10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Fiscal Year Ended December 31, 1994 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 Number 212-387-5400 Securities registered pursuant to Section 12(b) of the Act: See attached SCHEDULE A. Securities registered pursuant to Section 12(g) of the Act: None. 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........ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) At February 28, 1995, the aggregate market value of the voting stock held by non-affiliates was $81,379,399,770. At February 28, 1995, 1,579,466,394 common shares were outstanding. DOCUMENTS INCORPORATED BY REFERENCE (1) Portions of the registrant's annual report to security holders for the year ended December 31, 1994 (Part II) (2) Portions of the registrant's definitive proxy statement dated February 28, 1995, issued in connection with the annual meeting of shareholders (Part III) SCHEDULE A Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered Common Shares # New York, Boston, Chicago, (Par Value $1 Per Share) ## Philadelphia and Pacific Stock # Exchanges # Two Year Fixed/Floating Rate Notes, # due May 4, 1995 # # Three Year 4-1/2% Notes, # due February 15, 1996 # # Thirty-Four Year 4-3/8% Debentures, # due October 1, 1996 # # Thirty-Seven Year 4-3/4% Debentures, # due June 1, 1998 # # Thirty-Six Year 4-3/8% Debentures, # due May 1, 1999 # # Thirty-Three Year 6% Debentures, # due August 1, 2000 # # Thirty-Five Year 5-1/8% Debentures, ## New York Stock Exchange due April 1, 2001 # # Ten Year 7-1/8% Notes, # due January 15, 2002 # # Ten Year 6-3/4% Notes, # due April 1, 2004 # # Twelve Year 7-1/2% Notes, # due June 1, 2006 # # Thirty Year 8-1/8% Debentures, # due January 15, 2022 # # Thirty-Two Year 8-1/8% Debentures, # due July 15, 2024 # # Forty Year 8-5/8% Debentures, # due December 1, 2031 # # TABLE OF CONTENTS PART I Item Description Page 1. Business ........................................................ 1 2. Properties ...................................................... 13 3. Legal Proceedings ............................................... 14 4. Submission of Matters to a Vote of Security-Holders ............. 15 PART II Description 5. Market for Registrant's Common Equity and Related Stockholder Matters ....................................................... 17 6. Selected Financial Data ......................................... 17 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ......................................... 17 8. Financial Statements and Supplementary Data ..................... 17 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...................................... 17 PART III Description 10. Directors and Executive Officers of the Registrant .............. 17 11. Executive Compensation .......................................... 17 12. Security Ownership of Certain Beneficial Owners and Management .. 17 13. Certain Relationships and Related Transactions .................. 17 PART IV Description 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. 17 See page 16 for "Executive Officers of the Registrant." PART I ITEM 1. BUSINESS. GENERAL AT&T Corp. ("AT&T" or "Company") was incorporated in 1885 under the laws of the State of New York and has its principal executive offices at 32 Avenue of the Americas, New York, New York 10013-2412 (telephone number 212-387-5400). AT&T is a major participant in two industries: the global information movement and management industry and the financial services and leasing industry. In the global information movement and management industry, AT&T is among the world's networking leaders, providing wireline and wireless communications services and products, communications products, network equipment, business information processing systems, and other systems, products and services that combine communication and computers, to business, consumers, telecommunications service providers and government agencies. Worldwide, AT&T's network handles more than 175 million voice, data, video and facsimile messages on an average business day. AT&T's operations in the financial services and leasing industry involve direct financing and finance leasing programs for AT&T and third party products, leasing products to customers under operating leases, as well as the general purpose credit card business. GLOBAL INFORMATION MOVEMENT AND MANAGEMENT To meet the needs of its customers and the demands of the complex and rapidly changing information movement and management industry, AT&T maintains business units that develop, engineer, market, and maintain telecommunications services and business units that develop, manufacture, market, provide, install and service information movement and management products and systems. BUSINESS GROUPS To better serve the needs of customers, AT&T's businesses are clustered into the Communications Services Group, AT&T Global Information Solutions Group, Multimedia Products Group and Network Systems Group. o COMMUNICATIONS SERVICES GROUP The Communications Services Group addresses the needs of large and small businesses, the Federal government, state and local governments and consumers for voice, data and image telecommunications services. Business units within this group provide regular and custom long distance communications services, including message telecommunications services ("MTS"), wide area telecommunications services ("WATS"), satellite transponder services, AT&T True Connections# 500 services, toll-free or 800 services, 900 services, private line services, Software Defined Network services ("SDN"), integrated services digital network ("ISDN") technology based services, and electronic mail, electronic data interchanges and enhanced facsimile services through AT&T EasyLink* services. They also provide special long distance services, ______________ *Registered trademark of AT&T #Registered servicemark of AT&T -2- including AT&T Calling Card services and special calling plans and the Company's domestic and international operators. AT&T provides communications services internationally, including transaction services, global networks, network management and value added network services (i.e., services offered over communications transmission facilities that employ computer processing applications) and sells and maintains submarine cable systems. AT&T provides interstate and intrastate long distance telecommunications services throughout the continental United States and provides, or joins in providing with other carriers, interstate telecommunications services to and from Alaska, Hawaii, Puerto Rico and the Virgin Islands and international telecommunications services to and from virtually all nations and territories around the world. In the continental United States, AT&T provides long distance telecommunications services over its own network. Virtually all switched services are computer controlled and digitally switched and interconnected by a packet switched signaling network. Transmission facilities consist of approximately 2 billion circuit-miles using lightwave, satellite, wire and coaxial cable and microwave radio technology. International telecommunications services are provided via multiple international transoceanic submarine cable (primarily lightwave) systems and via international satellite and radio facilities. On March 13, 1995, the Federal Communications Commission ("FCC") announced the conclusion of the broadband Personal Communications Services ("PCS") auction commenced on December 5, 1994. The auction involved a total of 99 PCS licenses in 51 Major Trading Areas ("MTAs") authorizing service on 30 MHz of spectrum in the 1.8 GHz band. At the start of the auction, AT&T was eligible to bid in 30 MTAs. AT&T bid a total of $1.685 billion to win broadband PCS licenses covering 21 MTAs. AT&T must submit to the FCC an application for a broadband PCS license in each MTA where it has been declared the winning bidder. Other interested parties will have the opportunity to file petitions with the FCC commenting upon or challenging AT&T's applications. After a review of the applications and the conclusion of the public comment process, the FCC will determine whether there are any reasons precluding it from granting the licenses; if there are none, it will grant the licenses. AT&T is required to provide adequate service to at least one-third of the population in its licensed areas within five years of being licensed and two-thirds of the population in its licensed areas within ten years of being licensed. The licenses are granted for ten year terms from the original date of issuance and may be renewed by AT&T by meeting the FCC's renewal criteria and upon compliance with the FCC's renewal procedures. AT&T has submitted to the FCC a down payment equal to 20% of the 1.685 billion; the remainder is due within five business days after the grant of each license. Construction of the network to support these licenses will require substantial capital expenditure, the level of which is dependent on a number of factors which have not been determined. AT&T Solutions is a new business unit established to assist corporations in global network and computer management. AT&T Solutions will design, build and operate corporate clients computer networks, design software and manage data centers for its clients. -3- o AT&T GLOBAL INFORMATION SOLUTIONS GROUP AT&T Global Information Solutions ("AT&T GIS" formerly known as NCR Corporation) offers computing and communications solutions together to provide customers easy access to information and to each other. These solutions are comprised of computer products and systems, as well as software and professional services and support. AT&T GIS' primary focus is on six key industries: financial, retail, communications, consumer goods manufacturing, transportation and the public sector. Key product lines include: Financial Systems, such as automated teller machines, image capture systems and financial processing systems; Decision Enabling Systems, such as commercial massively parallel processing and database systems; Platform and Systems, including scalable multiprocessing systems, systems software and processing systems; Software Products, including groupware, messaging, and distributed computing middleware; Network Products, including networking tools and management systems such as OneVision* Network Management Solutions. The unit also has a fully integrated business, Systemedia, that provides business forms and media products. In addition, Worldwide Services provides comprehensive multi-vendor support and professional services. o MULTIMEDIA PRODUCTS GROUP The Multimedia Products Group addresses the equipment needs of large and emerging businesses, the Federal government, state and local governments, international distributors and consumers. Business units in this group offer products such as private branch exchanges ("PBXs") including the Definity* communications system, voice processing systems and voice messaging systems including the AUDIX* and Conversant* systems, video conferencing systems, installations, maintenance and repair services and other business communications systems, corded and cordless telephones, cellular telephones, answering systems, security systems, facsimile machines, modems, multiplexers, data transceivers, the Merlin* and Partner* communications systems, videophone, and imaging and personal communicator products. The Multimedia Products Group also includes: AT&T Ventures, an internal venture capital business. The mission of AT&T Ventures is to identify and nurture new markets for the application of AT&T-developed and other technologies. AT&T Ventures explores new businesses in markets not addressed by existing business units. AT&T Microelectronics, a business unit that produces three broad categories of components: integrated circuits, photonics and other electronic components such as discrete components, power systems and printed wiring boards, which are included in most AT&T products and systems. Certain of these components and many other specially designed components are sold commercially to other companies. ______________ *Registered trademark of AT&T -4- o NETWORK SYSTEMS GROUP The Network Systems Group includes business units that primarily manufacture, market, engineer, install and maintain switching systems, transmission systems, cable and wire products, cellular systems, and operations systems for AT&T, local exchange carriers, other carriers, private businesses, government agencies, foreign telephone administrations and others. Switching systems include the 5ESS* switch; transmission systems include lightwave and digital radio products, digital cross connect and multiplex products, and digital loop carrier products; cable and wire products include optical fiber, optical fiber cable and related apparatus; and operations systems include mechanized systems for managing telecommunications networks. AT&T markets its services, products and systems throughout the United States. It also markets many of its services, products and systems outside of the United States. The Company sells its services and products directly to all types of customers through its own direct sales force. The Company also sells certain of its products to distributors and other intermediaries who may resell these products to others. Some of the Company's services are also sold to businesses that resell them, usually in conjunction with other services, to others. WIRELESS SERVICES (Merger With McCaw Cellular Communications, Inc.) In September 1994, McCaw Cellular Communications, Inc. ("McCaw"), the nation's largest cellular communications company, became a wholly owned subsidiary of AT&T. McCaw has cellular operations in more than 100 cities and operates the sixth largest U.S. messaging service, serving more than 700,000 customers, and a digital air-to-ground telephone service for commercial airlines and corporate aircraft. In connection with the merger, AT&T, McCaw and the United States entered into a proposed antitrust consent decree (the "Proposed Consent Decree") on July 15, 1994, which permitted the merger by settling a suit challenging the merger filed the same day by the United States in the United States District Court for the District of Columbia (the "court"). The Proposed Consent Decree imposes several conditions on the future operations of AT&T and McCaw. These conditions include: (i) the maintenance of McCaw (and McCaw affiliates) as a subsidiary or entity separate from AT&T; (ii) requirements that McCaw cellular systems, within 21 months of the commencement of the action, cease providing interexchange services and provide customers of McCaw cellular systems with equal access to any interexchange carrier that offers service to the system; (iii) requirements that McCaw cellular systems provide to all interexchange carriers exchange access on an unbundled basis that is equal in type, quality, and price to that provided to AT&T; (iv) a prohibition on the sale by each of AT&T and McCaw of interexchange or local cellular services, respectively, at a price, term or discount that depends on whether the customer obtains both AT&T's interexchange and McCaw's local cellular services; (v) requirements that AT&T not discriminate in favor of McCaw in the way in which certain services and products are made available; (vi) restriction of the flow of certain non-public information between AT&T and McCaw relating to unaffiliated wireless system equipment customers of AT&T and unaffiliated wireless system equipment suppliers of McCaw; (vii) a requirement for AT&T to continue to provide technological and other support to its unaffiliated cellular system equipment customers; and (viii) a requirement ________________________ *Registered trademark of AT&T -5- that AT&T buy back any cellular system equipment sold to an unaffiliated cellular carrier if the United States determines AT&T has violated any of the provisions described in (v) through (vii) of this paragraph. The requirements of the Antitrust Procedures and Penalties Act, 15 U.S.C. Section 16, must be complied with before the Proposed Consent Decree may be entered by the court. The requirements include: (i) filing with the court and publication of the Proposed Consent Decree and a competitive impact statement in the Federal Register at least 60 days prior to the effective date of the decree; (ii) an opportunity for the public to provide written comments and an opportunity for the United States to reply to such comments; and (iii) a determination by the court that the Proposed Consent Decree is in the public interest. Comments have been filed with the court by all interested parties and AT&T is awaiting the U.S. Department of Justice's ("DOJ") response to these comments. AT&T does not know when the court will act on this matter. If the requirements of the Antitrust Procedures and Penalties Act are not complied with and court does not approve the Proposed Consent Decree, the suit brought by the United States challenging the merger could be revived, which may lead to a divestiture or further conditioning of the merger. LIN Broadcasting Corporation LIN Broadcasting Corporation ("LIN") is 52% owned by AT&T indirectly through McCaw. Under a private market value guarantee agreement (the "PMVG") between McCaw and LIN, a process began on January 1, 1995, to determine the private market value per share of LIN (the "Private Market Price") using independent appraisers. On March 7, 1995, the Private Market Price was determined to be $127.50 per share. McCaw will have 45 days from March 7, 1995, to decide whether to proceed with the acquisition of all the public shares at that price, subject to the approval of the LIN public shareholders. Based on the approximately 25 million shares of LIN held by the public, the total purchase price would be approximately $3.26 billion. AT&T and McCaw have not decided if McCaw will offer to acquire LIN's public shares and must evaluate the final price. If McCaw does not proceed with an acquisition, the PMVG provides that McCaw will put LIN in its entirety up for sale under the direction of the LIN independent directors and subject to the approval of the LIN public shareholders. In connection with this matter, several purported class action suits have been filed against AT&T and others. See Item 3. Legal Proceedings. INTERNATIONAL The WorldPartners alliance was founded in 1993 by AT&T, Kokusai Denshin Denwa Company, Ltd of Japan and Singapore Telecommunications to provide multinational customers with a new level of seamless, high quality advanced telecommunications and related services around the globe, under the brand name WorldSource**. In 1994, Unisource N.V. (a joint venture of the Dutch, Swedish, Swiss and, it is expected, Spanish carriers in Europe) joined WorldPartners along with Telstra of Australia, Hong Kong Tel, Korea Telecom, and others. As of the end of 1994, WorldPartners included eleven members who will provide WorldSource Services to multinational customers covering more than two dozen countries in North America, Europe and Asia. AT&T has numerous subsidiary companies and offices throughout the world. AT&T has implemented an international organizational structure, along regional lines, to complement the functional groups described above and to promote shared accountability between regional units and those groups. Three regional units, representing all AT&T businesses, are: Asia/Pacific, with headquarters __________________ **Unregistered trademark -6- in Hong Kong; Europe/Middle East/Africa, with headquarters in Brussels; and Caribbean/Latin America, with headquarters in Coral Gables, Florida. AT&T has established a number of international alliances, ventures and manufacturing facilities, including the following: Asia/Pacific Region AT&T owns 60% of AT&T Taiwan Telecommunications Co., Ltd., a joint venture with the Taiwanese government and others in Taiwan which manufactures switching and transmission systems. AT&T owns approximately 15% of United Fiber Optic Communications Inc., a venture with Pacific Electric Wire and Cable Ltd., Chiao Tung Bank and others in Taiwan which manufactures fiber cable and transmission equipment. AT&T owns semiconductor assembly and test facilities in Singapore. AT&T owns 80% of AT&T Software Japan, Ltd., a joint venture with Industrial Bank of Japan and Software Research Associates, which provides software development. AT&T owns approximately 60% of AT&T Jens Corporation, a joint venture with 22 major Japanese companies which provides value added network services. AT&T, through joint ventures, operates manufacturing facilities in the People's Republic of China for the production of copper and fiber cable, switching systems, and transmission equipment. Europe/Middle East/Africa Region AT&T owns AT&T ISTEL Limited, a United Kingdom based company, that manufactures software and provides software related services. AT&T Network Systems International B.V. is a joint venture between AT&T, which indirectly owns approximately 94% of the equity, and Compagnia Telefonica Nacional de Espana, the national telephone company of Spain, which owns approximately 6%. It designs, develops, manufactures and markets Network Systems' products in Europe and elsewhere. In addition, the joint venture itself has established businesses and participates in joint ventures in a number of countries, including: the Netherlands, Belgium, the People's Republic of China, the Czech Republic, France, Germany, Ireland, Italy, Kazakhstan, Poland and the Russian Federation. AT&T owns 19.5% of UTEL, a Ukrainian joint venture company with PTT Telecom and the Ukrainian State Committee of Communications, which provides services and products to improve Ukraine's domestic and international telecommunications services. AT&T owns AT&T Wireless Communications Products Limited (formerly "Shaye Communications Limited"), a United Kingdom company engaged in research, development and marketing of products for the ultra low power, portable, radio-based telecommunications market. AT&T owns in excess of 90% of Barphone S.A., a French company engaged principally in the development, design, manufacture and marketing of small PBXs and related equipment. AT&T owns 50% of A/O Telmos, a Russian joint venture company with Moscow City Telephone Company which will own and operate a subscriber network in Moscow. -7- AT&T owns various controlling interests in joint ventures in the Czech Republic, Hungary, Poland and Slovakia which market key systems, PBXs, related equipment and other AT&T products. AT&T owns AT&T Microelectronica de Espana S.A., a Spanish company which manufactures integrated circuits. In addition, AT&T, through a joint venture, operates a manufacturing facility in Ireland. Caribbean/Latin America Region AT&T owns four companies in Mexico which manufacture microelectronics products, telephone answering machines, cordless telephones and corded telephones, and repair various items of AT&T's consumer products business unit. AT&T owns 51% of AT&T Elecon Telesistemas C.A., a Venezuelan joint venture with Electroconductores, C.A., which manufactures copper cable for the Venezuelan market. AT&T owns 5% of VenWorld Telecom, C.A., a Venezuelan joint venture company with GTE Venezuelan Telephone Incorporated and three Venezuelan corporations, which owns 40% of the Venezuelan Telephone Company, Compania Anonima Nacional Telefonos de Venezuela ("CANTV"). AT&T owns 49% of AT&T Network Systems do Brasil, S.A., a Brazilian joint venture with SID Telecommunicacoes e Controles, S.A. and Marcep, S.A. which manufactures and markets telephone switching systems. AT&T owns 10% of Compania de Telefonas del Interior, S.A., a joint venture with GTE Mobile Communications International, Inc. and others which provides wireless telecommunication service in Argentina. AT&T owns 35% of Jamaica Digiport International Limited, a joint venture with Cable & Wireless PLC and Telecommunications of Jamaica, Ltd. which provides certain telecommunications services in the free-trade zone, Montego Bay, Jamaica. Canada AT&T owns 22.5% of Unitel Communications Holdings, Inc., the sole shareholder of Unitel Communications, Inc., a Canadian long distance carrier. AT&T BELL LABORATORIES AT&T Bell Laboratories provides support to all business units. It designs and develops new products, systems, software and services, and carries out a broad program of fundamental research, to provide the technology base for AT&T's future. AT&T Bell Laboratories has made significant contributions to information science and technology since its founding in 1925. These contributions include the invention of the transistor, the development of the nationwide microwave radio network, and the design and development of integrated circuits and many types of lasers. Areas of AT&T Bell Laboratories research and development work in recent years include lightwave transmission, which offers greater transmission capacity than other transmission systems; electronic switching technology, which enables faster call processing, increased reliability and reduced network costs; and microelectronics components, which bring the latest advantages of scale of integration to the full range of products offered by AT&T. -8- Other advances achieved by AT&T Bell Laboratories include: the development of the Karmarkar Algorithm, a mathematical optimization technique which is being applied to the efficient layout of AT&T's long distance telecommunications network; the development of optical amplifiers that dramatically increase the distance messages can be transmitted optically before they must be reamplified, and the invention of a self-electro optic effect device ("SEED") useful for optical storage, optical switching and optical logic, thus advancing the future of photonic technologies; the development of polysilicon memory structures widely used in dynamic random access memories ("DRAMS"); the development of speech recognizers which provide for the human control of complex systems with verbal commands; and improvements to AT&T's ACCUNET* T1.5 service (a wideband, all-digital, customer-dedicated service that combines voice, data and video communications) that permit customer control of reconfigurations. AT&T Bell Laboratories also undertakes the architectural effort required to see that AT&T products can be integrated within a framework of national and international standards. An emphasis on use of the UNIX@ Operating System, "C" language and other software suited to open architecture and easy connectivity facilitates this architectural effort. AT&T Bell Laboratories has also made significant contributions to the efficient coding of television pictures and to wireless communications technology. In order to increase focus on customers and to create more responsive organizations, much of the AT&T Bell Laboratories systems engineering and development resource has been more formally aligned with business units. These organizations remain AT&T Bell Laboratories, but they receive day-to-day guidance from the business units they support. COMPETITION, REGULATION AND LEGISLATION Changing Competitive Environment Communications services and products and information services and products today are provided, in significant part, by companies in different industries. Many of AT&T's competitors as well as participants in other segments of the communications and information industries are large companies which have substantial capital, technological and marketing resources. The business and competitive environment in the global information movement and management industry is changing, however, and will likely be reshaped by numerous forces, including customer preferences and needs, technological developments, increased competition and a reduction in domestic and foreign regulation. While it is difficult to predict the specific nature and pace of changes that might affect the business and competitive environment, AT&T anticipates that these changes will cause many major companies to expand into other segments of the communications and information industries. This may increase AT&T's ability to participate in the provision of a broader range of services with fewer regulatory constraints but result in increased competition in AT&T's existing markets. Regulation of Rates AT&T is subject to the jurisdiction of the FCC with respect to interstate and international rates, lines and services, and other matters. For many years prior to July 1, 1989, the system of regulation used by the FCC for AT&T was rate-of-return regulation. Effective July 1, 1989, the FCC adopted a new system of regulating AT&T known as "price caps" under which AT&T's prices, rather than its earnings, are limited. In a series of decisions, beginning in 1991, the FCC removed the vast majority of AT&T's business services from price caps regulation. Residential, 800 directory assistance and analog private line services, however, are still subject to such regulation. ________________ *Registered trademark of AT&T @Registered trademark of Novell, Inc. -9- The FCC's "price caps" system of regulation is designed to maximize the incentive for AT&T to increase productivity and lower costs and increases AT&T's flexibility to respond to market conditions. AT&T's price capped services are subject to price ceilings, defined by indices based on AT&T's price levels at the initiation of price cap regulation and adjusted annually to reflect changes in inflation and certain other costs of doing business. The price ceilings for services are also subject to a 3% annual decrease, which reflects a 2.5% productivity level that the FCC says AT&T has achieved historically plus an additional 0.5%. AT&T may raise prices of individual services, but must stay within the ceilings overall. Generally, AT&T is prohibited from raising or lowering the overall price of particular service categories by more than 5% annually. In 1991, the FCC adopted an order in its "interexchange competition" proceeding (CC Docket No. 90-132), confirming that the interexchange market is largely competitive. As a result, the order streamlined the regulation of most AT&T outbound business services. In 1993, inbound 800 services were streamlined and, on January 12, 1995, streamlining was extended to services used by small business customers. These services are no longer subject to price cap regulation; AT&T can file tariff revisions for these services on 14 days' notice; and AT&T can offer individually negotiated contract-based rates for these services. AT&T's intrastate telecommunications services are subject to regulation in many states by public service commissions or similar state authorities having regulatory power over intrastate rates, lines and services and other matters. The system of regulation used in many states, at least for some of AT&T's services, is rate-of-return regulation. In recent years, recognizing the competitive nature of AT&T's services, many states have adopted different systems of regulation, such as: complete removal of rate-of-return regulation, pricing flexibility rules for some or all of AT&T's services, price caps, and incentive regulation. Legislation and Other Regulation During 1994, a number of bills were introduced in Congress which would have permitted the Regional Bell Operating Companies (the "RBOCs") to offer long distance services under certain conditions and accelerated competition for local access and local phone services. While none of these bills was enacted, several key members of Congress announced plans to introduce new bills in the current session that would set conditions under which the RBOCs would be permitted to provide long distance services and manufacture equipment, and permit competition in local services. On March 23, 1995, the Senate Commerce Committee approved a telecommunications bill which establishes conditions relating to local competition an RBOC must meet before it can provide long distance service in the area in which it is the dominant provider of local exchange service but would permit the RBOC to provide long distance service elsewhere without satisfying these conditions. The bill would also permit RBOC entry into the manufacturing of telecommunications equipment when long distance entry is permitted. Proceedings are also pending before a number of state regulatory commissions, including New York, California and Illinois, concerning changes in the nature of the state regulation of telecommunication services and the removal of constraints on local service providers. AT&T has taken the position that because of the RBOCs' current monopoly position in providing local service, it is inappropriate for the RBOCs to receive relief from the restrictions on providing long distance service, manufacturing equipment and other regulatory constraints currently imposed on them until competition in local service has developed. In this regard, AT&T and a number of participants in the telecommunications industry have identified at least nine critical conditions necessary to create the potential for effective competition in the local service market, including the unbundling of basic network functions, interconnection to local network -10- facilities and services, dialing parity and number portability. There is no certainty that any federal legislation will be passed, or if passed enacted into law, or state regulatory changes will be effected, or if enacted or effected, what form any such legislation or regulatory changes will take. One state regulatory commission has taken regulatory action of the kind described above. In November 1994, the New York Public Service Commission approved the Open Market Plan of Rochester Telephone Company ("RTC"), pursuant to which RTC was granted additional pricing flexibility for certain local and toll services as part of a plan to permit other carriers to offer local and toll service, either independently or using some of RTC's facilities. The Open Market Plan did not satisfy all of the conditions AT&T has identified as a prerequisite to establishing competition in local services. In January 1995, AT&T filed a petition for reconsideration of the Open Market Plan based on its inability, as adopted, to foster local competition. Competition; New Opportunities AT&T currently faces significant competition in the provision of long distance service and AT&T expects that the level of competition in communications services will continue to increase. If regulatory, legislative or technological changes occur, AT&T anticipates that it will experience new and different competitors. These may include entrants from other segments of the telecommunications and information services industries seeking to expand their market opportunities. Such new competitors may enter with a strong market presence, well recognized names and pre-existing direct customer relationships. Depending on the timing and circumstances of, and any competitive inequities not addressed by regulatory or legislative conditions or restrictions on, their entry, AT&T's revenues and net income could be adversely affected in future years. Some of the same regulatory and technological changes that AT&T anticipates will increase competition in its historic markets also are anticipated to open new markets for AT&T in different segments of communications services, end-to-end services, value-added services and multimedia services that AT&T can provide through its advanced, intelligent network. AT&T's competitive strategy includes positioning itself to best take advantage of these new opportunities through the use of its leading networking capabilities, respected brand name and other resources. MFJ Activity On July 6, 1994, four RBOCs (Bell Atlantic Corporation, BellSouth Corporation, NYNEX Corporation, and Southwestern Bell Corporation) filed a motion with U.S. District Court for the District of Columbia (the "District Court") to vacate the Modification of Final Judgment of 1982 ("MFJ") in its entirety, or, in the alternative, to remove the line of business restrictions. The MFJ currently forbids the RBOCs from providing long distance services and from manufacturing telecommunications equipment and customer premises equipment. The motion maintains that changed circumstances have obviated the need for the MFJ, that the local exchange is (or soon will be) competitive, that regulation can prevent anticompetitive abuse of the local exchange bottleneck, and that consumers and the nation will benefit from RBOC entry into the long distance services and equipment markets. The DOJ is currently investigating the motion. AT&T filed with the DOJ on December 7, 1994 its opposition to the motion. Bell Atlantic has since withdrawn its support for the motion. It is AT&T's position that the District Court and the Court of Appeals have previously rejected these claims, and nothing has changed since these rejections that could now justify elimination of the line-of-business restrictions and that the RBOCs retain the ability to use their local exchange monopolies to impede competition in long distance and equipment markets, and regulation cannot prevent anticompetitive behavior. Proceedings before the District Court are expected to begin in the third quarter of 1995. -11- Throughout the last two years, Ameritech Corporation has been pursuing its "Customers First" plan before the FCC, the DOJ, and, most recently, the Illinois Commerce Commission. That plan seeks to obtain relief from the MFJ's interLATA restriction in return for the implementation of certain conditions that could foster the development of local exchange competition. AT&T has been vigorously contesting Ameritech Corporation's plan in each jurisdiction, and has filed its own petition asking the Illinois Commerce Commission to implement all of the conditions needed to test the potential for local exchange competition, without any linkage to MFJ relief. The Illinois hearing examiners have released a proposed order that generally recognizes that certain conditions are necessary to implement local exchange competition. FINANCIAL SERVICES AND LEASING AT&T is a major participant in the financial services and leasing industry, with its operations conducted through AT&T Capital Corporation ("AT&T Capital"), a majority-owned subsidiary of AT&T, and AT&T Universal Card Services Corp. ("AT&T Universal Card Services"), a wholly owned subsidiary of AT&T. o AT&T CAPITAL In August 1993, an initial public offering combined with a management stock offering took place, which totaled approximately 14 percent of AT&T Capital's common stock. As a result of the stock offerings, approximately 86 percent of the outstanding common stock of AT&T Capital (approximately 82% on a fully-diluted basis) is owned by AT&T indirectly through subsidiaries. AT&T Capital is a full-service, diversified equipment leasing and finance company that operates in the United States, Canada, Europe, the Asia-Pacific region and Mexico. AT&T Capital works side by side with AT&T and its affiliates to provide customized financing for AT&T customers acquiring AT&T and associated equipment. AT&T Capital also provides: financing in connection with general equipment used by AT&T entities; the AT&T affiliate investment recovery program; and AT&T's employee vehicle leasing program. AT&T Capital's captive programs are dependent upon sales of products by AT&T and its affiliates and the continued acceptance of these products in the marketplace. AT&T Capital also leases and finances non-AT&T equipment including office, manufacturing, data center and data processing and transportation equipment. Additionally, the Company provides inventory financing for equipment dealers and distributors, Small Business Administration lending, and asset management and remarketing services. AT&T Capital's business is diversified by customer, customer type, equipment segments, geographic location of its customers and maturity of receivables. In 1994 and January 1995, AT&T Capital expanded its international equipment leasing and financial services operations to customers in Canada, Europe, and Hong Kong and established operations in Australia and Mexico. The equipment leasing and finance industry is highly competitive. Participants in the industry compete through price (including the ability to control costs), risk management, innovation and customer service. Principal cost factors include the cost of funds, the cost of selling to or acquiring new end-user customers and vendors, and the cost of managing portfolios (including, for example, billing, collection, credit risk management and residual management. There is no assurance as to the volume of financing -12- opportunities that will be generated by sales or leases of equipment by AT&T and its affiliates. In its leasing and financing operations and programs, AT&T Capital competes with captive or related leasing companies (such as General Electric Capital Corporation and IBM Credit Corporation), independent leasing companies (such as Comdisco, Inc.), certain banks engaged in leasing, lease brokers and investment banking firms that arrange for the financing of leased equipment, and manufacturers and vendors who lease their own products to customers. In addition, AT&T Capital competes with all banking and other financial institutions, manufacturers, vendors and others who extend or arrange credit for the acquisition of equipment and, in a sense, with the available cash resources of end-users (i.e., end-users may use their available cash resources to purchase equipment otherwise financeable by AT&T Capital). Many of the competitors of AT&T Capital are large companies that have substantial capital, technological and marketing resources; some of these competitors are significantly larger than AT&T Capital and have access to capital at a lower cost. o AT&T UNIVERSAL CARD SERVICES AT&T Universal Card Services began operations in early 1990. The AT&T Universal Card is a combined general-purpose consumer credit card and AT&T Calling Card that at year-end had receivables in the amount of $12.3 billion in 1994, $9.2 billion in 1993, $6.6 billion in 1992, $3.8 billion in 1991, and $1.6 billion in 1990. The AT&T Universal Card is offered directly through AT&T Universal Financial Corp., a Utah industrial loan company, and Universal Bank, N.A., in Columbus, Georgia, which are both wholly owned by AT&T, and under an affinity relationship with Columbus Bank and Trust Company in Columbus, Georgia, a subsidiary of Synovus Financial Corp. AT&T Universal Card Services provides marketing and customer support for the AT&T Universal Card program and it purchases cardholder receivables generated by the AT&T Universal Card program. The consumer credit card industry is highly competitive and some seasonality exists, with a higher number of purchases occurring during the year-end holiday season. The Company believes that the AT&T Universal Card program is one of the top two or three bankcard/credit card programs, based on generally available industry information, and on the number of cardholder accounts in the United States. SEGMENT, OPERATING REVENUE AND RESEARCH AND DEVELOPMENT EXPENSE INFORMATION For information about the Company's industry and geographic segments, see Note 16 to the Consolidated Financial Statements. Such information is incorporated herein by reference pursuant to General Instruction G(2). For information about the consolidated operating revenues contributed by the Company's major classes of products and services and about consolidated research and development expenses, see revenue tables and descriptions on pages 22 through 26 and Consolidated Statements of Income on page 30 of the Company's annual report to security holders for the year ended December 31, 1994. Such information is incorporated herein by reference pursuant to General Instruction G(2). EMPLOYEE RELATIONS AT&T employs approximately 304,500 persons in its operations. About 35% of the employees of AT&T are represented by unions. Of those so represented about 80% are represented by the Communications Workers of America ("CWA"), which is affiliated with the AFL-CIO, about 19% by the International Brotherhood of Electrical Workers ("IBEW"), which is also affiliated with the AFL-CIO, and the remainder by other unions. Labor agreements with most of -13- these unions extend through May 27, 1995. AT&T expects to commence negotiations in April 1995 with union representatives concerning these expiring agreements. ENVIRONMENTAL MATTERS The operations of the Company involve the release of materials to the environment that are subject to regulation under environmental protection laws. The Company is involved in a number of remedial actions to clean up hazardous wastes in accordance with the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA", or "Superfund"), the Resource Conservation and Recovery Act ("RCRA") and state environmental laws. Such statutes require that certain parties fund remedial actions regardless of fault. During 1994, as in prior years, the Company has been making capital expenditures for environmental control facilities. An estimate of the costs of remedial actions or the amounts of capital expenditures for future periods is subject to a number of uncertainties including the following: the developing nature of administrative regulations being promulgated under CERCLA, RCRA and other environmental protection laws; the availability of other responsible parties at a site; the availability of information regarding conditions at potential sites; uncertainty as to how the laws and regulations may be applied to such sites; multiple choices and costs associated with diverse technologies that may be used in corrective actions at such sites; the eventual outcome of claims for insurance coverage; and the time periods (which may be quite lengthy) over which eventual remediation may occur. In the opinion of the Company's management, capital expenditures and expenses in connection with remedial actions to comply with the present environmental protection laws will not have a material effect upon the Company's future expenditures, annual consolidated financial statement or competitive position beyond that provided for at year-end. ITEM 2. PROPERTIES. The properties of AT&T consist primarily of plant and equipment used to provide long distance telecommunications services, manufacturing plants at which the Company's products and systems are produced and administrative office buildings. Telecommunications plant and equipment consists of: central office equipment, including switching and transmission equipment; connecting lines (cables, wires, poles, conduits, etc.); land and buildings; and miscellaneous properties (work equipment, furniture, plant under construction, etc.). The majority of the connecting lines are on or under public roads, highways and streets and international and territorial waters. The remainder are on or under private property. AT&T operates 92 manufacturing facilities located throughout the United States and abroad which at December 31, 1994, had a total of about 29 million square feet. Approximately 26 million square feet are in owned facilities and the remaining 3 million square feet are in leased premises. Some of the non-U.S. operations are operated through joint ventures with other parties (see the discussion of international alliances and ventures contained in Item 1. Business). AT&T also operates a number of sales offices, service, repair and distribution centers, and other facilities, such as research and development laboratories. AT&T continues to manage the deployment and utilization of its assets in order to meet its global growth objectives while at the same time ensuring that these assets are generating economic value added for the shareholder. AT&T will continue to manage its asset base consistent with globalization initiatives, marketplace forces, productivity growth and technology change. -14- A substantial number of the administrative offices of AT&T are in leased buildings. Substantially all of the important communications facilities are in buildings owned by AT&T or leased from the regional holding companies created at divestiture. Substantially all of the major manufacturing plants and major centers are in owned buildings. Many of the smaller facilities are in rented quarters. Most of the important buildings are on land held in fee, but a few are on land held under long-term leases. ITEM 3. LEGAL PROCEEDINGS. In the normal course of business, AT&T is subject to proceedings, lawsuits and other claims, including proceedings under government laws and regulations related to environmental and other matters. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. Consequently, AT&T is unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at December 31, 1994. While these matters could affect operating results of any one quarter when resolved in future periods, it is management's opinion that after final disposition, any monetary liability or financial impact to AT&T beyond that provided for at year-end would not be material to AT&T's annual consolidated financial statements. In connection with the merger of AT&T and McCaw, the parties entered into a Proposed Consent Decree with the United States. For a discussion of the Proposed Consent Decree, see Item 1. Business. On February 17, 1995, two purported class actions were filed in the Delaware Chancery Court entitled Fried v. MMM Holdings Inc., et al. (the "Fried Action") and Blake v. AT&T Corp., et al. (together with the Fried Action, the "Delaware Actions"). On February 21, 1995, a purported class action was filed in New York State Supreme Court against AT&T and its directors entitled Katz v. Robert E. Allen, et al. (the "New York Action"). The Delaware Actions allege that AT&T, among others, has violated its fiduciary duties, and one of the Delaware Actions alleges that AT&T, among others, has violated its obligations under the PMVG, in each case by virtue of, among other things, the McCaw Appraiser's view that the private market value of LIN as defined under the PMVG is $105 per share. The New York Action similarly alleges that AT&T and its directors have violated their fiduciary duties by virtue of, among other things, the McCaw Appraiser's determination under the PMVG. On March 3, 1995, plaintiffs in the Delaware Actions requested of the court that those actions be consolidated with two additional actions that have been filed in the Delaware Court of Chancery entitled Phillip Frank v. McCaw Cellular Communications, et. al. and H. Richard Dollinger v. MMM Holdings, Inc. Pursuant to the proposed order of consolidation, the complaint in the Fried Action would be designated as the complaint in the consolidated action. AT&T believes that the actions are without merit. On July 31, 1991, the United States Environmental Protection Agency Region III issued a complaint pursuant to Section 3008a of the Resource Conservation and Recovery Act alleging violations of various waste management regulations at the Company's Richmond Works, Richmond, Virginia. The complaint seeks a total of $4,184,304 in penalties. The Company is contesting both liability and the penalties. In addition, on July 31, 1991, the United States Environmental Protection Agency filed a civil complaint in the U.S. District Court for the Southern District of Illinois against the Company and nine other parties seeking enforcement of its CERCLA Section 106 cleanup order, issued in November 1990 for the NL Granite City Superfund site, Granite, Illinois, past costs, civil penalties of $25,000 per day and treble damages related to certain United States' costs. The Company is contesting liability. -15- On January 31, 1994, the Company pleaded guilty to a misdemeanor and paid a fine of $175,000 in connection with environmental violations at the Company's facilities in Reading, Pennsylvania. During 1994, AT&T Nassau Metals Corporation ("Nassau"), a wholly owned subsidiary of AT&T, and the New York State Department of Environmental Conservation ("NYSDEC") were engaged in negotiations over a study and cleanup of the Nassau plant located on Richmond Valley Road in Staten Island, New York. During these negotiations, in June 1994, NYSDEC presented Nassau with a draft consent order which included not only provisions relating to site investigation and remediation but also a provision for payment of a $3.5 million penalty for alleged violations of hazardous waste management regulations. No formal proceeding has been commenced by NYSDEC. Nassau has denied most of the allegations and is also contesting the penalty. Negotiations and discussions are still continuing. The foregoing environmental proceedings are not material to the consolidated financial statements or business of the Company and would not be reported but for Instruction 5 C. of Item 103 of Regulation S-K, which requires disclosure of such matters. See also the discussion herein in Item 1. Business, for additional information about environmental matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS. No matter was submitted to a vote of security holders in the fourth quarter of the fiscal year covered by this report. - 16 - Executive Officers of the Registrant (as of March 1, 1995) Became AT&T Executive Officer Name Age on Robert E. Allen* ....... 60 Chairman of the Board and Chief Executive Officer ............ 9-86 Richard S. Bodman ...... 56 Senior Vice President, Corporate Strategy and Development ..... 8-90 Harold W. Burlingame ... 54 Senior Vice President, Human Resources .................... 9-86 Marilyn Laurie ......... 55 Senior Vice President, Public Relations .................... 2-87 Alex J. Mandl .......... 51 Executive Vice President and Chief Executive Officer, Communications Services Group 8-91 William B. Marx, Jr. ... 55 Executive Vice President and Chief Executive Officer, Multimedia Products Group .... 7-89 Richard A. McGinn ...... 48 Executive Vice President and Chief Executive Officer, Network Systems Group ........ 10-94 Richard W. Miller ...... 54 Executive Vice President and Chief Financial Officer ...... 8-93 Victor A. Pelson** ..... 57 Executive Vice President and Chairman Global Operations Team ......................... 3-89 Daniel C. Stanzione .... 49 President, AT&T Bell Laboratories ................. 1-95 John D. Zeglis ......... 47 Senior Vice President - General Counsel and Government Affairs ...................... 9-86 ____________ *Member of the Board of Directors and Chairman of the Executive and Proxy Committees. **Member of the Board of Directors. All of the above executive officers have held high level managerial positions with AT&T or its affiliates for more than the past five years, except Messrs. Bodman, Mandl and Miller who have been officers of AT&T since August 23, 1990, August 1, 1991 and August 9, 1993, respectively. Prior to joining AT&T, Mr. Bodman was President of Washington National Investment Corporation, an investment company, for more than five years. Prior to joining AT&T, Mr. Mandl was Chairman and Chief Executive Officer of Sea-Land Service, Inc., an ocean transportation and distribution services company, for four years and prior thereto held executive positions at CSX Corporation. Prior to joining AT&T, Mr. Miller was with Wang Laboratories, Inc. from 1989 through 1993, serving as President and Chief Operating Officer and later as Chairman, President and Chief Executive Officer. Officers are not elected for a fixed term of office but hold office until their successors have been elected. - 17 - PART II Items 5. through 8. The information required by these items is included in pages 21 through 44 and on the inside back cover of the Company's annual report to security holders for the year ended December 31, 1994. The referenced pages of the Company's annual report to security holders have been filed as Exhibit 13 to this document. Such information is incorporated herein by reference, pursuant to General Instruction G(2). Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. There have been no changes in independent auditors and no disagreements with independent auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure during the last two years. PART III Items 10. through 13. Information regarding executive officers required by Item 401 of Regulation S-K is furnished in a separate disclosure in Part I of this report because the Company did not furnish such information in its definitive proxy statement prepared in accordance with Schedule 14A. The other information required by Items 10 through 13 is included in the Company's definitive proxy statement dated February 28, 1995, on page 6, the first paragraph on page 7, the last paragraph on page 7 through page 13, and the last paragraph on page 24 through the first full paragraph on page 41. Such information is incorporated herein by reference, pursuant to General Instruction G(3). PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Documents filed as a part of the report: (1) Financial Statements: Pages Report of Management ................................ * Report of Independent Auditors ...................... * Statements: Consolidated Statements of Income ............... * Consolidated Balance Sheets ..................... * Consolidated Statements of Cash Flows ........... * Notes to Consolidated Financial Statements ...... * ____________ *Incorporated herein by reference to the appropriate portions of the Company's annual report to security holders for the year ended December 31, 1994. (See Part II.) - 18 - (2) Financial Statement Schedules: Report of Independent Auditors ...................... 21 Schedules: II -- Valuation and Qualifying Accounts ............. 22 IX -- Short-Term Borrowings ......................... 24 Separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons are omitted since no such entity constitutes a "significant subsidiary" pursuant to the provisions of Regulation S-X, Article 3-09. (3) Exhibits: Exhibits identified in parentheses below, on file with the Securities and Exchange Commission ("SEC"), are incorporated herein by reference as exhibits hereto. Exhibit Number (3)a Restated Certificate of Incorporation of the registrant, dated January 10, 1989, Certificate of Change to Restated Certificate of Incorporation dated March 18, 1992, Certificate of Amendment to Restated Certificate of Incorporation dated June 1, 1992, and Certificate of Amendment to the Certificate of Incorporation dated April 20, 1994, (Exhibit 4B to Registration Statement No. 33-53765). (3)b By-Laws of the registrant, as amended May 18, 1994. (4) No instrument which defines the rights of holders of long term debt, of the registrant and all of its consolidated subsidiaries, is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request. (10)(iii)(A)1 AT&T Short Term Incentive Plan as amended March, 1994. (10)(iii)(A)2 AT&T 1987 Long Term Incentive Program as amended July 17, 1989 (Exhibit (10)(iii)(A)2 to Form SE dated March 24, 1993, File No. 1-1105). (10)(iii)(A)3 AT&T Senior Management Individual Life Insurance Program dated January 1, 1987 (Exhibit (10)(iii)(A)1 to Form SE, dated March 25, 1987, File No. 1-1105) and as revised December 1, 1994. -19- Exhibit Number (10)(iii)(A)4 AT&T Senior Management Long Term Disability and Survivor Protection Plan dated February 23, 1984 (Exhibit (10)(iii)(A)1 to Form SE, dated February 21, 1986, File No. 1-1105). (10)(iii)(A)5 AT&T Senior Management Financial Counseling Program dated December 29, 1994. (10)(iii)(A)6 AT&T Deferred Compensation Plan for Non-Employee Directors, as amended December 15, 1993 (Exhibit (10)(iii)(A)6 to Form 10-K for 1993, File No. 1-1105). (10)(iii)(A)7 AT&T Directors Individual Life Insurance Program dated January 1, 1987 (Exhibit (10)(iii)(A)3 to Form SE, dated March 25, 1987, File No. 1-1105). (10)(iii)(A)8 AT&T Plan for Non-Employee Directors' Travel Accident Insurance (Exhibit (10)(iii)(A)8 to Form 10-K for 1990, File No. 1-1105). (10)(iii)(A)9 Extract from AT&T (formerly Bell System) Management Pension Plan regarding limitations on and payments of pension amounts which exceed the limitations contained in The Employee Retirement Income Security Act, with amendments effective October 1, 1985 (Exhibit (10)(iii)(A)2 to Form SE, dated February 21, 1986, File No. 1-1105). (10)(iii)(A)10 AT&T Non-Qualified Pension Plan, (with amendments effective June 1, 1988) (Exhibit 10(iii)(A)10 to Form SE, dated March 26, 1990, File No. 1-1105). (10)(iii)(A)11 AT&T Senior Management Incentive Award Deferral Plan, as amended January 20, 1994 and March 25, 1994. (10)(iii)(A)12 AT&T Mid-Career Hire Program revised effective January 1, 1988, including AT&T Mid-Career Pension Plan, as amended May 15, 1985 (Exhibit (10)(iii)(A)4 to Form SE, dated March 25, 1988, File No. 1-1105). (10)(iii)(A)13 AT&T 1984 Stock Option Plan, as modified December 19, 1984 (Exhibit 10(t) to Form SE, dated February 27, 1985, File No. 0-13247). (10)(iii)(A)14 Form of Indemnification Contract for Officers and Directors (Exhibit (10)(iii)(A)6 to Form SE, dated March 25, 1987, File No. 1-1105). (10)(iii)(A)15 Pension Plan for AT&T Non-Employee Directors revised February 20, 1989 (Exhibit (10)(iii)(A)(15) to Form 10-K for 1993, File No. 1-1105). -20- Exhibit Number (10)(iii)(A)16 AT&T Senior Management Basic Life Insurance Program (Exhibit (10)(iii)(A)16 to Form 10-K for 1990, File No. 1-1105). (10)(iii)(A)17 Form of AT&T Benefits Protection Trust Agreement (Exhibit (10)(iii)(A)17 to Form SE, dated March 25, 1992, File No. 1-1105). (10)(iii)(A)18 Employment Agreement between American Telephone and Telegraph Company and Alex J. Mandl dated August 1, 1991 (Exhibit (10)(iii)(A) 18 to Form 10-K for 1993, File No. 1-1105). (12) Computation of Ratio of Earnings to Fixed Charges. (13) Specified portions (pages 21 through 44 and the inside back cover) of the Company's Annual Report to security holders for the year ended December 31, 1994. (21) List of subsidiaries of AT&T. (23) Consent of Coopers & Lybrand L.L.P. (24)a Powers of Attorney executed by officers and directors who signed this report. (24)b Board of Directors' Resolution. (27) Financial Data Schedule. AT&T will furnish, without charge, to a security holder upon request a copy of the annual report to security holders and the proxy statement, portions of which are incorporated herein by reference thereto. AT&T will furnish any other exhibit at cost. (b) Reports on Form 8-K: Forms 8-K dated October 26, 1994, December 8, 1994, December 13, 1994 and October 26, 1994, as amended (filed December 27, 1994). -21- REPORT OF INDEPENDENT AUDITORS To the Shareowners of AT&T Corp.: Our report on the consolidated financial statements of AT&T Corp. and subsidiaries has been incorporated by reference in this Form 10-K from page 29 of the 1994 Annual Report to the Shareowners of AT&T Corp. In connection with our audits of such financial statements, we have also audited the related consolidated financial statement schedules listed in the index on page 18 of this Form 10-K. In our opinion, the consolidated financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. As discussed in our report referred to above and in Note 2 to the consolidated financial statements, in 1993 the Company changed its methods of accounting for postretirement benefits, postemployment benefits and income taxes. COOPERS & LYBRAND L.L.P. 1301 Avenue of the Americas New York, New York January 24, 1995 -22- Schedule II--Sheet 1
AT&T CORP. AND ITS CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (Millions of Dollars) ----------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E ----------------------------------------------------------------------------------------------------------------------- Additions ------------------------ (1) (2) Balance at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions(a) of Period ----------------------------------------------------------------------------------------------------------------------- Year 1994 Allowances for doubtful accounts (b) ..... $1,225 $1,929 $59 $1,753 $1,460 Reserves related to business restructuring and facility consolidation (d) ...................... $1,440 $ (53) $(28) $ 465 $ 894 Deferred tax asset valuation allowance ... $ 212 $ -- $(34) $ -- $ 178 Year 1993 Allowances for doubtful accounts (b) ..... $1,013 $1,665 $66(c) $1,519 $1,225 Reserves related to business restructuring, including force and facility consolidation (d) ......... $2,006 $ 416 $ 5 $ 987(e) $1,440 Deferred tax asset valuation allowance ... $ 212 $ -- $-- $ -- $ 212 The Notes on Sheet 2 are an integral part of this Schedule.
-23- Schedule II--Sheet 2
AT&T CORP. AND ITS CONSOLIDATED SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS (Millions of Dollars) ----------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E ----------------------------------------------------------------------------------------------------------------------- Additions ------------------------ (1) (2) Balance at Charged to Charged Balance Beginning Costs and to Other at End Description of Period Expenses Accounts Deductions(a) of Period ----------------------------------------------------------------------------------------------------------------------- Year 1992 Allowances for doubtful accounts (b) ..... $1,049 $1,983 $31(c) $2,050 $1,013 Reserves related to business restructuring, including force and facility consolidation (d) ......... $2,792 $ 64 $ 8 $ 858 $2,006 ____________ (a) Amounts written off as uncollectible, payments and reversals. (b) Includes allowances for doubtful accounts on long-term receivables of $209, $185 and $153 in 1994, 1993 and 1992, respectively (included in Finance receivables in the Consolidated Balance Sheets). (c) Amounts previously written off which were credited directly to this account when recovered. (d) Included primarily in Other current liabilities and in Other liabilities in the Consolidated Balance Sheets. (e) Upon adoption in 1993 of Statement of Financial Accounting Standards No. 112, "Employers' Accounting for Postemployment Benefits," $412 of business restructuring reserves established before 1993 were reclassified to postemployment benefit liabilities.
-24- AT&T Corp. AND ITS CONSOLIDATED SUBSIDIARIES SCHEDULE IX - SHORT-TERM DEBT (Millions of Dollars) ----------------------------------------------------------------------------- Col. A Col. B Col. C ----------------------------------------------------------------------------- Weighted Amount Average at December 31 Interest Rate -------------------------- ------------------------ 1994 1993 1992 1994 1993 1992 ------ ------ ------ ------ ------ ------ Notes Payable: Commercial Paper... $10,777 $ 8,761 $ 6,053 4.7% 3.3% 3.8% Other Notes....... 324 231 281 9.7% 10.0% 10.9% Current Portion of long-term lease obligations......... 30 52 108 Current portion of long-term debt...... 2,535 2,019 1,249 ----- ----- ----- $13,666 $11,063 $ 7,691 Amount for the Year 1994 1993 1992 ---- ---- ---- Average amounts of Notes Payable outstanding during the year........... $ 8,400 $ 8,010 $ 5,117 4.6%(b) 3.7%(b) 4.4%(b) Maximum amounts of Notes Payable at any month end during the year.... 11,357 $ 9,959 $ 6,334 --------------------- NOTE: In future years, the information contained herein will be added to the Company's Consolidated Financial Statement Footnotes included in the Company's Annual Report to Shareowners. (a) See Note (5) to the Consolidated Financial Statements (b) Computed by dividing the average face amount of notes payable into the aggregate related interest expense. -25- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. AMERICAN TELEPHONE AND TELEGRAPH COMPANY By S. L. Prendergast Vice President and Treasurer March 24, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Principal Executive Officer: # # Robert E. Allen Chairman # of the Board # # # Principal Financial Officer: # # Richard W. Miller Executive Vice # President and # Chief Financial # Officer # # Principal Accounting Officer: # # Maureen B. Tart Vice President ## By S. L. Prendergast and Controller # (attorney-in-fact)* # Directors: # # March 24, 1995 Robert E. Allen # M. Kathryn Eickhoff # Walter Y. Elisha # Philip M. Hawley # Carla A. Hills # Belton K. Johnson # Drew Lewis # Donald F. McHenry # Victor A. Pelson # Donald S. Perkins # Henry B. Schacht # Michael I. Sovern # Franklin A. Thomas # Joseph D. Williams # Thomas H. Wyman # EXHIBIT INDEX Exhibits identified in parentheses below, on file with the SEC, are incorporated herein by reference as exhibits hereto. Exhibit Number (3)a Restated Certificate of Incorporation of the registrant, dated January 10, 1989, Certificate of Change to Restated Certificate of Incorporation dated March 18, 1992, Certificate of Amendment to Restated Certificate of Incorporation dated June 1, 1992, and Certificate of Amendment to the Certificate of Incorporation dated April 20, 1994, (Exhibit 4B to Registration Statement No. 33-53765). (3)b By-Laws of the registrant, as amended May 18, 1994. (4) No instrument which defines the rights of holders of long term debt, of the registrant and all of its consolidated subsidiaries, is filed herewith pursuant to Regulation S-K, Item 601(b)(4)(iii)(A). Pursuant to this regulation, the registrant hereby agrees to furnish a copy of any such instrument to the SEC upon request. (10)(iii)(A)1 AT&T Short Term Incentive Plan as amended March, 1994. (10)(iii)(A)2 AT&T 1987 Long Term Incentive Program as amended July 17, 1989 (Exhibit (10)(iii)(A)2 to Form SE dated March 24, 1993, File No. 1-1105). (10)(iii)(A)3 AT&T Senior Management Individual Life Insurance Program dated January 1, 1987 (Exhibit (10)(iii)(A)1 to Form SE, dated March 25, 1987, File No. 1-1105) and as revised December 1, 1994. (10)(iii)(A)4 AT&T Senior Management Long Term Disability and Survivor Protection Plan dated February 23, 1984 (Exhibit (10)(iii)(A)1 to Form SE, dated February 21, 1986, File No. 1-1105). (10)(iii)(A)5 AT&T Senior Management Financial Counseling Program dated December 29, 1994. (10)(iii)(A)6 AT&T Deferred Compensation Plan for Non-Employee Directors, as amended December 15, 1993 (Exhibit (10)(iii)(A)6 to Form 10-K for 1993, File No. 1-1105). (10)(iii)(A)7 AT&T Directors Individual Life Insurance Program dated January 1, 1987 (Exhibit (10)(iii)(A)3 to Form SE, dated March 25, 1987, File No. 1-1105). (10)(iii)(A)8 AT&T Plan for Non-Employee Directors' Travel Accident Insurance (Exhibit (10)(iii)(A)8 to Form 10-K for 1990, File No. 1-1105). Exhibit Number (10)(iii)(A)9 Extract from AT&T (formerly Bell System) Management Pension Plan regarding limitations on and payments of pension amounts which exceed the limitations contained in The Employee Retirement Income Security Act, with amendments effective October 1, 1985 (Exhibit (10)(iii)(A)2 to Form SE, dated February 21, 1986, File No. 1-1105). (10)(iii)(A)10 AT&T Non-Qualified Pension Plan, (with amendments effective June 1, 1988) (Exhibit 10(iii)(A)10 to Form SE, dated March 26, 1990, File No. 1-1105). (10)(iii)(A)11 AT&T Senior Management Incentive Award Deferral Plan, as amended January 20, 1994 and March 25, 1994. (10)(iii)(A)12 AT&T Mid-Career Hire Program revised effective January 1, 1988, including AT&T Mid-Career Pension Plan, as amended May 15, 1985 (Exhibit (10)(iii)(A)4 to Form SE, dated March 25, 1988, File No. 1-1105). (10)(iii)(A)13 AT&T 1984 Stock Option Plan, as modified December 19, 1984 (Exhibit 10(t) to Form SE, dated February 27, 1985, File No. 0-13247). (10)(iii)(A)14 Form of Indemnification Contract for Officers and Directors (Exhibit (10)(iii)(A)6 to Form SE, dated March 25, 1987, File No. 1-1105). (10)(iii)(A)15 Pension Plan for AT&T Non-Employee Directors revised February 20, 1989 (Exhibit (10)(iii)(A)(15) to Form 10-K for 1993, File No. 1-1105). (10)(iii)(A)16 AT&T Senior Management Basic Life Insurance Program (Exhibit (10)(iii)(A)16 to Form 10-K for 1990, File No. 1-1105). (10)(iii)(A)17 Form of AT&T Benefits Protection Trust Agreement (Exhibit (10)(iii)(A)17 to Form SE, dated March 25, 1992, File No. 1-1105). (10)(iii)(A)18 Employment Agreement between American Telephone and Telegraph Company and Alex J. Mandl dated August 1, 1991 (Exhibit (10)(iii)(A) 18 to Form 10-K for 1993, File No. 1-1105). (12) Computation of Ratio of Earnings to Fixed Charges. (13) Specified portions (pages 21 through 44 and the inside back cover) of the Company's Annual Report to security holders for the year ended December 31, 1994. (21) List of subsidiaries of AT&T. (23) Consent of Coopers & Lybrand L.L.P. (24)a Powers of Attorney executed by officers and directors who signed this report. (24)b Board of Directors' Resolution. (27) Financial Data Schedule. EX-3 2 1 Exhibit (3)b BY-LAWS OF AT&T CORP. AS AMENDED MAY 18, 1994 CONTENTS ARTICLE I MEETINGS OF SHAREHOLDERS Section 1--Annual Meeting--Notice 2--Record Date 3--Special Meetings--Notice 4--Failure to Receive Notice ARTICLE II CONDUCT OF SHAREHOLDERS' MEETINGS Quorum, Adjournment and Voting ARTICLE III INSPECTORS ARTICLE IV BOARD OF DIRECTORS Section 1--Election 2--Number 3--Vacancy ARTICLE V MEETINGS OF DIRECTORS Section 1--Regular Meetings 2--Special Meetings 3--Notice of Meeting 4--Quorum 5--Location 6--Participation by Telephone and Action Taken Without a Meeting ARTICLE VI EXECUTIVE AND OTHER COMMITTEES Composition, Quorum, Authority, Alternate Members and Action by Written Consent ARTICLE VII OFFICERS OF THE COMPANY Section 1--Election and Titles 2--Appointments--Other Officers and Agents 2 CONTENTS--CONTINUEDARTICLE VIII DUTIES OF OFFICERS Section 1--Chairman of the Board 2--Other Officers 3--Absence of Chairman ARTICLE IX DUTIES OF TREASURER AND ASSISTANT TREASURERS Section 1--Funds--Receipts and Disbursements 2--Reports 3--Depositaries 4--Assistant Treasurers' Authority 5--Security ARTICLE X DUTIES OF SECRETARY AND ASSISTANT SECRETARIES Section 1--Notices--Shareholders' and Directors' Meetings 2--Records of Shareholders' and Directors' Meetings Custody and Use of Seal 3--Assistant Secretaries' Authority ARTICLE XI DUTIES OF CONTROLLER ARTICLE XII TRANSFER OF SHARES Section 1--Issuance and Transfer 2--Loss of Certificates ARTICLE XIII INDEMNIFICATION OF DIRECTORS AND OFFICERS ARTICLE XIV SEAL ARTICLE XV AMENDMENTS 3 BY-LAWS ARTICLE I. Meetings of Shareholders Section 1. The annual meeting of the shareholders shall be held in April 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 fifty 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 fifty 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 fifty 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. 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. All elections by shareholders shall be by ballot. 4 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. 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 not be 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 thereto by the members of the Board shall be filed with the minutes of the proceedings of the Board. 5 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. ARTICLE VII. Officers of the Company Section 1. 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. 6 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. Section 3. The Treasurer shall deposit all moneys received by him, in the corporate name of the company, with such depositaries 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 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. 7 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. 8 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. 9 ARTICLE XIV. Seal The corporate seal of the company shall be in the following form. 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. EX-10 3 1 Exhibit (10)(iii)(A)1 AT&T Form 10-K AT&T SHORT TERM INCENTIVE PLAN (As Amended March, 1994) 1. PURPOSE. The purpose of the AT&T Short Term Incentive Plan (the "Plan") is to provide Senior Managers of American Telephone and Telegraph Company (the "Company") and its Affiliates with incentive compensation based upon the level of achievement of financial and other performance criteria. The Plan will enhance the ability of the Company and its Affiliates to attract individuals of exceptional managerial talent upon whom, in large measure, the sustained progress, growth and profitability of the Company depends. 2. DEFINITIONS. As used in the Plan, the following terms shall have the meanings set forth below: (a) "Affiliate" shall mean (i) any Person that directly, or through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company or (ii) any entity in which the Company has a significant equity interest, as determined by the Committee. (b) "Award" shall mean a cash payment. (c) "Board" shall mean the Company Board of Directors. (d) "Calendar Year" shall mean the year, following the Performance Year, in which the Award is made. 2 (e) "Change in Control" shall be deemed to have occurred if (a) there shall have been a change in the composition of the Board such that at any time a majority of the Board shall have been members of the Board for less than twenty-four months, unless the election of each new director who was not a director at the beginning of the period was approved by at least two-thirds of the directors then still in office who were directors at the beginning of such period (but in no event by fewer than three such directors); or (b) any Person acquiring 30% or more of the outstanding common shares of the Company. (f) "Committee" shall mean the Compensation Committee of the Board. (g) "Covered Employees" shall mean a Participant who is a "covered employee" within the meaning of Section 162(m) of the Internal Revenue Code with respect to any Performance Year. (h) "Outside Directors" shall mean those members of the Committee who are "outside directors" within the meaning of Section 162(m) of the Internal Revenue Code. (i) "Participant" shall mean each and every Senior Manager of the Company and its Affiliates other than those Senior Managers who are determined by the Committee, or such person or committee empowered by the Committee, to be ineligible to participate in the Plan. (j) "Performance Year" shall mean the year in which the award was earned. (k) "Person" shall mean any individual, corporation, partner- ship, association, joint-stock company, trust, unincorporated organization, or government or political subdivision thereof. (l) "Senior Manager" shall mean any manager of the Company or any Affiliate holding a position above "E" level or any future salary grade level that is the equivalent thereof. (m) "Target Award" shall mean an Award level that will be paid if certain performance criteria are achieved in the Performance Year. 3. AWARDS-GENERAL. Awards will be made in each Calendar Year with respect to a Performance Year. Awards shall be paid as soon as practicable after the Performance Year, except to the extent that a Participant has made an election to defer the receipt of such Award pursuant to the AT&T Senior Management Incentive Award Deferral Plan. The Committee shall approve a Target Award for each structure rate of management eligible for Awards under the Plan prior to each Performance Year for which it intends to make Awards. For each Performance Year the Committee shall also establish performance criteria as described in A and B below to be applicable to Awards for such Performance Year (and future Performance Years, as the case may be). Performance criteria are: A. Financial performance criteria of the Company and its Affiliates (in each case, prepared on the same basis as the financial statements published for financial reporting purposes except as adjusted pursuant to Section 5 hereof); and B. Other performance criteria of the Company and its Affiliates. 3 Except as provided in Section 4 (relating to Award to "covered employees"), Awards for any Performance Year will be determined by the Committee, or such person or committee empowered by the Committee, based upon the level of achievement during such Performance Year of the criteria referred to in A or B above and on individual merit of each Participant. The Target Awards shall serve only as a guideline in making Awards under the Plan. Depending upon individual performance, in the case of each Participant, an Award may be more or less (including no Award) than such Target Award. 4. AWARD TO "COVERED EMPLOYEES". Notwithstanding any other provision of the Plan to the contrary, the following provisions shall apply to any Participant who is a "covered employee" within the meaning of Section 162(m) of the Code (i.e., the CEO and four most highly compensated officers of the Company, other than the CEO, as of the end of a Performance Year): (a) The total of all Awards payable to all such Participants who are "covered employees" shall be 0.4% of the "Net Cash Provided by Operating Activities," as publicly disclosed in the Company's consolidated financial statements for such Performance Year, and the Award to each Participant with respect to such Performance Year shall be such amount divided by the number of Participants who are "covered employees" with respect to such Performance Year, subject to adjustment as described in (b) below. Prior to the payment of any award to a "covered employee" with respect to a Performance Year, those Compensation Committee members who are "outside directors" under Section 162(m) of the Code shall certify the amounts under this Section 4(a) with respect to such Performance Year. (b) Those Compensation Committee members who are "outside directors" (within the meaning of Section 162(m) of the Code), in their sole discretion, shall have the authority to set the actual Award to any Participant under this Section 4 at any amount lower than the amount described in (a) above, based on factors, including but not limited to, individual merit and financial and other performance criteria of the Company established by the Compensation Committee along with any adjustments (as described herein under "Plan Administration and Termination"). The award to any Participant may be less than (including no award), but never more than, the amount determined under (a) above. 5. ELIGIBILITY. (a) Persons employed by the Company or any of its Affiliates during a Performance Year in active service at a Senior Manager level are eligible to be Participants under the Plan for such Performance Year (whether or not so employed or living at the date an Award is made); provided that, except in the case of a manager promoted to Senior Manager, the manager has at least three months of active service at such level during the Performance Year with the Company or any Affiliate (excluding any time the manager was absent on account of disability and receiving any Sickness or Accident Disability Benefits ("Disability Benefits") under the Company or any employing Affiliate's Sickness or Accident Disability Benefit Plan). A Senior Manager is not rendered ineligible to be a Participant by reason of being a member of the Board. (b) The Target Award applicable to a Participant under the Plan for a Performance Year shall be prorated over the Performance Year or the Participant shall be ineligible for an Award, as follows: (1) entrance to or exit from - prorate from date of a level of Senior Manager entrance or exit to after the beginning of the the nearest half Performance Year, including month exit due to death, retirement, resignation, or leave of absence 4 (2) changes in designated - prorate according structure rate to time of active service at each structure rate to the nearest half month (3) receipt of Disability - prorate to the day Benefits for more than based on time of three months in a service while not Performance Year under the receiving Disability plan of the Company or any Benefits Affiliate (4) receipt of Disability - no reduction in Benefits for three months applicable Target or less in a Performance Award Year under the plan of the Company or any Affiliate (5) dismissal during or after - no award a Performance Year by the Company or any Affiliate 6. ADJUSTMENTS. (a) In order to assure the incentive features of the Plan and to avoid distortion in the operation of the Plan, the Committee may make adjustments in the performance criteria established by it for any Performance Year under Section 3 whether before or after the end of the Performance Year to the extent it deems appropriate in its sole discretion, which shall be conclusive and binding upon all parties concerned, to compensate for or reflect any extraordinary changes which may have occurred during the Performance Year which significantly alter the basis upon which such performance criteria were determined. Such changes may include without limitation changes in accounting practices, tax, regulatory or other laws or regulations, or economic changes not in the ordinary course of business cycles. The Company also reserves the right to adjust Target Awards to insulate them from the effects of unanticipated, extraordinary, major business developments, e.g., unusual events such as a special asset writedown, sale of a division, etc. The determination of financial performance achieved for any Performance Year may, but need not be, adjusted by the Committee to reflect such extraordinary, major business developments. Any such determination shall not be affected by subsequent adjustments or restatements. (b) In the event of any change in outstanding shares of the Company by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the Committee shall make such adjustments, if any, that it deems appropriate in the performance criteria established by it under Section 3 for any Performance Year not then completed; any and all such adjustments to be conclusive and binding upon all parties concerned. (C) In order to maintain the Participants' rights in the event of any Change in Control of the Company the Committee as constituted before such Change in Control may, in its sole discretion, as to any Award, either at the time a Target Award is determined hereunder or any time thereafter, take any one of the following actions: (i) provide for the acceleration of any time periods relating to the realization of any Award so that such Award may be realized in full on or before a date fixed by the Committee; (ii) make such adjustment to any Target Award then outstanding as the Committee deems appropriate to reflect such Change in Control; (iii) cause the Company's obligation with respect to such Target Award and any other obligations hereunder to be assumed, or new obligations substituted therefor, by the acquiring or surviving corporation after such Change in Control. 5 7. OTHER CONDITIONS. (a) No person shall have any claim to an Award under the Plan and there is no obligation for uniformity of treatment of Participants under the Plan. Awards under the Plan may not be assigned or alienated. (b) Neither the Plan nor any action taken hereunder shall be construed as giving to any Participant the right to be retained in the employ of the Company or any Affiliate. (c) The Company or any Affiliate shall have the right to deduct from any Award to be paid under the Plan any federal, state or local taxes required by law to be withheld with respect to such payment. (d) Awards under the Plan will be included in the base for determining pensions, retirement and death related benefits under the following plans: - AT&T Non-Qualified Pension Plan - AT&T Mid-Career Pension Plan - AT&T Senior Management Long Term Disability and Survivor Protection Plan (e) In the event an Award under the Plan is deferred under the AT&T Senior Management Incentive Award Deferral Plan, it will be reflected in the calculations of the above benefit plans as if it had been paid as scheduled and not deferred. 8. DESIGNATION OF BENEFICIARIES. A Participant may designate a beneficiary or beneficiaries to receive all or part of the Award which may be made to the Participant, or may be payable, after such Participant's death. A designation of beneficiary may be replaced by a new designation or may be revoked by the Participant at any time. A designation or revocation shall be on a form to be provided for this purpose and shall be signed by the Participant and delivered to the Company or Affiliate employing the Participant prior to the Participant's death. In case of the Participant's death, an Award with respect to which a designation of beneficiary has been made (to the extent it is valid and enforceable under applicable law) shall be paid to the designated beneficiary or beneficiaries. Any Award granted or payable to a Participant who is deceased and not subject to such a designation shall be distributed to the Participant's estate. If there shall be any question as to the legal right of any beneficiary to receive an Award under the Plan, the amount in question may be paid to the estate of the Participant, in which event the Company or it's employing Affiliate shall have no further liability to anyone with respect to such amount. 9. PLAN ADMINISTRATION. (a) The Committee shall have full power to administer and interpret the Plan and to establish rules for its administration subject to such resolutions, not inconsistent with the Plan, as may be adopted by the Board, except that the "outside directors" shall have such power with respect to Awards to "covered employees" under the provisions of Section 4. In making any determinations under or referred to in the Plan the Committee, or the outside directors, as applicable, shall be entitled to rely on opinions, reports or statements of officers or employees of the Company and its Affiliates and of counsel, public accountants and other professional or expert persons. (b) The Plan shall be governed by the laws of the State of New York and applicable Federal law. 10. MODIFICATION OR TERMINATION OF PLAN. The Board may modify or terminate the Plan at any time, effective at such date as the Board may determine. The Senior Vice President - Human Resources of the Company (or any successor to that officer's responsibilities) with the concurrence of the General Counsel, or the Vice President-Law for Corporate Matters, of the Company (or any successor to either of such officer's responsibilities), shall be authorized to make minor or administrative changes in the Plan or changes required by or made desirable by government regulation. A modification may affect present and future Participants. EX-10 4 Exhibit (10)(iii)(A)3 THE AT&T SENIOR MANAGEMENT INDIVIDUAL LIFE INSURANCE PROGRAM January 1, 1987 Revised 12/1/94 TABLE OF CONTENTS PAGE ____ PROGRAM OVERVIEW ......................................................... 1 ELIGIBILITY .............................................................. 1 COVERAGE ................................................................. 1 INSURABILITY ............................................................. 1 PREMIUM SHARING/BENEFIT SHARING .......................................... 2 PREMIUM PERIOD ........................................................... 2 PREMIUM AMOUNT ........................................................... 2 PREMIUM WAIVERS .......................................................... 2 OWNERSHIP ................................................................ 3 CASH VALUE ............................................................... 3 CASH AVAILABILITY ........................................................ 3 SECURED BENEFIT .......................................................... 3 EARLY RETIREMENT, TERMINATION OR DEMOTION ................................ 4 CONTRACTUAL AGREEMENT .................................................... 4 TAXES .................................................................... 4 ENROLLMENT ............................................................... 5 ENROLLMENT PACKAGE PROGRAM OVERVIEW The Senior Management Individual Life Insurance Program (SMILIP) is an arrangement where the Company and you purchase a permanent life insurance policy on your life and share the premium payment. If you die while AT&T is still a party to the policy, typically before you reach age 65, the death benefit is also shared between the Company and your designated beneficiary. This type of arrangement this known in the insurance industry as "Split Dollar." After attaining age 65 or if later, 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the date of issuance of this policy, the Company will recoup its premium payments from the cash value build-up in the policy and cease to have any interest in the policy. The remaining cash value will be sufficient to give you a "paid-up" death benefit after attaining normal retirement age, i.e., all premiums will cease and the death benefit of the policy will be secured for the designated beneficiary with no further cost to you. At the time of enrollment your death benefit will be, at your option, one or one-and-one-half times base salary. Your death benefit will increase annually at 7% to approximate assumed growth in base salary over an extended period of time. The premium cost to you will also increase to reflect your increasing age as well as the increased death benefit. The Company will pay a significant portion of the premium (see the attached illustration). Over time, the Company portion of the premium will decrease. Although this arrangement is primarily designed to pay a benefit upon your death, there is also a cash value build-up occurring coincident with the premium payments that continues after the premium payments cease. Once sufficient funds have accumulated and the Company no longer has an interest in the policy, because it has recouped its premiums, you have the option to use some or all of the remaining cash in lieu of some or all of the death benefit. ELIGIBILITY SMILIP is for AT&T Senior Managers. Employees who are promoted or hired into Senior Management are immediately eligible to enroll in this program. COVERAGE Once you select the amount of coverage (one or one-and-one half times base salary), the death benefit will automatically increase 7% on January 1 of each year to approximate salary increases. Periodically over the life of the policy this amount may be adjusted by the Company to more closely approximate your actual salary. INSURABILITY If you enroll within 60 days of becoming a Senior Manager, you are guaranteed to be insured. You may lower your coverage, e.g., one-and-one-half times to one times at any point after enrollment. If you choose to delay enrollment or later choose to increase coverage, e.g., one times to one-and-one-half times, proof of insurability may be required at that time before a policy can be written or coverage increased. If you are on disability (i.e., receiving Sickness and Disability Benefits) at the time of eligibility, enrollment must be delayed until you return to work. -1- PREMIUM SHARING/BENEFIT SHARING SMILIP has its origin in what the insurance industry calls a "Split Dollar" program. The term "Split Dollar" insurance comes from a concept of the Employer and the Employee sharing the premium payment on a life insurance policy on the employee. At age 65 or if later, 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the date of issuance of the policy, the Company's aggregate premiums are returned from a "special" cash value built into the policy expressly for this purpose. Should you die before the Company's aggregate premiums are returned, death benefit payments are made to both the Company and your beneficiary. However, the benefit the Company receives DOES NOT REDUCE THE DEATH BENEFIT PAID TO YOUR BENEFICIARY. After the Company's aggregate premiums are returned, the Company no longer has an interest in the policy. At that time you will have a "paid up" permanent life insurance policy with a cash value that can be made available to you at your option. EXAMPLE:* Sample Senior Manager's Program Current Age 50 Annual Premium Cash Value Attained Death Senior Senior Age Benefit Manager Company Manager Company 50 $200,000 $ 880 $17,090 0 $ 14,350 55 280,500 1,740 16,232 $ 15,700 101,000 60 393,400 4,092 13,878 85,350 178,500 64 515,700 5,364 12,606 195,700 231,000 65# 515,700 0 0 203,800 0 * This example is for illustrative purposes only and assumes a 7% annual growth in death benefit (assumed base salary) and an 8% yield on investment for the cash value. The yield on investment is not guaranteed. # At normal retirement the death benefit becomes constant, premiums cease, the Company's aggregate premiums are returned and your cash value may continue to grow. PREMIUM PERIOD SMILIP is designed for premiums to be extended over a period of time to ease the impact on cash flow to both you and the Company. This period is normally from the time of your enrollment until you reach age 65, however, premiums must be paid for a minimum of 10 years (in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines). Therefore, if you enroll in the program after age 55, you and the Company will continue premium contributions until the minimum is reached. PREMIUM AMOUNT Included as an attachment are two personal illustrations (one times and one-and-one-half times your base salary coverage). The policy, when issued, will be based on illustration that you elect. These illustrations show the Company's as well as your annual premiums through the life of the policy. PREMIUM WAIVERS There are no Premium Waivers associated with this policy. -2- OWNERSHIP There are three options: SENIOR MANAGER AS OWNER All paperwork should be signed by Senior Manager as proposed insured and owner. OWNER AT ENROLLMENT IS NOT THE SENIOR MANAGER Another option is for you not to take ownership, but rather another, i.e., individual, trust, etc., apply for ownership of the policy. It is of particular importance that if the owner of the policy is not you, the owner must sign as the "Applicant/Owner" and you must sign the application as the "Proposed Insured". TRANSFER OF OWNERSHIP The owner of this policy may subsequently transfer ownership to another, i.e., an individual, trust, etc. Please contact Executive Human Resources at 908 221-4444 for the necessary forms and/or information. SINCE OWNERSHIP HAS LONG TERM AND/OR IRREVOCABLE IMPLICATIONS, WE URGE YOU TO CONSULT WITH AN ATTORNEY AND/OR TAX ADVISOR BEFORE MAKING THIS DECISION. CASH VALUE This program is designed to provide you with a pre- and post-retirement death benefit. However, in addition to the death benefit, there is a cash value build-up. That is, part of each premium is placed in an "investment fund" to earn income. Investment earnings beyond the amounts necessary to increase the death benefit (as your salary increases) build on a tax advantaged basis in the policy. CASH AVAILABILITY CASH BUILD-UP Your share of the cash build-up will not begin until several years into the policy but will build quickly after that. As with any cash amount, the longer it is left intact the greater the amount will be. LOANS The cash value attributed to you may be withdrawn in the form of a loan after the Company no longer has an interest in the policy. There are certain restrictions and tax implications associated with a loan. We suggest that you speak with your financial counselor/tax advisor before taking such a step. INCOME STREAM OR LUMP SUM It is possible, after retirement, to convert all or any portion of the policy from a death benefit to either an income "stream" (i.e., an annuity) or a lump sum cash payout. The extent to which you convert to income or cash will cancel or reduce the valuable death benefit. Once you convert, it is not possible to re-establish the original death benefit. SECURED BENEFIT Changes to the tax law over the years have required more and more of the Senior Management benefit programs to be paid from Company operating income. -3- SMILIP allows the Company to contribute towards the cost of this program on a timely basis while securing the benefit payment from a third party (the insurance company). EARLY RETIREMENT, TERMINATION OR DEMOTION If, at retirement, you are "Pension Eligible" (i.e., you retire on a Service or Disability Pension under the AT&T Management Pension Plan, or with a Disability Allowance or Minimum Retirement Benefit under the AT&T Senior Management Long Term Disability and Survivor Protection Plan) and before age 65, the death benefit will continue to increase until age 65. Both you and the Company will continue to pay premiums until you reach age 65 or if later, 10 years-(in some cases it may be longer to avoid violation of the Internal Revenue Service Regulations Section 7702 guidelines) from the date of issuance of the policy. At that time the premiums will cease and the Company's aggregate premiums will be returned to the Company. If you leave the Company and engage in competitive activity as determined by AT&T, the process will be the same as with retirement/termination without being Pension Eligible or demotion. If you separate from the Company without being Pension Eligible or are demoted to a non Senior Manager position, the Company's aggregate premiums will be immediately returned to the Company. You can, at your option, either maintain the policy by continuing to pay the total premium, i.e., both your amount and the amount previously paid by the Company, use the remaining cash value (if any) to buy paid up life insurance, or withdraw any remaining cash value and cancel the policy. CONTRACTUAL AGREEMENT One of the unique aspects of this insurance policy is the existence of a contract between you and AT&T. This agreement has no relationship to employment or any other benefit but rather defines the responsibilities of both the Company and you in the operation of the policy. You will own the policy and determine who beneficiary. The Company will hold the policy and have a "Collateral Assignment" from the owner (you or another you name) entitling AT&T, as long as it has a collateral interest in the policy, to an amount equal to its premiums paid. This document is a legal agreement and as such includes a significant amount of detail and warrants your careful review before signing. Although somewhat unique to life insurance, a collateral assignment is similar in context to an automobile loan where the car becomes "collateral" for the money lent to buy it. In this case, a portion of the value and benefit of the policy is the collateral the Company receives for contributing premium payments to "buy" the life insurance policy. The agreement is satisfied when the premium paid by the Company is returned. Some of the major sections of the agreement are: - Description of the policy - How the premiums are paid - How the proceeds are paid - How the agreement terminates - Claims procedure - Description of the assignment The Agreement is included with this package. TAXES Split Dollar life insurance policies have been in existence for decades. The IRS has issued several rulings over this period which treat these policies favorably from a tax perspective. However, the Company does not assure any particular tax treatment and recommends that you review your own situation with your personal attorney and/or tax advisor. -4- ENROLLMENT Included with this package are the documents required for enrolling in the Senior Management Individual Life Insurance Program. The Application Form while appearing lengthy requires, for our purposes, just a few basic pieces of information, as does the Beneficiary Designation form. Both of these documents include instructions on how to complete. The Collateral Assignment requires signatures only. -5- EX-10 5 1 Exhibit (10)(iii)(A)5 December 29, 1994 SENIOR MANAGEMENT FINANCIAL COUNSELING PROGRAM GENERAL DESCRIPTION OF SERVICES AT&T offers a financial counseling program to all active Senior Managers. This program is extended to retired Senior Managers during the first year of retirement. In addition, eligibility is extended to the spouse and/or immediate family members in the event of death of a participating Senior Manager. Participation in the program is voluntary. Upon election to participate in the program, the Senior Manager can select from three financial counseling firms utilized by AT&T, all of which have nation-wide branches; Asset Management Group (AMG), The AYCO Company and Coopers & Lybrand. AMG has a base office in Englewood, Colorado and a local office in Parsippany, New Jersey. The Ayco Company is based in Albany, New York, and has a local office in Florham Park, New Jersey. Coopers & Lybrand, has a local office in Parsippany, New Jersey. Upon selection of a firm, the Senior Manager is assigned a personal counselor who will schedule a preliminary interview which is primarily a get acquainted session. During the interview, the counselor will outline the services offered by the firm and describe the type of personal information and documents the Senior Manager will need to provide to the counselor. The types of documents and personal information include items such as wills, deeds, insurance policies and trusts, as well as complete data on the Senior Manager's financial status. All information is held strictly confidential between the financial counseling firm and the Senior Manager. The counselor will schedule a follow-up interview at which time an in depth examination of the financial goals and objectives of the Senior Manager and the spouse is completed. After all pertinent data have been analyzed, the counselor will prepare a comprehensive report for presentation to the Senior Manager. The report outlines the Senior Manager's current financial status, indicates areas requiring adjustments, if any, and recommends future financial actions. The types of services provided in the program include: * COMPANY PROVIDED BENEFITS PLANNING * ESTATE PLANNING * INSURANCE PLANNING * INVESTMENT PLANNING * INCOME TAX PLANNING In addition to the above services, the Senior Management Financial Counseling Program covers the cost of personal income tax preparation and the preparation of wills and trusts associated with estate planning. Although AMG, AYCO and Coopers & Lybrand provide tax preparation services, the Senior Manager may engage their own attorney or tax accounting firm for both estate planning and tax preparation. 2 Attached is a summary of the current financial counseling fees by firm and type of service. Each of the three firms bills AT&T Executive Human Resources, who in turn pays the bills and charges the expense to each individual Senior Manager's budget. The amount of each financial counseling invoice paid on behalf of a Senior Manager by AT&T, is treated as imputed income to the Senior Manager. The imputed amount is reflected in the Senior Manager's paycheck and appropriate federal and state taxes are withheld from the imputed income at "flat" tax rates. Every February, a tax allowance payment is made to each Senior Manager to offset any adverse tax effects as a result of the non-deductibility of all or a portion of the financial counseling fees paid by AT&T on their behalf. The tax allowance payment is considered taxable income in the year in which the payment is received. The Financial Counseling Program shall be forfeited if the employee, without the consent of the AT&T Management Executive Committee, while employed by the Company or after termination of such employment, becomes associated with, employed by, renders services to, or owns any interest in (other than any non substantial interest, as determined by the Committee), any business that is in competition with the Company or with any business in which the Company has substantial interest as determined by the Committee. This program is administered by Executive Human Resources, who can be reached on (908) 221-4444. EX-10 6 1 Exhibit(10)(iii)(A)(11) AT&T Form 10-K AT&T SENIOR MANAGEMENT INCENTIVE AWARD DEFERRAL PLAN (as amended January 20, 1994 and March 25, 1994) 1. ELIGIBILITY Any Senior Manager (as defined in the AT&T 1987 Long Term Incentive Program [the "1987 Plan"]) of American Telephone and Telegraph Company ("AT&T") or an Affiliate (as defined in the 1987 Plan) who is eligible for an award under the AT&T Short Term Incentive Plan (the "Short Term Incentive Plan") and/or who has been granted a Performance Award under the AT&T Senior Management Long Term Incentive Plan (the "Long Term Incentive Plan") or the 1987 Plan, or who is eligible for an award under the AT&T Paradyne GMT Short Term Incentive Plan (the "Paradyne Plan"), shall be eligible to participate in this AT&T Senior Management Incentive Award Deferral Plan (the "Plan"). For purposes of the Plan, AT&T and any Affiliate shall be referred to as a "Participating Company". Prior to January 1, 1984, the Plan was named the Bell System Senior Management Incentive Award Deferral Plan. 2. PARTICIPATION (a) Prior to the beginning of any calendar year, any Senior Manager may elect to participate in the Plan by directing that (i) all or part of the awards under the Short Term Incentive Plan or the Paradyne Plan, or the Performance Awards under the Long Term Incentive Plan or the 1987 Plan and/or (ii) all or part of the dividend equivalent payments under the Long Term Incentive Plan or the 1987 Plan, which such employee's Participating Company would otherwise pay currently to such employee in such calendar year and subsequent calendar years, shall be credited to a deferred account subject to the terms of the Plan. However, in no event shall the part of an award under any plan credited during any calendar year be less than $1,000 (based on a valuation at the time the award would otherwise be paid). There shall be no such minimum limitation on amounts credited during any calendar year that are related to dividend equivalent payments. In addition, prior to the beginning of any calendar year, the Chairman of the Board and any other Senior Manager designated by the Chairman of the Board may elect to participate in the Plan by directing that all or part of such Senior Manager's salary, which such employee's Participating Company would otherwise pay currently to such employee in such calendar year and subsequent calendar years, shall be credited to a deferred account subject to the terms of the Plan. (b) Such an election to participate in the Plan shall be in the form of a document executed by the employee and filed with the employee's Participating Company. An election related to awards, dividend equivalent payments and/ or salary otherwise payable currently in any calendar year shall become irrevocable on the last day prior to the beginning of such calendar year. (c) An election shall continue until the employee terminates or modifies such election by written notice. Any such termination or modification shall become effective as of the end of the calendar year in which such notice is given with respect to all awards, dividend equivalents and/or salary otherwise payable in subsequent calendar years. 2 (d) An eligible employee who has filed a termination of election may thereafter again file an election to participate with respect to awards, dividend equivalent payments and/or salary otherwise payable in calendar years subsequent to the filing of such election. 3. DEFERRED ACCOUNTS (a) (i) Deferred amounts related to awards, dividend equivalent payments which would otherwise have been distributed in cash by a Participating Company and deferred amounts related to salary shall be credited to the employee's account and shall bear interest from the date the awards, dividend equivalent payments and/or salary would otherwise have been paid. The interest credited to the account will be compounded at the end of each calendar quarter, and the annual rate of interest applied at the end of any calendar quarter shall be determined by the AT&T Board of Directors from time to time. (ii) Furthermore, if an employee made an election described in Section 2, which election was effective on December 31, 1983, then such employee's account shall also be credited during 1984 with an amount equal to the deferred amounts which would have been credited to the employee's account during 1984 had the company which employed the employee on December 31, 1983 continued to be a Participating Company during 1984, and such amount shall bear interest in accordance with (a)(i) above from the date such amount would have been credited had such company continued to be a Participating Company during 1984. (b) Deferred amounts related to awards which would otherwise have been distributed in AT&T common shares by a Participating Company shall be credited to the employee's account as deferred AT&T shares. Furthermore, if an employee made an election described in Section 2, which election was effective on December 31, 1983, then such employee's account shall also be credited during 1984 with the deferred AT&T Shares which would have been credited to the employee's account had the company which employed the employee on December 31, 1983 continued to be a Participating Company in the Plan and in the Long Term Incentive Plan during 1984. The employee's account shall also be credited on each dividend payment date for AT&T shares with an amount equivalent to the dividend payable on the number of AT&T common shares equal to the number of deferred AT&T shares in the employee's account on the record date for such dividend. Such amount shall then be converted to a number of additional deferred AT&T shares determined by dividing such amount by the price of AT&T common shares, as determined in the following sentence. The price of AT&T common shares related to any dividend payment date shall be the average of the daily high and low sale prices of AT&T common shares on the New York Stock Exchange ("NYSE") for the period of five trading days ending on such dividend payment date, or the period of five trading days immediately preceding such dividend payment date if the NYSE is closed on the dividend payment date. (c) In the event of any change in outstanding AT&T common shares by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or other similar corporate change, the AT&T Board of Directors shall make such adjustments, if any, that it deems appropriate in the number of deferred AT&T shares then credited to employees' accounts. Any and all such adjustments shall be conclusive and binding upon all parties concerned. 4. DISTRIBUTION (a) At the time an eligible employee makes an election to participate in the Plan, the employee shall also make an election with 3 respect to the distribution (during the employee's lifetime or in the event of the employee's death) of the amounts credited to the employee's deferred account. Such an election related to the distribution during the employee's lifetime, of amounts otherwise payable currently in any calendar year, shall become irrevocable on the last day prior to the beginning of such calendar year. The election related to the distribution in the event of the employee's death, including the designation of a beneficiary or beneficiaries, may be changed by the employee at any time by filing the appropriate document with the Secretary of the Company. Amounts credited as cash plus accumulated interest shall be distributed in cash; amounts credited as deferred AT&T shares shall be distributed in the form of an equal number of AT&T shares. (b) An employee may elect to receive the amounts credited to the employee's account in one payment or in some other number of approximately equal annual installments (not exceeding 20), provided however, that the number of annual installments may not extend beyond the life expectancy of the employee, determined as of the date the first installment is paid. The employee's election shall also specify that the first installment (or the single payment if the employee has so elected) shall be paid either (1) on the first day of the calendar quarter next following the end of the month in which the employee attains the age specified in such election, which age shall not be earlier than age 55 or later than age 70-1/2, (2) on the first day of the calendar quarter next following the end of the month in which the employee retires from a Participating Company or otherwise terminates employment with any Participating Company (except for a transfer to another Participating Company); provided, however, that the AT&T Board of Directors or the Compensation Committee of such Board may, in its sole discretion, direct that the first installment (or the single payment) shall be paid on the first day of the first calendar quarter in the calendar year next following the year of retirement or other termination of employment, or (3) on the first day of the first calendar quarter in the calendar year next following the calendar year in which the employee retires from a Participating Company or otherwise terminates employment with any Participating Company (except for a transfer to another Participating Company). (c) Notwithstanding an election pursuant to Paragraph (b) of this Section 4, the entire amount then credited to an employee's account shall be paid immediately in a single payment (a) if the employee is discharged for cause by his or her Participating Company, (b) if the Board of Directors of such Participating Company determined that the employee engaged in misconduct in connection with the employee's employment with the Participating Company, (c) if the employee without the consent of the Board of Directors of his or her Participating Company, while employed by such Participating Company or after the termination of such employment, becomes associated with, employed by, or renders services to, or owns an interest in, any business that is in competition with any Participating Company or with any business in which a Participating Company has a substantial interest (other than as a shareholder with a non-substantial interest in such business), or (d) the employee becomes employed by a governmental agency having jurisdiction over the activities of a Participating Company or any of its subsidiaries. (d) An employee may elect that, in the event the employee should die before full payment of all amounts credited to the employee's account, the balance of the deferred amounts shall be distributed in one payment or in some other number of approximately equal annual installments (not exceeding 10) to the beneficiary or beneficiaries designated in writing by the employee, or if no designation has been made, to the estate of the employee. 4 The first installment (or the single payment if the employee has so elected) shall be paid on the first day of the calendar quarter next following the month of death; provided, however, that the AT&T Board of Directors or the Compensation Committee of such Board may, in its sole discretion, direct that the first installment (or the single payment) shall be paid on the first day of the first calendar quarter in the calendar year next following the year of death. (e) Installments subsequent to the first installment to the employee, or to a beneficiary or to the employee's estate, shall be paid on the first day of the applicable calendar quarter in each succeeding calendar year until the entire amount credited to the employee's deferred account shall have been paid. Deferred amounts held pending distribution shall continue to be credited with interest or additional deferred AT&T shares, as applicable, determined in accordance with Section 3(a) and (b). (f) In the event an employee, or the employee's beneficiary after the employee's death, incurs a severe financial hardship, the AT&T Board of Directors or the Compensation Committee of such Board, in its sole discretion, may accelerate or otherwise revise the payment schedule from the employee's account to the extent reasonably necessary to eliminate the severe financial hardship. For the purpose of this subsection (f), a severe financial hardship must have been caused by an accident, illness, or other event beyond the control of the employee or, if applicable, the beneficiary. (g) The obligation to make a distribution of deferred amounts credited to an employee's account during any calendar year plus the additional amounts credited on such deferred amounts pursuant to Section 3(a) and (b) shall be borne by the Participating Company which otherwise would have paid the related award or salary currently. However, the obligation to make distribution with respect to deferred amounts which are related to amounts credited to an employee's account under Section 3(a)(ii) and under the second sentence of Section 3(b), and with respect to which no Participating Company would otherwise have paid the related award currently, shall be borne by the Participating Company which employed the employee on January 1, 1984. 5. MISCELLANEOUS (a) The deferred amounts shall be held in the general funds of the Participating Companies. The Participating Companies shall not be required to reserve, or otherwise set aside, funds for the payment of such amounts. (b) The rights of an employee to any deferred amounts plus the additional amounts credited pursuant to Section 3(a) and (b) shall not be subject to assignment by the employee. (c) The Senior Vice President - Human Resources of AT&T shall have the authority to administer and to interpret the Plan. (d) The AT&T Board of Directors may at any time amend the Plan or terminate the Plan, but such amendment or termination shall not adversely affect the rights of any employee, without his or her consent, to any benefit under the Plan to which such employee may have previously become entitled prior to the effective date of such amendment or termination. The Senior Vice President - Human Resources of AT&T with the concurrence of the Senior Vice President and General Counsel of AT&T shall be authorized to make minor or administrative changes to the Plan, as well as amendments required by applicable federal or state law (or authorized or made desirable by such statutes). EX-12 7 1 Exhibit (12) AT&T CORP. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Dollars in Millions) (Unaudited) For the Year Ended December 31, 1994 1993 1992 1991 1990 ---- ---- ---- ---- ---- Earnings Before Income Taxes $7,518 $6,003 $5,638 $ 581 $5,565 Less Interest Capitalized During the Period 47 72 62 79 79 Less Undistributed Earnings of Less Than 50% Owned Affiliates 46 (39) (27) 32 26 Add Fixed Charges 1,928 1,940 2,127 2,371 2,371 ------ ------ ------ ------ ------ Total Earnings $9,353 $7,910 $7,730 $2,841 $7,831 ====== ====== ====== ====== ====== Fixed Charges Total Interest Expense Including Capitalized Interest $1,561 $1,575 $1,737 $1,872 $1,764 Interest Portion of Rental Expenses 367 365 390 499 607 ------ ------ ------ ------ ------ Total Fixed Charges $1,928 $1,940 $2,127 $2,371 $2,371 ====== ====== ====== ====== ====== Ratio of Earnings to Fixed Charges 4.9 4.1 3.6 1.2 3.3 ====== ====== ====== ====== ====== EX-13 8 1 Exhibit 13 AT&T Form 10-K FINANCIAL SECTION THE MERGER OF AT&T AND MCCAW IS THE BEST AND QUICKEST WAY FOR THE TWO COMPANIES TO TAKE ADVANTAGE OF DEVELOPING OPPORTUNITIES IN A DYNAMIC INDUSTRY. A DISCUSSION AND ANALYSIS OF OUR RESULTS AND OPERATIONS The merger was the most important event of 1994 for us. Shareowners now own a stronger AT&T with even better prospects for growth in revenues and earnings. Our customers will choose from a wider array of services. Though completed, the merger remains subject to legal reviews. In addition, under the terms of a proposed antitrust consent decree between AT&T and McCaw and the United States, the operations of AT&T and McCaw are subject to several conditions, including keeping McCaw as a separate business with its own officers and employees. After McCaw provides equal access connections to other long distance carriers, McCaw may use the AT&T brand on McCaw's cellular services, and AT&T may jointly market AT&T's long distance and McCaw's cellular services, and provide customers with a single bill for both. For the most part, these restrictions merely confirm commitments we made when we announced our merger plans and they do nothing to alter the fundamental logic or economics of the merger. Operating now as the wireless unit of AT&T, McCaw is the leading U.S. provider of wireless communications services, which include cellular, messaging, data transmission and air-to-ground services. McCaw has cellular operations in more than 100 cities. In most markets McCaw offers its services under the brand name Cellular One#. McCaw also operates the sixth largest U.S. messaging service, serving more than 700,000 customers, and a digital air-to-ground telephone service for commercial airlines and corporate aircraft. AT&T's STRONG FINANCIAL PERFORMANCE Accelerating revenue growth in products and services, aided by effective cost and expense controls, boosted earnings to another record in 1994. The climate for growth improved this past year because of better economic conditions, and changes in technology and world trade that spurred demand for network services as well as new networks. We look forward to continued growth in revenues and earnings in 1995. Our financial performance was also strong in 1992 and 1993. Our performance met growth targets despite the less favorable business and economic environment. In 1993 we also had to adopt new accounting methods. Because new rules apply to all U.S. companies, we changed # Registered trademark 2 our accounting for retiree benefits, postemployment benefits and income taxes. The net $9.6 billion after-tax charge to bring our financial statements in line with the new accounting methods caused us to report a net loss for that year. But those accounting changes do not affect cash flows; they only change the expenses we report. In our accounting for retiree benefits, we estimate and book expenses during the years employees are working and accumulating future benefits. When we used the former "pay-as-you-go" accounting, we simply booked our contributions to trust funds for life insurance benefits and the actual claims for benefits such as health care and telephone concessions as they occurred. Our accounting for postemployment benefits, including payments for separations and disabilities, is very similar to the accounting for retiree benefits. We book expenses for future separations during the years employees are working and accumulating service with the company and for disability benefits when the disabilities occur. In the former accounting method, we booked expenses for separations when we approved them and for disabilities when we made payments. Compared with 1992, this change increased our costs and expenses by $301 million in 1993, which reduced earnings $171 million, or $0.11 per share. Our accounting for income taxes uses the enacted tax rates to compute both deferred and current income taxes. Using our former method, we held deferred tax assets and liabilities at their original values even when Congress changed the tax rates. ***************************************************************** REVENUE GROWTH As a Percentage Increase in Total Revenues Over Prior Year 10% 8.3 8 RR RR 6 RR 4.1 RR 4 3.4 RR RR RR RR RR 2 RR RR RR RR RR RR 0 RR RR RR 1992 1993 1994 ------------------------------------------------ In 1994 we achieved revenue growth that matches the 8-10% annual growth of the global information industry as a whole. ********************************************************************** REPORTING ON THE MERGER To complete the merger, McCaw's owners exchanged their McCaw stock for 197.5 million shares of newly issued AT&T stock. At the market closing price for AT&T stock on September 19, the official day of the merger, that exchange was worth about $11.5 billion. 3 We accounted for the merger as a pooling of interests. That means we combined the financial statements for the two companies. We did, however, take out the business between the companies just as we remove dealings between other AT&T units. Now all our financial information shows combined amounts as if we had always been one company. ********************************************************************** AN OVERVIEW OF OUR BUSINESS OPERATIONS Our main business is meeting the communications and computing needs of our customers by using networks to move and manage information. We divide the revenues and costs of this business into three categories on our income statement: telecommunications services, products and systems, and rentals and other services. AT&T Capital Corporation (AT&T Capital) and AT&T Universal Card Services Corp. (Universal Card) are partners with our communications and computing business units as well as innovators in the financial services industry. We include their revenues and costs in a separate category on our income statement: financial services and leasing. Competition in communications and computing is global and increasingly involves multinational firms and partners from different nations. To increase our global presence, we are hiring, building facilities and investing outside the U.S. We believe these commitments of resources are necessary to be successful in these markets. However, the economies of Europe and Japan were very weak in 1992 and 1993, and we restructured some operations in those areas. For these reasons we reported operating losses, in total, for the past three years in our units outside the U.S. Nevertheless, we continue to believe that these operations and markets provide excellent opportunities for future growth in revenues and earnings. All our business units face stiff competition. Prices and technology are under continual pressure. Such market conditions make the ongoing need for cost controls even more urgent. Managers must continuously assess their resource needs and consider further steps to reduce costs, which could include consolidating facilities, disposing of assets, reducing workforce or withdrawing from markets. In 1993 one of our business units, AT&T Global Information Solutions Company, offered an early retirement program and a voluntary separation program to its U.S.-based employees. About 2,200 employees accepted the early retirement offer, and the total workforce at the unit has declined by more than 10% since year-end 1993. We also provided reserves in 1993 to restructure and centralize support services for telecommunications services and for other restructuring activities. In total we provided $498 million before taxes in 1993 for restructuring activities. At year-end 1994 reserves for all restructuring activities amounted to about $900 million, most of which relates to net lease payments to be made over the life of the related leases. We believe the balance of reserves is adequate for the completion of planned activities to improve efficiency as part of our commitment to meet intense competition. Like other manufacturers, we use, dispose of and clean up substances that are regulated under environmental protection laws. We also have been named a potentially responsible party (PRP) at a number of Superfund sites. At most of these sites, our share is very limited and there are other PRPs who can be expected to contribute to the cleanup costs. We review potential cleanup costs and costs of compliance with environmental laws and regulations regularly. Using 4 engineering estimates of total cleanup costs, we estimate our potential liability for all currently and previously owned properties where some cleanup may be required, including each Superfund site where we are named a PRP. We provide reserves for these potential costs and regularly review the adequacy of our reserves. In addition, we forecast our expenses and capital expenditures for existing and planned compliance programs as part of our regular corporate planning process. Despite these procedures, it is very difficult to estimate the future impact of actions regarding environmental matters, including potential liabilities. However, we believe that cleanup costs and costs related to environmental proceedings and ongoing compliance with present laws will not have a material effect on our future expenditures, annual consolidated financial statements or competitive position beyond that provided for at year-end. Many of our employees are represented by unions. In 1995 we will negotiate new labor agreements because the 1992 contracts are due to expire on May 27. 5
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA (UNAUDITED) AT&T Corp. and Subsidiaries Dollars in millions (except per share amounts) 1994 1993* 1992 1991* 1990 1989 1988* 1987 1986* 1985 1984 ------------------------------------------------------------------------------------------------------------------------------ RESULTS OF OPERATIONS Total revenues $75,094 $69,351 $66,647 $64,455 $63,228 $61,604 $62,067 $60,726 $61,975 $63,159 $60,326 Research and development expenses 3,110 3,111 2,924 3,114 2,935 3,098 2,988 2,810 2,599 2,527 2,477 Operating income (loss) 8,030 6,568 6,628 1,570 5,622 4,931 (2,381) 4,164 978 3,562 2,825 Income (loss) before extraordinary item and cumulative effects of accounting changes 4,710 3,702 3,442 171 3,475 2,820 (1,527) 2,374 609 1,856 1,712 Net income (loss) 4,710 (5,906) 3,442 171 3,666 2,820 (1,527) 2,374 434 1,856 1,712 Earnings (loss) per common share before extraordinary item and cumulative effects of accounting changes 3.01 2.39 2.27 0.12 2.38 1.95 (1.06) 1.61 0.36 1.21 1.14 Earnings (loss) per common share 3.01 (3.82) 2.27 0.12 2.51 1.95 (1.06) 1.61 0.24 1.21 1.14 Dividends declared per common share 1.32 1.32 1.32 1.32 1.32 1.20 1.20 1.20 1.20 1.20 1.20 ------------------------------------------------------------------------------------------------------------------------------ ASSETS AND CAPITAL Property, plant and equipment - net $22,035 $21,015 $20,798 $19,887 $19,536 $17,653 $16,886 $22,159 $22,247 $23,182 $22,180 Total assets 79,262 69,393 66,104 62,071 57,036 45,228 41,945 45,583 44,305 44,824 43,461 Long-term debt including capital leases 11,358 11,802 14,166 13,682 14,579 10,116 10,172 9,060 8,234 8,104 8,963 Common shareowners' equity 17,921 13,374 20,313 17,973 17,928 15,727 13,694 16,913 15,849 16,945 15,852 Net capital expenditures 4,853 4,296 4,328 4,376 4,369 4,162 4,528 3,936 3,977 4,303 3,685 ------------------------------------------------------------------------------------------------------------------------------
6
ELEVEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA (Cont'd) (UNAUDITED) AT&T Corp. and Subsidiaries Dollars in millions (except per share amounts) 1994 1993* 1992 1991* 1990 1989 1988* 1987 1986* 1985 1984 ------------------------------------------------------------------------------------------------------------------------------ OTHER INFORMATION Operating income (loss) as a percentage of revenues 10.7% 9.5% 10.0% 2.4% 8.9% 8.0% (3.8)% 6.9% 1.6% 5.6% 4.7% Net income (loss) as a percentage of revenues 6.3% (8.5)% 5.2% 0.3% 5.8% 4.6% (2.5)% 3.9% 0.7% 2.9% 2.8% Return on average common equity 29.5% (47.1)% 17.6% 0.9% 21.2% 19.1% (8.9)% 14.3% 2.0% 10.6% 10.4% Data at year-end: Stock price per share $50.25 $52.50 $51.00 $39.125 $30.125 $45.50 $28.75 $27.00 $25.00 $25.00 $19.50 Book value per common share $11.42 $ 8.65 $13.31 $12.05 $12.33 $10.92 $ 9.57 $11.87 $11.04 $11.73 $11.19 Debt ratio 58.3% 64.4% 53.1% 54.8% 53.5% 45.0% 45.8% 38.4% 39.6% 39.9% 42.0% Debt ratio excluding financial services 34.1% 49.1% 40.8% 46.0% 47.6% 39.3% 42.2% 35.2% 37.6% 38.4% 41.7% Employees 304,500 317,700 319,000 322,300 333,400 343,000 367,400 366,200 379,900 400,400 427,800 ------------------------------------------------------------------------------------------------------------------------------ * 1993 data reflect a $9.6 billion net charge for three accounting changes. 1991 data reflect $4.5 billion of business restructuring and other charges. 1988 data reflect a $6.7 billion charge due to accelerated digitization of the long distance network. 1986 data reflect $3.2 billion of charges for business restructuring, an accounting change and other items. 7 TELECOMMUNICATIONS SERVICES These revenues, which include wireless services revenues, grew 4.3% in 1994 and 1.6% in 1993. Volume growth, caused by market share gains among residential customers, strong demand from business customers, new cellular customers and the improved economy, fueled the faster growth in 1994. Wireless services revenues, including cellular, messaging and air-to-ground services revenues, grew to $2,280 million in 1994 from $1,760 million in 1993 and $1,387 million in 1992, primarily because of the added traffic coming from new customers. Cellular customers served by companies in which AT&T has or shares a controlling interest increased to 4.0 million at year-end 1994, from 3.0 million at the end of 1993 and 2.2 million at the end of 1992. Billed minutes for switched long distance services rose more than 7.5% in 1994 compared with 5.5% in 1993. Volume growth exceeds revenue growth because many customers are selecting higher-value, lower-priced services made possible by our increasing efficiency. Although we raised prices on basic services over the past two years, the shift in the mix of services that customers selected reduced average per-minute revenues in 1994 and 1993. AT&T True USA@ Savings and AT&T True Rewards@ offer savings and other benefits to residential customers based on their calling volumes. We also rolled out AT&T TrueVoice# service, a patented technology to improve the sound quality on calls placed within the continental U.S. and Canada. Other offers and calling plans now share this theme of offering customers true value. These efforts helped us retain and win back residential customers in 1994, allowing us to recapture some market share for the first time since the breakup of the Bell System in 1984. We expect continuing strong volume growth in 1995, leading to further growth in telecommunications services revenues. Several of our initiatives will enhance future network capabilities for communications and computing. For example, since late 1994, Network Notes@ has enabled customers to access applications and information hosted in the AT&T network that are compatible with the popular Notes groupware software from Lotus Development Corp. Beginning in 1995, Netware Connect@ services, based on popular networking software from Novell, Inc., will enable users to link computers or use computer-based services through the AT&T network. Through our relationship with Xerox Corp., users will be able to store and transmit high-quality production documents through our network. Our WorldWorx@ service, developed in cooperation with several major equipment vendors, will permit interactive, multipoint video and data calls. Customers using our PersonaLink@ service may program "intelligent agents" to sort through, retrieve and monitor desired information on networks. Total cost of telecommunications services declined both years despite higher volumes, in part because of reduced prices for connecting customers through local networks. In addition, we improved @ Service mark # Registered trademark 8 our efficiency in network operations, engineering and operator services. With lower costs and higher revenues, the gross margin percentage rose to 41.8% in 1994 from 39.0% in 1993 and 37.2% in 1992. ********************************************************************** SPOTLIGHT ON SOME TRENDS IN TELECOMMUNICATIONS SERVICES COMPETITION IS CHANGING. As we look ahead, along with growing opportunities, we see more direct competition for AT&T coming from local telephone, long distance, cable television, wireless and other companies that offer network services. AT&T, as a supplier of networking systems, services and products, will be a supplier as well as a customer and competitor of these firms. There may also be other entrants from the communications and information services industries, such as providers of information systems, who will offer basic or integrated services. Customers and competitors--present and future--are making acquisitions, merging, and forming joint ventures and alliances to expand their geographic reach, enter new markets and gain scale. Some of the largest cable TV companies, such as Tele-Communications Inc. (TCI) and Time Warner Inc., are clustering cable systems. Cables have more capacity than current phone lines, suiting them for multimedia use. Bell Atlantic Corporation, Nynex Corporation, U S West, Inc. and Airtouch Communications Corp. formed an alliance of their cellular operations to gain a national presence and bid against AT&T and others for radio licenses to provide personal communications services. These licenses are being auctioned by the Federal Communications Commission to get as many as seven wireless competitors in each territory. Sprint Corporation (Sprint), which already competes in local phone service, long distance and cellular markets, is forming a joint venture with cable companies TCI, Comcast Corp. and Cox Enterprises Inc. to expand its presence in both local and wireless markets. Several bills were introduced in Congress last year which would have accelerated competition for local access and phone services and permitted the Regional Bell Operating Companies (RBOCs) to offer long distance services under certain conditions. Although none of these bills was enacted, several key members of Congress have introduced or announced plans to introduce new bills during 1995 that would permit competition in local services and set conditions under which the RBOCs would be permitted to offer long distance services and manufacture equipment. Some of the RBOCs are also seeking this same kind of permission through the courts. They requested relief from the decree that broke up the Bell System-- the Modification of Final Judgment of 1982--including provisions that bar the RBOCs from offering long distance services and manufacturing equipment. We believe the RBOCs must face real competition for their local business before getting the permission they seek. Absent local competition they could use their bottleneck control over connections to customers to disadvantage competitors. It is not possible to predict the timing, course and circumstances of changes that may come from technology, new alliances, regulation and legislation. We set a high priority on anticipating 9 these changes and positioning AT&T for future success. However, depending on their exact nature and timing, such changes could affect our future revenues and earnings adversely. COMPETITION WILL BE GLOBAL, AS LEGAL MONOPOLIES DISAPPEAR IN OTHER COUNTRIES. Mexico will open to competition beginning in late 1996. We are working with Grupo Alfa to plan a joint venture to compete there. Other U.S. companies--including MCI Communications Corp. (MCI), Sprint and GTE Corporation--have or plan alliances with Mexican companies to compete in telecommunications services. The European Union is scheduled to be open fully to competition beginning in 1998, but some changes are coming sooner. At year-end 1994 we were granted a license to provide switched voice and data services and private lines within the United Kingdom (U.K.) and to resell services between the U.K. and other countries. To better serve multinational businesses in Europe, we plan a joint venture with the Unisource consortium founded by PTT Telecom Netherlands, Swiss Telecom PTT and Telia of Sweden. Telefonica de Espana will also become a member. The new joint venture would then replace Unisource as the European partner in the AT&T-sponsored WorldPartners seamless global services alliance begun in 1993. British Telecommunications plc (BT) took a 20% stake in MCI in 1994, and they jointly formed a venture to compete in this same market sector. Germany's Deutsche Telekom AG and France Telecom each seek approval to buy a 10% stake in Sprint, securing entry to the U.S. market similar to that of BT. We oppose their plans because the French and German telecommunications services markets remain fundamentally closed. ***************************************************************** PRODUCTS AND SYSTEMS Expansion abroad and into new customer segments, improved global economic conditions and major contract wins raised sales by 18.1% in 1994 and 8.1% in 1993 despite stiff price competition. Sales outside the U.S. grew at a faster rate than U.S. sales and were responsible for more than half the growth both years. We expect sales under major contracts and the continuing economic recovery outside the U.S. in 1995 to pave the way for further growth in revenues. A pie chart appears containing the following information: 1994 SOURCES OF REVENUES As Percentages of Total Revenues 10% INTERNATIONAL REVENUES From operations located in other countries 15% INTERNATIONAL REVENUES From U.S. operations (international telecommunications services, and exports) 75% U.S. REVENUES Markets and competition in the information industry are increasingly global in scope. Some of the fastest growing markets are outside the U.S. 10 Revenues from sales of telecommunications network products and systems grew 17.3% in 1994 and 8.5% in 1993. The 1994 increase reflected higher sales across the product line, particularly in switching and transmission systems and wireless products. About $243 million of switching revenues in 1994 came from consolidating A.G. Communication Systems Corporation because AT&T raised its ownership to 80%. The 1993 increase came chiefly from higher sales of wireless products, switching equipment and operations systems. For the last two years, sales grew both inside and outside the U.S. PRODUCTS AND SYSTEMS Dollars in millions 1994 1993 1992 Revenues Telecommunications network products and systems $ 9,785 $ 8,345 $ 7,691 Computer products and systems 4,208 3,470 3,358 Communications products and systems 4,494 3,692 3,279 Microelectronics products, special-design products for U.S. government, and other* 2,674 2,418 2,251 Products and systems $21,161 $17,925 $16,579 Gross margin percentage 37.3% 38.8% 39.8% * "Other" is composed principally of media, predominantly for use with automated teller machines and point-of-sale equipment, and business forms. AT&T was selected for several large projects for network products and systems over the past two years that we believe will lead to many sales opportunities in the years ahead. Pacific Bell and Bell Atlantic Corporation chose AT&T as the major equipment supplier and system integrator for planned multimedia networks. These two projects alone could generate up to $10 billion in revenues for AT&T over the next seven years. AT&T was also awarded major contracts by other U.S. telephone and cable companies, including Southern New England Telephone Corp. and Time Warner, Inc. Outside the U.S., AT&T won a $4 billion contract with Saudi Arabia and signed a long-term system support agreement, worth about $500 million over five years, with China's Guangdong province government agencies. Revenues from sales of computer products and systems grew 21.3% in 1994 and 3.3% in 1993. The growth came mainly from higher U.S. sales of workstations, automated teller machines, and mid-range and high-end systems for enterprise-wide computing. Price competition for this product line is very fierce, particularly for personal computers, so revenue growth has lagged behind the gains in volumes. We changed the end of the fiscal year for certain operations located outside the U.S. to December from November in 1994 to report essentially all of our operations on a calendar year. This added $223 million in revenues and a marginal loss in income in 1994. About $113 million of these revenues were from sales of computer products and systems. Revenues from sales of communications products and systems rose 21.7% in 1994 and 12.6% in 1993. More than half this growth in both years came from higher sales of business communications products and systems. We also had higher sales of consumer communications products 11 --particularly cellular phones--submarine cables and data communications equipment. AT&T Submarine Systems, Inc. and a partner were awarded a $1.2 billion contract to supply and construct the 17,000-mile Fiber Optic Link Around the Globe (FLAG) cable system. This system is scheduled to be completed during 1997. We will manage the entire marine installation and also supply network management equipment. In total, revenues from sales of microelectronics products, special-design products for the federal government, and other products and systems grew 10.6% in 1994 and 7.4% in 1993. Growth in both years came mainly from higher sales of microelectronics components and power systems to equipment manufacturers outside the U.S. Sales of media and business forms rose slightly in 1994, but were steady in 1993. Because of reduced defense spending by the U.S. government, sales of special-design products, such as secure phones, declined both years. We sold several smaller operating units in 1994 and arranged to sell NCR Microelectronics and are negotiating to sell a copper cable unit in early 1995. These sales will reduce our revenues, as well as our costs and expenses, by about $1 billion a year. Most of the revenues related to product sales, about half in the microelectronics products category. The increase in cost of products and systems is mainly associated with the higher sales volumes both years. The declining gross margin percentage reflects pricing pressures and a changing product sales mix. RENTALS AND OTHER SERVICES These revenues grew the last three years. The growth in 1994 came mainly from communications equipment maintenance contracts and professional services for computer products and systems. In 1993 we saw higher revenues from newer telecommunications services, such as network management and satellite services, which individually generate small revenue streams. In both years these increases more than offset the continuing, expected decline in communications equipment rentals. RENTALS AND OTHER SERVICES Dollars in millions 1994 1993 1992 Revenues Computer products and systems $2,818 $2,641 $2,742 Communications products and systems rentals 955 1,174 1,409 Communications products and systems services 1,680 1,457 1,375 Other* 1,938 2,027 1,680 Rentals and other services $7,391 $7,299 $7,206 Gross margin percentage 50.9% 51.2% 53.3% * "Other" is composed principally of global messaging and electronic mail services, telemarketing services, information technology services and facility rentals. 12 The shift in revenue mix from rentals to lower-margin services reduced the gross margin percentage. Also, provisions for business restructuring added $90 million to cost of rentals and other services in 1993. FINANCIAL SERVICES AND LEASING These revenues rose 24.5% in 1994 and 32.2% in 1993. Both Universal Card and AT&T Capital contributed to the growth by profitably expanding their portfolios of earning assets. We expect continuing growth in these revenues, earnings and assets in 1995. FINANCIAL SERVICES AND LEASING In millions 1994 1993 1992 Revenues AT&T Capital $ 1,384 $ 1,360 $ 1,266 Universal Card 1,782 1,228 831 Eliminations, adjustments and other* (49) (84) (203) Financial services and leasing $ 3,117 $ 2,504 $ 1,894 Gross margin percentage 31.0% 31.7% 30.8% Universal Card Information: Finance receivables $12,380 $ 9,154 $ 6,606 Accounts 15.1 11.7 10.3 * "Other" is composed principally of revenues from certain lease finance assets AT&T retained when AT&T Capital was reorganized. Universal Card rose to fourth in its industry in 1994 measured by cardmember receivables. During the year it began its Something Extra@ program, which offers customers rewards for outstanding balances as well as new purchases. Other promotions have convinced customers to transfer balances from the credit card accounts held with competitors. These programs and our highly regarded customer service contributed to the 35.2% increase in outstanding cardholder receivables in 1994 and 38.6% increase in 1993. We set reserves for losses based on experience and the future outlook for the economy. AT&T Capital completed an initial public offering of its common stock in August 1993, emerging as the largest publicly owned equipment leasing and financing company in the U.S. AT&T still owns about 86% of the stock, so AT&T Capital is still fully consolidated in our financial statements. AT&T Capital limits its exposure to credit risks by diversifying its business across customers, geographic locations and lease maturities. It determines its allowance for credit losses by analyzing previous experience on losses, current delinquencies, and present and future economic conditions. We unconditionally guaranteed all of AT&T Capital's debt outstanding at the end of March 1993. Since then, all AT&T Capital debt has been issued using its own credit. This change makes AT&T Capital financially independent and permits us to focus on the financing needs of our main business. @ Service mark 13 The growth in cost of financial services and leasing over the last two years is associated mostly with the growth in financing activity. The improved gross margin percentage in 1993 mainly reflects the maturation of the credit card receivables portfolio. Lower interest rates in 1993 also contributed to the margin improvement that year, but rising interest rates in 1994 narrowed our margins. By 1995 we must change our accounting on loans to customers. Under new rules we must compute the present value of principal and interest payments for troubled loans that may not be fully repaid. Our current methods do not require present value calculations, but we do not expect this change to affect our costs materially. OPERATING EXPENSES Selling, general and administrative expenses increased 8.9% in 1994 and 8.0% in 1993, largely because of spending for advertising and promotions, and for sales and sales support activities. We focused particularly on retaining and winning back residential customers of telecommunications services and acquiring new cellular customers. We expect marketing expenses will continue to grow because of competitive conditions. The 1993 total also includes $373 million in provisions for business restructuring activities, and the 1994 total includes $246 million of expenses related to the merger of AT&T and McCaw. Research and development expenses were level in 1994 but increased 6.4% in 1993. The higher spending of the last two years was mainly for work on cellular technology, advanced communications services and devices, and projects aimed at international growth. OTHER INCOME STATEMENT ITEMS Other income--net depends mostly on our cash balance, investments and joint ventures, and sales of assets. We also deducted dividends on preferred stock of a subsidiary in other income before we redeemed this stock in mid-1994. Interest income declined over the past two years, and in 1993 we saw a decline in income related to investments and joint ventures. Material pretax gains and losses also affected other income--net: o In 1994 there were no material transactions. Asset sales and various other immaterial gains more than offset losses from the shutdown of EO Inc. and the uninsured portion of a lost telecommunications satellite. o In 1993 we had a $217 million gain when we exchanged our remaining 77% interest in UNIX System Laboratories, Inc. for stock in Novell, Inc. o Because of declines in its market value, we wrote down our investment in Compagnie Industriali Riunite S.p.A. by $68 million in 1992. We sold our remaining interest in that investment in 1993 for a slight gain. 14 Interest expense declined over the past two years because of benefits from refinancing long-term debt at favorable rates. Reduced requirements for contingent liabilities also contributed about half the decline in 1993. The provisions for income taxes increased the past two years mainly because of higher "book income," that is, the income before income taxes and cumulative effects of accounting changes. The effective tax rate declined to 37.3% in 1994, from 38.3% in 1993 and 39.0% in 1992, due to credits for foreign tax payments and the effect on deferred taxes from redeeming preferred stock. These benefits were somewhat offset by the nondeductibility of some merger-related expenses. Congress increased the federal statutory tax rate to 35% in August 1993 and made the change retroactive to January 1, 1993. We recognized a $23 million benefit from adjusting our net deferred tax assets for the new rate. However, this benefit was more than offset by the increase in income taxes due to the new rate. TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY We raised our cash balance in 1994 so we could act quickly on new opportunities outside the U.S. and because of some pending reinvestments in projects. However, we continue to target a cash balance of about $800 million. The higher cash balance as well as higher inventories and receivables, which are primarily associated with the growth in revenues, boosted net working capital to $6.7 billion at the end of 1994 from $4.3 billion at the end of 1993. We turned over our inventory 3.4 times in 1994, the same turnover rate as 1993. Accounts receivable for our communications and computing business were outstanding an average of 56.4 days in 1994, about the same as in 1993. Net property,plant and equipment and net licensing costs rose because of normal purchasing activity. A 52%-owned subsidiary of McCaw, LIN Broadcasting Corporation (LIN), exchanged its investment in the A Block Philadelphia cellular system for all the outstanding redeemable preferred stock of one of its subsidiaries. In addition, AT&T sold its remaining 20% interest in Italtel S.p.A back to STET S.p.A., the Italian government's telecommunications holding company. These transactions led to a decline in investments during the year. We also changed the way we report and account for investments in equity securities that have readily determinable fair values and in all debt securities. Starting in 1994 we account for the fair values of these securities rather than our original investment. This change did not affect our earnings or financial position materially. The fair value of our pension plan assets is greater than our projected pension obligations. We record pension income when our expected return on plan assets plus amortization of the transition asset (created by our 1986 adoption of the current standard for pension accounting) is greater than the interest cost on our projected benefit obligation plus service cost for the year. Consequently, we had pension income that added to our prepaid pension costs in 1994. 15 The increase in other assets mainly reflects the advanced purchase of rewards, such as frequent flyer miles and merchandise certificates to be given to consumers who earn sufficient points to claim them under our calling plans. At the same time, we accrued a liability for the unredeemed points earned under our calling plans, which led to higher other current liabilities. Higher accounts payable and payroll and benefit-related liabilities are mainly due to increases in the associated expenses and benefit costs. We issued more debt in 1994, mainly short-term financing, for financial services and for higher inventories and receivables. Contributions to trusts for retiree benefits led to the decline in related liabilities. We redeemed all of LIN's outstanding preferred stock, which increased additional paid-in capital and minority interests. Operating cash flows increased in 1994 mainly because of higher income. The decline in 1993 was mainly due to working capital requirements such as inventories and accounts receivable. For the three years operating cash flows covered our additions to property, plant and equipment and dividend payments. We expect operating cash flows to continue covering usual capital expenditures and dividends in 1995. However, as discussed in the next section, we may have broader capital requirements in 1995 which may require additional external financing. INVESTING ACTIVITIES Most of our capital expenditures support telecommunications network services, providing for growth in traffic, modernization and enhanced reliability. Other capital additions include the equipment and facilities used in leasing operations, manufacturing, and research and development. We expect our net capital expenditures to continue rising in 1995. We plan substantial investments to expand and enhance our cellular network in 1995. We are also bidding on broad-band personal communication service (PCS) radio licenses to provide wireless telephone service in 30 of 51 major trading areas in the U.S. The Federal Communications Commission (FCC) auction began on December 5, 1994. It is not possible to predict the outcome of the auction or the amounts successful bidders will be required to pay in order to win licenses as about 30 companies have made deposits and are eligible for bidding. In the event AT&T is successful in obtaining one or more licenses, substantial expenditures could be required for the licenses and for constructing associated systems. Under an agreement between McCaw and LIN, a process, using third-party appraisers, began on January 1, 1995 to determine the private market value per share of LIN. The private market value is the price per share, including control premium, that an unrelated third party would pay if it were to acquire all the outstanding shares of LIN, including the shares held by McCaw, in an arm's-length transaction and assuming LIN was being sold in a manner designed to attract all possible participants and to maximize shareholder value. After the price is determined, McCaw will have 45 days to decide 16 whether to proceed with the acquisition of all the public shares at that price, subject to the approval of the LIN public shareholders. AT&T and McCaw have not made any decision as to whether McCaw should proceed with an acquisition of the LIN public shares. If the private market price is set at a level that AT&T and McCaw believe is reasonable, AT&T and McCaw expect that McCaw would seek to proceed with an acquisition. Any such acquisition would involve a substantial capital expenditure. If the private market price is set at a level that AT&T and McCaw believe is not reasonable, AT&T and McCaw expect that McCaw would not proceed with an acquisition. If McCaw does not proceed with an acquisition, the agreement provides that McCaw will put LIN in its entirety up for sale under the direction of the LIN independent directors. In 1994 we agreed to acquire Alascom, one of Alaska's long distance companies, for $290 million. This agreement is subject to approval by the Alaska Public Utilities Commission and the FCC. We also plan substantial expenditures to increase our presence outside the U.S. in 1995. For example, we signed a memorandum of understanding in 1994 with Grupo Alfa, a leading Mexican company, to explore the feasibility of a joint venture to compete in telecommunications services in Mexico when the market is opened to competition beginning in late 1996. The capital requirements of such a joint venture are not currently known, but we estimate that as much as $1 billion of capital might be required over a 4- to 6-year period. Our share of the joint venture would be 49%. We also signed an agreement in principle with Unisource, a consortium of European telecommunications companies, to form a joint venture to compete in Europe, meeting the communications needs of multinational business customers. Our ownership of the venture would be 40%. At the formation, the venture would have $200 million of assets, but these assets and our investment would be likely to grow. We also signed a broad set of business agreements in 1994 with the People's Republic of China to provide technologies, products and services to modernize its telecommunications infrastructure. Those agreements call for us to invest more than $150 million over two years. Our investments in finance receivables, particularly credit card receivables, are required to support further growth in revenues and earnings from our financial services businesses. 17 ***************************************************************** DEBT TO EQUITY ANALYSIS AT&T Consolidated and AT&T Excluding Financial Services In Billions of Dollars 45 #D #D #D #D #D #D #D #D 30 #D @D #D @D #D #D @D #D @D #D #D @D #D @D #D @D #E @D #D @D #D @D 15 #E @E #D @D #E @E #E @E #E @E #E @E #E @E #E @E #E @E 0 #E @E #E @E #E @E 1992 1993 1994 53.1% 40.8% 64.4% 49.1% 58.3% 34.1% Debt Ratio ------------------------------------------------ D: Debt E: Equity #: AT&T Consolidated @: AT&T excluding Financial Services Most of AT&T's debt supports our financial services. Our long-term goal is a 30% debt ratio for AT&T excluding financial services. We are currently above that ratio because of McCaw's capital structure and our heavy investment program to take advantage of current opportunities and build a stronger AT&T for the future. Accounting changes reduced our equity in 1993. ************************************************************************************ FINANCING ACTIVITIES AND CAPITALIZATION Capital requirements due to the growth of our financial services and leasing business will continue to grow in 1995. Much of the financing activity shown on our cash flows statement relates to refinancing activities. For example, in 1992 and 1993 we took advantage of favorable levels of interest rates to extend debt maturities by refinancing a substantial amount of long-term debt. In 1994 we refinanced McCaw's debt. In the normal course of our business, we use certain derivative financial instruments, mainly interest rate contracts and foreign currency exchange rate contracts for purposes other than trading. The interest rate contracts allow us to limit the effects of changing interest rates and protect our margins on existing transactions. The foreign currency contracts and options allow us to manage our exposure to changing currency exchange rates. We design our credit policies to limit the risks of dealing with other parties to these instruments. In our view, the risks to AT&T from our use of these derivative financial instruments are small and our benefits include more stable earnings in periods when interest rates or currency exchange rates are changing. 18 For the past three years we have issued new shares of common stock in our shareowner and employee plans. The dilution in earnings per share from new issuances was not material. We sell equity interests in AT&T subsidiaries only when opportunities or circumstances warrant. We have no current plans to sell material interests in subsidiaries. The ratio of total debt and preferred stock to total capital (total debt, preferred stock and equity) declined to 58.3% at December 31, 1994, compared with 64.4% at December 31, 1993, primarily because of higher equity from 1994 earnings. Excluding financial services and leasing operations, the debt ratio declined to 34.1% at December 31, 1994, compared with 49.1% at December 31, 1993. 19 REPORT OF MANAGEMENT Management is responsible for the preparation, integrity and objectivity of the financial statements and all other financial information included in this report. Management is also responsible for maintaining a system of internal controls as a fundamental requirement for the operational and financial integrity of results. The financial statements, which reflect the consolidated accounts of AT&T and subsidiaries, and other financial information shown were prepared in conformity with generally accepted accounting principles. Estimates included in the financial statements were based on judgments of qualified personnel. To maintain its system of internal controls, management carefully selects key personnel and establishes the organizational structure to provide an appropriate division of responsibility. We believe it is essential to conduct business affairs in accordance with the highest ethical standards as set forth in the AT&T Code of Conduct. These guidelines and other informational programs are designed and used to ensure that policies, standards and managerial authorities are understood throughout the organization. Our internal auditors monitor compliance with the system of internal controls by means of an annual plan of internal audits. On an ongoing basis, the system of internal controls is reviewed, evaluated and revised as necessary in light of the results of constant management oversight, internal and independent audits, changes in AT&T's business and other conditions. Management believes that the system of internal controls, taken as a whole, provides reasonable assurance that (1) financial records are adequate and can be relied upon to permit the preparation of financial statements in conformity with generally accepted accounting principles, and (2) access to assets occurs only in accordance with management's authorizations. The Audit Committee of the Board of Directors, which is composed of directors who are not employees, meets periodically with management, the internal auditors and the independent auditors to review the manner in which these groups of individuals are performing their responsibilities and to carry out the Audit Committee's oversight role with respect to auditing, internal controls and financial reporting matters. Periodically, both the internal auditors and the independent auditors meet privately with the Audit Committee. These auditors also have access to the Audit Committee and its individual members at any time. 20 The financial statements in this annual report have been audited by Coopers & Lybrand L.L.P., Independent Auditors. Their audits were conducted in accordance with generally accepted auditing standards and include consideration of the internal control structure and selective tests of transactions. Their report follows. Richard W. Miller Robert E. Allen Executive Vice President, Chairman of the Board, Chief Financial Officer Chief Executive Officer REPORT OF INDEPENDENT AUDITORS To the Shareowners of AT&T Corp.: We have audited the consolidated balance sheets of AT&T Corp. and subsidiaries (AT&T) at December 31, 1994 and 1993, and the related consolidated statements of income and cash flows for the years ended December 31, 1994, 1993 and 1992. These financial statements are the responsibility of AT&T's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AT&T at December 31, 1994 and 1993, and the consolidated results of their operations and their cash flows for the years ended December 31, 1994, 1993 and 1992, in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, in 1993 AT&T changed its methods of accounting for postretirement benefits, postemployment benefits and income taxes. Coopers & Lybrand L.L.P. 1301 Avenue of the Americas New York, New York January 24, 1995 21 CONSOLIDATED STATEMENTS OF INCOME AT&T CORP. AND SUBSIDIARIES Years Ended December 31 Dollars in millions (except per share amounts) 1994 1993 1992 SALES AND REVENUES Telecommunications services $43,425 $41,623 $40,968 Products and systems 21,161 17,925 16,579 Rentals and other services 7,391 7,299 7,206 Financial services and leasing 3,117 2,504 1,894 TOTAL REVENUES 75,094 69,351 66,647 COSTS Telecommunications services Access and other interconnection costs 17,797 17,772 18,186 Other costs 7,466 7,623 7,553 Total telecommunications services 25,263 25,395 25,739 Products and systems 13,273 10,966 9,976 Rentals and other services 3,629 3,563 3,366 Financial services and leasing 2,152 1,711 1,310 TOTAL COSTS 44,317 41,635 40,391 GROSS MARGIN 30,777 27,716 26,256 OPERATING EXPENSES Selling, general and administrative expenses 19,637 18,037 16,704 Research and development expenses 3,110 3,111 2,924 TOTAL OPERATING EXPENSES 22,747 21,148 19,628 OPERATING INCOME 8,030 6,568 6,628 Other income -- net 236 476 163 Loss on sale of stock by subsidiary - 9 - Interest expense 748 1,032 1,153 INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECTS OF ACCOUNTING CHANGES 7,518 6,003 5,638 Provision for income taxes 2,808 2,301 2,196 Income before cumulative effects of accounting changes 4,710 3,702 3,442 Cumulative effects on prior years of changes in accounting for: Postretirement benefits (net of income tax benefit of $4,294) - (7,023) - Postemployment benefits (net of income tax benefit of $681) - (1,128) - Income taxes - (1,457) - Cumulative effects of accounting changes - (9,608) - NET INCOME (LOSS) $ 4,710 $(5,906) $ 3,442 Weighted average common shares outstanding (millions) 1,564 1,547 1,519 PER COMMON SHARE: Income before cumulative effects of accounting changes $ 3.01 $ 2.39 $ 2.27 Cumulative effects of accounting changes - (6.21) - NET INCOME (LOSS) $ 3.01 $ (3.82) $ 2.27 The notes on pages 33 through 43 are an integral part of the consolidated financial statements. 22 CONSOLIDATED BALANCE SHEETS AT&T CORP. AND SUBSIDIARIES At December 31 Dollars in millions (except per share amount) 1994 1993 ASSETS Cash and temporary cash investments $ 1,208 $ 671 Receivables, less allowances of $1,251 and $1,040 Accounts receivable 13,671 12,294 Finance receivables 14,952 11,370 Inventories 3,633 3,222 Deferred income taxes 3,030 2,079 Other current assets 1,117 732 TOTAL CURRENT ASSETS 37,611 30,368 Property, plant and equipment -- net 22,035 21,015 Licensing costs -- net 4,251 3,995 Investments 2,708 3,060 Finance receivables 4,513 3,815 Prepaid pension costs 4,151 3,575 Other assets 3,993 3,565 TOTAL ASSETS $79,262 $69,393 LIABILITIES AND DEFERRED CREDITS Accounts payable $ 6,011 $ 4,853 Payroll and benefit-related liabilities 4,105 3,802 Postretirement and postemployment benefit liabilities 1,029 1,301 Debt maturing within one year 13,666 11,063 Dividends payable 518 448 Other current liabilities 5,601 4,587 TOTAL CURRENT LIABILITIES 30,930 26,054 Long-term debt including capital leases 11,358 11,802 Postretirement and postemployment benefit liabilities 8,754 9,083 Other liabilities 4,285 4,363 Deferred income taxes 3,913 2,231 Unamortized investment tax credits 232 270 Other deferred credits 776 263 TOTAL LIABILITIES AND DEFERRED CREDITS 60,248 54,066 MINORITY INTERESTS 1,093 648 REDEEMABLE PREFERRED STOCK - 1,305 COMMON SHAREOWNERS' EQUITY Common shares par value $1 per share 1,569 1,547 Authorized shares: 2,000,000,000 Outstanding shares: 1,569,006,000 at December 31, 1994; 1,546,518,000 at December 31, 1993 Additional paid-in capital 15,825 14,324 Guaranteed ESOP obligation (305) (355) Foreign currency translation adjustments 145 (32) Retained earnings (deficit) 687 (2,110) TOTAL COMMON SHAREOWNERS' EQUITY 17,921 13,374 TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $79,262 $69,393 The notes on pages 33 through 43 are an integral part of the consolidated financial statements. Page numbers refer to the Company's Annual Report to security holders. 23 CONSOLIDATED STATEMENTS OF CASH FLOWS AT&T CORP. AND SUBSIDIARIES Years Ended December 31 Dollars in millions 1994 1993 1992 OPERATING ACTIVITIES Net income (loss) $ 4,710 $(5,906) $ 3,442 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effects of accounting changes - 9,608 - Depreciation and licensing cost amortization 4,039 4,082 3,825 Provision for uncollectibles 1,929 1,665 1,983 (Increase) in accounts receivable (2,672) (2,211) (1,577) (Increase) decrease in inventories (392) (444) 549 Increase (decrease) in accounts payable 1,125 (295) 46 Net (increase) decrease in other operating assets and liabilities (356) (1,272) (1,595) Other adjustments for noncash items -- net 573 2,197 1,363 NET CASH PROVIDED BY OPERATING ACTIVITIES 8,956 7,424 8,036 INVESTING ACTIVITIES Capital expenditures net of proceeds from sale or disposal of property, plant and equipment of $451, $241 and $250 (4,853) (4,296) (4,328) Increase in finance receivables, net of lease-related repayments of $3,384, $3,512 and $3,316 (4,616) (3,484) (3,878) Net (increase) decrease in investments (159) (453) 33 Acquisitions, net of cash acquired 144 (228) (308) Other investing activities -- net (271) (204) (125) NET CASH USED IN INVESTING ACTIVITIES (9,755) (8,665) (8,606) FINANCING ACTIVITIES Proceeds from long-term debt issuance 6,134 4,386 3,368 Retirements of long-term debt (5,637) (5,879) (3,732) Issuance of common shares 976 1,053 703 Dividends paid (1,870) (1,774) (1,748) Increase in short-term borrowings -- net 1,747 2,586 1,341 Other financing activities -- net (36) 25 (162) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,314 397 (230) Effect of exchange rate changes on cash 22 3 26 Net increase (decrease) in cash and temporary cash investments 537 (841) (774) Cash and temporary cash investments at beginning of year 671 1,512 2,286 Cash and temporary cash investments at end of year $ 1,208 $ 671 $ 1,512 The notes on pages 33 through 43 are an integral part of the consolidated financial statements. Page numbers refer to the Company'a Annual Report to security holders. 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AT&T CORP. AND SUBSIDIARIES (AT&T) 1.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION OWNERSHIP OF AFFILIATES ACCOUNTING METHOD More than 50% Fully consolidated 20% to 50% Equity method Less than 20% Cost method The fiscal year of essentially all AT&T operations ends December 31. CURRENCY TRANSLATION For operations outside of the U.S. that prepare financial statements in currencies other than the U.S. dollar, we translate income statement amounts at average exchange rates for the year, and we translate assets and liabilities at year-end exchange rates. We show these translation adjustments as a separate component of shareowners' equity. REVENUE RECOGNITION REVENUE FROM BASIS OF RECOGNITION Telecommunications Services Minutes of traffic processed and contracted fees Products and Systems Upon performance of contractual obligations Rentals and Other Services Proportionately over contract period or as services are performed Financial Services and Leasing Over the life of the finance receivables using the interest method, or straight- line over life of operating lease SOFTWARE PRODUCTION COSTS Until technological feasibility is established, we expense as incurred the costs of developing computer software that we plan to sell, lease or otherwise market. After that time, we capitalize the remaining software production costs and amortize them to costs over the estimated period of sales and revenues. INTEREST EXPENSE Interest expense is the interest on short-term and long-term debt and accrued liabilities, excluding the interest related to our financial services operations, which is included in cost of financial services and leasing, and net of interest capitalized in connection with construction. INVESTMENT TAX CREDITS For financial reporting purposes, we amortize investment tax credits as a reduction to the provision for income taxes over the useful lives of the property that produced the credits. 25 EARNINGS PER SHARE We use the weighted average number of shares of common stock and common stock equivalents outstanding during each period to compute earnings per common share. Common stock equivalents are stock options that we assume to be exercised for the purposes of this computation. TEMPORARY CASH INVESTMENTS We consider temporary cash investments to be cash equivalents for cash flow reporting purposes. They are highly liquid and have original maturities generally of three months or less. INVENTORIES We state inventories at the lower of cost or market. We determine cost principally on a first-in, first-out (FIFO) basis. PROPERTY, PLANT AND EQUIPMENT We state property, plant and equipment at cost and determine depreciation using either the group or unit method. The unit method is used primarily for factory facilities, laboratory equipment, large computer systems, and certain international earth stations and submarine cables. The group method is used for most other depreciable assets. When we sell assets that were depreciated using the unit method, we include the gains or losses in operating results. When we sell or retire plant that was depreciated using the group method, we deduct the original cost from the plant account and from accumulated depreciation. We use accelerated depreciation methods for factory facilities and digital equipment used in the telecommunications network, except switching equipment placed in service before 1989. All other plant and equipment is depreciated on a straight-line basis. In our wireless services unit, depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are generally 10 to 12 years for cellular, 2 to 12 years for messaging, 3 to 12 years for air-to-ground and 3 to 5 years for other equipment. Leasehold improvements are amortized using the straight- line method over the terms of the leases. LICENSING COSTS Licensing costs represent costs incurred to develop or acquire cellular and messaging licenses. Generally, amortization begins with the commencement of service to customers and is computed using the straight-line method over a period of 40 years. GOODWILL Goodwill is the difference between the purchase price and the fair value of net assets acquired in business combinations treated as purchases. We amortize goodwill on a straight-line basis over the periods benefited, principally in the range of 10 to 40 years. RECLASSIFICATIONS We reclassified certain amounts for previous years to conform with the 1994 presentation. 26 2.CHANGES IN ACCOUNTING PRINCIPLES POSTRETIREMENT BENEFITS We adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1993. This standard requires us to accrue estimated future retiree benefits during the years employees are working and accumulating these benefits. Previously, we expensed health care benefits as claims were incurred and life insurance benefits as plans were funded. We also reimburse the divested regional Bell companies for a portion of their costs to provide health care benefits, increases in pensions and other benefits to predivestiture retirees under the terms of the Divestiture Plan of Reorganization. Through 1992 we expensed these reimbursements as incurred. We recorded a one-time pretax charge for the unfunded portions of these liabilities of $11,317 million ($7,023 million or $4.54 per share after taxes). Apart from these cumulative effects on prior years of the accounting change, our change in accounting had no material effect on net income and it does not affect cash flows. POSTEMPLOYMENT BENEFITS We also adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1993. Analogous to SFAS No. 106, this standard requires us to accrue for estimated future postemployment benefits, including separation payments, during the years employees are working and accumulating these benefits, and for disability payments when the disabilities occur. Before this change in accounting, we recognized costs for separations when they were approved and disability benefits when they were paid. We recorded a one-time pretax charge for the unprovided portion of these liabilities of $1,809 million ($1,128 million or $0.73 per share after taxes). The change in accounting reduced operating income by $301 million and net income by $171 million ($0.11 per share) in 1993. This change does not affect cash flows. INCOME TAXES We also adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. Among other provisions, this standard requires us to compute deferred tax amounts using the enacted corporate income tax rates for the years in which the taxes will be paid or refunds received. Before 1993 our deferred tax accounts reflected the rates in effect when we made the deferrals. The adoption of this standard reduced net income by $1,457 million ($0.94 per share) as a result of deferred liabilities that were created by McCaw Cellular Communications, Inc. acquisitions prior to the merger. Apart from these cumulative effects on prior years of the accounting change, the new accounting method had no material effect on net income in 1993. Unless Congress changes tax rates, we do not expect this change to affect net income materially in future periods. This change does not affect cash flows. 27 3.PROSPECTIVE ACCOUNTING CHANGES IMPAIRED LOANS In 1995 we must adopt SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." This standard requires us to compute present values for impaired loans when determining our allowances for credit losses. We do not expect this new standard to affect net income materially at or after adoption, and it will not affect cash flows. 4.MERGER WITH MCCAW CELLULAR COMMUNICATIONS, INC. (MCCAW) On September 19, 1994, AT&T merged with McCaw. As a result, 197.5 million shares of McCaw common stock were converted into shares of AT&T common stock at an exchange ratio of one share of AT&T common stock for each McCaw share. In addition, AT&T assumed 11.3 million McCaw stock options which were converted into AT&T stock options at the same exchange ratio, resulting in 11.3 million additional AT&T stock options at an average exercise price of $27.43. The merger was accounted for as a pooling of interests, and the consolidated financial statements were restated for all periods prior to the merger to include the accounts and operations of McCaw. Intercompany transactions prior to 1994 were not eliminated due to immateriality. Merger-related expenses of $246 million incurred in 1994 ($187 million net of taxes) were reported as selling, general and administrative expenses. Certain reclassifications were made to McCaw's accounts to conform to AT&T's presentation. Premerger operating results of the companies in the current presentation were: NINE MONTHS YEAR ENDED ENDED SEPTEMBER 30, DECEMBER 31, Dollars in millions 1994 1993 1992 SALES AND REVENUES AT&T $ 52,178 $ 67,156 $ 64,904 McCaw 2,062 2,195 1,743 Eliminations (256) - - Total $ 53,984 $ 69,351 $ 66,647 NET INCOME (LOSS) AT&T $ 3,431 $ (3,794) $ 3,807 McCaw 34 (2,112)* (365) Eliminations (93) - - Total $ 3,372 $ (5,906) $ 3,442 * Includes a charge of $45 million previously reported as an extraordinary item for the early redemption of debt. 28 5.SUPPLEMENTARY FINANCIAL INFORMATION SUPPLEMENTARY INCOME STATEMENT INFORMATION DOLLARS IN MILLIONS 1994 1993 1992 INCLUDED IN COSTS Amortization of software production costs $ 370 $ 359 $ 315 Amortization of licensing costs 115 108 105 COST OF FINANCIAL SERVICES AND LEASING Interest expense $ 725 $ 506 $ 485 Depreciation, provision for losses, etc. 1,427 1,205 825 Cost of financial services and leasing $2,152 $1,711 $1,310 INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Amortization of goodwill $ 97 $ 89 $ 80 OTHER INCOME - NET Interest income $ 80 $ 141 $ 167 Royalties and dividends 30 59 48 Minority interests in earnings of subsidiaries (64) (9) 40 Miscellaneous - net 190 285 (92) Other income - net $ 236 $ 476 $ 163 DEDUCTED FROM INTEREST EXPENSE Capitalized interest $ 47 $ 72 $ 62 29 SUPPLEMENTARY BALANCE SHEET INFORMATION DOLLARS IN MILLIONS AT DECEMBER 31, 1994 1993 INVENTORIES Completed goods $ 2,022 $ 1,927 Work in process and raw materials 1,611 1,295 Inventories $ 3,633 $ 3,222 PROPERTY, PLANT AND EQUIPMENT Land and improvements $ 761 $ 757 Buildings and improvements 9,240 8,608 Machinery, electronic and other equipment 35,981 33,930 Total property, plant and equipment 45,982 43,295 Less: Accumulated depreciation 23,947 22,280 Property, plant and equipment--net $22,035 $21,015 INVESTMENTS Accounted for by the equity method $ 2,314 $ 2,603 Stated at cost or fair value 394 457 Investments $ 2,708 $ 3,060 OTHER ASSETS Unamortized software production costs $ 483 $ 499 Unamortized goodwill 1,007 1,359 Deferred charges 746 270 Other 1,757 1,437 Other assets $ 3,993 $ 3,565 DEBT MATURING WITHIN ONE YEAR Commercial paper $10,777 $ 8,761 Long-term debt 2,535 2,019 Long-term lease obligations 30 52 Other 324 231 Debt maturing within one year $13,666 $11,063 30 SUPPLEMENTARY CASH FLOW INFORMATION DOLLARS IN MILLIONS 1994 1993 1992 Interest payments net of amounts capitalized $ 1,280 $ 1,640 $ 1,510 Income tax payments 2,047 1,733 727 The following table displays the non-cash items excluded from the consolidated statements of cash flows: Dollars in millions 1994 1993 1992 Machinery and equipment acquired under capital lease obligations $ 13 $ 15 $ 60 EXCHANGE OF STOCK Net assets $ 2 $ (43) - Investments - 260 - Licenses 134 96 - $ 136 $ 313 - ACQUISITION ACTIVITIES Net receivables $ 24 $ (19) $ (131) Inventories (10) (1) (48) Property, plant and equipment 3 (132) (82) Licensing costs (79) 5 (75) Accounts payable (8) 7 37 Short-term and long-term debt 47 3 93 Other operating assets and liabilities - net 167 (91) (102) Net non-cash items consolidated 144 (228) (308) Net cash received from (used for) acquisitions $ 144 $ (228) $ (308) 6.BUSINESS RESTRUCTURING AND OTHER CHARGES Our $498 million in provisions for business restructuring in 1993 covered $227 million of costs at AT&T Global Information Solutions (including, in millions, $137 for special termination benefits, $43 for closing facilities, $18 for employee relocation, $19 for contractual obligations and $10 for other related expenses). We also provided $215 million for restructuring customer support functions for telecommunications services (including, in millions, $55 for employee relocation, $25 for outplacement costs, $30 for legal matters, and $105 for closing facilities, lease terminations and asset abandonments associated with centralizing support services). The remaining provisions consist of $23 million related to closing plants for manufacturing telecommunications network systems, and $33 million for employee relocation, outplacement services and legal liabilities related to restructuring operations that service the U.S. federal government. These amounts were recorded as $13 million in costs of products and systems, $90 million as costs of other services, $373 million as selling, general and administrative expenses and $22 million as research and development expenses. We believe that the balance of reserves for business restructuring activities, $894 million at December 31, 1994, is adequate for the completion of those activities. 31 7.OTHER INCOME-NET In June 1993 we sold our remaining 77% interest in UNIX System Laboratories, Inc. to Novell, Inc. (Novell) in exchange for approximately 3% of Novell's common stock. Our gain on the sale was $217 million. We sold our remaining interest in Compagnie Industriali Riunite S.p.A. in 1993 for a slight gain. We reduced the carrying value of that investment by $68 million in 1992 because of a sustained decline in its market value. 8.SALE OF STOCK BY SUBSIDIARY In August 1993 AT&T Capital Corporation (AT&T Capital) sold 5,750,000 shares of common stock in an initial public offering and approximately 850,000 shares of common stock in a management offering. That was about 14% of the shares outstanding, so our ownership is now about 86%. The shares were sold at $21.50 per share, yielding net proceeds of $115 million excluding $18 million of recourse loans attributable to the management offering. Because of these loans, we recorded a $9 million loss on the sale. When the loans are collected by the year 2000, we expect to report a net $6 million gain from this sale of stock. 9.INCOME TAXES This table shows the principal reasons for the difference between the effective tax rate and the United States federal statutory income tax rate: Dollars in millions 1994 1993 1992 U.S. federal statutory income tax rate 35% 35% 34% Federal income tax at statutory rate $2,631 $2,101 $1,917 Amortization of investment tax credits (33) (92) (221) State and local income taxes, net of federal income tax effect 296 287 243 Amortization of intangibles 20 24 110 Foreign rate differential 36 45 75 Taxes on repatriated and accumulated foreign income, net of tax credits (71) (20) 67 Research credits (66) (47) (18) Capital loss carryforward - - (13) Effect of tax rate change on deferred tax assets - (23) - Other differences-net (5) 26 36 Provision for income taxes $2,808 $2,301 $2,196 Effective income tax rate 37.3% 38.3% 39.0% 32 The U.S. and foreign components of income before income taxes and the provision for income taxes are presented in this table: Dollars in millions 1994 1993 1992 INCOME BEFORE INCOME TAXES United States $6,841 $5,705 $5,308 Foreign 677 298 330 $7,518 $6,003 $5,638 PROVISION FOR INCOME TAXES CURRENT Federal $1,618 $ 925 $ 533 State and local 300 206 142 Foreign 225 169 215 $2,143 $1,300 $ 890 DEFERRED Federal $ 488 $ 910 $1,384 State and local 155 212 225 Foreign 60 (41) (85) $ 703 $1,081 $1,524 Deferred investment tax credits -- net* (38) (80) (218) Provision for income taxes $2,808 $2,301 $2,196 *Net of amortization of $33 in 1994, $92 in 1993 and $221 in 1992. Deferred tax liabilities are taxes we expect to pay in future periods. Similarly, deferred tax assets are taxes we expect to get refunded in future periods. Deferred taxes arise because of differences in the book and tax bases of certain assets and liabilities. Deferred tax liabilities (assets) consist of the following: Dollars in millions 1994 1993 LONG-TERM DEFERRED INCOME TAX LIABILITIES: Property, plant and equipment $ 5,964 $ 5,620 Other 1,713 964 Total long-term deferred tax liabilities $ 7,677 $ 6,584 LONG-TERM DEFERRED INCOME TAX ASSETS: Business restructuring $ 479 $ 476 Credit carryforwards 166 425 Employee pensions and other benefits - net 2,618 3,348 Reserves and allowances 141 142 Unamortized investment tax credits 92 119 Valuation allowance (178) (212) Other 446 55 Total long-term deferred income tax assets $ 3,764 $ 4,353 Net long-term deferred income tax liabilities $ 3,913 $ 2,231 33 CURRENT DEFERRED INCOME TAX LIABILITIES: Other $ 110 $ 93 Total current deferred income tax liabilities $ 110 $ 93 CURRENT DEFERRED INCOME TAX ASSETS: Business restructuring $ 99 $ 191 Credit carryforwards 99 - Employee pensions and other benefits 1,166 850 Reserves and allowances 1,126 907 Other 650 224 Total current deferred income tax assets $ 3,140 $ 2,172 Net current deferred income tax assets $ 3,030 $ 2,079 This table shows the principal sources of deferred taxes in 1992: Dollars in millions 1992 Property, plant and equipment $ 992 Business restructuring charges 218 Employee pensions and other benefits 234 Reserves and allowances 108 Other timing differences - net (28) Deferred income taxes $1,524 10.LEASES AS LESSOR We provide financing on sales of our products and those of other companies and lease our products to customers under sales-type leases. This table displays our net investment in direct financing and sales-type leases: Dollars in millions at December 31 1994 1993 Minimum lease payments receivable $5,414 $4,226 Estimated unguaranteed residual values 593 543 Unearned income (1,006) (797) Allowance for credit losses (127) (110) Net investment $4,874 $3,862 This table shows the scheduled maturities for our $5,414 million minimum lease payments receivable on these leases at December 31, 1994: 1995 1996 1997 1998 1999 Later Years $1,689 $1,402 $1,143 $659 $309 $212 34 We lease airplanes, energy-producing facilities and transportation equipment under leveraged leases having original terms ranging from 10 to 30 years, expiring in various years from 1995 through 2025. This table shows our net investment in leveraged leases: Dollars in millions at December 31 1994 1993 Rentals receivable (net of principal and interest on nonrecourse notes) $ 967 $1,010 Estimated residual value of leased property 781 782 Unearned and deferred income (472) (537) Allowance for credit losses (30) (22) Investment in leveraged leases 1,246 1,233 Deferred taxes (1,066) (994) Net investment $ 180 $ 239 We lease land, buildings and equipment to others through operating leases, the majority of which are cancelable. This table shows our net investment in operating leases: Dollars in millions at December 31 1994 1993 Assets leased to others $2,129 $2,694 Less: Accumulated depreciation 817 1,230 Net investment $1,312 $1,464 This table shows the $977 million of future minimum rentals receivable under noncancelable operating leases at December 31, 1994: 1995 1996 1997 1998 1999 Later Years $354 $201 $104 $46 $32 $240 AS LESSEE We lease land, buildings and equipment through contracts that expire in various years through 2025. Our rental expense under operating leases, in millions, was $1,098 in 1994, $1,095 in 1993 and $1,168 in 1992. The table below shows our future minimum lease payments due under noncancelable leases at December 31, 1994. Such payments total $2,968 million for operating leases. The net present value of such payments on capital leases was $105 million after deducting estimated executory costs of $1 million and imputed interest of $15 million. 1995 1996 1997 1998 1999 Later Years Operating leases $579 $445 $370 $301 $250 $1,023 Capital leases 52 30 21 10 5 3 Minimum lease payments $631 $475 $391 $311 $255 $1,026 35 11.SHAREOWNERS' EQUITY Foreign Additional Currency Retained Common Paid-in Translation Earnings Dollars in millions Shares Capital Adjustments (Deficit) At December 31, 1991 $1,491 $12,670 $ 158 $ 4,116 1992 Net income - - - 3,442 Dividends declared - - - (1,759) Shares issued: Under employee plans 14 307 - - Under shareowner plans 10 402 - - Other - 2 - - For merger with Teradata 11 103 - - Teradata balance recorded - - - (178) Shares repurchased - (2) - - Translation adjustments - - (93) - Other changes - 3 - 23 At December 31, 1992 1,526 13,485 65 5,644 1993 Net income - - - (5,906) Dividends declared - - - (1,780) Shares issued: Under employee plans 6 183 - - Under shareowner plans 8 450 - - Other 7 208 - - Shares repurchased - (4) - - Translation adjustments - - (97) - Other changes - 2 - (68) At December 31, 1993 1,547 14,324 (32) (2,110) 1994 Net income - - - 4,710 Dividends declared - - - (1,940) Shares issued: Under employee plans 11 538 - - Under shareowner plans 8 424 - - To acquire licenses 3 133 - - Shares repurchased - (2) - - Preferred stock redemption - 408 - - Translation adjustments - - 177 - Other changes - - - 27 At December 31, 1994 $1,569 $15,825 $ 145 $ 687 In 1992 we recorded the retained earnings of Teradata Corporation (Teradata) as of January 1, after making adjustments associated with the merger. In September 1991 NCR Corporation (NCR) issued 6.3 million shares of NCR common stock in connection with the merger with AT&T. The shares were converted into approximately 17.9 million shares of our common stock upon consummation of the merger. In March 1990 we issued 13.4 million new shares of common stock in connection with the establishment of an ESOP feature for the nonmanagement savings plan. The shares are being allocated to plan participants over ten years commencing in July 1990 as contributions are made to the plan. 36 We have 100 million authorized shares of preferred stock at $1 par value. No preferred stock is currently issued or outstanding. 12.LONG-TERM DEBT OBLIGATIONS This table shows the outstanding long-term debt obligations in millions at December 31: Interest Rates Maturities 1994 1993 DEBENTURES 4 3/8% to 4 3/4% 1996-1999 $ 750 $ 750 5 1/8% to 6% 2000-2001 500 500 8% to 9% 2008-2031 1,700 1,676 NOTES 4 1/4% to 7 3/4% 1995-2009 6,291 3,605 7 4/5% to 8 19/20% 1995-2004 348 445 9% to 13% 1995-2020 373 616 Variable rate 1995-2054 3,187 6,072 13,149 13,664 Long-term lease obligations 105 163 Other 739 89 Less: Unamortized discount-net 69 43 13,924 13,873 Less: Amounts maturing within one year 2,566 2,071 Total long-term obligations $11,358 $11,802 This table shows the maturities, at December 31, 1994, of the $13,149 million in debentures and notes: 1995 1996 1997 1998 1999 Later Years $2,535 $2,115 $1,197 $1,288 $1,396 $4,618 A consortium of lenders provides revolving credit facilities of $7 billion to AT&T and $2 billion to AT&T Capital. These facilities are intended for general corporate purposes, which include support for AT&T's and AT&T Capital's commercial paper. They were unused at December 31, 1994. 13.EMPLOYEE BENEFIT PLANS PENSION PLANS We sponsor noncontributory defined benefit plans covering the majority of our employees. Benefits for management employees are principally based on career-average pay. Benefits for occupational employees are not directly pay-related. Pension contributions are principally determined using the aggregate cost method and are primarily made to trust funds held for the sole benefit of plan participants. We compute pension cost using the projected unit credit method and assumed a long-term rate of return on plan assets of 9.0% in 1994, 1993 and 1992. 37 Pension cost includes the following components: Dollars in millions 1994 1993 1992 Service cost--benefits earned during the period $ 669 $ 536 $ 452 Interest cost on projected benefit obligation 2,400 2,294 2,225 Amortization of unrecognized prior service costs 230 251 346 Credit for expected return on plan assets* (3,260) (3,110) (2,973) Amortization of transition asset (501) (500) (502) Charges for special pension options - 74 11 Net pension cost (credit) $ (462) $ (455) $ (441) *The actual return on plan assets was $601 in 1994, $5,068 in 1993 and $2,153 in 1992. This table shows the funded status of the defined benefit plans: Dollars in millions at December 31 1994 1993 Actuarial present value of accumulated benefit obligation, including vested benefits of $26,315 and $28,027, respectively $28,778 $30,804 Plan assets at fair value $40,150 $41,291 Less: Actuarial present value of projected benefit obligation 30,090 32,495 Excess of assets over projected benefit obligation 10,060 8,796 Unrecognized prior service costs 2,319 2,052 Unrecognized transition asset (3,460) (3,960) Unrecognized net gain (4,982) (3,504) Net minimum liability of nonqualified plans (93) (122) Prepaid pension costs $ 3,844 $ 3,262 We used these rates and assumptions to calculate the projected benefit obligation: At December 31 1994 1993 Weighted-average discount rate 8.7% 7.5% Rate of increase in future compensation levels 5.0% 5.0% The prepaid pension costs shown above are net of pension liabilities for plans where accumulated plan benefits exceed assets. Such liabilities are included in other liabilities in the consolidated balance sheets. We are amortizing over approximately 15.9 years the unrecognized transition asset related to our 1986 adoption of SFAS No. 87, "Employers' Accounting for Pensions." We amortize prior service costs primarily on a straight-line basis over the average remaining service period of active employees. Our plan assets consist primarily of listed stocks (including $216 million and $378 million of AT&T common stock at December 31, 1994 and 1993, respectively), corporate and governmental debt, real estate investments, and cash and cash equivalents. 38 SAVINGS PLANS We sponsor savings plans for the majority of our employees. The plans allow employees to contribute a portion of their pretax and/or after-tax income in accordance with specified guidelines. We match a percentage of the employee contributions up to certain limits. Our contributions in millions amounted to $357 in 1994, $351 in 1993 and $334 in 1992. 14.POSTRETIREMENT BENEFITS Our benefit plans for retirees include health care benefits, life insurance coverage and telephone concessions. This table shows the components of the net postretirement benefit cost: Dollars in millions 1994 1993 Service cost--benefits earned during the period $ 108 $ 95 Interest cost on accumulated postretirement benefit obligation 852 868 Expected return on plan assets * (242) (180) Amortization of unrecognized prior service costs 14 29 Charge for special options - 29 Net postretirement benefit cost $ 732 $ 841 * The actual return on plan assets was ($30) in 1994 and $243 in 1993. We did not restate our 1992 financial statements to reflect the change in accounting for retiree benefits. This table shows our actual postretirement benefit costs on a pay-as-you-go basis in 1992: Dollars in millions 1992 Cost of health care benefits for retirees $532 Cost of life insurance benefits for retirees 3 Cost of telephone concessions and other benefits 39 Payments to regional Bell companies for predivestiture retirees 145 Postretirement benefit cost $719 We had approximately 144,900 retirees in 1994, 142,200 in 1993 and 141,200 in 1992. Our plan assets consist primarily of listed stocks, corporate and governmental debt, cash and cash equivalents and life insurance contracts. This table shows the funded status of our postretirement benefit plans reconciled with the amounts recognized in the consolidated balance sheet: 39 Dollars in millions at December 31 1994 1993 Accumulated postretirement benefit obligation: Retirees $ 7,861 $ 8,912 Fully eligible active plan participants 822 885 Other active plan participants 1,745 2,084 Accumulated postretirement benefit obligation 10,428 11,881 Plan assets at fair value 3,291 2,918 Unfunded postretirement obligation 7,137 8,963 Less: Unrecognized prior service cost (46) 210 Unrecognized net (gain) loss (633) 558 Accrued postretirement benefit obligation $ 7,816 $ 8,195 We made these assumptions in valuing our postretirement benefit obligation at December 31,: 1994 1993 Weighted-average discount rate 8.8% 7.5% Expected long-term rate of return on plan assets 9.0% 9.0% Assumed rate of increase in the per capita cost of covered health care benefits 8.6% 9.4% We assumed that the growth in the per capita cost of covered health care benefits (the health care cost trend rate) would gradually decline after 1994 to 5.7% by the year 2021 and then remain level. This assumption greatly affects the amounts reported. To illustrate, increasing the assumed trend rate by 1% in each year would raise our accumulated postretirement benefit obligation at December 31, 1994 by $577 million and our 1994 postretirement benefit costs by $58 million. 15.STOCK OPTIONS In our Long-Term Incentive Program, we grant stock options, stock appreciation rights (SARs), either in tandem with stock options or free-standing, and other awards. On January 1 of each year, 0.6% of the outstanding shares of our common stock become available for grant. The exercise price of any stock option is equal to or greater than the stock price when the option is granted. When granted in tandem, exercise of an option or SAR cancels the other to the extent of such exercise. Before our mergers with McCaw, NCR and Teradata, stock options were granted under the separate stock option plans of those companies. No new options can be granted under those plans. 40 Option transactions are shown below: Number of Shares 1994 1993 1992 Balance at January 1 38,011,478 36,777,098 37,267,956 Options assumed in merger with Teradata - - 1,848,642 Options granted 5,803,142 7,261,355 7,580,568 Options and SARs exercised (2,498,132) (5,766,132) (9,504,536) Average price $25.04 $23.93 $13.66 Options forfeited (1,031,687) (260,843) (415,532) At December 31: Options outstanding 40,284,801 38,011,478 36,777,098 Average price $36.61 $33.52 $28.53 Options exercisable 28,010,381 24,063,837 23,759,421 Shares available for grant 22,014,728 25,264,307 22,614,535 During 1994, 41,300 SARs were exercised and no SARs were granted. At December 31, 1994 881,385 SARs remained unexercised and all of these were exercisable. 41 16.SEGMENT INFORMATION INDUSTRY SEGMENTS Our operations in the global information movement and management industry involve providing wireline and wireless telecommunications services, business information processing systems, and other systems, products and services that combine communications and computers. Our operations in the financial services and leasing industry involve direct financing and finance leasing programs for our products and the products of other companies, leasing products to customers under operating leases and being in the general-purpose credit card business. Miscellaneous other activities, including the distribution of computer equipment through retail outlets, in the aggregate, represent less than 10% of revenues, operating income and identifiable assets and are included in the information movement and management segment. Revenues between industry segments are not material. Dollars in millions 1994 1993 1992 REVENUES Information movement and management $71,977 $66,847 $64,753 Financial services and leasing 3,117 2,504 1,894 $75,094 $69,351 $66,647 OPERATING INCOME Information movement and management $ 8,188 $ 6,839 $ 7,200 Financial services and leasing 394 339 193 Corporate and nonoperating (1,064) (1,175) (1,755) Income before income taxes $ 7,518 $ 6,003 $ 5,638 ASSETS Information movement and management $56,551 $51,971 $50,661 Financial services and leasing 21,462 17,033 14,003 Corporate assets 1,714 1,104 1,849 Eliminations (465) (715) (409) $79,262 $69,393 $66,104 DEPRECIATION AND AMORTIZATION Information movement and management $ 4,193 $ 4,271 $ 4,046 Financial services and leasing 440 431 352 CAPITAL EXPENDITURES Information movement and management $ 4,237 $ 3,831 $ 3,710 Financial services and leasing 609 457 633 TOTAL LIABILITIES Financial services and leasing $19,463 $15,329 $12,250 42 GEOGRAPHIC SEGMENTS Transfers between geographic areas are on terms and conditions comparable with sales to external customers. The methods followed in developing the geographic area data require the use of estimation techniques and do not take into account the extent to which product development, manufacturing and marketing depend upon each other. Thus the information may not be indicative of results if the geographic areas were independent organizations. Dollars in millions 1994 1993 1992 REVENUES - EXTERNAL CUSTOMERS United States $67,769 $63,775 $60,977 Other geographic areas 7,325 5,576 5,670 $75,094 $69,351 $66,647 TRANSFERS BETWEEN GEOGRAPHIC AREAS (ELIMINATED IN CONSOLIDATION) United States $ 1,679 $ 1,374 $ 1,077 Other geographic areas 1,291 1,125 911 $ 2,970 $ 2,499 $ 1,988 OPERATING INCOME (LOSS) United States $ 8,732 $ 7,425 $ 7,441 Other geographic areas (150) (247) (48) Corporate and nonoperating (1,064) (1,175) (1,755) Income before income taxes $ 7,518 $ 6,003 $ 5,638 ASSETS United States $69,718 $63,194 $60,409 Other geographic areas 9,361 6,901 5,373 Corporate assets 1,714 1,104 1,849 Eliminations (1,531) (1,806) (1,527) $79,262 $69,393 $66,104 Data on other geographic areas pertain to operations that are located outside of the U.S. Our revenues from all international activities, including those in the table, international telecommunications services and exports, provided 25.2% of consolidated revenues in 1994. Business restructuring and other charges were taken primarily in the information movement and management segment and the U.S. geographic area. Corporate assets are principally cash and temporary cash investments. 17.FINANCIAL INSTRUMENTS In the normal course of business we use various financial instruments, including derivative financial instruments, for purposes other than trading. These instruments include commitments to extend credit, letters of credit, guarantees of debt, interest rate swap and cap agreements, and foreign currency exchange contracts. By their nature all such instruments involve risk including the credit risk of non-performance by counterparties, and our maximum potential loss may exceed the amount recognized in our balance sheet. As is customary for these types of instruments, we usually do not require collateral or other security from other parties to these instruments. However, because we control our 43 exposure to credit risk through credit approvals, credit limits and monitoring procedures, we believe that our reserves for losses are adequate. COMMITMENTS TO EXTEND CREDIT We participate in the general-purpose credit card business through AT&T Universal Card Services Corp., a wholly owned subsidiary. We purchase essentially all cardholder receivables under an agreement with the Universal Bank, a subsidiary of Synovus Financial Corporation, which issues the cards. At December 31, the unused portion of available credit was approximately $75,445 million in 1994 and $64,864 million in 1993. This represents the receivables we would need to purchase if all Universal Card accounts were used up to their full credit limits. The potential risk of loss associated with, and the estimated fair values of, the unused credit lines are not considered to be significant. LETTERS OF CREDIT Letters of credit are purchased guarantees that ensure our performance or payment to third parties in accordance with specified terms and conditions. GUARANTEES OF DEBT From time to time, we guarantee the financing for product purchases by customers outside the U.S., and the debt of certain unconsolidated joint ventures. INTEREST RATE SWAP AND CAP AGREEMENTS We enter into interest rate contracts to manage our exposure to changes in interest rates and lower our overall costs of financing. We enter into swap agreements to manage the fixed/floating mix of our debt portfolio to reduce aggregate risk to interest rate movements. These agreements involve the exchange of floating rate for fixed rate payments without the exchange of the underlying principal amount. Fixed interest rate payments are at rates ranging from 3.8% to 8.2%. Floating rate payments are based on rates tied to prime, LIBOR or U.S. Treasury bills. Interest rate differentials paid or received under these swap contracts are recognized over the life of the contracts as adjustments to the effective yield of the underlying debt. We pay premiums for cap agreements to protect us from rising interest rates on our floating rate debt. There is no market risk of loss beyond the premiums paid, which are amortized over the life of the agreement. The weighted average remaining term of the agreements is 5 years for swap contracts and 2 years for caps. FOREIGN EXCHANGE We enter into foreign currency exchange contracts, including forward, option and swap contracts, to manage our exposure to changes in currency exchange rates, principally Canadian dollars, Deutsche marks, pounds sterling and Japanese yen. The use of derivative financial instruments allows us to reduce our exposure to the risk that the eventual dollar net cash inflows resulting from the sale of products to foreign customers and purchases from foreign suppliers 44 will be adversely affected by changes in exchange rates. Our foreign exchange contracts almost entirely hedge firmly committed purchases and sales. These transactions are generally expected to occur in less than one year. Deferred gains and losses are recognized when the future sales or purchases are recognized or immediately if the commitment is canceled. At December 31, 1994, deferred unrealized gains, based on dealer quoted prices, were $51 million and deferred unrealized losses were $55 million. FAIR VALUES OF FINANCIAL INSTRUMENTS INCLUDING DERIVATIVE FINANCIAL INSTRUMENTS The tables below show the valuation methods and the carrying or notional amounts and estimated fair values of material financial instruments held or issued for purposes other than trading: Financial instrument Valuation method Universal Card finance receivables Carrying amounts. These accrue interest at a prime-based rate. All other finance receivables Future cash flows discounted at market rates. Debt excluding capital leases Market quotes or based on rates available to us for debt with similar terms and maturities. Letters of credit Fees paid to obtain the obligations. Guarantees of debt Costs to terminate agreements. Interest rate swap agreements Net gains or losses to terminate agreements. Interest rate cap agreements Costs to obtain agreements. Foreign exchange contracts Market quotes. Dollars in millions 1994 1993 Carrying Fair Carrying Fair Amount Value Amount Value ON BALANCE SHEET INSTRUMENTS Assets: Finance receivables other than leases $13,553 $13,528 $10,320 $10,337 Liabilities: Debt excluding capital leases 24,920 24,449 22,702 23,032 Contract/ Contract/ Notional Fair Notional Fair Amount Value Amount Value OFF BALANCE SHEET Interest rate swap agreements $ 4,423 $115 $ 3,835 $(37) Interest rate cap agreements 1,333 2 1,640 4 Foreign exchange: Forward contracts 1,573 (17) 783 (3) Swap contracts 340 10 361 5 Purchased option contracts - - 41 1 Letters of credit 834 2 680 - Guarantees of debt 423 - 455 - 45 18.CONTINGENCIES In the normal course of business we are subject to proceedings, lawsuits and other claims, including proceedings under government laws and regulations related to environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at December 31, 1994. While these matters could affect the operating results of any one quarter when resolved in future periods, we believe that after final disposition, any monetary liability or financial impact to us beyond that provided for at year-end would not be material to our annual consolidated financial statements. 19.AT&T CREDIT HOLDINGS, INC. In connection with a March 31, 1993, legal restructuring of AT&T Capital Holdings, Inc. (formerly AT&T Capital Corporation), we issued a direct, full and unconditional guarantee of all the outstanding public debt of AT&T Credit Holdings, Inc. (formerly AT&T Credit Corporation). AT&T Credit Holdings, Inc. holds the majority of AT&T's investment in AT&T Capital and the lease finance assets of the former AT&T Credit Corporation. The table below shows summarized consolidated financial information for AT&T Credit Holdings, Inc., which consolidates the accounts of AT&T Capital. The summarized financial information includes transactions with AT&T that are eliminated in consolidation. Dollars in millions 1994 1993 1992 Total revenue $1,437 $1,432 $1,351 Interest expense 302 284 293 Selling, general and administrative expense 387 329 309 Income before cumulative effect of change in accounting 92 70 100 Cumulative effect on prior years of change in accounting for income taxes (SFAS No. 109) - 22 - Net income 92 48 100 Finance receivables $7,726 $6,220 Net investment in operating lease assets 903 978 Total assets 9,468 7,886 Total debt 5,682 4,639 Total liabilities 8,299 6,867 Minority interest 270 251 Total shareowners' equity 899 768 In some cases, AT&T Capital securitizes finance receivables, subject to limited recourse provisions. In the unlikely event that all such receivables had become uncollectible and subject to recourse, our exposure was $353 million at December 31, 1994 and $347 million at December 31, 1993. We record liabilities for the amounts we expect to actually reimburse. 46 20.PREFERRED STOCK REDEMPTION On June 24, 1994, LCH Communications (LCH), a subsidiary of LIN Broadcasting Corporation (LIN), redeemed all $1.3 billion of its outstanding redeemable preferred stock held by Comcast Cellular Communications, Inc. in exchange for all of the capital stock of one of LCH's subsidiaries. As a result of the redemption, we eliminated the net assets and recorded a gain on the sale of assets of $12 million and a tax benefit of $74 million. The $784 million difference between the book value of the preferred stock and the fair value of the assets exchanged was recorded as $408 million of additional paid-in capital and $376 million of minority interests. 21.PRIVATE MARKET VALUE GUARANTEE Under the Private Market Value Guarantee (PMVG) between McCaw and its 52%-owned subsidiary, LIN, a process began on January 1, 1995, to determine the private market price per share of LIN. The private market value is defined as the price per share, including control premium, that an unrelated third party would pay if it were to acquire all the outstanding shares of LIN, including the shares held by McCaw, in an arm's-length transaction and assuming that LIN was being sold in a manner to attract all possible participants and to maximize shareholder value. Using that definition, the private market value is being determined by Morgan Stanley & Co. Incorporated, designated as McCaw's appraiser, and by Lehman Brothers Inc. and Bear, Stearns & Co., designated jointly as the LIN independent directors' appraiser, and if necessary by a third-party appraiser. After the price is determined, McCaw will have 45 days to decide whether to proceed with the acquisition of all the public shares of LIN at that price, subject to the approval of the LIN public shareholders, or to put LIN in its entirety up for sale under the direction of the LIN independent directors. Such a sale would also be subject to approval by the LIN public shareholders. 47 22.QUARTERLY INFORMATION (UNAUDITED) Dollars in millions (except per share amounts) First Second Third Fourth 1994 Total revenues $17,097 $18,238 $18,649 $21,110 Gross margin 6,967 7,406 7,765 8,639 Net income 1,074 1,248 1,050 1,338 Per common share: Net income .69 .80 .67 .85 Dividends declared .33 .33 .33 .33 Stock price*: High 57 1/8 57 1/8 55 7/8 55 1/4 Low 50 5/8 49 1/2 52 1/2 47 1/4 Quarter-end close 51 1/4 53 3/8 54 50 1/4 1993 Total revenues $16,199 $16,857 $17,225 $19,070 Gross margin 6,491 6,785 6,941 7,499 Income before cumulative effects of accounting changes 922 982 1,022 776 Net income (loss) (8,686) 982 1,022 776 Per common share: Income before cumulative effects of accounting changes .60 .64 .66 .50 Net income (loss) (5.65) .64 .66 .50 Dividends declared .33 .33 .33 .33 Stock price*: High 59 1/8 63 7/8 65 61 3/8 Low 50 1/8 53 3/4 57 3/8 52 Quarter-end close 56 3/4 63 58 7/8 52 1/2 * Stock prices obtained from the Composite Tape. The number of weighted average shares outstanding increases as we issue new common shares for employee plans, shareowner plans and other purposes. For this reason, the sum of quarterly earnings per common share may not be the same as earnings per common share for the year, and the per share effects of unusual items in a quarter may differ from the per share effects of those same items for the year. In the third quarter of 1994, we recorded $227 million of costs ($169 million net of taxes) related to the McCaw merger primarily consisting of legal and investment banking fees and bonus pool funding. In the second quarter of 1993, we recorded $278 million in provisions for business restructuring activities. The effect of these provisions was offset by the $217 million gain from selling UNIX System Laboratories, Inc. and other miscellaneous credits. In the fourth quarter of 1993, we recorded a $190 million provision for business restructuring at AT&T Global Information Solutions Company, which reduced net income by $119 million ($0.08 per share). 48 BOARD OF DIRECTORS ROBERT E. ALLEN, 59 Chairman of the Board and Chief Executive Officer of AT&T since 1988. Director since 1984. 6,8 M. KATHRYN EICKHOFF, 55 President of Eickhoff Economics, Inc., a business consulting firm. Elected to Board in 1987. 1,5 WALTER Y. ELISHA, 62 Chairman and Chief Executive Officer of Springs Industries, Inc., a textile manufacturing firm. Director since 1987. 2,4,7 PHILLIP M. HAWLEY, 69 Retired Chairman and Chief Executive Officer of Broadway Stores, Inc. (formerly Carter Hawley Hale Stores, Inc.), department stores. Director since 1982. 2,3,4 CARLA A. HILLS, 60 Chairman and Chief Executive Officer of Hills & Company consulting firm and former U.S. Trade Representative. Elected to Board in 1993. 1,2,5 BELTON K. JOHNSON, 65 Former owner of Chaparrosa Ranch. Chairman of Belton K. Johnson Interests. Director since 1974. 3,5,6,8 DREW LEWIS, 63 Chairman and Chief Executive Officer of Union Pacific Corporation, a rail transportation, natural resources and trucking company. Elected to Board in 1989. 1,2,5 DONALD F. McHENRY, 58 President of IRC Group, international relations consultants; educator and former U.S. Ambassador to the United Nations. Director since 1986. 3,7 VICTOR A. PELSON, 57 Chairman of AT&T Global Operations Team and Executive Vice President of AT&T. Elected to Board in 1993. 5 DONALD S. PERKINS, 67 Chairman of Kmart Corp., mass merchandise retailer. Director since 1979. 2,3,6,7,8 HENRY B. SCHACHT, 60 Chairman and former Chief Executive Officer of Cummins Engine Company, Inc., manufacturer of diesel engines. Elected to Board in 1981. 1,5 MICHAEL I. SOVERN, 63 President Emeritus and Chancellor Kent Professor of Law at Columbia University. Director since 1984. 1,4 49 FRANKLIN A. THOMAS, 60 President of The Ford Foundation. Elected to Board in 1988. 1,2,5 JOSEPH D. WILLIAMS, 68 Retired Chairman and Chief Executive Officer of Warner-Lambert Company, a pharmaceutical, health care and consumer products company. Director since 1984. 4,6,7 THOMAS H. WYMAN, 65 Chairman of S.G. Warburg & Co. Inc., investment bankers. Director since 1981. 2,4,7 1. Audit Committee 2. Committee on Directors 3. Committee on Employee Benefits 4. Compensation Committee 5. Corporate Public Policy Committee 6. Executive Committee 7. Finance Committee 8. Proxy Committee MANAGEMENT EXECUTIVE COMMITTEE ROBERT E. ALLEN, 59 Chairman of the Board and Chief Executive Officer since 1988. During 37-year AT&T career, has been chairman of Chesapeake and Potomac Telephone Companies, AT&T chief financial officer, chairman and CEO of AT&T Information Systems, and president and chief operating officer of AT&T. RICHARD S. BODMAN, 56 Senior Vice President of Corporate Strategy and Development since 1990. Previously president of Washington National Investment Corporation and CEO of Comsat General Corporation. Also held positions at E.I. du Pont de Nemours & Company, in the federal government and at Touche Ross & Company. HAROLD W. BURLINGAME, 54 Senior Vice President of Human Resources since 1987. During 33- year AT&T career, has been vice president of public relations for AT&T Information Systems and senior vice president of public relations for the corporation. MARILYN LAURIE, 55 Senior Vice President of Public Relations and Employee Information since 1987. Chairman of the AT&T Foundation. Headed public relations at AT&T Bell Laboratories and AT&T Communications. A nationally recognized environmentalist, she joined AT&T in 1971. ALEX J. MANDL*, 51 Executive Vice President and Chief Executive Officer of Communications Services since 1993. Joined AT&T in 1991 as chief financial officer. Formerly chairman and CEO of Sea-Land Service,Inc. Held senior positions at CSX Corporation and Boise Cascade Corporation. 50 WILLIAM B. MARX, JR.*, 55 Executive Vice President and Chief Executive Officer, Multimedia Products, since 1994. Also responsible for worldwide purchasing operations, global manufacturing planning and AT&T Microelectronics. Held executive positions in several AT&T units since joining the company in 1961, most recently as Chief Executive Officer of AT&T Network Systems from 1989 to 1994. JOHN S. MAYO+, 64 President of AT&T Bell Laboratories since 1991. Joined AT&T in 1955. Headed product development at AT&T Network Systems and was senior vice president for network systems and network services at Bell Labs. Recipient of the National Medal of Technology for role in providing the technological foundation for Information Age communications. RICHARD A. MCGINN*, 48 Executive Vice President and Chief Executive Officer of Network Systems since 1994. During 25-year AT&T career, has been a regional director for AT&T International, president of AT&T Computer Systems, and president and chief operating officer of Network Systems. RICHARD W. MILLER*, 54 Executive Vice President and Chief Financial Officer since 1993. Formerly chairman and CEO of Wang Laboratories, Inc., senior vice president and general manager for consumer electronics at General Electric Company and chief financial officer for RCA. WILLIAM T. O'SHEA*, 47 Interim Executive Vice President and Chief Executive Officer of AT&T Global Information Systems following the departure of Jerre L. Stead. Has spent more than 20 years in development, marketing and sales of information systems since joining AT&T Bell Laboratories in 1972. Currently senior vice president for worldwide marketing of AT&T Global Information Solutions. VICTOR A. PELSON*, 57 Executive Vice President and Chairman of the Global Operations Team since 1993. Responsible for the effectiveness of AT&T's operations worldwide. Joined AT&T in 1959 as an engineer. Named head of Communications Services Group in 1989. Has held executive positions in virtually every part of the company. JOHN D. ZEGLIS, 47 Senior Vice President-General Counsel and Government Affairs since 1986 and 1989, respectively. Joined AT&T in 1984. Formerly a partner at the law firm of Sidley & Austin. *Also a member of the Global Operations Team. +Daniel C. Stanzione, president of AT&T Network Systems' Global Public Networks unit, will succeed Dr. Mayo upon his retirement February 28, 1995. The Management Executive Committee leads the development and implementation of AT&T's mission, values and strategic intent, while the Global Operations Team is responsible for the effectiveness of AT&T's operations worldwide. 51 OUR THANKS and best wishes to three Management Executive Committee members who left the company. Sam Willcoxon retired as Group Executive of AT&T and President of the Telephone Pioneers of America. Jerre Stead, Chief Executive Officer of AT&T Global Information Systems, left to become Chief Executive Officer of Legent Corp., and Robert Kavner, Chief Executive Officer of AT&T Multimedia Products and Services, joined Creative Artists Agency. _________________________________________________________________ MAUREEN B. TART, 39 Vice President and Controller S. LAWRENCE PRENDERGAST, 53 Vice President and Treasurer MARILYN J. WASSER, 39 Vice President-Law and Secretary GENERAL INFORMATION GENERAL QUESTIONS General questions or comments about AT&T may be addressed to the office of Vice President-Law and Secretary at: AT&T Corporate Headquarters 32 Avenue of the Americas Room 2420E New York, NY 10013-2412 FORM 10-K Form 10-K (AT&T's annual report to the Securities and Exchange Commission) is available without charge from AT&T's shareowner services agent, First Chicago Trust Co., at the address shown at right. OTHER REPORTS AT&T Capital Corporation's annual report and Form 10-K are available without charge by calling 1 800 235-4288 or 201 397-3000, or writing: AT&T Capital Corporation Corporate Communications 44 Whippany Road Morristown, NJ 07962-1983 ______________ AT&T Foundation Report Department BR P.O. Box 45284 Jacksonville, FL 32232-5284 ______________ 52 AT&T and the Environment Department AR 131 Morristown Road Room B1336 Basking Ridge, NJ 07920-1650 HELPFUL INFORMATION FOR INVESTORS SHAREOWNER SERVICES First Chicago Trust, our shareowner services and transfer agent, will be happy to answer questions about your account and help you with transactions. You may call them toll-free at: 1 800 348-8288. Persons using a telecommunications device for the deaf (TDD) or a teletypewriter (TTY) may call: 1 800 822-2794. From outside the United States, call us collect at: 201 324-0293. Our mailing address is: AT&T c/o First Chicago Trust Co. of NY P.O. Box 2575 Jersey City, NJ 07303-2575 The First Chicago Trust address to which banks and brokers may deliver certificates for transfer is 14 Wall Street in New York City. DIVIDEND REINVESTMENT The Dividend Reinvestment and Stock Purchase Plan provides owners of common stock a convenient way to purchase additional shares. If interested, please call or write First Chicago Trust for a prospectus and enrollment form. INVESTOR RELATIONS Security analysts and other members of the professional financial community are invited to contact AT&T Corporate Investor Relations with questions. Call 1 800 972-0784. STOCK DATA AT&T is listed on the New York Stock Exchange (ticker symbol "T"). AT&T also is listed on the Boston, Midwest, Pacific and Philadelphia stock exchanges in the U.S., and on stock exchanges in Brussels, London, Paris, Geneva and Tokyo. Shareowners of record (as of December 30, 1994): 2,302,327 1995 ANNUAL MEETING The 110th Annual Shareowners Meeting will be held 9:30 a.m., Wednesday, April 19, 1995, at the Washington State Convention and Trade Center in Seattle. 53 INFORMATION VIA INTERNET Internet World Wide Web users can access information on AT&T and its products and services through the following Universal Resource Locator address: http://www.att.com/. Shareowners with an e-mail address can send account inquiries electronically to our transfer agent, First Chicago Trust Co. The Internet address is fctc@attmail.com. AT&T Mail Service subscribers should address inquiries to !fctc.
EX-21 9 Exhibit (21) AT&T Form 10-K List of Subsidiaries of AT&T Corp. Jurisdiction of Incorporation AT&T Capital Corporation ......................................Delaware AT&T Communications, Inc. .....................................Delaware AT&T Communications of California, Inc. .......................California AT&T Communications of Delaware, Inc. .........................Delaware AT&T Communications of Hawaii, Inc. ...........................Hawaii AT&T Communications of Illinois, Inc. .........................Illinois AT&T Communications of Indiana, Inc. ..........................Indiana AT&T Communications of Maryland, Inc. .........................Maryland AT&T Communications of Michigan, Inc. .........................Michigan AT&T Communications of the Midwest, Inc. ......................Iowa AT&T Communications of the Mountain States, Inc. ..............Colorado AT&T Communications of Nevada, Inc. ...........................Nevada AT&T Communications of New England, Inc. ......................New York AT&T Communications of New Hampshire, Inc. ....................New Hampshire AT&T Communications of New Jersey, Inc. .......................New Jersey AT&T Communications of New York, Inc. .........................New York AT&T Communications of Ohio, Inc. .............................Ohio AT&T Communications of the Pacific Northwest, Inc. ............Washington AT&T Communications of Pennsylvania, Inc. .....................Pennsylvania AT&T Communications of the South Central States, Inc. .........Delaware AT&T Communications of the Southern States, Inc. ..............New York AT&T Communications of the Southwest, Inc. ....................Delaware AT&T Communications of Virginia, Inc. .........................Virginia AT&T Communications of Washington, D.C. Inc. ..................New York AT&T Communications of West Virginia, Inc. ....................West Virginia AT&T Communications of Wisconsin, Inc. ........................Wisconsin AT&T Credit Corporation .......................................Delaware AT&T Global Information Solutions Company .....................Maryland AT&T International, Inc. ......................................Delaware AT&T Microelectronica de Espana S.A. ..........................Spain AT&T Nassau Metals Corporation ................................New York AT&T Network Systems International B.V. .......................Netherlands AT&T Paradyne Corporation .....................................Delaware AT&T of Puerto Rico, Inc. .....................................New York AT&T Resource Management Corporation ..........................New York AT&T Universal Card Services Corporation ......................Delaware AT&T of the Virgin Islands, Inc. ..............................Delaware Actuarial Sciences Associates, Inc. ...........................Delaware American Transtech, Inc. ......................................Delaware Istel Group, Ltd. .............................................United Kingdom LIN Broadcasting Corporation ..................................Delaware LIN Television Corporation ....................................Delaware McCaw Cellular Communications, Inc. ...........................Delaware Teradata Corporation ..........................................Delaware EX-23 10 1 Exhibit (23) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the registration statements of AT&T Corp. ("AT&T" or the "Company") on Form S-3 for the Shareowner Dividend Reinvestment and Stock Purchase Plan (Registration No. 33-56249), Form S-8 for the AT&T 1984 Stock Option Plan (Registration No. 2-90983), Form S-8 for the AT&T Long Term Savings and Security Plan (Registration Nos. 33-34265 and 33-31362), Form S-8 for the AT&T Long Term Savings Plan for Management Employees (Registration Nos. 33-34264, 33-29256, 33-21937 and 33-14373), Form S-8 for the AT&T Retirement Savings and Profit Sharing Plan (Registration No. 33-39708), Form S-8 for Shares Issuable Under the Stock Option Plan of the AT&T 1987 Long Term Incentive Program (Registration Nos. 33-56643, 33-49465 and 33-20276, Form S-8 for the AT&T Global Information Solutions Company Savings Plan (Registration No. 33-53765), Form S-8 for the 1994 Employee Stock Purchase Plan for AT&T Global Information Solutions Company (Registration No. 33-54281), Form S-8 for the AT&T Capital Corporation Retirement and Savings Plan (Registration No. 33-50821), Form S-8 for the AT&T of Puerto Rico, Inc. Long Term Savings Plan for Management Employees (Registration No. 33-50819), Form S-8 for the AT&T of Puerto Rico, Inc. Long Term Savings and Security Plan (Registration No. 33-50817), Form S-8 for the AGCS Savings Plan (Registration No. 33-50827), Form S-8 for the AGCS Hourly Savings Plan (Registration No. 33-50829, Form S-8 for the 1995 AT&T Employee Stock Purchase Plan (Registration No. 33-54797), Form S-3 for the AT&T $2,600,000,000 Notes and Warrants to Purchase Notes (Registration No. 33-49589), Form S-4 for the AT&T 5,000,000 Common Shares (Registration No. 33-57745), and in Post-Effective Amendment Nos. 1, 2 and 3 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-42150) for the NCR Corporation 1989 Stock Compensation Plan (Registration No. 33-42150-01), the NCR Corporation 1984 Stock Option Plan (Registration No. 33-42150-02) and the NCR Corporation 1976 Stock Option Plan (Registration No. 33-42150-03), respectively, and the Post-Effective Amendment Nos. 1, 2, 3, 4 and 5 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-52119) for the McCaw Cellular Communications, Inc. 1983 Non-Qualified Stock Option Plan (Registration No. 33-52119-01), the McCaw Cellular Communications, Inc. 1987 Stock Option Plan (Registration No. 33-52119-02), the McCaw Cellular Communications, Inc. Equity Purchase Plan (Registration No. 33-52119-03), the McCaw Cellular Communications, Inc. 1992 Stock Option Plan for Non-Employee Directors (Registration No. 33-52119-04) and the McCaw Cellular Communications, Inc. Employee Stock Purchase Plan (Registration No. 33-52119-05), respectively, and Post-Effective Amendment No. 1 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-45302) for the Teradata Corporation 1987 Incentive and Other Stock Option Plan (Registration No. 33-45302-01), of our reports, which include explanatory paragraphs regarding the change in 1993 in methods of accounting for postretirement benefits, postemployment benefits and income taxes, dated January 24, 1995, on our audits of the consolidated financial statements and consolidated financial statement schedules of the Company and its subsidiaries at December 31, 1994 and 1993, and for the years ended December 31, 1994, 1993 and 1992, which reports are included or incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND L.L.P. 1301 Avenue of the Americas New York, New York March 24, 1995 EX-24 11 1 Exhibit (24)a AT&T Form 10-K POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is both an officer and a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorney for him and in his name, place and stead, and in his capacity as both an officer and a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Robert E. Allen Chairman of the Board and Director 2 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is an officer of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him and in his name, place and stead, and in his capacity as an officer of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 9th day of March, 1995. Richard W. Miller Executive Vice President and Chief Financial Officer 3 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is an officer of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER and S. L. PRENDERGAST, and each of them, as attorneys for her and in her name, place and stead, and in her capacity as an officer of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Maureen B. Tart Vice President and Controller 4 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. M. Kathryn Eickhoff Director 5 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 9th day of March, 1995. Walter Y.. Elisha Director 6 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Philip M. Hawley Director 7 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Carla A. Hills Director 8 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 13th day of March, 1995. Belton K. Johnson Director 9 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Drew Lewis Director 10 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Donald F. McHenry Director 11 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 10th day of March, 1995. Victor A. Pelson Director 12 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 10th day of March, 1995. Donald S. Perkins Director 13 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Henry B. Schacht Director 14 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 8th day of March, 1995. Franklin A. Thomas Director 15 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Joseph D. Williams Director 16 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 16th day of March, 1995. Thomas H. Wyman Director 17 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS: WHEREAS, AT&T CORP., a New York corporation (hereinafter referred to as the "Company"), proposes to file shortly with the Securities and Exchange Commission, under the provisions of the Securities Exchange Act of 1934, as amended, an annual report on Form 10-K; and WHEREAS, the undersigned is a director of the Company: NOW, THEREFORE, the undersigned hereby constitutes and appoints R. W. MILLER, M. B. TART and S. L. PRENDERGAST, and each of them, as attorneys for him or her and in his or her name, place and stead, and in his or her capacity as a director of the Company, to execute and file such annual report, and thereafter to execute and file any amendment or amendments thereto, hereby giving and granting to said attorneys full power and authority to do and perform each and every act and thing whatsoever requisite and necessary to be done in and about the premises, as fully, to all intents and purposes, as the undersigned might or could do if personally present at the doing thereof, hereby ratifying and confirming all that said attorneys may or shall lawfully do, or cause to be done, by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this the 17th day of March, 1995. Director Michael I. Sovern EX-24 12 1 Exhibit (24)b AT&T Form 10-K I certify that the following is a true and correct copy of a resolution adopted by the Board of Directors of AT&T Corp. at a meeting held on March 15, 1995. RESOLVED: that the form of the Company's Annual Report on Form 10-K for the year ended December 31, 1994, submitted to the meeting, is approved, and each of the officers and directors of the Company signing the Form 10-K is authorized to execute such report, personally or by attorney-in-fact, in the name of and on behalf of the Company, and to file such report with the Securities and Exchange Commission, with such changes therein as the officers and directors signing such report shall approve, such approval to be conclusively evidenced by the signing thereof, and to cause to be filed any amendments or supplements to the foregoing, and to do all other acts and things, and to execute, personally or by attorney-in-fact, any and all other documents necessary or advisable in connection therewith. ORIGINAL SIGNED BY MARILYN J. WASSER Secretary EX-27 13
5 This schedule contains summary financial information extracted from the audited balance sheet of AT&T at December 31, 1994, audited consolidated statement of income for the year ended December 31, 1994 and the statement of cash flows at December 31, 1994 and is qualified in its entirety by reference to such financial statements. 1,000,000 YEAR DEC-31-1994 JAN-01-1994 DEC-31-1994 1,208 294 29,874 1,251 3,633 37,611 45,982 23,947 79,262 30,930 11,358 1,569 0 0 16,352 79,262 21,161 75,094 13,273 44,317 22,747 1,929 748 7,518 2,808 4,710 0 0 0 4,710 $3.01 0