<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: March 4, 1994
AMERICAN TELEPHONE AND TELEGRAPH COMPANY
A New York Commission File I.R.S. Employer
Corporation No. 1-1105 No. 13-4924710
32 Avenue of the Americas, New York, New York 1001 3-2412
Telephone Number (212) 387-5400
<PAGE>
<PAGE> 2 Form 8-K March 4, 1994
Item 5. Other Events.
American Telephone and Telegraph Company is filing herewith
audited consolidated financial statements for the year ended
December 31, 1993.
OUR GROWTH COMES FROM COMPETING SUCCESSFULLY WORLDWIDE IN BOTH
OLD AND NEW MARKETS, OFFERING NEW TECHNOLOGY AND HIGH-QUALITY
PRODUCTS AND SERVICES.
FINANCIAL SECTION
A DISCUSSION AND ANALYSIS OF OUR RESULTS AND OPERATIONS..........
Global economic conditions improved in 1993, but growth was still
sluggish. In Europe and Japan the weak conditions of 1991 and
1992 continued this past year. Against this backdrop, we reported
a 3.5% increase in total revenues in 1993, a pickup from the 2.9%
increase in 1992.
We made three accounting changes this past year. Because new
rules apply to all U.S. companies, we changed our accounting for
retiree benefits, postemployment benefits and income taxes. The
net after-tax charge to bring our financial statements in line
with the new accounting methods caused us to report a net loss
for the year. Excluding that net charge and the increase in 1993
expenses caused by the change in accounting for postemployment
benefits and a fourth-quarter restructuring charge, our per share
earnings were $3.15 in 1993. These accounting changes do not
affect cash flows; they only change the expenses we report.
CONSOLIDATED INCOME STATEMENT INFORMATION
Dollars in millions 1993 1992 1991
- -----------------------------------------------------------------
Total revenues $67,156 $64,904 $63,089
Total costs 40,569 39,710 38,825
_________________________________________________________________
Gross margin 26,587 25,194 24,264
Provisions for business
restructuring 498 64 3,572
Other operating expenses 19,851 18,861 19,334
_________________________________________________________________
Operating income $ 6,238 $ 6,269 $ 1,358
=================================================================
Income before cumulative effects
of accounting changes $ 3,974 $ 3,807 $ 522
Cumulative effects of
accounting changes (7,768) - -
_________________________________________________________________
Net Income (Loss) $(3,794) $ 3,807 $ 522
=================================================================
Gross margin percentage 39.6% 38.8% 38.5%
Operating margin percentage 9.3% 9.7% 2.2%
=================================================================
<PAGE>
<PAGE> 3 Form 8-K March 4, 1994
In our new accounting for retiree benefits, we estimate and
book expenses for retiree benefits during the years employees are
working and accumulating these 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. To use the new method, we made
assumptions about trends in health care costs, interest rates and
average life expectancy. Then we estimated the future payments
for benefits to all present retirees and for accumulated benefits
of active employees. We then placed this $11.3 billion liability
on the books to reflect those estimated future obligations at
January 1, 1993, expressed in today's dollars. From now on, we
will continue to record the expenses as employees accumulate
future benefits so that our liability for retiree benefits is
always up to date. We expect our annual expenses to be at about
the same level we recorded before this accounting change.
*****************************************************************
WHY DO WE MAKE ACCOUNTING CHANGES?
The goal of financial reporting and our objective at AT&T is to
give investors the information they need to understand how we're
doing over time and in comparison with other companies. Sometimes
accounting rule-makers issue new rules for all companies. At
other times, we decide to change our methods because of trends in
our business or industry.
HOW DO WE MAKE THE CHANGES?
We first figure out what our balance sheet would look like if we
had always used the new accounting methods. Then we make all the
adjustments needed to catch up with those new methods. Our income
statement shows the net impact of all those adjustments as
"cumulative effects on prior years of changes in accounting."
WHAT DO THE CHANGES MEAN TO RESULTS?
Accounting changes sometimes have a large effect on reported
earnings in the year of a change, but the effects on future
earnings may be quite small once we bring the balance sheet up to
date. Because the cumulative effects come from earlier years,
many investors set them aside when looking at current results.
The income statement format allows investors to see our results
easily with or without these cumulative effects of accounting
changes.
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<PAGE>
<PAGE> 4 Form 8-K March 4, 1994
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<TABLE>
<CAPTION>
AT&T VERSUS S&P 500
TOTAL SHAREHOLDER RETURNS ASSUMING REINVESTMENT OF DIVIDENDS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
In Dollars
600
*
500
*
#
400 * #
* * #
*# #
300 * *#
#
* # #
# *
200 *# * *# *#
*# *# #
* *
* # #
100 *# *# #
0
--------------------------------------------------------------------
1/84 84 85 86 87 88 89 90 91 92 93
<FN>
* AT&T
# S&P
Your investment has outperformed the S&P 500 for the past decade.
Assumes $100 invested in the new AT&T Common Stock and in the S&P 500 Index
on January 1, 1984 and all dividends reinvested.
</TABLE>
*****************************************************************
Our new accounting for postemployment benefits, including
payments for separations and disabilities, is very similar to our
new accounting for retiree benefits. We must 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. Using the former method, we
booked expenses for separations when we identified them and
expenses for disabilities when we made payments. We used our
experience over the past five years to estimate future
separations. In the future, we will adjust our estimates based on
the number of employees who actually leave our payroll with these
payments. Because we book expenses every quarter using this
accounting method instead of booking expenses when we make plans
to restructure our business, this change increased our costs and
expenses by $301 million in 1993, and reduced our earnings by
$171 million, or $0.13 per share. We expect our earnings in 1994
to be similarly reduced.
<PAGE>
<PAGE> 5 Form 8-K March 4, 1994
Our new accounting for income taxes uses the enacted tax
rates to compute both deferred and current taxes. That means we
must refigure our deferred tax assets and liabilities whenever
Congress changes tax rates. Using our former method, we held
deferred tax assets and liabilities at their original values even
when tax rates changed. Because federal corporate tax rates are
lower now than they were before the 1986 Tax Act, we had a gain
when we changed to the new accounting method. Apart from the
effects of changes in statutory tax rates, we do not expect the
new accounting to affect future earnings materially.
AN OVERVIEW OF OUR BUSINESS OPERATIONS
Our core business is to meet the communications and computing
needs of our customers by using networks to move and manage
information. We divide the revenues and costs of this core
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 core 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.
Customer demand for the products and services of our core
business continues to grow despite weak economic conditions
worldwide. Technological advances and brisk competition are
making electronic communications and computing ever more useful
and economical. Our financial services businesses are also
growing because we are investing in new assets.
We look forward to greater revenue growth in 1994 than in
1993 because of a strengthening economy and the expected
completion of our merger with the fast-growing McCaw Cellular
Communications, Inc. (McCaw).
*****************************************************************
OUR MERGER WITH MCCAW AIMS TO GIVE OUR CUSTOMERS A MORE
COMPREHENSIVE SERVICE OFFERING AND OUR INVESTORS FASTER GROWTH
AND HIGHER LONG-TERM RETURNS ON THEIR INVESTMENT.
Our plan is for McCaw's owners to exchange their McCaw stock for
new AT&T stock. Then all owners of the post-merger AT&T will
share in the benefits and risks of the combined operations. The
people, assets and capital of the two firms won't change just
because of this merger.
In mergers like this, we simply add up the earnings, assets,
liabilities and equity of the two companies and become one
company. We used this same method, called a "pooling of
interests," for the merger of AT&T and NCR in 1991.
After a merger, financial statements and all other financial
information show the combined amounts as if there had always been
only one company. To help you picture this, we included some of
these combined amounts at the bottom of the ten-year summary of
selected financial data. We computed these amounts assuming the
merger was already completed using a one-for-one exchange of
shares as AT&T and McCaw proposed in the merger agreement.
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<PAGE>
<PAGE> 6 Form 8-K March 4, 1994
<TABLE>
<CAPTION>
TEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA
(UNAUDITED)
Dollars in millions (except per share amounts)
Jan. 1,
1993* 1992 1991* 1990 1989 1988* 1987 1986* 1985 1984 1984
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Total revenues $67,156 $64,904 $63,089 $62,191 $61,100 $61,756 $60,530 $61,906 $63,130 $60,318
Research and
development expenses 3,069 2,911 3,114 2,935 3,098 2,988 2,810 2,599 2,527 2,477
Operating income (loss) 6,238 6,269 1,358 5,496 5,024 (2,275) 4,281 999 3,569 2,824
Income before cumulative
effects of accounting
changes 3,974 3,807 522 3,104 3,109 (1,230) 2,463 651 1,872 1,713
Net income (loss) (3,794) 3,807 522 3,104 3,109 (1,230) 2,463 476 1,872 1,713
Earnings (loss) per
common share before
cumulative effects of
accounting changes 2.94 2.86 0.40 2.42 2.40 (0.94) 1.82 0.42 1.31 1.23
Earnings (loss) per
common share (2.80) 2.86 0.40 2.42 2.40 (0.94) 1.82 0.29 1.31 1.23
Dividends declared per
common share 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 $19,397 $19,358 $18,689 $18,661 $17,023 $16,394 $21,866 $22,061 $23,133 $22,167 $21,416
Total assets 60,766 57,188 53,355 48,322 42,187 39,869 44,014 43,617 44,683 43,418 39,156
Long-term debt including
capital leases 6,812 8,604 8,484 9,354 8,377 8,350 8,027 7,789 8,026 8,943 9,462
Common shareowners'
equity 13,850 18,921 16,228 15,883 14,723 13,705 16,617 15,946 16,951 15,839 14,413
Net capital expenditures 3,701 3,933 3,860 4,018 3,951 4,288 3,805 3,904 4,295 3,685
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<PAGE> 7 Form 8-K March 4, 1994
<TABLE>
<CAPTION>
TEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA (Cont'd)
(UNAUDITED)
Dollars in millions (except per share amounts)
Jan. 1,
1993* 1992 1991* 1990 1989 1988* 1987 1986* 1985 1984 1984
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER INFORMATION
Operating income (loss)
as a percentage of
revenues 9.3% 9.7% 2.2% 8.8% 8.2% (3.7)% 7.1% 1.6% 5.7% 4.7%
Net income (loss) as a
percentage of revenues (5.6)% 5.9% 0.8% 5.0% 5.1% (2.0)% 4.1% 0.8% 3.0% 2.8%
Return on average common
equity (29.0)% 21.1% 3.1% 19.7% 21.8% (7.2)% 15.0% 2.2% 10.7% 10.5%
Data at year-end except
last column:
Stock price per share $52.50 $51.00 $39.125 $30.125 $45.50 $28.75 $27.00 $25.00 $25.00 $19.50 $17.875
Book value per common
share $10.24 $14.12 $12.39 $12.46 $11.54 $10.55 $12.66 $11.91 $12.58 $12.00 $11.39
Debt ratio 56.1% 46.1% 48.9% 47.6% 43.0% 41.6% 36.1% 34.4% 34.5% 36.5% 40.1%
Debt ratio excluding
financial services 28.3% 25.4% 34.7% 38.3% 36.3% 37.3% 32.5% 32.2% 32.9% 36.2% 40.1%
Employees 308,700 312,700 317,100 328,900 339,500 364,700 365,000 378,900 399,600 427,200 435,000
- ------------------------------------------------------------------------------------------------------------------------------
PROFORMA INFORMATION REFLECTING THE PROSPECTIVE MERGER OF AT&T AND MCCAW
Total revenues $69,351 $66,647 $64,455 $63,228 $61,604 $62,067 $60,726 $61,975 $63,159 $60,326
Total costs and expenses 62,853 60,119 62,981 57,684 56,720 64,496 56,585 61,000 59,689 57,501
Net income (loss) (5,906) 3,442 171 3,666 2,820 (1,527) 2,374 434 1,856 1,712
Earnings (loss) per
common share (3.83) 2.27 0.12 2.50 1.96 (1.07) 1.64 0.30 1.29 1.22
Total assets 69,392 66,104 62,072 57,036 45,228 41,945 45,583 44,305 44,824 43,461
Total long-term debt 11,802 14,166 13,683 14,579 10,116 10,172 9,060 8,234 8,104 8,963
Common shareowners' equity 13,373 20,312 17,972 17,928 15,727 13,694 16,913 15,849 16,945 15,852
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
* 1993 data reflect a $7.8 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.
</TABLE>
<PAGE>
<PAGE> 8 Form 8-K March 4, 1994
CHANGES IN OUR COMPETITIVE LANDSCAPE
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MULTIMEDIA NETWORKS WILL LEAD TO NEW WAYS OF COMMUNICATING AND
COMPUTING AND NEW FORMS OF EDUCATION AND ENTERTAINMENT.
Telephone and cable television firms are forming alliances to
speed their delivery of multimedia services to the home. A
notable example is the proposed merger of Bell Atlantic Corp. and
Tele-Communications Inc. Focusing on the programming to be
provided by these networks, QVC Network Inc. and Viacom Inc. were
competing to acquire Paramount Communications Inc., the
entertainment company, at year-end.
Several firms are announcing major new networks. Pacific
Bell's planned $16 billion network is a good example. AT&T, as a
supplier of network systems and services and a provider of
multimedia products and services, will be a supplier as well as a
customer and competitor of these firms.
The new alliances and networks, increasing competition, and
changes in technology and regulation are all leading to more
choices for customers. These trends should also lower our costs
to reach customers over local networks. Success in this new
multimedia environment will depend on innovation and giving
customers value for their purchases.
COMPETITION IS GLOBAL AND INCREASINGLY BETWEEN MULTINATIONAL
FIRMS WITH PARTNERS FROM DIFFERENT NATIONS.
To offer one-stop shopping for telecommunications services to
companies that do business globally, we formed WorldPartners with
Kokusai Denshin Denwa Co. Ltd. of Japan and Singapore Telephone.
We intend to also find European partners or build networks there
ourselves, spending as much as $350 million. British Telecom Plc
and MCI Communications Corp.(MCI) also formed an alliance, as did
Germany's Deutsche Bundespost Telekom and France Telecom.
British Telecom applied to the FCC to provide long distance
service in the U.S. We applied to provide service in the U.K. and
also asked the FCC to prevent non-U.S. carriers from operating in
the U.S. unless we can compete in their home markets.
We extended our rivalry with MCI to Canada through an
alliance with Unitel Communications, Inc. MCI is allied with the
Stentor consortium there. Mexico will open long distance services
to competition from U.S. carriers in 1996 as part of the North
American Free Trade Agreement (NAFTA). NAFTA should also aid our
sales of network systems to Mexico.
In 1993 we signed an important agreement with the People's
Republic of China, where we will compete with Canada's Northern
Telecom Ltd., France's Alcatel Alsthom S.A., Sweden's Telefon AB
L.M. Ericsson and possibly others. This past year we also won our
first contract to supply switching equipment to Japan, a market
that is dominated by Fujitsu Ltd. and NEC Corp.
*****************************************************************
<PAGE>
<PAGE> 9 Form 8-K March 4, 1994
Cost controls, coupled with our revenue growth, caused our
gross margin percentage to improve the past two years. Operating
expenses grew 7.5% in 1993, mainly because of marketing and sales
efforts for telecommunications services and provisions for
business restructuring. Such marketing and sales expenses also
rose in 1992, but total operating expenses declined because of
restructuring and other charges in 1991.
To increase our presence outside the U.S., we are hiring
employees, building plants and forming joint ventures. However,
during the past two years the economies of Europe and Japan were
very weak and we needed to restructure some of our overseas
operations. For these reasons we reported an operating loss in
our operations outside the U.S. both years. 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,
along with a slow-growing economy, make the ongoing need for
active cost controls even more urgent. Managers must continuously
assess their resource needs and consider further steps to reduce
costs. Sometimes these steps will include consolidating
facilities, disposing of assets, reducing work force or
withdrawing from markets.
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 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 to us. 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, earnings or
competitive position beyond that provided for at year-end.
Many of our employees are represented by unions. In 1992
AT&T management and union bargainers negotiated innovative labor
agreements with provisions for employees' career security and
well-being as well as higher wages and increased employee
ownership of the business. Under the wage portion of the
agreements, employees at the top of each wage schedule received
increases of 4% in 1992 and 3.9% in 1993, and will receive an
increase of 3.9% in 1994. Pensions are increased by 13% for those
who retire after May 31, 1992. The agreements also retained
management flexibility to react to business conditions while
enhancing education, training and job-changing opportunities for
employees.
<PAGE>
<PAGE> 10 Form 8-K March 4, 1994
TELECOMMUNICATIONS SERVICES......................................
These revenues grew 0.7% in 1993 and 2.0% in 1992, driven by
volume growth. Billed minutes for switched services rose 5.5% in
1993 and 6% in 1992, paced by business services. Volume growth
exceeds revenue growth as customers select more of the higher-
value, lower-priced services made possible by our greater
efficiency. This shift in the mix of services that customers
select lowers average per-minute revenues. In the latter half of
1993 we raised some of our prices and fees - about $500 million
on an annual basis. These increases were primarily for services
where customer demand is not very sensitive to price. In late
December we filed for 1994 price increases of $750 million on an
annual basis and also announced a new discount plan for high-
volume callers. We expect the effects on revenues of this
discount plan and those 1994 price increases to offset each
other. In January 1994 we also proposed to raise prices for some
business services by $165 million on an annual basis.
We expect improving economic conditions and higher prices to
cause our telecommunications services to grow faster in 1994 than
in 1993.
TELECOMMUNICATIONS SERVICES
Dollars in millions 1993 1992 1991
- -----------------------------------------------------------------
Total revenues $39,863 $39,580 $38,805
_________________________________________________________________
Costs
Access and other
interconnection costs 17,709 18,132 18,395
Other costs 7,009 7,135 6,881
_________________________________________________________________
Total costs 24,718 25,267 25,276
_________________________________________________________________
Gross margin $15,145 $14,313 $13,529
=================================================================
Gross margin percentage 38.0% 36.2% 34.9%
=================================================================
This past year we announced AT&T TrueVoice(#) service, a
new, patented technology to improve the sound quality on calls
placed within the continental U.S. and Canada. We expect to
complete the national rollout by April 1994 so that AT&T
TrueVoice service will operate automatically on every call placed
on our network. We believe it gives us a competitive advantage
that will help us attract and keep customers.
Markets for telecommunications services are extremely
competitive. AT&T is the market leader, but we saw another small
decline in our market share this past year. Our own data and the
data of the Federal Communications Commission (FCC) show that our
market share is about 60% of the minutes billed for inter-LATA
switched services. We withstood an important challenge to our
market position when the FCC allowed customers of inbound "800"
services to switch carriers without penalties for a 90-day period
in 1993. We retained 95% of our 531 largest customers and won
contracts away from our competitors. Many of these customers
signed long-term contracts, so we emerged from this "Fresh Look"
period with signed contracts having a greater dollar value than
those we had before.
(#) Registered Trademark<PAGE>
<PAGE> 11 Form 8-K March 4, 1994
The FCC and state utility commissions regulate our services,
and many more rules are imposed on us than on our competitors.
Because of fierce competition and rapid changes in technology and
customer needs, the FCC adopted "price caps" in 1989, increasing
our flexibility to respond to those market conditions. Since
then, the FCC has removed all limits on our prices for many
business services. However, the FCC decided in June 1993 to
continue price caps for residential services instead of reducing
regulation of AT&T.
Total costs of telecommunications services declined this
past year; costs in 1992 were about level with those in 1991.
Despite higher calling volumes, access and other interconnection
costs dropped both years largely because of lower prices from
telephone companies to reach customers over local networks. The
1993 decrease in other costs was mainly due to lower
uncollectibles. We also had lower depreciation expense because we
reduced plant additions. The 1992 increase in other costs was
associated with higher service volumes. We also had higher
uncollectibles because of fraud and the weak economy.
PRODUCTS AND SYSTEMS.............................................
Despite a weak global economy and intense price competition, our
sales grew 8.0% in 1993 and 3.3% in 1992. Sales outside the U.S.
grew at a faster rate than U.S. sales and contributed more than
half the increase in both years. Based on our current
expectations for the global economy, we expect greater sales
growth in 1994.
PRODUCTS AND SYSTEMS
Dollars in millions 1993 1992 1991
- -----------------------------------------------------------------
Revenues
Telecommunications network
products and systems $ 8,345 $ 7,691 $ 7,490
Computer products and systems 3,597 3,433 3,667
Communications products
and systems 3,438 3,098 2,852
Microelectronics products,
special-design products for
U.S. government, and other* 2,418 2,251 1,932
_________________________________________________________________
Products and systems 17,798 16,473 15,941
_________________________________________________________________
Total costs 10,809 9,846 9,134
_________________________________________________________________
Gross margin $ 6,989 $ 6,627 $ 6,807
=================================================================
Gross margin percentage 39.3% 40.2% 42.7%
=================================================================
* "Other" is composed principally of media, predominantly for use
with automated teller machines and point-of-sale equipment, and
business forms.
<PAGE>
<PAGE> 12 Form 8-K March 4, 1994
Revenues from sales of telecommunications network products
and systems grew 8.5% in 1993 and 2.7% in 1992. The 1993 increase
came chiefly from higher sales of wireless products, switching
equipment and operations systems. In 1992 the growth came mainly
from higher sales of cable systems and switching equipment. Sales
outside the U.S. rose both years while U.S. sales grew in 1993.
Orders were heavily weighted toward the 1991 start of a seven-
year, $600 million contract to supply GTE Corporation with
wireless equipment, so U.S. sales were lower in 1992.
Many countries are modernizing their communications
networks. This will lead to many sales opportunities in the years
ahead. We expect to partner with these countries because we
provide a full range of integrated products and services and,
sometimes, assistance in financing their equipment purchases.
In February 1993 we signed an agreement with the State
Planning Commission of the People's Republic of China. Under that
proposed partnership, we expect to engage in local research,
development and manufacturing of central office switching
equipment, cellular communications systems and telecommunications
networks for use in that country.
Sales to the regional Bell companies grew in 1993 after
staying about level in 1992. In 1993 Pacific Bell announced plans
to construct a broadband network over seven years. We were
selected as a critical supplier and systems integrator for the
project, and expect up to $5 billion in revenues from the
project. Other regional carriers also have plans to modernize
their networks. Because we provide the latest digital technology
and services, we expect to win some sizable contracts.
Revenues from sales of computer products and systems rose
4.8% in 1993 after falling 6.4% in 1992. The growth in 1993 came
mainly from higher U.S. sales of workstations, automated teller
machines, and mid-range and high-end systems for enterprise-wide
computing. The decline in 1992 was mainly due to the loss of
sales from some products that were phased out after the 1991
merger of AT&T and NCR Corporation (NCR). In both years we faced
fierce competitive pricing, particularly for lower-end computer
products, and weak economic and market conditions in Europe and
Japan. We recorded no revenues from UNIX System Laboratories,
Inc. (USL) in 1993 because we sold our ownership interest and
included USL's net results in other income-net. USL's revenues
from computer products were $74 million in 1992 and $71 million
in 1991.
Revenues from sales of communications products and systems
grew 11.0% in 1993 and 8.6% in 1992. About two-thirds of the
growth in 1993 came from higher sales of business communications
products and systems. We also had higher sales of consumer-
oriented products, submarine cables and data communications
equipment. The growth in revenues from consumer communications
products reflected higher sales of cellular products, corded
telephones, telephone answering devices and non-AT&T products
such as pagers and electronic games, which was partially offset
by lower sales of cordless telephones. The increase in sales of
consumer-oriented products was larger in 1992, driven by higher
sales of cordless telephones and telephone answering systems.
Sales of submarine cables, business communications systems and
data communications equipment also contributed to the growth in
revenues that year.
[GRAPHIC](See appendix for description)
<PAGE>
<PAGE> 13 Form 8-K March 4, 1994
In total, revenues from sales of microelectronics products,
special-design products for the federal government, and other
products and systems grew 7.4% in 1993 and 16.5% in 1992. Growth
in both years came mainly from higher sales of microelectronics
components and power systems to original equipment manufacturers
outside the U.S. Sales of media and business forms were steady in
1993 after rising in 1992. Because of reduced spending by the
U.S. federal government, sales of special-design products, such
as secure phones, declined both years.
Higher sales levels caused costs of products and systems to
increase both years. Pricing pressures and changes in our product
sales mix caused the gross margin percentage to decline.
RENTALS AND OTHER SERVICES.......................................
These revenues were about level the last three years. Higher
revenues from newer telecommunications services and maintenance
contracts for communications systems were offset by the
continuing and expected decline in rentals of communications
equipment. The fast-growing revenues from "other rentals and
services" come from many different services, such as network
management and satellite services, which generate small revenue
streams. We expect the principal trends in this revenue category
to continue in 1994.
RENTALS AND OTHER SERVICES
Dollars in millions 1993 1992 1991
- -----------------------------------------------------------------
Revenues
Computer products and systems $2,514 $2,667 $2,676
Communications products and
systems rentals 1,174 1,409 1,674
Communications products and
systems services 1,457 1,375 1,299
Other* 1,846 1,506 1,310
_________________________________________________________________
Rentals and other services 6,991 6,957 6,959
_________________________________________________________________
Total costs 3,331 3,287 3,344
_________________________________________________________________
Gross margin $3,660 $3,670 $3,615
=================================================================
Gross margin percentage 52.4% 52.8% 51.9%
=================================================================
* "Other" is composed principally of global messaging and
electronic mail services, telemarketing services, information
technology services and facility rentals.
Although the gross margin percentage improved since 1991
because of a smaller work force, the continuing shift in revenue
mix to other services from higher-margin rentals led to a decline
in the margin percentage in 1993.
<PAGE>
<PAGE> 14 Form 8-K March 4, 1994
*****************************************************************
DEBT TO EQUITY ANALYSIS
AT&T Consolidated and AT&T's Core Business
In Billions of Dollars
40
#D
30 #D #D #D
#D #D #D
#D @D #D @D #D
20 #D @D #E @D #D
#E @D #E @E #D @D
#E @E #E @E #E @D
10 #E @E #E @E #E @E
#E @E #E @E #E @E
#E @E #E @E #E @E
0 #E @E #E @E #E @E
1991 1992 1993
------------------------------------------------
D: Debt
E: Equity
#: AT&T including Financial Services and Leasing
@: AT&T's Core Business
Most of our debt is for Universal Card and AT&T Capital. Our
goal is a 30% debt ratio for our core business. The accounting
changes reduced our equity in 1993.
*****************************************************************
FINANCIAL SERVICES AND LEASING...................................
These revenues grew 32.2% in 1993 and 36.8% in 1992. 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 1994.
FINANCIAL SERVICES AND LEASING
In millions 1993 1992 1991
- -----------------------------------------------------------------
Revenues
AT&T Capital $ 1,360 $ 1,266 $ 1,160
Universal Card 1,228 831 475
Eliminations, adjustments
and other* (84) (203) (251)
_________________________________________________________________
Total revenues $ 2,504 $ 1,894 $ 1,384
Total costs 1,711 1,310 1,071
_________________________________________________________________
Gross margin $ 793 $ 584 $ 313
=================================================================
Gross margin percentage 31.7% 30.8% 22.6%
Operating income (loss) $ 339 $ 193 $ (34)
Operating margin percentage 13.5% 10.2% (2.5)%
Assets $17,033 $14,003 $ 9,809
=================================================================
Universal Card Information:
Finance receivables $ 9,154 $ 6,606 $ 3,786
Accounts 11.7 10.3 7.6
=================================================================
* "Other" is composed principally of revenues from certain lease
finance assets AT&T retained when AT&T Capital was reorganized.
<PAGE>
<PAGE> 15 Form 8-K March 4, 1994
Universal Card is the second largest competitor in its
industry measured by customer accounts. Since its start in 1990
Universal Card pioneered a variety of innovative promotions to
add new accounts, many involving the transfer of balances from
other credit cards. But our credit approval and monitoring have
kept our percentage of delinquent balances and write-offs below
industry norms. Universal Card became profitable in 1992, well
ahead of our projection when we entered the business.
After an initial public offering of its common stock in
August 1993, AT&T Capital became the largest publicly owned
equipment leasing and financing company in the U.S. AT&T still
owns about 86% of its stock, so its results are still fully
consolidated in our financial statements. We unconditionally
guaranteed all of AT&T Capital's outstanding debt at the end of
March 1993, before its legal reorganization. Since then, all AT&T
Capital debt has been issued using its own credit. This change
makes it financially independent and permits us to focus on the
financing needs of our core business.
The growth in costs of financial services and leasing over
the last two years came from the higher volume of financing and
credit card transactions. The improved gross margin percentage
mainly reflects the maturation of the credit card receivables
portfolio. A lower cost of funds due to lower interest rates in
1993 also contributed to the improved margin percentage.
By 1995 we must change our accounting for the loans we make
to customers. Under the new rules we must consider delays or
reduced payments of interest as well as principal when we value
loans that may not be fully repaid. We do not expect this change
to affect our costs or expenses materially.
OPERATING EXPENSES...............................................
Selling, general and administrative expenses increased 5.2% in
1993, largely because of advertising and promotions, and sales
and sales support activities to protect our core business. Such
spending, and costs to expand outside the U.S. and into new
markets, will continue to grow. These expenses also rose in 1992,
but the increase was not evident because 1991 expenses included
$501 million in charges related to business restructuring
activities and the merger of AT&T and NCR.
Research and development expenses increased 5.4% in 1993,
but decreased 6.5% in 1992. The increase was mainly for work on
cellular technology, advanced communications services and
devices, and projects aimed at international growth. In 1992 we
streamlined development work on telecommunications network
systems and consolidated development activities for computer
systems following the merger of AT&T and NCR.
In 1993 AT&T Global Information Solutions (formerly NCR)
offered an early retirement program and a voluntary separation
program to its U.S.-based employees. That unit expects to reduce
its work force by about 15%, or 7,500 employees, in 1994. About
2,200 employees accepted the early retirement offer. Employees
accepting the voluntary separation package must respond before
February 1994.
<PAGE>
<PAGE> 16 Form 8-K March 4, 1994
Our 1993 provisions for business restructuring cover special
benefits provided to employees accepting early retirement offers
as well as other costs of closing facilities and relocating
employees. In addition to the changes at AT&T Global Information
Solutions, we are re-engineering and centralizing support
services for telecommunications services. These ongoing efforts
to raise productivity are part our commitment to meet the
challenge of intense competition.
Our 1991 provisions for business restructuring were
primarily for costs to make changes in our computer and business
equipment operations and in our use of leased and owned space.
The changes in our computer operations were initiated because of
the merger of AT&T and NCR.
OTHER INCOME STATEMENT ITEMS.....................................
Other income-net depends mostly on our cash balance and the
results and changes in our investments and joint ventures. Over
the last two years we reduced our balance of cash and temporary
cash investments because we have easy access to financing when we
need it. Our interest income declined over the past two years
because we had less cash on hand and interest rates were lower.
Income from our equity investments, coupled with our sharing of
earnings from AT&T subsidiaries that are partly owned by other
companies, declined in 1993 after increasing in 1992.
Miscellaneous pretax gains and losses caused the largest
shifts in other income-net over the three years:
-In 1993 we had a $217 million gain when we exchanged our
remaining 77% interest in UNIX System Laboratories, Inc.
(USL) for about 3% ownership of Novell, Inc., a leading
software development company.
-We sold our remaining interest in Compagnie Industriali
Riunite S.p.A. (CIR) in 1993 for a slight gain. Because of
declines in its market value, we wrote down that investment
by $68 million in 1992 and by $218 million in 1991. CIR's
value had declined along with the Italian securities market
and because of lower earnings from its principal holding,
Ing. C. Olivetti & C., S.p.A.
-In 1991 we had a $171 million gain from selling our
investment in Sun Microsystems, Inc.
Sales of stock by our subsidiaries produced a $9 million
loss in 1993 and a $43 million gain in 1991. The 1993 loss came
from deducting recourse loans made to AT&T Capital's senior
management so they would purchase shares and take a larger
personal stake in the success of the business following the
initial public offering. When the loans are repaid in seven
years, we expect to report a net $6 million gain on this
offering. The $43 million gain in 1991 came from USL selling
stock to other companies to encourage their support for open
computing standards.
Interest expense declined over the past two years because of
benefits from refinancing long-term debt at favorable rates and
reduced requirements for contingent liabilities. The benefits of
refinancing, which were partly offset by costs of that
refinancing such as call premiums, were responsible for about
half of the decline in 1993 and two-thirds of the decline in
1992.
<PAGE>
<PAGE> 17 Form 8-K March 4, 1994
INCOME TAXES INFORMATION
Dollars in millions 1993 1992 1991
- -----------------------------------------------------------------
Income before income taxes and
cumulative effects of
accounting changes $6,204 $5,958 $ 883
Provision for income taxes* 2,230 2,151 361
=================================================================
Effective income tax rate 36.0% 36.1% 40.9%
Income taxes paid $1,675 $ 697 $1,308
=================================================================
* The cumulative effects of accounting changes include the tax
effects of those adjustments.
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 was at about the same level in 1993 and
1992. The rate was much higher in 1991 because the tax effects of
restructuring charges were magnified by the lower income before
income taxes.
Congress increased the federal statutory tax rate to 35% in
August 1993 and made the change retroactive to January 1, 1993.
We recognized a $73 million benefit from adjusting our deferred
tax assets for the new rate. But that benefit was mostly offset
by the increase in taxes on 1993 taxable income, caused by the
higher rate. Consequently, this change in rates did not affect
our 1993 net income materially.
TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY......................
Net working capital - current assets less current liabilities -
is a measure of our ability to cover short-term liabilities with
assets that we expect to convert to cash soon. For example,
collecting receivables helps us to pay our suppliers. We reduced
our cash balance and working capital in 1993 to lower our
"opportunity" costs of maintaining that capital. Our financial
condition gives us easy access to financing when we need it, so
we now target a cash balance under $800 million.
BALANCE SHEET INFORMATION
Dollars in millions 1993 1992 Change
- -----------------------------------------------------------------
Working capital $ 4,404 $ 5,128 $ (724)
Cash and temporary cash investments 532 1,310 (778)
Total assets 60,766 57,188 3,578
Total debt 17,716 16,204 1,512
Total shareowners' equity 13,850 18,921 (5,071)
=================================================================
Days sales outstanding for
core business 59.5 63.2 (3.7)
Inventory turnover 3.4 3.2 0.2
=================================================================
<PAGE>
<PAGE> 18 Form 8-K March 4, 1994
The growth in accounts receivable comes from our higher
sales levels. Days sales outstanding in our core business,
defined as average accounts receivable divided by average daily
revenues in our core business, declined because of improved
receivables management. To spur further growth in revenues and
earnings for financial services and leasing, we invested in
additional finance receivables from our credit card and equipment
financing and leasing businesses. We keep a close watch on
account status, which has helped us maintain a low level of
delinquent balances and write-offs.
Higher inventory levels are associated with our sales
growth, which we expect to continue in 1994. Improved inventory
management in 1993 led to increased inventory turnover.
Making better use of existing capacity on our long distance
network, we reduced capital expenditures in 1993. Our plant
additions were at about the same level as depreciation, leaving
property, plant and equipment, net of accumulated depreciation,
essentially unchanged.
The fair value of our pension plan assets is greater than
our projected pension obligations. Those plan assets are earning
a return that exceeds the growth in pension liabilities. In
addition, we are amortizing a transition asset related to our
1986 change in pension accounting over 15.9 years, which produces
about $500 million of income each year. Consequently, we had
pension income that added to our prepaid pension costs.
Under an agreement with unions representing many of our
employees, we transferred some of these excess pension assets
over the past two years to fund retiree health care benefits.
Before 1993, we included these prepaid health care costs in other
assets. However, when we added the liabilities for retiree
benefits to our balance sheet in 1993, because of the new
accounting rule, we netted these prepaid costs with the
liabilities. We did something similar when we netted the trusts
for disability payments with liabilities for separations and
disabilities. Our net liabilities for postretirement and
postemployment liabilities are now combined on our balance sheet.
Our recognition of these liabilities created additional deferred
tax assets.
The increase in investments mainly reflects a $400 million
purchase of McCaw stock in February 1993. We also acquired
shares in Novell, Inc. and Unitel Communications, Inc. (Unitel).
In 1994 we must change the way we report and account for
investments in equity securities that have readily determinable
fair values and all debt securities. We do not expect this change
to have a material effect on our earnings or financial position.
Accounts payable are lower because of reduced access and
other interconnection costs. Payroll and benefit-related
liabilities are higher mainly due to increases in the associated
expenses and benefit costs. Other current liabilities declined
because some restructuring reserves were reclassified to
postemployment liabilities (because of our accounting change) and
others were used for restructuring.
<PAGE>
<PAGE> 19 Form 8-K March 4, 1994
Higher debt maturing within one year chiefly reflects
commercial paper we issued to support financial services. Lower
long-term debt, including capital leases, was the net result of
our refinancing and redemption activities. Our recognition of
predivestiture retirees' benefits led to higher other
liabilities.
Minority interests, which represent other companies'
ownership interests in our net assets, increased mainly because
of the sale of 14% ownership in AT&T Capital in August 1993.
Despite the increase in income before cumulative effects of
accounting changes, operating cash flows declined in 1993 after
growing the year before. The decline was mainly due to higher
inventories and accounts receivable. The greater cash flow in
1992 reflected a smaller increase in working capital requirements
and higher earnings compared with 1991.
For the three years operating cash flows covered our net
capital expenditures and dividend payments. We expect such cash
flows to continue covering capital expenditures and dividends in
1994.
INVESTING ACTIVITIES.............................................
Net capital expenditures were $3.7 billion in 1993, compared with
$3.9 billion the two previous years. Most of our capital
expenditures are for the AT&T Worldwide Intelligent Network. In
1993 we reduced capital expenditures for the network because
technological advances permit us to use existing capacity more
efficiently. Net expenditures for the network, at market price,
were $2.2 billion in 1993, compared with $3.0 billion in 1992 and
$2.5 billion in 1991. These additions provide for growth,
modernization and enhanced reliability. Other capital
expenditures are for equipment and facilities used in leasing
operations, manufacturing, and research and development. We
expect our net capital expenditures for the network and in total
to remain at about the same level in 1994.
We are also investing in finance receivables, particularly
credit card receivables, to increase revenues and earnings from
our financial services businesses. These capital requirements
will continue growing in 1994.
In 1993 we made a $400 million investment in McCaw and
reached a definitive agreement on a merger. Our alliance will
undertake joint projects and marketing efforts. We also acquired
a 20% equity interest in Unitel for cash and advanced
telecommunications equipment valued at approximately $120
million.
In 1991 equity investments were a net source of cash because
we had net proceeds of $687 million from selling our shares in
Sun Microsystems, Inc.
[GRAPHIC] (See appendix for description)
We have a 49% interest in a joint venture with GTE, called
AG Communications Systems Corporation, which is developing new
technology and capabilities for GTE's digital switching systems.
By agreement, our ownership will increase to 80% in 1994 and to
100% in 2004. When we raise our ownership in 1994, we will fully
consolidate this venture in our financial statements.
<PAGE>
<PAGE> 20 Form 8-K March 4, 1994
FINANCING ACTIVITIES AND CAPITALIZATION..........................
The growth of our financial services and leasing business over
the past three years was the primary reason for the increase in
total debt outstanding and for most of our financing needs. We
expect increasing capital requirements for financial services in
1994.
Over the past three years we took advantage of favorable
levels of interest rates to extend debt maturities by refinancing
a substantial amount of long-term debt. Much of the financing
activity shown on our statements of cash flows relates to these
refinancing activities.
The ratio of total debt to total capital (total debt plus
total equity) increased to 56.1% at December 31, 1993, compared
with 46.1% at December 31, 1992, primarily because of the effects
on equity of adopting accounting changes. Excluding financial
services and leasing operations, the debt ratio increased to
28.3% at December 31, 1993, compared with 25.4% at December 31,
1992.
For the past three years we have issued new shares of common
stock in our shareowner and employee plans. In connection with
the merger in 1991, NCR sold 6.3 million shares of common stock
held as Treasury stock (approximately 17.9 million shares of AT&T
common stock after conversion). The proceeds from all newly
issued shares were used for general corporate purposes. 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 present plans
to sell material interests in subsidiaries.
Excluding the cumulative effects of the 1993 accounting
changes, return on equity was 19.2%, compared with 21.1% in 1992.
<PAGE>
<PAGE> 21 Form 8-K March 4, 1994
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.
The financial statements in this annual report have been
audited by Coopers & Lybrand, 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
<PAGE>
<PAGE> 22 Form 8-K March 4, 1994
REPORT OF INDEPENDENT AUDITORS ..................................
To the Shareowners of American Telephone and Telegraph Company:
We have audited the consolidated balance sheets of American
Telephone and Telegraph Company (AT&T) and subsidiaries at
December 31, 1993 and 1992, and the related consolidated
statements of income and cash flows for the years ended December
31, 1993, 1992 and 1991. 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 and subsidiaries at December 31, 1993
and 1992, and the consolidated results of their operations and
their cash flows for the years ended December 31, 1993, 1992 and
1991, 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
1301 Avenue of the Americas
New York, New York
January 27, 1994
<PAGE>
<PAGE> 23 Form 8-K March 4, 1994
CONSOLIDATED AT&T AND SUBSIDIARIES
STATEMENTS OF INCOME Years ended December 31
Dollars in millions (except per share amounts) 1993 1992 1991
==========================================================================
SALES AND REVENUES
Telecommunications services $39,863 $39,580 $38,805
Products and systems 17,798 16,473 15,941
Rentals and other services 6,991 6,957 6,959
Financial services and leasing 2,504 1,894 1,384
__________________________________________________________________________
TOTAL REVENUES 67,156 64,904 63,089
__________________________________________________________________________
COSTS
Telecommunications services
Access and other interconnection costs 17,709 18,132 18,395
Other costs 7,009 7,135 6,881
__________________________________________________________________________
Total telecommunications services 24,718 25,267 25,276
Products and systems 10,809 9,846 9,134
Rentals and other services 3,331 3,287 3,344
Financial services and leasing 1,711 1,310 1,071
__________________________________________________________________________
TOTAL COSTS 40,569 39,710 38,825
__________________________________________________________________________
GROSS MARGIN 26,587 25,194 24,264
__________________________________________________________________________
OPERATING EXPENSES
Selling, general and administrative expenses 16,782 15,950 16,220
Research and development expenses 3,069 2,911 3,114
Provisions for business restructuring 498 64 3,572
__________________________________________________________________________
TOTAL OPERATING EXPENSES 20,349 18,925 22,906
__________________________________________________________________________
OPERATING INCOME 6,238 6,269 1,358
Other income-net 541 352 208
Gain (loss) on sale of stock by subsidiaries (9) - 43
Interest expense 566 663 726
__________________________________________________________________________
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECTS OF ACCOUNTING CHANGES 6,204 5,958 883
Provision for income taxes 2,230 2,151 361
__________________________________________________________________________
Income before cumulative
effects of accounting changes 3,974 3,807 522
__________________________________________________________________________
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 383 - -
__________________________________________________________________________
Cumulative effects of accounting changes (7,768) - -
__________________________________________________________________________
NET INCOME (LOSS) $(3,794) $ 3,807 $ 522
==========================================================================
Weighted average common
shares outstanding (millions) 1,353 1,332 1,293
PER COMMON SHARE:
Income before cumulative effects
of accounting changes $ 2.94 $ 2.86 $ .40
Cumulative effects of accounting changes (5.74) - -
__________________________________________________________________________
NET INCOME (LOSS) $(2.80) $ 2.86 $ .40
==========================================================================
The notes on pages 26 through 48 are an integral part of the consolidated
financial statements.
<PAGE>
<PAGE> 24 Form 8-K March 4, 1994
CONSOLIDATED AT&T AND SUBSIDIARIES
BALANCE SHEETS at December 31
Dollars in millions (except per share amount) 1993 1992
==========================================================================
ASSETS
Cash and temporary cash investments $ 532 $ 1,310
Receivables, less allowances of $1,003 and $829
Accounts receivable 11,933 11,040
Finance receivables 11,370 8,569
Inventories 3,187 2,659
Deferred income taxes 2,079 2,118
Other current assets 637 818
__________________________________________________________________________
TOTAL CURRENT ASSETS 29,738 26,514
__________________________________________________________________________
Property, plant and equipment-net 19,397 19,358
Investments 1,503 864
Finance receivables 3,815 3,643
Prepaid pension costs 3,576 3,480
Other assets 2,737 3,329
__________________________________________________________________________
TOTAL ASSETS $60,766 $57,188
==========================================================================
LIABILITIES AND DEFERRED CREDITS
Accounts payable $ 4,694 $ 5,045
Payroll and benefit-related liabilities 3,746 3,336
Postretirement and postemployment
benefit liabilities 1,301 -
Debt maturing within one year 10,904 7,600
Dividends payable 448 443
Other current liabilities 4,241 4,962
__________________________________________________________________________
TOTAL CURRENT LIABILITIES 25,334 21,386
__________________________________________________________________________
Long-term debt including capital leases 6,812 8,604
Postretirement and postemployment
benefit liabilities 9,082 -
Other liabilities 4,298 2,634
Deferred income taxes 275 4,660
Unamortized investment tax credits 270 350
Other deferred credits 263 181
__________________________________________________________________________
TOTAL LIABILITIES AND DEFERRED CREDITS 46,334 37,815
__________________________________________________________________________
MINORITY INTERESTS 582 452
__________________________________________________________________________
SHAREOWNERS' EQUITY
Common shares par value $1 per share 1,352 1,340
Authorized shares: 2,000,000,000
Outstanding shares: 1,352,398,000 at December 31, 1993;
1,339,831,000 at December 31, 1992
Additional paid-in capital 12,028 11,425
Guaranteed ESOP obligation (355) (407)
Foreign currency translation adjustments (32) 65
Retained earnings 857 6,498
__________________________________________________________________________
TOTAL SHAREOWNERS' EQUITY 13,850 18,921
__________________________________________________________________________
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $60,766 $57,188
==========================================================================
The notes on pages 26 through 48 are an integral part of the consolidated
financial statements.
<PAGE>
<PAGE> 25 Form 8-K March 4, 1994
CONSOLIDATED AT&T AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS Years ended December 31
Dollars in millions 1993 1992 1991
==========================================================================
OPERATING ACTIVITIES
Net income $(3,794) $ 3,807 $ 522
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effects of accounting changes 7,768 - -
Depreciation 3,626 3,540 3,568
Provision for uncollectibles 1,635 1,945 1,233
Provisions for business restructuring 498 64 3,572
(Increase) in accounts receivable (2,082) (1,489) (2,108)
(Increase) decrease in inventories (540) 551 (59)
(Decrease) increase in accounts payable (331) 30 109
Net (increase) in other operating
assets and liabilities (52) (1,084) (1,382)
Other adjustments for non-cash items-net 401 510 560
__________________________________________________________________________
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,129 7,874 6,015
__________________________________________________________________________
INVESTING ACTIVITIES
Capital expenditures net of proceeds from
sale or disposal of property, plant and
equipment of $241, $250 and $119 (3,701) (3,933) (3,860)
Increase in finance receivables, net of
lease-related repayments of $3,633,
$4,325 and $3,521 (3,483) (3,878) (3,052)
Net (increase) decrease in investments (540) (12) 473
Acquisitions, net of cash acquired (414) (202) (29)
Other investing activities-net (201) (167) 69
__________________________________________________________________________
NET CASH USED IN INVESTING ACTIVITIES (8,339) (8,192) (6,399)
__________________________________________________________________________
FINANCING ACTIVITIES
Proceeds from long-term debt issuance 2,456 2,928 1,300
Retirements of long-term debt (3,483) (3,684) (1,196)
Issuance of common shares 619 689 1,164
Dividends paid (1,774) (1,748) (1,563)
Increase in short-term borrowings-net 2,586 1,341 969
Other financing activities-net 25 (72) 2
__________________________________________________________________________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 429 (546) 676
__________________________________________________________________________
Effect of exchange rate changes on cash 3 26 (19)
__________________________________________________________________________
Net (decrease) increase in cash and
temporary cash investments (778) (838) 273
Cash and temporary cash investments at
beginning of year 1,310 2,148 1,875
__________________________________________________________________________
Cash and temporary cash investments at
end of year $ 532 $ 1,310 $ 2,148
==========================================================================
The notes on pages 26 through 48 are an integral part of the consolidated
financial statements.
<PAGE>
<PAGE> 26 Form 8-K March 4, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN TELEPHONE AND
TELEGRAPH COMPANY (AT&T)
AND SUBSIDIARIES
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
_____________________________________________________________________
We include the accounts of operations located outside the U.S. on the basis
of their fiscal years, ended either November 30 or December 31.
CURRENCY TRANSLATION
For the business we transact in currencies other than U.S. dollars, 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 the adjustments from balance sheet translation as a separate component
of shareowners' equity.
REVENUE RECOGNITION
Revenue from Basis of recognition
_____________________________________________________________________
Telecommunications Minutes of traffic processed and
Services contracted fees
Products and Systems Upon performance of contractual
obligations
Rentals and Other Proportionately over contract
Services period or as services are
performed
Financial Services Over the life of the finance
and Leasing receivables using the interest
method
_____________________________________________________________________
RESEARCH AND DEVELOPMENT
We expense research and development expenditures as incurred (including
development costs of software that we plan to sell) until technological
feasibility is established. After that time, we capitalize the remaining
software production costs as other assets and amortize them to product
costs over the estimated period of sales.
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.
<PAGE>
<PAGE> 27 Form 8-K March 4, 1994
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.
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 dispose of
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.
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 15 years.
RECLASSIFICATIONS
We reclassified certain amounts for previous years to conform with the 1993
presentation.
<PAGE>
<PAGE> 28 Form 8-K March 4, 1994
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.
When we adopted the new standard, we had an accumulated liability related
to past service from retirees and active employees. A portion of that
liability was provided for by group life insurance benefits and trusts for
health care benefits funded before 1993.
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. In January 1993 we recognized this liability
in connection with the adoption of SFAS No. 106.
We elected to record a one-time pretax charge of $11,317 million to
record the unfunded portions of these liabilities. That charge reflects
$12,986 million of liabilities less $1,669 million of plan assets and
amounts previously recorded. After taxes, that charge was $7,023 million
($5.19 per share), including $1,375 million for predivestiture retirees.
Apart from these cumulative effects on prior years of the accounting
change, our change in accounting had no material effect on net income in
1993 and is not expected to affect net income materially in future periods.
This change 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 identified and disability benefits
when they were paid.
When we adopted the new standard, we had an accumulated liability for
payments to employees who were then disabled and for benefits related to
the past service of active employees. We recorded a one-time pretax charge
of $1,809 million to record the unprovided portion of these liabilities.
That charge reflects $2,221 million of liabilities less $412 million of
reserves for business restructuring activities that were established before
1993 and reclassified to postemployment liabilities as part of this
accounting change. After taxes, that charge was $1,128 million ($0.83 per
share). The change in accounting reduced operating income by $301 million,
and net income by $171 million ($0.13 per share) in 1993. This change does
not affect cash flows.
<PAGE>
<PAGE> 29 Form 8-K March 4, 1994
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 accounts 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.
Because corporate income tax rates in 1993 were lower than the rates that
existed before the 1986 Tax Act, our adoption of the new standard raised
net income by $383 million ($0.28 per share). Apart from this benefit, 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.
3. PROSPECTIVE ACCOUNTING CHANGES ........................................
DEBT AND EQUITY SECURITIES
In 1994 we must adopt SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." This standard addresses the accounting and
reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities. We do
not expect this new standard to affect net income materially at or after
adoption, and it will not affect cash flows.
IMPAIRED LOANS
By 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. PROSPECTIVE MERGER WITH MCCAW CELLULAR COMMUNICATIONS, INC. (MCCAW) ...
On August 16, 1993 AT&T and McCaw entered into a definitive agreement to
merge McCaw and a subsidiary of AT&T, making McCaw a wholly owned
subsidiary of AT&T.
In the merger, each share of McCaw's Class A and Class B common stock
will be converted into one share of AT&T common stock. However, if the 20-
day-average market price of the AT&T common stock as of five business days
before the merger is less than $53 per share, the conversion ratio will be
adjusted upward to provide shares of AT&T common stock having an aggregate
market price of $53 for each share of McCaw common stock, subject to a
maximum of 1.111 shares of AT&T common stock. If the 20-day-average market
price of AT&T common stock as of five business days before the merger is
greater than $71.73 per share, the conversion ratio will be adjusted
downward to provide shares of AT&T common stock having an aggregate market
price of $71.73 for each share of McCaw common stock, subject to a minimum
of .909 of a share of AT&T common stock.
Pursuant to a separate agreement, AT&T has granted McCaw the right, in
the event the merger does not close, to require AT&T to purchase from McCaw
$600 million of McCaw's Class A common stock at a price of $51.25 per
share.
<PAGE>
<PAGE> 30 Form 8-K March 4, 1994
The merger is subject to a number of conditions, including the receipt of
regulatory approvals, expiration of the waiting period under the Hart-
Scott-Rodino Antitrust Improvements Act (HSR Act), receipt of opinions that
the merger will be tax free and will be accounted for as a pooling of
interests, and McCaw stockholder approval. McCaw stockholders holding a
majority of the voting power of the McCaw common stock, including members
of the McCaw family and British Telecommunications plc, have agreed to vote
in favor of the merger.
The waiting period under the HSR Act will not expire until 20 days after
AT&T and McCaw have substantially complied with a September 1993 request
from the U.S. Department of Justice (DOJ) for additional information and
documents.
In August 1993 AT&T and McCaw filed applications seeking consent of the
FCC to the proposed transfer of control of McCaw's radio licenses to AT&T.
A number of AT&T's competitors have sought to have conditions imposed on
the merger or to deny FCC consent. Final comments were filed in January
1994.
AT&T and McCaw filed applications with nine state regulatory commissions
seeking approval or a statement of non-opposition to the merger. All of
the states, except California have done so. In California, AT&T and McCaw
entered into a settlement agreement with the original opposing parties
regarding the provision of cellular and interexchange services in that
state. In January 1994 AT&T and McCaw filed a reply to objections to the
settlement.
BellSouth Corp. (BellSouth) filed a motion in federal court in December
1993 contending that AT&T requires a waiver of the antitrust consent decree
to proceed with the merger. In January 1994 the DOJ filed a response that
supported that motion in part. AT&T is seeking expedited determination of
the issues raised by BellSouth's motion or, alternatively, an expedited
waiver of any relevant decree provisions.
5. SUPPLEMENTARY FINANCIAL INFORMATION ...................................
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Dollars in millions 1993 1992 1991
====================================================================
INCLUDED IN COSTS OF PRODUCTS AND SYSTEMS
Amortization of software production costs $ 359 $ 315 $ 311
====================================================================
COSTS OF FINANCIAL SERVICES AND LEASING
Interest expense $ 506 $ 485 $ 445
Depreciation, allowance for losses, etc. 1,205 825 626
____________________________________________________________________
Costs of financial services and leasing $1,711 $1,310 $1,071
====================================================================
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Amortization of goodwill $ 76 $ 68 $ 52
====================================================================
OTHER INCOME-NET
Interest income $ 119 $ 149 $ 170
Royalties and dividends 59 48 55
Earnings applicable to minority interests (9) 56 (1)
Miscellaneous-net 372 99 (16)
____________________________________________________________________
Other income-net $ 541 $ 352 $ 208
====================================================================
DEDUCTED FROM INTEREST EXPENSE
Capitalized interest $ 72 $ 62 $ 79
====================================================================
<PAGE>
<PAGE> 31 Form 8-K March 4, 1994
SUPPLEMENTARY BALANCE SHEET INFORMATION
Dollars in millions at December 31 1993 1992
===========================================================
INVENTORIES
Completed goods $ 1,893 $ 1,689
Work in process and raw materials 1,294 970
___________________________________________________________
Inventories $ 3,187 $ 2,659
===========================================================
PROPERTY, PLANT AND EQUIPMENT
Land and improvements $ 746 $ 690
Buildings and improvements 8,512 8,243
Machinery, electronic and other equipment 31,635 31,117
___________________________________________________________
Total property, plant and equipment 40,893 40,050
Less: Accumulated depreciation 21,496 20,692
___________________________________________________________
Property, plant and equipment-net $19,397 $19,358
===========================================================
INVESTMENTS
Accounted for by the equity method $ 698 $ 627
Stated at lower of cost or market 805 237
___________________________________________________________
Investments $ 1,503 $ 864
===========================================================
OTHER ASSETS
Unamortized software production costs $ 413 $ 521
Goodwill, net of accumulated amortization 894 766
Prepaid postretirement healthcare costs - 773
Deferred charges and other 1,430 1,269
___________________________________________________________
Other assets $ 2,737 $ 3,329
===========================================================
DEBT MATURING WITHIN ONE YEAR
Commercial paper $ 8,761 $ 6,053
Long-term debt 1,860 1,158
Long-term lease obligations 52 108
Other notes 231 281
___________________________________________________________
Debt maturing within one year $10,904 $ 7,600
===========================================================
<PAGE>
<PAGE> 32 Form 8-K March 4, 1994
SUPPLEMENTARY CASH FLOW INFORMATION
Dollars in millions 1993 1992 1991
====================================================================
Interest payments net of
amounts capitalized $ 1,284 $ 1,118 $ 1,058
Income tax payments 1,675 697 1,308
====================================================================
The following table displays the non-cash items excluded from the
consolidated statements of cash flows:
Dollars in millions 1993 1992 1991
====================================================================
Machinery and equipment acquired under
capital lease obligations $ 15 $ 60 $ 114
====================================================================
EXCHANGE OF STOCK
Net assets $ (43) - -
Investments 260 - -
____________________________________________________________________
$ 217 - -
====================================================================
ACQUISITION ACTIVITIES
Net receivables $ 12 $ 130 $ 3
Inventories 1 48 5
Property, plant and equipment 139 76 36
Accounts payable (7) (37) (30)
Short- and long-term debt (3) (93) (4)
Other operating assets and liabilities-net 272 78 19
____________________________________________________________________
Net non-cash items 414 202 29
Net cash used for acquisitions $ 414 $ 202 $ 29
====================================================================
6. BUSINESS RESTRUCTURING AND OTHER CHARGES...............................
Provisions for business restructuring include the estimated costs of
specific plans to close offices, consolidate facilities, relocate employees
and fulfill contractual obligations, and of other activities involved in
restructuring operations. These provisions also cover separation payments
made as a result of special offers related to defined benefit plans.
Before we changed our accounting for postemployment benefits in 1993, costs
for other types of separation payments were also included in these
provisions.
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
reengineering customer support functions for telecommunications services
(including, in millions, $55 for employee relocation, $25 for outplacement
costs, $30 for legal contingencies 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.
In 1991 we recorded approximately $4.5 billion of business restructuring
and other charges, reducing net income by $2,863 million ($2.21 per share).
The charges covered estimated costs of changes in our computer operations,
PBX operations and product distribution processes; consolidating operations
in leased and owned buildings and recognizing costs of vacant space;
<PAGE>
<PAGE> 33 Form 8-K March 4, 1994
eliminating a future subsidy to an Alaskan long distance company; writing
down an investment; and other restructuring-related activities, merger-
related expenses and other charges. We recorded these charges as $3,572
million in provisions for business restructuring; $501 million as selling,
general and administrative expenses; $123 million as cost of products and
systems; and the remainder as other costs and expenses, including other
income - net. Charges included in other accounts in 1991 were primarily for
expenses related to the restructuring activities, writing down impaired
assets and merger-related expenses.
The remaining reserves for separation payments at January 1, 1993, were
included in the cumulative effect of the change in accounting for
postemployment benefits. We believe that the balance of reserves for all
other business restructuring activities, $1,440 million at December 31,
1993, is adequate for the completion of those activities.
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 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 and by $218 million in 1991 because of a sustained
decline in its market value.
In 1991 we had a $171 million gain from selling our 19% equity investment
in Sun Microsystems, Inc.
8. SALE OF STOCK BY SUBSIDIARIES ........................................
In August 1993 AT&T Capital Corporation 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 in seven years, we expect to report a net $6 million gain
from this sale of stock.
In 1991 UNIX Systems Laboratories, Inc. sold about 20% of its stock to
other companies to encourage their support for open computing standards.
We had a $43 million gain on that sale. Proceeds from the sale were in
cash and we did not provide for deferred taxes on the gain.
<PAGE>
<PAGE> 34 Form 8-K March 4, 1994
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 1993 1992 1991
====================================================================
U.S. Federal statutory income tax rate 35% 34% 34%
Federal income tax at statutory rate $2,171 $2,026 $ 300
Amortization of investment tax credits (92) (221) (142)
State and local income taxes, net of
federal income tax effect 247 230 63
Foreign rate differential 45 75 54
Taxes on repatriated and accumulated
foreign income, net of tax credits (20) 67 (12)
Research credits (47) (18) (5)
Capital loss carryforward - (13) 32
Effect of tax rate change on
deferred tax assets (73) - -
Other differences-net (1) 5 71
____________________________________________________________________
Provision for income taxes $2,230 $2,151 $ 361
====================================================================
Effective income tax rate 36.0% 36.1% 40.9%
====================================================================
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 1993 1992 1991
==============================================================
INCOME BEFORE INCOME TAXES
United States $5,906 $5,628 $ 373
Foreign 298 330 510
______________________________________________________________
$6,204 $5,958 $ 883
==============================================================
PROVISION FOR INCOME TAXES
CURRENT
Federal $ 878 $ 503 $ 820
State and local 200 124 192
Foreign 169 215 302
______________________________________________________________
1,247 842 1,314
______________________________________________________________
DEFERRED
Federal 924 1,387 (829)
State and local 180 225 (96)
Foreign (41) (85) 140
______________________________________________________________
1,063 1,527 (785)
______________________________________________________________
Deferred investment tax
credits-net* (80) (218) (168)
______________________________________________________________
Provision for income taxes $2,230 $2,151 $ 361
==============================================================
* Net of amortization of $92 in 1993, $221 in 1992 and $142 in
1991.
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.
<PAGE>
<PAGE> 35 Form 8-K March 4, 1994
This table shows the December 31, 1993 amounts of deferred
tax assets and liabilities, which include the effects of our
January 1, 1993 accounting changes:
Dollars in millions Assets Liabilities
==============================================================
Property, plant and equipment $ - $3,492
Business restructuring charges 666 -
Employee, postretirement and
postemployment benefits 4,056 56
Reserves and allowances 1,053 -
Unamortized investment tax credits 119 -
Other 152 494
Valuation allowance (201) -
______________________________________________________________
Deferred income taxes $5,845 $4,042
==============================================================
Prior year financial statements were not restated to reflect
the new accounting standards. This table shows the principal
sources of deferred taxes in prior years:
Dollars in millions 1992 1991
==============================================================
Property, plant and equipment $ 929 $ 511
Business restructuring charges 218 (1,103)
Employee pensions and other benefits 234 (26)
Reserves and allowances 108 (208)
Other timing differences-net 38 41
______________________________________________________________
Deferred income taxes $1,527 $ (785)
==============================================================
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 1993 1992
===========================================================
Minimum lease payments receivable $4,226 $3,780
Estimated unguaranteed residual values 543 484
Unearned income (797) (736)
Allowance for credit losses (110) (91)
___________________________________________________________
Net investment $3,862 $3,437
===========================================================
This table shows the scheduled maturities of the $4,226
million minimum lease payments receivable on these leases at
December 31, 1993:
1994 1995 1996 1997 1998 Later Years
===========================================================
$1,434 $1,080 $797 $489 $234 $192
===========================================================
<PAGE>
<PAGE> 36 Form 8-K March 4, 1994
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 1994 through 2020. This table
shows our net investment in leveraged leases:
Dollars in millions at December 31 1993 1992
===========================================================
Rentals receivable (net of principal
and interest on non-recourse notes) $1,010 $1,021
Estimated residual value
of leased property 782 784
Unearned and deferred income (537) (626)
Allowance for credit losses (22) (19)
___________________________________________________________
Investment in leveraged leases 1,233 1,160
Deferred taxes (994) (719)
___________________________________________________________
Net investment $ 239 $ 441
===========================================================
We lease 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 1993 1992
===========================================================
Machinery, electronic and other equipment $2,694 $2,839
Less: Accumulated depreciation 1,230 1,364
___________________________________________________________
Net investment $1,464 $1,475
===========================================================
This table shows the $557 million of future minimum rentals
receivable under noncancelable operating leases at
December 31, 1993:
1994 1995 1996 1997 1998 Later Years
===========================================================
$251 $157 $83 $32 $11 $23
===========================================================
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 $1,041 in 1993, $1,121 in 1992 and $1,461 in
1991. The table below shows our future minimum lease payments due
under noncancelable leases at December 31, 1993. Such payments total
$3,004 million for operating leases. The net present value of such
payments on capital leases was $163 million after deducting estimated
executory costs of $1 million and imputed interest of $23 million.
1994 1995 1996 1997 1998 Later Years
=====================================================================
Operating
leases $650 $488 $328 $281 $225 $1,032
Capital
leases 91 44 22 17 8 5
_____________________________________________________________________
Minimum lease
payments $741 $532 $350 $298 $233 $1,037
=====================================================================
<PAGE>
<PAGE> 37 Form 8-K March 4, 1994
11. SHAREOWNERS' EQUITY ..................................................
Foreign
Additional Currency
Common Paid-in Translation Retained
Dollars in millions Shares Capital Adjustments Earnings
=====================================================================
At December 31, 1990 $1,275 $ 9,497 $ 50 $ 5,580
1991
Net income - - - 522
Dividends declared - - - (1,612)
Shares issued:
Under employee plans 6 120 - 34
Under shareowner plans 11 381 - -
In private placement 18 629 - -
Shares repurchased (1) (3) - (20)
Translation adjustments - - 108 -
Other changes - - - 95
_____________________________________________________________________
At December 31, 1991 1,309 10,624 158 4,599
1992
Net income - - - 3,807
Dividends declared - - - (1,759)
Shares issued:
Under employee plans 10 298 - -
Under shareowner plans 10 402 - -
For merger with Teradata 11 103 - -
Teradata balance recorded - - - (178)
Shares repurchased - (2) - -
Translation adjustments - - (93) -
Other changes - - - 29
_____________________________________________________________________
At December 31, 1992 1,340 11,425 65 6,498
1993
Net income - - - (3,794)
Dividends declared - - - (1,780)
Shares issued:
Under employee plans 4 157 - -
Under shareowner plans 8 450 - -
Shares repurchased - (4) - -
Translation adjustments - - (97) -
Other changes - - - (67)
_____________________________________________________________________
At December 31, 1993 $1,352 $12,028 $ (32) $ 857
=====================================================================
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 non-management
savings plan. The shares are being allocated to plan participants over ten
years commencing in July 1990 as contributions are made to the plan.
We have 100 million authorized shares of preferred stock at $1 par value.
No preferred stock is currently issued or outstanding.
<PAGE>
<PAGE> 38 Form 8-K March 4, 1994
12. LONG-TERM DEBT OBLIGATIONS ...........................................
This table shows the outstanding long-term debt obligations in
millions at December 31:
Interest Rates Maturities 1993 1992
===================================================================
DEBENTURES
4 3/8% to 4 3/4% 1996-1999 $ 750 $ 750
5 1/8% to 7 1/8% 2000-2001 500 1,673
8 1/8% to 9% 2022-2031 1,676 2,576
NOTES
4 1/4% to 7 3/4% 1994-2004 3,605 2,515
7 4/5% to 8 19/20% 1994-2006 445 740
9% to 12 7/8% 1994-2020 616 1,036
Variable rate 1994-1999 923 191
___________________________________________________________________
8,515 9,481
Long-term lease obligations 163 302
Other 89 148
Less: Unamortized discount-net 43 61
___________________________________________________________________
8,724 9,870
Less: Amounts maturing within one year 1,912 1,266
___________________________________________________________________
Total long-term obligations $6,812 $8,604
===================================================================
This table shows the maturities, at December 31, 1993, of the
$8,515 million in debentures and notes:
1994 1995 1996 1997 1998 Later Years
===================================================================
$1,860 $1,245 $902 $198 $665 $3,645
===================================================================
A consortium of lenders provides revolving credit facilities of $6
billion to AT&T and $2 billion to AT&T Capital Corp. (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, 1993.
13. EMPLOYEE BENEFIT PLANS ...............................................
PENSION PLANS
We sponsor non-contributory 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
1993, 9.0% in 1992 and 8.6% in 1991. Pension cost includes the following
components:
<PAGE>
<PAGE> 39 Form 8-K March 4, 1994
Dollars in millions 1993 1992 1991
====================================================================
Service cost-benefits earned during
the period $ 536 $ 452 $ 303
Interest cost on projected benefit
obligation 2,294 2,225 2,136
Amortization of unrecognized prior
service costs 251 346 310
Credit for expected return on plan
assets* (3,108) (2,973) (2,728)
Amortization of transition asset (502) (502) (502)
Charges for special pension options 74 11 108
____________________________________________________________________
Net pension cost (credit) $ (455) $ (441) $ (373)
====================================================================
*The actual return on plan assets was $5,068 in 1993, $2,153 in 1992
and $6,980 in 1991.
This table shows the funded status of the defined benefit plans:
Dollars in millions at December 31 1993 1992
====================================================================
Actuarial present value of accumulated
benefit obligation, including vested benefits
of $28,119 and $24,818, respectively $30,943 $27,316
====================================================================
Plan assets at fair value $41,481 $38,767
Less: Actuarial present value of projected
benefit obligation 32,680 28,719
____________________________________________________________________
Excess of assets over projected benefit obligation 8,801 10,048
Unrecognized prior service costs 2,052 2,200
Unrecognized transition asset (3,960) (4,463)
Unrecognized net gain (3,513) (4,613)
Net minimum liability of non-qualified plans (72) (45)
____________________________________________________________________
Prepaid pension costs $ 3,308 $ 3,127
====================================================================
We used these rates and assumptions to calculate the projected
benefit obligation:
At December 31 1993 1992
====================================================================
Weighted-average discount rate 7.5% 8.3%
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
$378 million and $451 million of AT&T common stock at December 31, 1993 and
1992, respectively), corporate and governmental debt, real estate
investments, and cash and cash equivalents.
<PAGE>
<PAGE> 40 Form 8-K March 4, 1994
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 $347 in 1993, $331 in 1992 and $279 in 1991.
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 1993
===========================================================
Service cost-benefits earned during the period $ 95
Interest cost on accumulated postretirement
benefit obligation 868
Credit for expected return on plan assets* (180)
Amortization of unrecognized prior service costs 29
Charge for special options 29
___________________________________________________________
Net postretirement benefit cost $841
===========================================================
* The actual return on plan assets was $243.
We did not restate our 1991 and 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 those years:
Dollars in millions at December 31, 1992 1991
=====================================================================
Cost of health care benefits for retirees $532 $532
Cost of life insurance benefits for retirees 3 26
Cost of telephone concessions and other benefits 39 35
Payments to regional Bell companies
for predivestiture retirees 145 125
_____________________________________________________________________
Postretirement benefit cost $719 $718
=====================================================================
We had approximately 142,200 retirees in 1993, 141,200 in 1992 and
138,500 in 1991.
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:
Dollars in millions at December 31 1993
===========================================================
Accumulated postretirement benefit obligation
Retirees $ 8,928
Fully eligible active plan participants 893
Other active plan participants 2,092
___________________________________________________________
Accumulated postretirement benefit obligation 11,913
Plan assets at fair value 2,900
___________________________________________________________
Unfunded postretirement obligation 9,013
Unrecognized prior service costs 283
Unrecognized net loss 569
___________________________________________________________
Accrued postretirement benefit obligation $ 8,161
===========================================================
<PAGE>
<PAGE> 41 Form 8-K March 4, 1994
We made these assumptions in valuing our postretirement
benefit obligation at December 31, 1993:
===========================================================
Weighted-average discount rate 7.5%
Expected long-term rate of return
on plan assets 9.0%
Assumed rate of increase in the per
capita cost of covered health care benefits 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 5.6% 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, 1993 by $758 million and
our 1993 postretirement benefit costs by $64 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. Option
transactions are shown below:
Number of Shares 1993 1992 1991
===================================================================
Balance at January 1 25,588,351 24,877,209 19,657,362
Options assumed in merger
with Teradata - 1,848,642 -
Options granted 4,729,651 4,948,371 8,312,922
Options and SARs exercised (3,994,569) (5,752,053) (2,874,129)
Average price $27.62 $20.44 $19.53
Options forfeited (162,996) (333,818) (218,946)
At December 31:
Options outstanding 26,160,437 25,588,351 24,877,209
Average price $36.78 $32.58 $29.77
Options exercisable 17,942,984 17,832,355 17,713,781
Shares available for grant 19,626,553 16,592,924 13,852,914
===================================================================
During 1993 167,747 SARs were exercised and no SARs were granted. At
December 31, 1993, 925,210 SARs remained unexercised and all of these were
exercisable.
Before our mergers with 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.
<PAGE>
<PAGE> 42 Form 8-K March 4, 1994
16. SEGMENT INFORMATION ..................................................
INDUSTRY SEGMENTS
Our operations in the global information movement and management industry
involve providing long distance 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 1993 1992 1991
====================================================================
REVENUES
Information movement and management $64,652 $63,010 $61,705
Financial services and leasing 2,504 1,894 1,384
____________________________________________________________________
$67,156 $64,904 $63,089
====================================================================
OPERATING INCOME
Information movement and management $ 6,509 $ 6,840 $ 2,008
Financial services and leasing 339 193 (34)
Corporate and non-operating (644) (1,075) (1,091)
____________________________________________________________________
Income before income taxes $ 6,204 $ 5,958 $ 883
====================================================================
ASSETS
Information movement and management $43,515 $41,987 $41,307
Financial services and leasing 17,033 14,003 9,809
Corporate assets 934 1,607 2,533
Eliminations (716) (409) (294)
____________________________________________________________________
$60,766 $57,188 $53,355
====================================================================
DEPRECIATION AND AMORTIZATION
Information movement and management $ 3,682 $ 3,541 $ 3,852
Financial services and leasing 431 352 160
====================================================================
CAPITAL EXPENDITURES
Information movement and management $ 3,232 $ 3,286 $ 3,372
Financial services and leasing 457 633 472
____________________________________________________________________
TOTAL LIABILITIES
Financial services and leasing $15,329 $12,250 $ 8,720
====================================================================
<PAGE>
<PAGE> 43 Form 8-K March 4, 1994
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 1993 1992 1991
=====================================================================
REVENUES-EXTERNAL CUSTOMERS
United States $61,580 $59,234 $57,647
Other geographic areas 5,576 5,670 5,442
_____________________________________________________________________
$67,156 $64,904 $63,089
=====================================================================
TRANSFERS BETWEEN GEOGRAPHIC AREAS
(ELIMINATED IN CONSOLIDATION)
United States $ 1,374 $ 1,077 $ 870
Other geographic areas 1,125 911 884
_____________________________________________________________________
$ 2,499 $ 1,988 $ 1,754
=====================================================================
OPERATING INCOME
United States $ 7,095 $ 7,081 $ 1,578
Other geographic areas (247) (48) 396
Corporate and non-operating (644) (1,075) (1,091)
_____________________________________________________________________
Income before income taxes $ 6,204 $ 5,958 $ 883
=====================================================================
ASSETS
United States $54,738 $51,735 $46,863
Other geographic areas 6,901 5,373 4,931
Corporate assets 934 1,607 2,533
Eliminations (1,807) (1,527) (972)
_____________________________________________________________________
$60,766 $57,188 $53,355
=====================================================================
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 1993.
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 ................................................
We use various financial instruments in the normal course of our business.
By their nature all such instruments involve risk, 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 exposure to credit risk through credit
approvals, credit limits and monitoring procedures, we believe that our
reserves for losses are adequate.
<PAGE>
<PAGE> 44 Form 8-K March 4, 1994
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.
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 AGREEMENTS
We enter into interest rate swap agreements to manage our exposure to
changes in interest rates. The agreements generally involve the exchange
of fixed or floating interest payments without the exchange of the
underlying principal amounts.
FOREIGN EXCHANGE CONTRACTS
We enter into foreign currency exchange contracts, including forward,
option and swap contracts, to manage our exposure to changes in currency
exchange rates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
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.
Commitments to extend credit Receivables we would need to
purchase if all Universal Card
accounts were used up to their
full credit limits.
Letters of credit Fees paid to obtain the
obligations.
Guarantees of debt Costs to terminate agreements.
Interest rate swap agreements Costs to terminate agreements.
Foreign exchange contracts Market quotes.
=====================================================================
<PAGE>
<PAGE> 45 Form 8-K March 4, 1994
The table below shows the carrying or contract/notional amounts and
estimated fair values of material financial instruments used in the
normal course of our business.
Dollars in millions 1993 1992
=====================================================================
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
=====================================================================
ON BALANCE SHEET
Finance receivables
other than leases $10,320 $10,337 $ 7,798 $ 7,803
Debt excluding capital leases 17,553 17,883 15,902 16,126
=====================================================================
CONTRACT/ Contract/
NOTIONAL Notional
AMOUNT Amount
=====================================================================
OFF BALANCE SHEET*
Commitments to extend credit $64,864 $39,934
Letters of credit 680 455
Guarantees of debt 455 271
Interest rate swap agreements 3,685 1,713
Foreign exchange:
Forward contracts 783 972
Swap contracts 361 369
Option contracts - 35
=====================================================================
*The fair values of off-balance-sheet instruments are negligible.
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, 1993. 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 the 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 Corporation 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 Corporation. Financial information for prior
periods was restated for the legal restructuring. The summarized financial
information includes transactions with AT&T that are eliminated in
consolidation.
<PAGE>
<PAGE> 46 Form 8-K March 4, 1994
Dollars in millions 1993 1992
===============================================================
Total revenue $1,432 $1,351
Interest expense 284 293
Operating and administrative expense 384 375
Income before cumulative effect of
change in accounting 70 100
Cumulative effect of change in
accounting (SFAS No. 109) 22 -
Net income 48 100
===============================================================
Finance receivables $6,220 $5,565
Net investment in operating lease assets 978 1,099
Total assets 7,886 7,252
Total debt 4,639 4,633
Total liabilities 6,867 6,422
Minority interest 251 110
Total shareowner's equity 768 720
===============================================================
20. QUARTERLY INFORMATION (UNAUDITED) ....................................
Quarters-Dollars in millions FIRST SECOND THIRD FOURTH
==================================================================
1993
Total revenues $15,719 $16,316 $16,662 $18,459
Gross margin 6,202 6,547 6,581 7,257
Income before cumulative
effects of accounting
changes 936 1,005 1,051 982
Net income (loss) (6,832) 1,005 1,051 982
Per common share:
Income before cumulative
effects of accounting
changes .69 .74 .78 .72
Net income (loss) (5.07) .74 .78 .72
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
==================================================================
1992
Total revenues $15,375 $15,845 $16,180 $17,504
Gross margin 5,912 6,185 6,269 6,828
Net income 883 961 963 1,000
Per common share:
Net Income .67 .72 .72 .75
Dividends declared .33 .33 .33 .33
Stock price*:
High 41 3/8 44 5/8 45 3/8 53 1/8
Low 36 5/8 40 1/8 42 40 5/8
Quarter-end close 40 3/4 43 43 5/8 51
===================================================================
* 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.
<PAGE>
<PAGE> 47 Form 8-K March 4, 1994
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, which reduced net income by $119 million ($0.09 per
share).
As a result of adopting SFAS No. 112, data for the first three quarters
of 1993 were restated. The following table shows the net effects of this
accounting change, which represent the differences between the amounts
shown and the amounts originally reported:
Quarters-Dollars in millions First Second Third
=====================================================================
Gross margin $ (39) $ (39) $ (42)
Income before cumulative effects
of accounting changes (60) (39) (22)
Cumulative effect of
accounting change (1,128) - -
Net income (loss) (1,188) (39) (22)
Per common share:
Income before cumulative effects
of accounting changes (.05) (.03) (.02)
Cumulative effect of
accounting change (.83) - -
Net income (loss) (.88) (.03) (.02)
=====================================================================
<PAGE>
<PAGE> 48 Form 8-K March 4, 1994
APPENDIX
On page 12 of this Current Report on Form 8-K a pie chart
appears containing the following information:
1993 SOURCES OF REVENUES
In Percentages of Total Revenues
8.3% INTERNATIONAL REVENUES -
From operations located in other countries
16.9% INTERNATIONAL REVENUES -
From U.S. operations (international telecommunications
services, and exports)
74.8% U.S. REVENUES
Because we have gained a foothold in many markets that are
growing faster than those in the U.S., we expect international
revenues to contribute strongly to our revenue growth.
On page 19 of this Current Report on Form 8-K a pie chart
appears containing the following information:
1993 INVESTING ACTIVITIES
In Percentages of $8.3 Billion
Net Cash Flows
44.4% NET CAPITAL EXPENDITURES
Worldwide Intelligent Network
Research and Development facilities
Manufacturing facilities
Other
41.8% NET INCREASE IN FINANCE RECEIVABLES
AT&T Universal Card
AT&T Capital Corp. finance programs
13.8% EQUITY INVESTMENTS AND OTHER
McCaw Communications, Inc.
Unitel Communications, Inc.
Others (e.g.,WorldPartners,
The ImagiNation Network, Inc.,
General Magic Corp.)
Investments in our network, financial operations and alliances
pave the way for further growth in revenues and earnings.
<PAGE>
<PAGE> 49 Form 8-K March 4, 1994
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit
Number
-------
23 Consent of Coopers & Lybrand.
<PAGE>
<PAGE> 50
Form 8-K American Telephone and Telegraph Company
March 4, 1994
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
American Telephone and Telegraph Company
By S. L. Prendergast
Vice President and Treasurer
March 4, 1994
<PAGE>
<PAGE> 51 Form 8-K March 4, 1994
EXHIBIT INDEX
Exhibit
Number
-------
23 Consent of Coopers & Lybrand.
<PAGE> Exhibit (23)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration
statements of American Telephone and Telegraph Company ("AT&T" or the
"Company") on Form S-3 for the Shareowner Dividend Reinvestment and Stock
Purchase Plan (Registration No. 33-49093), 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 No. 33-20276), Form S-8
for the Shares for Growth Program (Registration No. 33-49089), Form S-4 for
the Consent Solicitation Statement/Prospectus (Registration No. 33-52119),
Form S-8 for the NCR Corporation Savings Plan (Registration No. 33-42917),
Form S-8 for the 1992 NCR Employee Stock Purchase Plan (Registration No.
33-48845), 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-3 for the AT&T $2,500,000,000 Notes and
Warrants to Purchase Notes (Registration No. 33-44438), and Form S-3 for
the AT&T $2,600,000,000 Notes and Warrants to Purchase Notes (Registration
No. 33-49589), and in the 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, the Post-Effective Amendment Nos. 1, 2 and
3 on Form S-8 to Form S-4 Registration Statement (Registration No.
33-26801) for the Eaton Financial Corporation Amended and Restated
Non-Statutory Directors' Stock Option Plan (Registration No. 33-26801-01),
the Eaton Financial Corporation Amended and Restated Employees' Incentive
Stock Option Plan (Registration No. 33-26801-02) and the Eaton Financial
Corporation Amended and Restated 1988 Nonqualified Stock Option Plan
(Registration No. 33-26801-03), respectively, and the Post-Effective
Amendment Nos. 1 and 2 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) and the Teradata
Corporation Directors' Stock Option Plan (Registration No. 33-45302-02),
respectively, of our report, which includes an explanatory paragraph
regarding the change in 1993 in methods of accounting for postretirement
benefits, postemployment benefits and income taxes, dated January 27, 1994,
on our audits of the consolidated financial statements of the Company and
its subsidiaries at December 31, 1993 and 1992, and for the years ended
December 31, 1993, 1992 and 1991, which report is incorporated by reference
in this Current Report on Form 8-K.
COOPERS & LYBRAND
1301 Avenue of the Americas
New York, New York
March 4, 1994
