners' Equity.................... $23,888 $21,308
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,
1998 1997
Operating Activities
Net income ............................... $ 2,473 $ 2,085
Deduct: Income from discontinued
operations ..................... 10 69
Gain on sale of discontinued
operation....................... 1,290 -
Income from continuing operations ........ 1,173 2,016
Adjustments to reconcile net income to
net cash provided by operating
activities of continuing operations:
Asset impairment and restructuring
charges.............................. 3,344 -
Gains on sales......................... (770) (97)
Depreciation and amortization.......... 2,079 1,841
Provision for uncollectibles........... 709 809
Increase in accounts receivable........ (828) (410)
Increase(decrease) in accounts payable. 50 (196)
Net increase in other operating
assets and liabilities............... (686) (1,345)
Other adjustments for noncash
items - net.......................... (1,273) 107
Net cash provided by operating
activities of continuing operations..... 3,798 2,725
Investing Activities
Capital expenditures.................... (2,907) (2,936)
Proceeds from sale or disposal of
property, plant and equipment......... 45 48
Decrease in other receivables........... 6,404 923
Acquisitions of licenses................ (55) (291)
Net decrease(increase) in investments... 1,146 (147)
Proceeds from dispositions.............. 4,172 663
Other investing activities - net........ (55) (54)
Net cash provided by(used in) investing
activities of continuing operations..... 8,750 (1,794)
(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,
1998 1997
Financing Activities
Retirements of long-term debt.......... (701) (462)
Acquisition of common shares - net..... (244) 18
Dividends paid......................... (1,072) (1,070)
Decrease in short-term
borrowings - net..................... (3,026) 562
Other financing activities - net....... 13 32
Net cash used in financing activities
of continuing operations............... (5,030) (920)
Net cash provided by
discontinued operations................ 92 11
Net increase in cash and
cash equivalents....................... 7,610 22
Cash and cash equivalents
at beginning of year................... 145 0
Cash and cash equivalents
at end of period....................... $ 7,755 $ 22
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, Form 10-K for the year ended
December 31, 1997, and the current year's previously issued Form 10-Q.
(b) ASSET IMPAIRMENT AND RESTRUCTURING CHARGES
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 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 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 a reduction of $0.23 per share.
AT&T continues its financial and operational review of the various
alternatives for entering the local market, including the impacts
associated with the merger with Teleport Communications Group, Inc.
(TCG) and the pending merger with Tele-Communications, Inc. (TCI).
These reviews may result in additional charges.
During the second quarter 1998 AT&T recorded restructuring charges of
$2,743 primarily in connection with a plan, announced on January 26,
1998, to reduce headcount by 15,000 to 18,000 over two years as part
of the Company's overall cost reduction program. In connection with
this plan, a voluntary retirement incentive program (VRIP) was offered
to eligible management employees. Approximately 15,300 management
employees accepted the VRIP offer. The restructuring charges of $2,743
include a pre-tax charge of $2,724 comprised of $2,412 for pension
special termination benefits and other costs and $312 for
postretirement special termination benefits and curtailment losses.
This amount will be partially offset by approximately $1.1 billion of
gains to be recognized in the third and fourth quarters of this year
as employees' pension benefit obligations are settled. The amount of
gains to be recognized in future periods is subject to market
fluctuations.
The restructuring charges of $2,743 also include pre-tax charges of
$125 for related facility costs and $150 for executive separation
costs. The second quarter charges were partially offset by the
reversal of $256 (pre-tax) of 1995 business restructuring reserves
resulting from the overlap of the VRIP acceptance rate on certain 1995
projects.
The after-tax impact to earnings for the second quarter was $1,694, or
a reduction of $1.04 per share. At this time, the pension settlement
gains to be recognized in the third and fourth quarters are estimated
to be a total of approximately $0.40 per share which will result in a
net charge in 1998 of approximately $0.64 per share.
<PAGE> AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(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 $3,500 million, as discontinued operations. The after-tax gain
resulting from the disposal of UCS was $1,290, or $0.80 per share.
Included in the sale was the signing of a co-branding and joint
marketing agreement. 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 provided by discontinued operations."
Summarized financial information for the discontinued operations is as
follows:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
1998 1997 1998 1997
Revenues $ - $ 643 $ 365 $1,188
Income before
income taxes - 49 16 112
Net income $ - $ 31 $ 10 $ 69
At June At December
30, 1998 31, 1997
Current assets $ - $7,734
Total assets - 7,808
Current liabilities* - 5,602
Total liabilities* - 6,707
Net assets of discontinued
operations $ - $1,101
*Current liabilities include $5,224 of debt maturing within one year
and total liabilities include an additional $1,093 of long-term debt
at December 31, 1997, both of which were payable to AT&T. On April 2,
1998, we received $5,722 million as settlement of these receivables
from UCS.
No interest expense was allocated to discontinued operations in 1998
or 1997 due to the immateriality of the amounts; however, UCS recorded
direct interest expense of $85 for the six month period ended June 30,
1998 and $69 and $141 for the three and six month periods ended June
30, 1997, respectively.
<PAGE> AT&T Form 10-Q - Part I
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(d) RECLASSIFICATION
We have reclassified certain prior period amounts to conform with our
current presentation.
(e) TELEPORT COMMUNICATIONS GROUP, INC. MERGER
On July 23, 1998, AT&T completed the merger with TCG, pursuant to an
agreement and plan of merger dated January 8, 1998. Each share of TCG
common stock was exchanged for 0.943 of AT&T common stock. We issued
181.6 million shares in the transaction. The merger will be accounted
for as a pooling of interests. In August 1998, AT&T repurchased
approximately $1 billion of TCG's debt. The early extinguishment of
this debt will result in a pre-tax charge to AT&T of approximately
$230 million and will be recorded as an extraordinary item.
(f) TELE-COMMUNICATIONS, INC. ACQUISITION
On June 24, 1998, AT&T signed a definitive merger agreement with TCI
for an all-stock transaction valued at approximately $48 billion.
Under the agreement, AT&T will issue 0.7757 shares of AT&T common
stock for each share of TCI Group Series A common stock and 0.8533
shares of AT&T common stock for each share of TCI Group Series B
stock. Immediately following the acquisition, AT&T will combine its
current consumer long-distance, wireless and Internet services
businesses with TCI's cable, telecommunications and high speed
Internet businesses to create AT&T Consumer Services. The Company
plans to create a separate class of AT&T stock to represent the
economic interest of AT&T Consumer Services. The transaction, which is
subject to regulatory, shareowner and other approvals, is expected to
be completed in the first half of 1999. Also announced was TCI's
intention to combine Liberty Media Group, its programming arm, and TCI
Ventures Group, its technology investments unit, to form the new
Liberty Media Group. Upon closing of the AT&T/TCI merger, the
shareowners of the new Liberty Media Group will be issued separate
tracking stock by AT&T in exchange for the shares currently held in
Liberty Media Group and TCI Ventures Group.
(g) JOINT VENTURE WITH BRITISH TELECOMMUNICATIONS PLC (BT)
AT&T and BT announced on July 26, 1998 that they will create a global
venture to serve the complete communications needs of multinational
companies and the international calling needs of individuals and
businesses around the world. The venture, which will be owned equally
by AT&T and BT, will combine trans-border assets and operations of
each company, including their existing international networks, all of
their international traffic, all of their trans-border products for
business customers - including an expanding set of Concert services -
and AT&T and BT's multinational accounts in selected industry sectors.
The formation of the venture is subject to certain conditions,
including receipt of regulatory approvals, the closing of the merger
between MCI Communications Corporation (MCI) and WorldCom, Inc. and
the purchase by BT of MCI's interest in Concert and the final
negotiation and execution of definitive documents. The transaction is
expected to be completed within 12 months.
<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 Corp. ("AT&T" or the
"Company") 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 provided by 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
June 30, Change
$ in millions 1998 1997 $ %
Total revenues.............................$12,858 $12,728 $ 130 1.0%
OTHER INCOME STATEMENT ITEMS
Operating income(loss)..................... (493) 1,511 (2,004) (132.6)%
Operating margin........................... (3.8)% 11.9%
Operating income, adjusted for charges*.... 2,250 1,511 739 48.9%
Operating margin, adjusted for charges*.... 17.5% 11.9%
EBIT....................................... (192) 1,567 (1,759) (112.2)%
EBIT, adjusted for gains and charges*...... 2,448 1,567 881 56.2%
EBITDA..................................... 885 2,496 (1,611) (64.5)%
EBITDA, adjusted for gains and charges .... 3,525 2,496 1,029 41.3%
Diluted earnings per share,
continuing operations.................... (0.09) 0.57 (0.66) (115.8)%
Diluted earnings per share,
continuing operations, adjusted for
gains and charges*.......................$ 0.91 $ 0.57 $ 0.34 59.6%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Total revenues.............................$25,489 $25,276 $ 213 0.8%
OTHER INCOME STATEMENT ITEMS
Operating income........................... 897 3,150 (2,253) (71.5)%
Operating margin........................... 3.5% 12.5%
Operating income, adjusted for charges
and reserve reversal*.................... 4,241 3,210 1,031 32.1%
Operating margin, adjusted for charges
and reserve reversal*.................... 16.6% 12.7%
EBIT....................................... 1,898 3,374 (1,476) (43.7)%
EBIT, adjusted for gains, charges
and reserve reversal*.................... 4,472 3,337 1,135 34.0%
EBITDA..................................... 4,006 5,249 (1,243) (23.7)%
EBITDA, adjusted for gains, charges
and reserve reversal*.................... 6,580 5,132 1,448 28.2%
Diluted earnings per share,
continuing operations....................$ 0.72 $ 1.24 $ (0.52) (41.9)%
Diluted earnings per share,
continuing operations, adjusted for
gains, charges and reserve reversal*.....$ 1.68 $ 1.22 $ 0.46 37.7%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
* Operating income for the second quarter of 1998 included $2,743 million of
restructuring charges, with an after-tax earnings per share reduction of $1.04
per share. Along with the $2,743 million restructuring charges, EBIT for the
second quarter of 1998 also included a gain on the sale of AT&T's investment in
SmarTone Telecommunications Holdings Limited (SmarTone). The Company recognized
a pre-tax gain of $103 million in the second quarter of 1998 for the sale of our
interest. After taxes, this gain equalled $0.04 per share.
In addition to the second quarter 1998 restructuring charges and gain on
SmarTone, operating income for the first six months of 1998 included a first
quarter $601 million asset impairment charge, with an after-tax earnings per
share reduction of $0.23 per share. Operating income for the six months ended
June 30, 1998 also included first quarter pre-tax gains on the sales of LIN
Television Corporation (LIN-TV) of $317 million and AT&T Solutions Customer Care
of $350 million. After taxes, these two gains totaled $0.26 per share.
Operating income for the six months ended June 30, 1997 contained a $160 million
charge, or a reduction of $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).
The following discussion, unless noted, excludes the items mentioned above.
Revenues from continuing operations increased $130 million, or 1.0%, in the
second quarter of 1998 compared to the second quarter of 1997. Long-distance
services revenues decreased 1.1% compared to the second quarter of 1997 with a
4.4% increase in calling volumes. Revenues from continuing operations increased
$213 million, or 0.8%, for the six months ended June 30, 1998 compared to the
same period in 1997. Long-distance services revenues decreased 0.9% compared to
the first six months of 1997, while calling volumes increased 4.8%.
Operating income increased $739 million, or 48.9%, to $2,250 million for the
second quarter of 1998 compared to the second quarter of 1997. Operating income
increased $1,031 million, or 32.1%, to $4,241 million for the six months ended
June 30, 1998 compared to the same period in 1997. Operating margin showed
improvement of 560 basis points in the second quarter of 1998 compared to the
second quarter of 1997. For the six months ended June 30, 1998, operating margin
showed improvement of 390 basis points compared to the first six months of 1997.
EBIT increased $881 million, or 56.2%, to $2,448 million in the second quarter
of 1998 compared to $1,567 million in the year ago quarter. EBIT increased
$1,135 million, or 34.0%, to $4,472 million from $3,337 million in the in the
first six months of 1997. The quarter over quarter and year over year increases
in both operating income and EBIT were primarily due to the Company's cost
reduction efforts partially offset by higher depreciation and amortization
expenses which reflect our continued investments in the AT&T networks.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Earnings before interest, taxes, depreciation and amortization (EBITDA)
increased 41.3% to $3,525 million for the three months ended June 30, 1998, from
$2,496 million for the second quarter of 1997. For the six months ended June 30,
1998, EBITDA increased 28.2% to $6,580 million from $5,132 million for the first
six months of 1997. Once again, the improvements were primarily the result of
our cost reduction efforts.
Earnings per share for the second quarter of 1998 was $0.91, an increase of
$0.34, or 59.6%, compared to the second quarter 1997 earnings per share of
$0.57. For the six months ended June 30, 1998, earnings per share was $1.68, an
increase of $0.46, or 37.7%, compared to earnings per share of $1.22 for the
same period in 1997.
RESULTS OF OPERATIONS
Three months
ended
June 30, Change
$ in millions 1998 1997 $ %
REVENUES
Business services..........................$ 5,700 $ 5,556 $ 144 2.6%
Consumer services.......................... 5,655 5,873 (218) (3.7)%
Wireless services.......................... 1,243 1,116 127 11.4%
Other and corporate........................ 537 527 10 1.9%
Eliminations............................... (277) (344) 67 19.6%
Total revenues.............................$12,858 $12,728 $ 130 1.0%
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
REVENUES
Business services..........................$11,373 $10,984 $ 389 3.5%
Consumer services.......................... 11,283 11,801 (518) (4.4)%
Wireless services.......................... 2,356 2,156 200 9.2%
Other and corporate........................ 1,094 987 107 10.8%
Eliminations............................... (617) (652) 35 5.5%
Total revenues.............................$25,489 $25,276 $ 213 0.8%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
REVENUES
Revenues from continuing operations increased $130 million, or 1.0%, in the
second quarter of 1998 compared to the second quarter of 1997. Revenue growth
for business services and wireless services was partially offset by a decline in
revenue from consumer services. Long-distance services revenues was down 1.1% as
calling volumes increased 4.4%. For the first six months of 1998, revenues from
continuing operations increased $213 million, or 0.8%, compared to the same
period in 1997. Increases in business services, wireless services and other and
corporate revenues were partially offset by a decline in consumer services
revenue. Long-distance services revenues declined 0.9% for the six months ended
June 30, 1998 compared to the same period in 1997 as calling volumes increased
4.8%.
OPERATING EXPENSES
Access and other interconnection expenses for the second quarter of 1998
decreased $414 million, or 9.8%, from the second quarter of 1997. Access and
other interconnection expenses for the six months ended June 30, 1998 decreased
$757 million, or 8.9%, compared to the same period in 1997. The declines for
both periods relate primarily to lower international settlement rates, 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 33.8% for the second quarter of 1998 and 37.0% for the
second quarter of 1997. Access and other interconnection expenses as a
percentage of long-distance services revenues were 34.2% for the first half of
1998 and 37.3% for the first half of 1997.
Network and other communications services expenses decreased $80 million, or
3.5%, for the second quarter of 1998 compared to the second quarter of 1997. The
decrease is primarily due to reduced rates for payphone compensation as well as
a change in the method by which compensation to payphone operators is assessed.
The change from a per-phone assessment to a per-call payment led to a reduction
in payphone compensation expense, as well as a reduction of estimated expenses
accrued in prior quarters. The decline in payphone compensation expenses was
partially offset by higher expenditures for wireless handsets, related largely
to the roll-out of AT&T's Digital-One Rate plans. Network and other
communications services expenses increased $50 million, or 1.2%, for the first
six months of 1998 compared to the same period of 1997. Increased costs, related
primarily to increased data traffic on the AT&T network and higher expenditures
for wireless handsets as well as the first quarter 1997 reversal of the
non-recurring pre-1995 restructuring charge, were partially offset by a lower
provision for uncollectibles and $80 million of the two-way messaging charge
recorded in the first quarter of 1997.
Depreciation and amortization expenses for the second quarter of 1998 increased
$152 million, or 16.7%, from the second quarter of 1997. For the six month
period ended June 30, 1998, depreciation and amortization expenses increased
$238 million, or 12.9%, from the same period in 1997. Excluding the $80 million
impact of the two-way messaging charges in the first quarter of 1997,
depreciation expense increased $318 million, or 18.0%, for the six months ended
June 30, 1998, compared to the same period in 1997. These increases were
primarily due to continued high levels of capital expenditures.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Selling, general and administrative (SG&A) expenses decreased $267 million, or
7.0%, in the second quarter of 1998 compared to the second quarter of 1997. For
the six months ended June 30, 1998, SG&A expenses decreased $409 million, or
5.5%, compared to the same period in 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 expenses from the business in 1998 and a 22%
ratio of SG&A expenses to revenues by the end of 1999. The decreases for both
periods were due primarily to a decline in costs associated with marketing and
sales in consumer services, as a result of better targeting and efficiency gains
in customer acquisition efforts, and lower marketing and sales in business
services, achieved largely through consolidation of functions and reductions of
support staff headcount. These declines were partially offset by increased
expenses for new wireless services businesses due to the activation of new
markets since June 1997, and higher costs associated with the year 2000
initiatives. SG&A expenses as a percentage of total revenues decreased to 27.6%
for the second quarter of 1998 from 30.0% in the second quarter of 1997. For the
six months ended June 30, 1998, SG&A expenses as a percentage of total revenues
decreased to 27.5% compared to 29.3% for the first six months of 1997. In order
to achieve a $1.6 billion reduction in SG&A expenses for 1998, AT&T must reduce
SG&A expenses at a greater rate in the second half of 1998 versus the first
half. Much of this expense reduction will be achieved as a result of headcount
reductions associated with VRIP.
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.
We incurred $63 million and $96 million in expenses for the year 2000 in the
quarter and six month periods ended June 30, 1998, respectively. We expect the
cost of this project to be approximately $300 million in 1998. 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.
During the second quarter of 1998 AT&T recorded restructuring charges of $2,743
million primarily in connection with a plan, announced on January 26, 1998, to
reduce headcount by 15,000 to 18,000 over two years as part of the Company's
overall cost reduction program. In connection with this plan, a voluntary
retirement incentive program (VRIP) was offered to eligible management
employees. Approximately 15,300 management employees accepted the VRIP offer.
The restructuring charges of $2,743 million include a pre-tax charge of $2,724
million, comprised of $2,412 million for pension special termination benefits
and other costs and $312 million for postretirement special termination benefits
and curtailment losses. This amount will be partially offset by approximately
$1.1 billion of gains to be recognized in the third and fourth quarters of this
year as employees' pension benefit obligations are settled.
The restructuring charges of $2,743 million also include pre-tax charges of $125
million for facility costs and $150 million for executive separation costs. The
second quarter charges were partially offset by the reversal of $256 million
(pre-tax) of 1995 business restructuring reserves primarily resulting from the
overlap of VRIP on certain 1995 projects.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The after-tax impact to earnings for the second quarter was $1,694 million, or a
reduction of $1.04 per share. At this time, the pension settlement gains to be
recognized in the third and fourth quarters are estimated to be a total of
approximately $0.40 per share which will result in a net charge in 1998 of
approximately $0.64 per share.
Asset impairment and restructuring charges for the six months ended June 30,
1998 totalled $3,344 million. This is comprised of the second quarter charges of
$2,743 million discussed above plus a $601 million pre-tax charge recorded in
the first quarter of 1998. The $601 million charge 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 a reduction of $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.
AT&T continues its financial and operational review of the various alternatives
for entering the local market, including the impacts associated with the merger
with Teleport Communications Group, Inc. (TCG) and the pending merger with
Tele-Communications, Inc. (TCI). These reviews may result in additional charges.
<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 $245 million, or 435.1%, to $301 million in the
second quarter of 1998 compared to the second quarter of 1997. This increase was
mainly due to AT&T's strategy of exiting non-strategic businesses. Specifically,
an increase in interest income on temporary cash investments (cash equivalents)
and a pre-tax gain of $103 million, or $0.04 per share, on the sale of AT&T's
investment in SmarTone in the second quarter of 1998 drove the increase from the
same period of 1997. The increase in interest income is due to increased
temporary cash investments primarily due to cash received from Citibank on April
2, 1998 related to the sale of UCS.
For the six months ended June 30, 1998, other income-net increased $777 million,
or 347.7%, to $1,001 million compared with the same period in 1997. This
increase is mainly due to pre-tax gains associated with the strategy of exiting
non-strategic businesses. In 1998, we recorded gains on the sales of AT&T
Solutions Customer Care of $350 million, LIN-TV of $317 million and SmarTone of
$103 million as well as an increase in interest income on temporary cash
investments. These increases were partially offset by the $97 million pre-tax
gain on the sale of Skynet in 1997.
Interest expense increased $40 million, or 68.5%, in the second quarter of 1998
compared to the second quarter of 1997. Interest expense increased $36 million,
or 33.1%, for the six months ended June 30, 1998 compared to the same period in
1997. These increases were mainly due to the reclassification of interest
expense from discontinued operations to continuing operations resulting from
AT&T not retiring all of the UCS related debt upon the sale of UCS.
The provision for income taxes for the second quarter of 1998 decreased $728
million, or 124.8%, compared to the second quarter of 1997. Excluding the impact
of the second quarter 1998 restructuring charges, the provision for income taxes
for the second quarter of 1998 increased $321 million, or 55.4%, compared with
the second quarter of 1997. The increase is primarily due to higher income
before income taxes partially offset by a decrease in the effective tax rate
from 38.6% to 36.8%. The decreased effective tax rate was primarily due to the
tax impacts of certain investment dispositions.
The provision for income taxes for the six months ended June 30, 1998 decreased
$669 million, or 53.5%, compared with the same period in 1997. Excluding the
impact of the first and second quarter asset impairment and restructuring
charges, the provision for income taxes for the six months ended June 30, 1998
increased $610 million, or 48.9%, compared with the same period in 1997. The
increase is primarily due to an increase in income before income taxes partially
offset by a lower effective tax rate. The adjusted effective tax rate for the
six months ended June 30, 1998 was 36.5% a decrease of 180 basis points from the
six months ended June 30, 1997. The decrease in the effective tax rate was
principally due to the tax impacts of certain investment dispositions and
foreign legal entity restructurings.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Income from discontinued operations decreased $31 million and $59 million for
the three and six month periods ended June 30, 1998, respectively, compared to
the same periods of 1997. In 1998 the results of discontinued operations
included the results of UCS. In 1997 the results of discontinued operations
included the results of both UCS and SSI, which was sold on July 1, 1997. On
April 2, 1998, AT&T sold UCS for $3,500 million, resulting in an after-tax gain
on sale of discontinued operation of $1,290 million or $.80 per share.
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 for each segment include all assets, except interentity
receivables. Deferred taxes, prepaid pension assets, and corporate-owned or
leased real estate are held at the corporate level and therefore are included in
the other and corporate segment. 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
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 5,700 $ 5,556 $144 2.6%
EBIT................................. 1,173 1,051 122 11.6%
EBITDA............................... 1,715 1,467 248 17.0%
OTHER ITEMS
Capital additions....................$ 1,006 $ 815 $191 23.3%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$11,373 $ 10,984 $389 3.5%
EBIT................................. 2,379 2,244 135 6.0%
EBIT, excluding gain on Skynet 2,379 2,147 232 10.8%
EBITDA............................... 3,409 3,071 338 11.0%
EBITDA, excluding gain on Skynet 3,409 2,974 435 14.6%
OTHER ITEMS
Capital additions....................$ 1,717 $ 1,304 $413 31.5%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets*........................$15,933 $ 15,030 $903 6.0%
* Includes allocated shared network assets of $10,816 and $10,246 at June 30,
1998 and December 31, 1997, respectively.
REVENUE
Business services revenue for the second quarter of 1998 increased $144 million,
or 2.6%, compared to the second quarter of 1997. Adjusted for the sale of AT&T
Tridom in July 1997, revenue increased 3.0% in the second quarter of 1998
compared to the second quarter of 1997. Business service revenue grew to $11,373
million in the six months ended June 30, 1998, compared to the six months ended
June 30, 1997. This is an increase of $389 million, or 3.5%, compared to the
first six months of 1997. Adjusted for the sales of Tridom and Skynet, revenues
grew 4.1% in the six months ended June 30, 1998, compared to the same period in
1997. Data services led the growth in business services revenue with
double-digit increases for the quarter and six month periods ended June 30,
1998, compared to the same periods in 1997, though growth was tempered by an
outage in AT&T's frame relay network in April 1998. AT&T did not bill customers
for service during the outage and for a period of time until the cause and
solution of the problem were identified. Though essentially immaterial to AT&T's
overall earnings, the interruption reduced business services' revenue growth.
Based on favorable customer response to AT&T's handling of the situation, this
impact is expected to be confined to the second quarter.
Long-distance services revenue grew 2.3% in the second quarter of 1998 compared
to the second quarter of 1997. Long-distance calling volume increased at a
high-single-digit rate for the quarter. For the six months ended June 30, 1998,
long-distance services revenue increased 3.3% compared to the same period in
1997. For the six months ended June 30, 1998, long-distance calling volume
increased at a low-double-digit rate compared to the same period in 1997. The
volume increases for both periods were led by growth in inbound calling. Volume
growth continues to be pressured by lower usage of calling cards and
operator-handled services, which are increasingly being replaced by wireless
service. Voice-related revenue for the quarter and six months ended June 30,
1998, was essentially flat compared to the same periods last year, as AT&T
continues to experience declines in average revenue per minute. Price declines
have occurred due primarily to competitive forces; however, other factors such
as migration from switched to nodal services and growth in lower-priced
intraLATA minutes have also contributed to the decline in average price.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
The following discussion excludes the first quarter 1997 gain on the sale of
Skynet.
EBIT increased 11.6% to $1,173 million in the second quarter of 1998, from
$1,051 million in the second quarter of 1997. EBITDA increased 17.0% to $1,715
million for the three months ended June 30, 1998 from $1,467 million for the
second quarter of 1997. EBIT increased 10.8% to $2,379 million for the six
months ended June 30, 1998, from $2,147 million in the same period in 1997.
EBITDA increased 14.6% to $3,409 million for the first six months of 1998 from
$2,974 million for the six months ended June 30, 1997. The increases for both
periods were driven by progress toward AT&T's company-wide cost reduction goals.
In particular, streamlining of customer care and sales support functions,
including significant headcount reductions contributed to the increases. Higher
levels of depreciation accounted for the slower rate of EBIT growth as compared
EBITDA.
OTHER ITEMS
Capital additions increased $191 million, or 23.3%, in the second quarter of
1998 compared to the second quarter of 1997. For the six months ended June 30,
1998, capital additions increased $413 million, or 31.5%, compared to the same
period in 1997. Capital additions in the second quarter and for the first six
months of 1998 include investment in AT&T's SONET program, the AT&T Digital Link
product for local service and data networks.
Total assets increased $903 million, or 6.0%, to $15,933 million at June 30,
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
June 30, Change
$ in millions 1998 1997 $ %
Revenue.............................$ 5,655 $ 5,873 $ (218) (3.7)%
EBIT................................ 1,568 1,058 510 48.1%
EBITDA.............................. 1,738 1,250 488 38.9%
OTHER ITEMS
Capital additions...................$ 64 $ 152 $ (88) (57.9)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue.............................$11,283 $11,801 $ (518) (4.4)%
EBIT................................ 2,892 2,242 650 29.0%
EBITDA.............................. 3,236 2,608 628 24.0%
OTHER ITEMS
Capital additions...................$ 140 $ 319 $ (179) (56.2)%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets*.......................$ 6,867 $ 7,923 $(1,056) (13.3)%
* Includes allocated shared network assets of $3,100 and $4,168 at June 30, 1998
and December 31, 1997, respectively.
REVENUE
Consumer services revenue for the three months ended June 30, 1998, decreased
$218 million, or 3.7%, compared to the three months ended June 30, 1997 on a
low-single-digit decline in calling volumes. For the six months ended June 30,
1998, revenues decreased $518 million, or 4.4%, on a low-single-digit decline in
calling volumes. The declines in revenue for the quarter and six months ended
June 30, 1998, resulted in part from access cost reductions implemented in July
1997, which we have passed along to customers through lower basic rates and
migration to more favorable calling plans. The controlled migration of customers
to more favorable calling plans concurrent with reductions in the Company's cost
structure is a key part of AT&T's strategy to retain profitable customers. As a
result of this strategy, AT&T now has over 23 million customers on its One Rate
plans, including more than 10 million on One Rate Plus. More than 75% of AT&T's
consumer long-distance minutes were generated by customers on optional calling
plans. Also, the Company's emphasis on high-value customers results in fewer
customer acquisitions. While this approach continues to restrain revenue and
volume growth, it is key to AT&T's strategy of optimizing its customer base for
profitable future growth.
Competition in domestic and international long-distance markets, including the
impact of dial around, contributed to the lower revenue and volume growth rates
for the quarter and six months ended June 30, 1998, as did substitution of
wireless services for calling card and other higher-priced long-distance
services. Reductions in international long-distance pricing consistent with
falling international settlement rates also contributed to the decrease in
revenue.
AT&T's progress in intraLATA toll markets for the quarter and six months ended
June 30, 1998 continues to offset part of the decline in revenue and volume.
AT&T now competes in 42 states for presubscribed local toll service, has claimed
double-digit market share in each state, and now has 11 million total subscribed
intraLATA customers.
EBIT/EBITDA
EBIT was $1,568 million in the second quarter of 1998, an increase of 48.1% from
$1,058 million in the second quarter of 1997. EBITDA increased 38.9% to $1,738
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
million for the three months ended June 30, 1998, from $1,250 million for the
second quarter of 1997. For the first six months of 1998, EBIT increased 29.0%
to $2,892 million and EBITDA increased $628 million, or 24.0%, to $3,236
million. These increases were driven primarily by reduced marketing and sales
expenses. AT&T's focus on high-value customers has led to lower, yet more
productive customer acquisition and retention spending. Simplification and
consolidation of marketing messages has also generated substantial efficiencies,
and consumer services has increased its use of alternate, more efficient
distribution channels. To date, AT&T has received over 52 thousand on-line
orders for various consumer services. For example, One Rate On-line offers
activation, customer care and billing over the Internet with payment via credit
card.
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.
TOTAL WIRELESS SERVICES
Three months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 1,243 $ 1,116 $ 127 11.4%
EBIT................................. 184 159 25 15.7%
EBIT excluding gain on SmarTone...... 81 159 (78) (49.1)%
EBITDA............................... 460 377 83 22.0%
EBITDA excluding gain on SmarTone.... 357 377 (20) (5.4)%
OTHER ITEMS
Capital additions....................$ 245 $ 794 $(549) (69.1)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 2,356 $ 2,156 $ 200 9.2%
EBIT................................. 182 128 54 41.9%
EBIT excluding gain on SmarTone
and two-way messaging charge........ 79 288 (209) (72.5)%
EBITDA............................... 711 623 88 14.1%
EBITDA excluding gain on SmarTone
and two-way messaging charge........ 608 703 (95) (13.5)%
OTHER ITEMS
Capital additions....................$ 413 $ 1,123 $(710) (63.2)%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$18,022 $18,540 $(518) (2.8)%
REVENUE
Wireless services revenue grew $127 million, or 11.4%, in the second quarter of
1998 compared to the second quarter of 1997. Wireless services revenue grew $200
million, or 9.2%, in the first six months ended June 30, 1998, compared to the
same period of 1997. The increases were driven by the overwhelming response to
AT&T's Digital One Rate offer coupled with our ongoing focus on high-value
customers. Interest in Digital One Rate helped generate a two-thirds increase in
net subscriber additions in the second quarter of 1998 compared to the first
quarter of 1998. The 325 thousand net adds for the second quarter of 1998 were a
19.1% increase over the year-ago quarter, the first year-over-year increase in
net adds in six quarters. Digital One Rate is a key element of our ongoing
efforts to acquire and retain profitable, high-value customers. This strategy
has had a significant impact on average revenue per user (ARPU). In AT&T's 850
MHz markets, ARPU increased 8% to $54 in the second quarter from $50 in the
first quarter - the largest sequential increase in AT&T's history.
Year-over-year, ARPU declined only 7%, AT&T's smallest-ever percent decline in
ARPU. Average revenue per user is not expected to increase further in 1998.
Migration of customers to digital service is another key element of AT&T's
wireless strategy. Digital service generates lower network costs and improves
customer retention. As of June 30, 1998, 45% of AT&T's 6.484 million
consolidated subscribers used digital service, up from 35% one quarter ago and
21% at the end of the second quarter of 1997. Including partnership markets, the
Company had over 3.4 million digital subscribers at the end of the second
quarter of 1998.
Total cellular customers served by companies in which AT&T has or shares a
controlling interest increased 15.4% to 8.750 million at June 30, 1998, from
7.584 million at June 30, 1997. At June 30, 1998, there were 1.345 million
messaging subscribers compared to 1.231 million, or a 9.3% increase, compared to
a year ago.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
The following discussion excludes the second quarter 1998 gain on the sale of
SmarTone and the first quarter 1997 charge to exit the two-way messaging
business.
EBIT was $81 million in the second quarter of 1998, a decrease of $78 million,
or 49.1%, from $159 million in the second quarter of 1997. The decrease was due
primarily to higher losses for new wireless services businesses in the current
year compared to the prior year second quarter. EBIT for new wireless services
businesses was negative $159 million in the second quarter of 1998, compared to
negative $54 million in the second quarter of 1997. The decline was due
primarily to the roll-out of additional markets. Core EBIT was $240 million in
the second quarter of 1998, compared to $213 million for the same period last
year. This represents an increase of 12.4% in core EBIT despite the costs to
roll out Digital One Rate and the continuing proactive migration of customers to
digital service.
EBIT was $79 million for the first six months of 1998, a decrease of $209
million, or 72.5%, from $288 million for the first six months of 1997. The
decrease was due primarily to higher losses for new wireless services businesses
in the current year compared to the prior year period. EBIT for new wireless
services businesses was negative $315 million for first six months of 1998,
compared to negative $99 million for the first six months of 1997. The decline
was due primarily to the roll-out of additional markets. Core EBIT was $394
million for the first six months of 1998, compared to $387 million for the same
period last year.
EBITDA was $357 million in the second quarter of 1998, a decrease of $20
million, or 5.4%, from $377 million in the second quarter of 1997. EBITDA for
new wireless services businesses was negative $114 million in the second quarter
of 1998, compared to negative $49 million in the second quarter of 1997. The
decline was due primarily to the roll-out of additional markets. Core EBITDA was
$471 million in the second quarter, compared to $426 million for the same period
last year. AT&T's focus on high-value customers, which reduces acquisition
expenses directed at less profitable customers, helped drive the increase in
core EBITDA.
EBITDA was $608 million in the first six months of 1998, a decrease of $95
million, or 13.5%, from $703 million for the first six months of 1997. EBITDA
for new wireless services businesses was negative $226 million for the first six
months of 1998, compared to negative $83 million for the first six months of
1997. The decline was due primarily to the roll-out of additional markets. Core
EBITDA was $834 million for the first six months, compared to $786 million for
the same period last year.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OTHER ITEMS
Capital additions decreased $549 million to $245 million for the three month
period ended June 30, 1998, compared with $794 million for the second quarter of
1997. Capital additions decreased $710 million to $413 million for the six month
period ended June 30, 1998, compared with $1,123 million for the same period in
1997. These decreases were primarily due to the completion of the majority of
AT&T's 1.9 GHz market buildouts. Capital spending for the quarter and
year-to-date periods ended June 30, 1998 was directed primarily at expanding
coverage in new and traditional markets.
NEW WIRELESS SERVICES BUSINESSES
Three months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 53 $ 3 $ 50 NMF
EBIT................................. (159) (54) (105) (194.6)%
EBITDA............................... (114) (49) (65) (131.7)%
OTHER ITEMS
Capital additions....................$ 117 $ 615 $(498) (80.8)%
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 83 $ 5 $ 78 NMF
EBIT................................. (315) (259) (56) (21.6)%
EBIT excluding two-way charge........ (315) (99) (216) (219.0)%
EBITDA............................... (226) (163) (63) (38.2)%
EBITDA excluding two-way charge...... (226) (83) (143) (171.7)%
OTHER ITEMS
Capital additions....................$ 199 $ 783 $(584) (74.5)%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$4,394 $4,417 $ (23) (0.5)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
CORE WIRELESS SERVICES
Three months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 1,190 $ 1,113 $ 77 6.8%
EBIT................................. 343 213 130 60.8%
EBIT excluding gain on SmarTone...... 240 213 27 12.4%
EBITDA............................... 574 426 148 34.5%
EBITDA excluding gain on SmarTone.... 471 426 45 10.3%
OTHER ITEMS
Capital additions....................$ 128 $ 179 $ (51) ( 29.0)%
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 2,273 $ 2,151 $ 122 5.6%
EBIT................................. 497 387 110 28.4%
EBIT excluding gain on SmarTone...... 394 387 7 1.7%
EBITDA............................... 937 786 151 19.1%
EBITDA excluding gain on SmarTone.... 834 786 48 6.0%
OTHER ITEMS
Capital additions....................$ 214 $ 340 $ (126) (37.3)%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$13,628 $14,123 $ (495) (3.5)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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
June 30, Change
$ in millions 1998 1997 $ %
Revenue................................$ 537 $ 527 $ 10 1.9%
EBIT................................... (3,109) (700) (2,409) (344.1)%
EBIT excluding restructuring charges... (366) (700) 334 47.7%
EBITDA................................. (3,020) (597) (2,423) (404.9)%
EBITDA excluding restructuring charges.$ (277) $ (597) $ 320 53.6%
OTHER ITEMS
Capital additions......................$ 154 $ 279 $ (125) (44.8)%
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue................................$ 1,094 $ 987 $ 107 10.8%
EBIT................................... (3,544) (1,238) (2,306) (186.2)%
EBIT, excluding certain gains,
charges and reserve reversal......... (867) (1,338) 471 35.2 %
EBITDA................................. (3,339) (1,051) (2,288) (217.4)%
EBITDA, excluding certain gains,
charges and reserve reversal.........$ (662) $(1,151) $ 489 42.5%
OTHER ITEMS
Capital additions......................$ 245 $ 489 $ (244) (49.9)%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets...........................$ 16,625 $16,041 $ 584 3.6%
REVENUE
In the second quarter of 1998, other and corporate revenue increased $10
million, or 1.9%, from the second quarter of 1997. The revenue growth in the
second quarter was primarily due to increased revenue from AT&T Solutions,
international operations and ventures and AT&T WorldNet. These increases were
partially offset by a decrease in revenue from AT&T Solutions Customer Care,
which was sold on March 3, 1998. For the six months ended June 30, 1998, other
and corporate revenue increased $107 million, or 10.8%, compared to the same
period of 1997. The revenue growth in the first half of 1998 compared to the
same period in 1997 was primarily due to increases in AT&T Solutions, AT&T
WorldNet and international operations and ventures, partially offset by a
decrease in revenue from AT&T Solutions Customer Care.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
The following discussion excludes the impact of the 1998 asset impairment and
restructuring charges, the 1998 gains on the sales of LIN-TV and AT&T Solutions
Customer Care as well as the first quarter 1997 reversal of pre-1995
restructuring reserves.
EBIT and EBITDA improved by $334 million, or 47.7%, and $320 million, or 53.6%,
respectively, in the second quarter of 1998 compared to the second quarter of
1997. The quarter over quarter improvements in both EBIT and EBITDA were
primarily due to increased interest income from temporary cash investments, an
improvement at international operations, reductions in corporate overhead and
improvements at AT&T Solutions and AT&T WorldNet. EBIT and EBITDA improved by
$471 million, or 35.2%, and $489 million, or 42.5%, respectively in the first
six months of 1998 compared to the six months ended June 30, 1997. The
improvements for the six months ended June 30, 1998, compared to the same period
in 1997, were primarily due to an improvement at international operations,
increased interest income on temporary cash investments and improvements at AT&T
Solutions and AT&T WorldNet and reductions in corporate overhead.
ELIMINATIONS
Eliminations reflects the elimination of revenue and profit generated by the
sale of services between business segments. The sale of business long-distance
services to other AT&T units generates nearly all of the eliminated revenue.
Revenue eliminations in the quarter were negative $277 million, a 19.6%
reduction compared to the second quarter of 1997, primarily due to the sale of
AT&T Solutions Customer Care. EBIT and EBITDA were both negative $8 million for
the second quarter of 1998. Revenue eliminations for the six months ended June
30, 1998 were negative $617 million. EBIT and EBITDA were both negative $11
million for the six months ended June 30, 1998.
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
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 54 $ 9 $ 45 545.3%
EBIT................................. (188) (229) 41 18.3%
EBITDA............................... (156) (214) 58 27.6%
OTHER ITEMS
Capital additions....................$ 137 $ 164 $ (27) (16.5)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 91 $ 13 $ 78 624.2%
EBIT................................. (993) (367) (626) (170.2)%
EBIT excluding asset impairment
charge............................ (392) (367) (25) (6.6)%
EBITDA............................... (937) (342) (595) (173.5)%
EBITDA excluding asset impairment
charge............................ (336) (342) 6 1.9%
OTHER ITEMS
Capital additions....................$ 277 $ 228 $ 49 21.5%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$1,291 $1,637 $(346) (21.1)%
REVENUE
In the second quarter of 1998, revenue increased to $54 million, up from $9
million in the second quarter of 1997. For the first six months of 1998, revenue
increased to $91 million, up from $13 million in the same period of last year.
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 second quarter and first six months of 1998 was
primarily due to increased revenue from an increased customer base. AT&T's
merger with TCG is designed to accelerate the Company's penetration on the
business local exchange market, while the pending acquisition of TCI is intended
to address the consumer local exchange market.
AT&T continues to provide local service on a TSR basis to approximately 375,000
residential customers. However, the Company has discontinued marketing TSR
because the Company's in-market experiences and results have proven that the TSR
solution in not economically viable for the short-term or the long-term. AT&T
continues to seek alternative methods of providing local service to residential
customers. In the first quarter of 1998 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 various alternatives for entering the local market, including the
impacts associated with the merger of TCG and the pending merger with TCI. These
reviews may result in additional charges.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
EBIT/EBITDA
The following discussion excludes the impact of the first quarter 1998 asset
impairment charge.
EBIT was negative $188 million in the second quarter of 1998, an improvement of
18.3% from negative $229 million in the second quarter of 1997. EBITDA was
negative $156 million in the second quarter of 1998, an improvement of 27.6%
compared to the second quarter of 1997. These improvements were primarily due to
the Company's decision not to pursue the sale of local on a TSR basis. EBIT was
negative $392 million for the six months ended June 30, 1998. This is a decrease
of 6.6% from negative $367 million for the same period of 1997. This decline is
mainly due to an increase in depreciation and amortization expenses primarily
due to increased investment in AT&T Digital Link. EBITDA improved 1.9% to
negative $336 million for the six months ended June 30, 1998 from negative $342
million for the same period of 1997. This improvement was primarily due to the
Company's decision not to pursue the sale of local on a TSR basis.
OTHER ITEMS
Capital additions were $137 million in the second quarter of 1998, compared to
$164 million in the same period last year. Capital additions were $277 million
for the six month period ended June 30, 1998, compared to $228 million in the
same period last year. Capital spending for local services was primarily related
to AT&T Digital Link and other facilities-based local service options.
Total assets were $1,291 million at June 30, 1998, a decrease of $346 million,
or 21.1%, compared to $1,637 million at December 31, 1997. The decrease is due
primarily to the first quarter write-down of software.
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
multi-media call center businesses. (The results of AT&T Solutions are included
in other and corporate.)
Three months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 241 $ 186 $ 55 29.5%
EBIT................................. (1) (50) 49 97.6%
EBITDA............................... 35 (13) 48 361.9%
OTHER ITEMS
Capital additions....................$ 30 $ 20 $ 10 51.4%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 459 $ 342 $ 117 34.0%
EBIT................................. (13) (103) 90 87.4%
EBITDA............................... 56 (29) 85 289.1%
OTHER ITEMS
Capital additions....................$ 50 $ 37 $ 13 35.4%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$ 549 $ 576 $ (27) (4.7)%
REVENUE
Revenue grew 29.5% to $241 million in the second quarter of 1998 compared with
revenue of $186 million in the second quarter of 1997. For the six months ended
June 30, 1998, revenue grew 34.0% to $459 million. Revenue growth in both
periods is due primarily to the outsourcing business. The unit currently has
more than $3 billion under contract with such clients as United Healthcare,
Textron, J.P. Morgan, Merrill Lynch, and MasterCard International. AT&T
Solutions manages AT&T's internal network infrastructure, an operation which,
while not included in the unit's revenue, provides information technology
services and generated $394 million in internal billings for the second quarter
of 1998 and $780 million for the first six months of 1998.
EBIT/EBITDA
EBIT was negative $1 million in the second quarter of 1998, an improvement of
97.6% from negative $50 million in the second quarter of 1997. EBITDA was $35
million for the three months ended June 30, 1998, up from negative $13 million
for the second quarter of 1997. For the six months ended June 30, 1998, EBIT was
a negative $13 million. This is an improvement of 87.4% from negative $103
million for the same period in 1997. For the six months ended June 30, 1998,
EBITDA was $56 million. This is an increase of 289.1% from negative $29 million
for the same period of 1997. The increases in both EBIT and EBITDA for the
quarter and year over year are due to revenue growth and improvements in cost
structure. AT&T Solutions remains on target to turn profitable by the end of
1998.
OTHER ITEMS
Total assets were $549 million at June 30, 1998, compared to $576 million at
December 31, 1997. Approximately 50% of total assets in the first six months of
1998 were related to servicing the internal network infrastructure of AT&T.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 83 $ 51 $ 32 62.6%
EBIT................................. (115) (152) 37 23.9%
EBITDA............................... (104) (145) 41 28.4%
OTHER ITEMS
Capital additions....................$ 12 $ 15 $ (3) (21.8)%
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 162 $ 91 $ 71 77.8%
EBIT................................. (224) (311) 87 27.9%
EBITDA............................... (199) (297) 98 33.2%
OTHER ITEMS
Capital additions....................$ 19 $ 27 $ (8) (29.9)%
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$ 359 $ 334 $ 25 7.4%
REVENUE
Revenue grew $32 million, or 62.6%, in the second quarter of 1998 compared with
the second quarter of 1997. For the six months ended June 30, 1998, revenue was
$162 million. This is an increase of 77.8% compared to the $91 million in
revenue for the six months ended June 30, 1997. The increases were due primarily
to continued growth in AT&T WorldNet's residential subscriber base and the
expiration of AT&T WorldNet's free-pricing promotion that was offered in 1997.
WorldNet subscribers were 1.095 million at June 30, 1998, up from .923 million
at June 30, 1997. This is an increase of 18.6% compared to the 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 approximately 9 thousand hosted
sites at the end of the second quarter of 1998 compared with approximately 4
thousand at the end of the second 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
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
access customers. Also, beginning in the first quarter, AT&T WorldNet customers
were able to sign up for long-distance services via AT&T's web site and receive
a rate of nine cents per minute. The second quarter was highlighted by AT&T's
cross-marketing agreements with top Internet search engines Lycos, Excite,
Yahoo! and Inofseek. Visitors to each of these sites can now make on-line
purchases of AT&T services. These sites will also offer AT&T's new
IP-communications applications such as anonymous voice chat and click-to-dial
directories. The first of these services, AT&T Chat-n-Talk and AT&T
Click-2-Dialsm, were introduced in June. AT&T also announced an agreement with
Checkfree that will enable AT&T customers to view and pay their communications
bills on the Internet.
EBIT/EBITDA
EBIT was negative $115 million in the second quarter of 1998, an improvement of
23.9% from negative $152 million in the second quarter of 1997. EBITDA improved
28.4% to negative $104 million for the three months ended June 30, 1998 from
negative $145 million for the second quarter of 1997. EBIT was negative $224
million for the six period ended June 30, 1998, an improvement of 27.9% from
negative $311 million in the same period of 1997. EBITDA improved 33.2% to
negative $199 million for the six months ended June 30, 1998 from negative $297
million for the same period in 1997. The improvements in both EBIT and EBITDA
were primarily due to revenue growth and cost efficiencies in AT&T WorldNet.
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
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 201 $ 168 $ 33 20.0%
EBIT................................. (58) (133) 75 56.3%
EBITDA............................... (42) (114) 72 63.0%
OTHER ITEMS
Capital additions....................$ 18 $ 162 $(144) (88.9)%
Six months
ended
June 30, Change
$ in millions 1998 1997 $ %
Revenue..............................$ 380 $ 316 $ 64 20.4%
EBIT................................. (121) (261) 140 53.6%
EBITDA............................... (88) (228) 140 61.6%
OTHER ITEMS
Capital additions....................$ 49 $ 308 $(259) (84.2)%
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
At June 30, At Dec. 31, Change
1998 1997 $ %
Total assets.........................$1,536 $1,837 $(301) (16.4)%
REVENUE
Revenue grew 20.0% to $201 million in the second quarter of 1998 as compared to
$168 million for the same period last year. Revenue for the six months ended
June 30, 1998 increased 20.4% to $380 million compared to $316 million for the
same period last year. These increases were driven by growth in AT&T
Communications Services UK and reorigination, partially offset by declines in
certain non-strategic businesses, some of which were exited since the second
quarter of 1997. Revenue from continuing strategic international operations grew
55.9% in the second quarter of 1998 compared to the second quarter of 1997. For
the six month period ended June 30, 1998, revenue from continuing strategic
international operations grew 60.5% compared to the same period in 1997.
EBIT/EBITDA
EBIT was negative $58 million in the second quarter of 1998, an improvement of
56.3% from negative $133 million in the second quarter of 1997. EBITDA improved
63.0% to negative $42 million for the three months ended June 30, 1998, from
negative $114 million for the second quarter of 1997. The improvements were
primarily due to increased revenue, decreased equity losses on unconsolidated
operations and the continued exiting of non-strategic businesses.
For the six months ended June 30, 1998, EBIT was negative $121 million, an
improvement of 53.6% from negative $261 million in the same period in 1997.
EBITDA improved 61.6% to negative $88 million for the first six months of 1998
compared to negative $228 million in the first six months of 1997. The
improvements were primarily due to increased revenue, the continued exiting of
non-strategic businesses and decreased equity losses on unconsolidated
operations.
Management is currently assessing the impact, of the announcement regarding the
joint venture to be formed with British Telecommuncations PLC (BT) on
international operations and ventures.
OTHER ITEMS
Total assets were $1,536 million at June 30, 1998, compared to $1,837 million at
December 31, 1997. The decrease is due primarily to a decrease in cash.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FINANCIAL CONDITION
JUNE 30, 1998 VERSUS DECEMBER 31, 1997
June 30, December 31, Change
$ in millions 1998 1997 $ %
Total assets.........................$57,447 $58,635 $(1,188) (2.0)%
Total assets-continuing operations...$57,447 $57,534 $ (87) (0.2)%
Total assets decreased $1,188 million, or 2.0%, primarily due to our efforts to
divest non-strategic assets. These efforts generated declines in other and
long-term receivables, net assets from discontinued operations, investments and
property, plant, and equipment, partially offset by an increase in cash. The
decrease in other and long-term receivables is due primarily to repayment of
loans by UCS as part of the settlement for our April 2, 1998 sale to Citicorp.
The decrease in net assets from discontinued operations also reflects the sale
of UCS. The decline in investments is primarily due to the sales of LIN-TV and
SmarTone. The decrease in property, plant, and equipment is primarily due to the
first quarter local asset impairment charge and the sale of AT&T Solutions
Customer Care. The increase in cash is mainly due to cash received from Citibank
in the second quarter 1998 related to the sale of UCS.
Total liabilities decreased $2,429 million, or 6.8%, primarily due to declines
in debt, deferred income taxes, and payroll and benefit liabilities, partially
offset by increases in long-term benefit-related liabilities and other current
liabilities. The decreases in both short-term and long-term debt reflect the
paydown of debt with the proceeds from the sales of UCS, LIN-TV and AT&T
Solutions Customer Care. The decrease in deferred income taxes primarily
reflects the impact of the asset impairment and restructuring charges. The
decline in payroll and benefit related liabilities primarily reflects annual
first quarter payout of employee bonuses and the reversal of a portion of the
1995 business restructuring reserve. The increase in long-term benefit-related
liabilities is primarily due to the second quarter charges associated with the
voluntary retirement incentive program for management employees. The charge for
pension special termination benefits and other costs resulted in the
establishment of a liability for the Management Pension Plan. The increase in
other current liabilities is mainly due to an increase in accrued income taxes
primarily associated with the sale of UCS.
Total shareowners' equity increased $1,241 million, or 5.5%, primarily due to
current year's net income partially offset by dividends declared.
The ratio of total debt to total capital, (defined as debt divided by total
capital) at June 30, 1998, was 22.9% compared to 32.3% at December 31, 1997. The
decrease was primarily the result of lower debt. If AT&T used its available cash
to retire the outstanding debt, there would be no debt remaining at June 30,
1998.
<PAGE> AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
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, 1998, VERSUS SIX MONTHS ENDED JUNE 30, 1997
Cash flows provided by operating activities of continuing operations for the six
months ended June 30, 1998, were $3,798 million. This represents an increase of
$1,073 million compared to the first six months of 1997. The increase in
operating cash flow was driven primarily by a $1,099 million increase in income
from continuing operations excluding the asset impairment and restructuring
charges and the gains on sales which have essentially no impact on operating
cash flows.
For the six months ended June 30, 1998, cash provided by investing activities of
$8,750 million increased $10,544 million due primarily to the UCS sale on April
2, 1998, for which we received $5,722 million in settlement of receivables as
well as $3,500 million in proceeds from the sale. Additionally, in 1998 we
received $742 million, $625 million and $183 million from the sales of LIN-TV,
AT&T Solutions Customer Care and SmarTone, respectively.
Net cash used in financing activities of $5,030 million increased $4,110 million
from $920 million for the first six months of 1997. This primarily reflects the
use of cash received from 1998 asset dispositions to paydown commercial paper.
In July 1998, AT&T's Board of Directors authorized an open market share
repurchase program to repurchase up to $3 billion of AT&T common stock. We began
repurchasing shares in the third quarter of 1998 and intend to reissue the
repurchased shares as part of the shares to be issued in connection with the TCI
merger.
<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 (FASB) 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.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. This standard is effective for fiscal years
beginning after June 15, 1999, though earlier adoption is encouraged and
retroactive application is prohibited. For AT&T this means that the standard
must be adopted no later than January 1, 2000. Management does not expect the
adoption of this standard to have a material 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
On July 23, 1998, AT&T completed the merger with TCG, pursuant to an agreement
and plan of merger dated January 8, 1998. Each share of TCG common stock was
exchanged for 0.943 of AT&T common stock. We issued approximately 181.6 million
shares in the transaction. The merger will be accounted for as a pooling of
interests. In August of 1998, AT&T repurchased approximately $1 billion of TCG's
debt. The early extinguishment of this debt will result in a pre-tax charge to
AT&T of approximately $230 million and will be recorded as an extraordinary
item.
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 third quarter of 1998.
On June 24, 1998, AT&T signed a definitive merger agreement with TCI for an
all-stock transaction valued at approximately $48 billion. Under the agreement,
AT&T will issue 0.7757 shares of AT&T common stock for each share of TCI Group
Series A common stock and 0.8533 shares of AT&T common stock for each share of
TCI Group Series B stock. Immediately following the acquisition, AT&T will
combine its current consumer long-distance, wireless and Internet services
businesses with TCI's cable, telecommunications and high speed Internet
businesses to create AT&T Consumer Services. The Company plans to create a
separate class of AT&T stock to represent the economic interest of AT&T Consumer
Services. The transaction, which is subject to regulatory, shareowner and other
approvals, is expected to be completed in the first half of 1999. Also announced
was TCI's intention to combine Liberty Media Group, its programming arm, and TCI
Ventures Group, its technology investments unit, to form the new Liberty Media
Group. Upon closing of the AT&T/TCI merger, the shareowners of the new Liberty
Media Group will be issued separate tracking stock by AT&T in exchange for the
shares currently held in Liberty Media Group and TCI Ventures Group.
AT&T and BT announced on July 26, 1998 that they will create a global venture to
serve the complete communications needs of multinational companies and the
international calling needs of individuals and businesses around the world. The
venture, which will be owned equally by AT&T and BT, will combine trans-border
assets and operations of each company, including their existing international
networks, all of their international traffic, all of their border products for
business customers - including an expanding set of Concert services - and AT&T
and BT's multinational accounts in selected industry sectors. The formation of
the venture is subject to certain conditions, including receipt of regulatory
approvals, the closing of the merger between MCI Communications Corporation
(MCI) and WorldCom, Inc. and the purchase by BT of MCI's interest in Concert and
the final negotiation and execution of definitive documents. The transaction is
expected to be completed within 12 months.
<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
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions)
(Unaudited)
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 20, 1998.
(b) Election of Directors*
Votes
(Millions)
Nominee For Withheld
C. Michael Armstrong 1,278 12
Kenneth T. Derr 1,277 13
M. Kathryn Eickhoff 1,277 13
Walter Y. Elisha 1,277 13
George M. C. Fisher 1,278 12
Donald V. Fites 1,278 12
Ralph S. Larsen 1,278 12
Donald F. McHenry 1,277 13
Michael I. Sovern 1,276 14
John R. Walter 1,276 14
Thomas H. Wyman 1,278 12
*In July 1998, Sanford I. Weill 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
March 26, 1998.
(i) Ratification of Auditors
For Against Abstain
Ratification of the firm 1,280 5 5
of Coopers & Lybrand L.L.P. (99.21%) (.37%) (.42%)
as the independent auditors
to audit the registrant's
financial statements for
the year 1998.(*)
(ii) Directors Proposals Broker
For Against Abstain Non-Votes
That the Shareholders 1,134 145 11
approve an increase in (87.91%) (11.23%) (.86%)
the number of authorized
common shares.(**)
*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
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions)
(Unaudited)
(iii) Shareholder Proposals
Broker
For Against Abstain Non-Votes
That the Company provide 90 970 30 200
a summary of each dir- (8.27%) (88.98%) (2.75%)
ector's record on
important matters.(*)
That the board take the 37 1,022 31 200
necessary steps to change (3.43%) (93.73%) (2.84%)
the Annual Meeting date
to the third Wednesday of
April. (*)
That board amend the 537 528 25 200
current policy on con- (49.25%) (48.44%) (2.31%)
fidential stockowner
voting to include all
votes whatsoever and
to be in a form that
would require a majority
vote of the stockholders
to amend.(*)
That the board adopt a 216 849 25 200
policy that no future (19.8%) (77.9%) (2.3%)
employment contracts (or
amendments to existing
contracts) will be entered
into which provide for
severance compensation or
benefits amounting to more
than $3 million, without
specific shareholder
approval in advance.(*)
*Percentages are based on the total common shares voted.
Approval of this proposal required a majority of the
common shares voted.
<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
3(ii) By-Laws
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. Form 8-K dated June
23, 1998 was filed pursuant to Item 5 and Item 7.
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: August 11, 1998
<PAGE> AT&T Form 10-Q
Exhibit Index
Exhibit
Number
3(II) By-Laws as amended on February 28, 1998
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
BY-LAWS
as amended by
BOARD OF DIRECTORS, February 28, 1998
Article I
Meeting of Shareholders
Section 1. The annual meeting of the shareholders shall be held in May each
year on such day, at such time and at such place as shall be designated in the
notice of the meeting.
A notice of the annual meeting as approved by the Board of Directors shall
be mailed not less than ten nor more than sixty days before the meeting,
directed to each shareholder entitled to vote at said meeting at his address as
it appears on the record of shareholders unless he shall have filed with the
Secretary a written request that notices intended for him be mailed to some
other address, in which case it shall be directed to him at such other address.
Section 2. The Board of Directors may fix, in advance, a date not more than
sixty nor less than ten days before the date of any meeting of the shareholders
as the record date for determination of shareholders entitled to notice of or to
vote at such meeting, and only shareholders of record on such date shall be
entitled to notice of or to vote at such meeting.
Section 3. Special meetings of the shareholders may be called at any time
by either the Chairman of the Board or the Board of Directors, and shall be
called upon a request to the Chairman of the Board or Secretary, signed by
shareholders representing at least one-third of the shares. Any such request
shall specify the time and the purpose or purposes of the proposed meeting. The
meeting shall be held at such place within or without the State of New York as
may be designated in the notice of the meeting.
A notice of not less than ten nor more than sixty days shall be given by
mail for each special meeting, in the manner provided for notice of the annual
meeting. Such notice shall state the purpose or purposes for which the meeting
is called and the time when and the place where it is to be held and shall
indicate that the notice is being issued by or at the direction of the person or
persons calling the meeting.
Section 4. Failure to receive notice of any meeting shall not invalidate
the meeting.
<PAGE>
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
Section 5. Notice of shareholders business at annual meetings of
shareholders shall be governed by the provisions of this By-Law.
(1) The proposal of business to be considered by the shareholders may be
made at an annual meeting of shareholders (a) pursuant to the
company's notice of meeting pursuant to Section 3 of this Article I
of these By-Laws, by or at the direction of the Board of Directors
or (c) by any shareholder of the company who was a shareholder of
record at the time of giving notice provided for in this By-Law, who
is entitled to vote at the meeting and who complies with the notice
procedures set forth in this By-Law.
(2) For business to be properly brought before an annual meeting by a
shareholder pursuant to clause (c) of paragraph (1) of this By-Law,
the shareholder must have given timely notice thereof in writing to
the Secretary of the company and such business must otherwise be a
proper matter for shareholder action. To be timely, a shareholder's
notice shall be delivered to the Secretary at the principal
executive offices of the company not later than the close of
business on the 90th calendar day nor earlier than the close of
business on the 120th calendar day prior to the first anniversary of
the preceding year's annual meeting; provided, however, that in the
event that the date of the annual meeting is more than 30 calendar
days before or more than 60 calendar days after such anniversary
date, notice by the shareholder to be timely must be so
delivered not earlier than the close of business on the 120th
calendar day prior to such annual meeting but not later than the
close of business on the later of the 90th calendar day prior to
such annual meeting or the 10th calendar day following the
calendar day on which public announcement of the date of such
meeting is first made by the company. In no event shall the
public announcement of an adjournment of an annual meeting commence
a new time period for the giving of a shareholder's notice as
described above. Such shareholder's notice shall set forth (a) as
to any description of the business desired to be brought before
the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such
shareholder and beneficial owner, if any, on whose behalf the
proposal is made; and (b) as to the shareholder giving the notice
and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such shareholder, as
they appear on the company's books, and of such beneficial owner
and (ii) the class and number of shares of the company which are
owned beneficially and of record by such shareholder and such
beneficial owner.
<PAGE>
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
Section 6. The items of business at all meetings of the stockholders shall
be, insofar as applicable, as follows:
- Call to order
- Proof of notice of meeting or of waiver thereof
- Appointment of inspectors of election, if necessary
- A quorum being present
- Reports
- Election of directors
- Other business specified in the notice of the meeting
- Voting
- Adjournment
Any items of business not referred to in the foregoing may be taken up at the
meeting as the chair of the meeting shall determine. The chair of the meeting
shall determine all matters relating to the efficient conduct of the meeting,
including but not limited to the maintenance of order and decorum.
ARTICLE II.
The Conduct of Shareholders' Meetings
At all meetings of the shareholders, the holders of forty per centum of the
shares entitled to vote thereat shall constitute a quorum, except as otherwise
required by law; but the shareholders present may adjourn the meeting to another
time or place despite the absence of a quorum. Every shareholder entitled to
vote shall be entitled to one vote for each share standing in his name on the
record of shareholders; and every shareholder entitled to vote may vote in
person or by proxy.
At all meetings of shareholders, a shareholder, or such person's duly
authorized attorney in fact, may vote by proxy, executed in writing or granted
or authorized in such other manner as is prescribed by the Business Corporation
Law of the State of New York.
ARTICLE III.
Inspectors
The Board of Directors, in advance of any shareholders' meeting, shall
appoint three Inspectors to act at the meeting or any adjournment thereof. In
case any person appointed fails to appear or act, the vacancy may be filled by
appointment made by the Board in advance of the meeting or at the meeting by the
person presiding thereat.
<PAGE>
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
ARTICLE IV.
The Board of Directors
Section 1. The business of the company shall be managed under the direction
of its Board of Directors, who shall be elected by the shareholders at the
annual meeting.
Section 2. The number of Directors shall be not less than ten nor more than
twenty-five, the exact number of Directors within such minimum and maximum
limits to be fixed and determined by the vote of a majority of the entire Board.
In case of any increase in the number of Directors, the additional Directors may
be elected by a majority of the Directors then in office.
Section 3. Any vacancy in the Board may be filled by a majority vote of the
remaining Directors, though less than a quorum.
ARTICLE V.
Meetings of Directors
Section 1. Regular meetings shall be held at such times and places as the
Board may determine.
Section 2. Special meetings of the Directors may be called at any time by
the Chairman of the Board, or by two members of the Executive Committee, and
shall be called by the Chairman of the Board, or by the Secretary, forthwith
upon request in writing signed by two Directors and specifying the object of the
meeting. At least three days' notice of a special meeting shall be given in the
manner provided for herein.
Section 3. Any notice of a meeting of Directors required to be given may be
given to each Director by mail or telegraph, addressed to him at his residence
or usual place of business, or in person or by telephone, stating the time and
place of the proposed meeting.
Section 4. One-third of the entire Board shall constitute a quorum.
Section 5. Meetings of the Directors may be held within or without the
State of New York.
Section 6. Any one or more members of the Board may participate in a
meeting of the Board by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at a meeting.
Any action required or permitted to be taken by the Board may be taken
without a meeting if all members of the Board consent in writing to the adoption
of a resolution authorizing the action. The resolution and the written consents
<PAGE>
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
thereto by the members of the Board shall be filed with the minutes of the
proceedings of the Board.
ARTICLE VI.
Executive Committee and Other Committees
The Board of Directors, by resolution adopted by a majority of the entire
Board, may designate from their number an Executive Committee and other
committees, and may determine the quorum thereof. Any such committee shall
consist of three or more members and shall serve at the pleasure of the Board.
The Chairman of the Board, one or more Vice Chairmen of the Board and the
President, if any, shall be members of the Executive Committee. The Executive
Committee shall, except as otherwise provided by law or by resolution of the
Board, have all the authority of the Board of Directors during the intervals
between the meetings of the Board. The Executive Committee shall keep a record
of its proceedings, which shall from time to time be reported to the Board of
Directors. The Chairman of the Board shall preside at the meetings of the
Executive Committee.
Committees other than the Executive Committee shall, except as otherwise
provided by law, have such authority as shall be provided by resolution of the
Board.
The Board may designate from time to time one or more Directors as
alternate members of the Executive Committee or of any other committee, who may
replace any absent member or members at any meeting of the committee.
Any one or more members of the Executive Committee or any other committee
established by the Board pursuant to this Article VI may participate in a
meeting of such committee by means of a conference telephone or similar
communications equipment allowing all persons participating in the meeting to
hear each other at the same time. Participation by such means shall constitute
presence in person at the meeting.
Any action required or permitted to be taken by the Executive Committee or
any other committee established by the Board pursuant to this Article VI may be
taken without a meeting if all members of the committee consent in writing to
the adoption of a resolution authorizing the action. The resolution and written
consents thereto shall be filed with the minutes of the proceedings of the
committee.
<PAGE>
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
ARTICLE VII.
Officers of the Company
Section l. The officers of the company shall be elected by the Board of
Directors, and may consist of a Chairman of the Board, one or more Vice Chairmen
of the Board, a President, such number of Executive Vice Presidents and Senior
Vice Presidents as the Board of Directors shall from time to time determine, a
Secretary, a Treasurer and a Controller. The officers shall hold office until
their successors have been elected.
Section 2. The Board of Directors may appoint one or more Assistant
Secretaries, one or more Assistant Treasurers, one or more Assistant
Controllers, and such other officers and agents as the Board may consider
necessary.
ARTICLE VIII.
Duties of the Chairman of the Board,
President, Vice Chairmen of the Board,
Executive Vice Presidents and Senior Vice Presidents
Section 1. The Chairman of the Board shall be the chief executive officer
of the company and shall have such authority and perform such duties as usually
appertain to the chief executive office in business corporations. He shall
preside at the meetings of the Board of Directors and he, or such officer as he
may designate from time to time, shall preside at meetings of the shareholders.
Section 2. The President, Vice Chairmen of the Board, Executive Vice
Presidents and Senior Vice Presidents shall perform such duties as the Board of
Directors or Chairman of the Board may from time to time determine.
Section 3. In case of absence or inability of the Chairman of the Board,
the President shall possess all the authority of the Chairman of the Board.
ARTICLE IX.
Duties of the Treasurer and Assistant Treasurers
Section 1. The Treasurer shall receive all the funds of the company, and
shall disburse them under the direction of the Board of Directors. All
disbursement instruments shall be signed by such person or persons and in such
manner as the Board may from time to time provide.
Section 2. The Treasurer shall keep full and regular books, showing all his
receipts and disbursements, which books shall be open at all times to the
inspection of the Chairman of the Board or of any member of the Board of
Directors; and he shall make such reports and perform such other duties as the
Chairman of the Board or Board of Directors may require.
<PAGE>
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
Section 3. The Treasurer shall deposit all moneys received by him, in the
corporate name of the company, with such depositories as shall be approved from
time to time by the Board of Directors or by the Chairman of the Board, the
President, a Vice Chairman of the Board or the Treasurer.
Section 4. Assistant Treasurers shall have such of the authority and
perform such of the duties of the Treasurer as may be provided in these By-Laws
or assigned to them by the Board of Directors or the Chairman of the Board or by
the Treasurer upon the approval of the Chairman of the Board, the President or a
Vice Chairman of the Board. During the Treasurer's absence or inability, his
authority and duties shall be possessed by such Assistant Treasurer or Assistant
Treasurers as the Board of Directors, the Chairman of the Board, the President
or a Vice Chairman of the Board may designate.
Section 5. The Board of Directors may require the Treasurer and Assistant
Treasurers to give such security for the faithful performance of their duties as
the Board shall from time to time determine.
ARTICLE X.
Duties of the Secretary and Assistant Secretaries
Section 1. The Secretary shall send notice to the shareholders of all
annual and special meetings, and to the Directors of meetings of the Board where
notice is required to be given; and he shall perform such other duties as may be
required of him by the Chairman of the Board or Board of Directors, and such as
usually appertain to the office of Secretary.
Section 2. The Secretary or in his absence an Assistant Secretary shall
keep an accurate record of the proceedings of the Board of Directors and of the
Executive Committee, and of all meetings of shareholders, and shall have the
custody of the seal of the company and affix it to all instruments requiring the
seal.
Section 3. Assistant Secretaries shall have such of the authority and
perform such of the duties of the Secretary as may be provided in these By-Laws
or assigned to them by the Board of Directors or the Chairman of the Board or by
the Secretary upon the approval of the Chairman of the Board, the President or a
Vice Chairman of the Board. During the Secretary's absence or inability, his
authority and duties shall be possessed by such Assistant Secretary or Assistant
Secretaries as the Board of Directors, the Chairman of the Board, the President
or a Vice Chairman of the Board may designate.
<PAGE>
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
ARTICLE XI.
Duties of the Controller
The Controller shall be the principal accounting officer of the company and
shall perform such duties as may be required of him by the Chairman of the Board
or Board of Directors.
ARTICLE XII.
Transfer of Shares
Section 1. Certificates for shares shall be issued by the Treasurer. Shares
shall be transferable only on the record of shareholders of the company by the
holder thereof in person or by attorney, upon surrender of the outstanding
certificate therefor. This requirement shall be embodied in each certificate.
Section 2. In case of the loss of a certificate, a new certificate may be
issued upon such terms as the Board of Directors may prescribe.
ARTICLE XIII.
Indemnification of Directors and Officers
The company is authorized, by (i) a resolution of shareholders, (ii) a
resolution of Directors, or (iii) an agreement providing for such
indemnification, to the fullest extent permitted by applicable law, to provide
indemnification and to advance expenses to its Directors and officers in respect
of claims, actions, suits or proceedings based upon, arising from, relating to
or by reason of the fact that any such Director or officer serves or served in
such capacity with the company or at the request of the company in any capacity
with any other enterprise.
ARTICLE XIV.
Seal
The common seal of the company shall be in the following form.
<PAGE>
Exhibit 3(II)
Form 10-Q
For the Six
Months Ended
June 30, 1998
ARTICLE XV.
Amendments
These By-Laws may be amended by the shareholders at any meeting; or by the
Board of Directors at any meeting by a majority vote of the full Board, or at
two successive meetings by a majority vote of a quorum present. The notice of a
special meeting of the Board at which such action is to be taken shall set forth
the substance of the proposed amendment.
Exhibit 12
Form 10-Q
For the Six
Months Ended
June 30, 1998
AT&T Corp.
Computation of Ratio of Earnings to Fixed Charges
(Dollars in Millions)
(Unaudited)
Income from Continuing Operations
Before Income Taxes ................................. $1,754
Less Interest Capitalized during
the Period........................................... 110
Add Equity Investment Losses, net of distributions
of Less than 50% Owned Affiliates.................... 124
Add Fixed Charges...................................... 383
Total Earnings from Continuing
Operations Before Income Taxes
and Fixed Charges.................................... $2,151
Fixed Charges
Total Interest Expense Including Capitalized Interest.. $ 254
Interest Portion of Rental Expense..................... 129
Total Fixed Charges................................ $ 383
Ratio of Earnings to Fixed Charges..................... 5.6
<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, 1998 and the
unaudited consolidated statement of income for the six-month period ended June
30, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,755
<SECURITIES> 0
<RECEIVABLES> 9,650
<ALLOWANCES> 1,029
<INVENTORY> 0
<CURRENT-ASSETS> 18,717
<PP&E> 45,648
<DEPRECIATION> 23,336
<TOTAL-ASSETS> 57,447
<CURRENT-LIABILITIES> 14,163
<BONDS> 6,008
0
0
<COMMON> 1,625
<OTHER-SE> 23,888
<TOTAL-LIABILITY-AND-EQUITY> 57,447
<SALES> 0
<TOTAL-REVENUES> 25,489
<CGS> 0
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<NET-INCOME> 2,473
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</TABLE>
