AT&T; Profit Leaps 50%; Accounting Change Helps Gain
American Telephone & Telegraph on Wednesday reported a 50% increase in first-quarter net income--to $530 million from $354 million a year ago--but $100 million of the gain came from a change in accounting for pension expenses.
Excluding the accounting change, AT&T;’s net would have been up 21%.
The increase reflected tight cost controls, strong sales to the telephone industry and “strong growth in both our domestic and international long-distance business,” Chairman Charles L. Brown said here at the 101st annual shareholders meeting. “These achievements were offset, however, by continued sluggishness in the market for computers, electronic components and office communications equipment.”
Operating Revenue Up
Operating revenue for the quarter ended March 31 climbed 5% to $8.75 billion from $8.31 billion a year ago. But the gain in overall revenue masked a 5% drop in product sales and a 16% decline in rental revenue. Only revenue from the sale of services climbed, gaining 22%.
Wall Street reacted enthusiastically to the profit report. AT&T; was the New York Stock Exchange’s most actively traded issue Wednesday, closing at $24.50 a share, up $2.12 1/2, as 14.3 million shares changed hands.
Nonetheless, Brown told a press conference that he “still isn’t quite satisfied” with AT&T;’s 12% return on equity. The goal is to achieve a 20% return, he said, but he conceded that he doesn’t know when--or even if--that goal will be achieved.
Brown will step down in August on reaching the company’s mandatory retirement age of 65, completing seven turbulent years as chairman. His stewardship spanned the breakup of the monolithic Bell System, in which AT&T; shed its local telephone companies but was allowed to enter the unregulated and highly competitive world of information.
‘Appropriate and Necessary’
“We did what was appropriate and necessary,” Brown said of AT&T;’s management of the divestiture. “Probably some things could have been done differently, but overall we did what we had to do--and we did it with class.”
The accounting change for pensions, mandated by a new rule issued by the Financial Accounting Standards Board, requires companies to recognize pension benefits each year as employees earn them rather than averaging them over the employees’ working lives.
The $100-million benefit that resulted in the first quarter “is sustainable at this level,” Senior Vice President Virginia Dwyer said.
For all of 1986, AT&T; will have a negative pension expense for financial reporting purposes of $275 million, versus expenses of $657 million in 1985.
The change will affect neither AT&T;’s cash flow nor pension levels, Dwyer said.
