<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K/A#3
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report: August 16, 1993
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 10013-2412
Telephone Number (212) 387-5400
<PAGE>
<PAGE> 2
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
Item 5. Other Events.
On August 16, 1993, American Telephone and Telegraph Company ("AT&T")
and McCaw Cellular Communications, Inc. ("McCaw") entered into a definitive
merger agreement (the "Merger Agreement"). The Merger Agreement provides
for the merger of McCaw and a subsidiary of AT&T (the "Merger"), as a
result of which McCaw will become a wholly owned subsidiary of AT&T. (See
Item 5. Other Information in Part II of the registrant's Form 10-Q for the
period ended June 30, 1993.)
AT&T has the following effective registration statements on Form S-3
for continuous offerings under Rule 415 of the Securities Act of 1933:
(1) Shareowner Dividend Reinvestment and Stock Purchase Plan (R.S.
No. 33-49093); and
(2) $2,600,000,000 Notes and Warrants (R.S. No. 33-49589)
AT&T is filing the following information as required by Item 11(b)of
Form S-3.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial statements of businesses to be merged.
The following financial information is taken from McCaw's Annual Report on
Form 10-K for the year ended December 31, 1993 as filed with the Securities
and Exchange Commission. Further information with respect to certain of
the transactions and matters discussed below may be found in such Annual
Report.
Page
(1) Report of Arthur Andersen & Co., Independent
Public Accountants F-1
(2) Report of Ernst & Young, Independent Auditors F-2
(3) Consolidated Balance Sheets as of December 31,
1993 and 1992 F-3
(4) Consolidated Statements of Operations for the
Years Ended December 31, 1993, 1992 and 1991 F-5
(5) Consolidated Statements of Changes in
Stockholders' Investment (Deficiency) for the
Years Ended December 31, 1993, 1992 and 1991 F-7
(6) Consolidated Statements of Cash Flows for the
Years Ended December 31, 1993, 1992 and 1991 F-9
(7) Notes to Consolidated Financial Statements for
December 31, 1993 F-12
<PAGE> 3
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
Page
(b) Pro Forma Financial Information.
(1) Unaudited Pro Forma Combined Financial Statements F-48
(2) Unaudited Pro Forma Combined Statement of Income for
the Year Ended December 31, 1993. F-49
(3) Unaudited Pro Forma Combined Balance Sheet at December
31, 1993 F-51
(4) Notes to Unaudited Pro Forma Combined Financial
Statements F-53
(c) Exhibits
Exhibit
Number
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of Ernst & Young
<PAGE>
<PAGE> F-1
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
Report of Independent Public Accountants
To McCaw Cellular Communications, Inc.:
We have audited the accompanying consolidated balance sheets of McCaw
Cellular Communications, Inc. (a Delaware corporation) and subsidiary
companies as of December 31, 1993 and 1992, and the related consolidated
statements of operations, stockholders' investment (deficiency) and cash
flows for each of the three years in the period ended December 31, 1993.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements
of LIN Broadcasting Corporation and subsidiaries, which statements reflect
assets of 32 percent of the 1993 and 1992 consolidated assets and net
revenues of 34 percent, 35 percent, and 36 percent for 1993, 1992 and 1991
consolidated net revenues, respectively. Those statements were audited by
other auditors whose report has been furnished to us and our opinion,
insofar as it relates to the amounts included for those entities, is based
solely on the report of the other auditors.
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
and the report of other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of McCaw Cellular Communications, Inc. and
subsidiary companies as of December 31, 1993 and 1992 and the results of
their operations and their cash flows for each of the three years in the
period ended December 31,1993 in conformity with generally accepted
accounting principles.
As explained in Note 1 to the financial statements, the Company has adopted
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," by applying it retroactively effective January 1, 1991.
ARTHUR ANDERSEN & CO.
Seattle, Washington
March 30, 1994<PAGE>
<PAGE> F-2
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
Board of Directors and Stockholders of
LIN Broadcasting Corporation
We have audited the consolidated balance sheets of LIN Broadcasting
Corporation and subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, stockholders' deficit, and
cash flows for each of the three years in the period ended December 31,
1993 (not presented separately herein). These financial statements are the
responsibility of the Company'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 our audits 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 LIN
Broadcasting Corporation and subsidiaries at December 31, 1993 and 1992,
and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1993, in
conformity with generally accepted accounting principles.
Ernst & Young
Seattle, Washington
February 4, 1994<PAGE>
<PAGE> F-3
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(Dollars In Thousands, Except Per Share Amounts)
ASSETS
1993 1992
---- ----
Current assets:
Cash and cash equivalents $138,908 $201,606
Marketable securities 57,661 168,306
Accounts receivable, net of allowance
for doubtful accounts
(1993, $36,682; 1992, $31,298) 326,584 250,265
Other 106,041 51,917
--------- ---------
Total current assets 629,194 672,094
Property and equipment, net of
accumulated depreciation and
amortization (1993, $784,330;
1992, $494,322) 1,616,480 1,439,058
Licensing costs, net of accumulated
amortization (1993, $505,303;
1992, $407,169) 3,994,511 3,991,928
Other intangible assets, net of
accumulated amortization
(1993, $221,152; 1992, $365,717) 768,481 804,963
Investments 1,960,863 1,856,669
Other assets 95,400 190,733
--------- --------
$9,064,929 $8,955,445
========== =========
(continued)<PAGE>
<PAGE> F-4
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(Dollars In Thousands, Except Per Share Amounts)
(continued)
LIABILITIES AND STOCKHOLDERS DEFICIENCY
1993 1992
---- ----
Current liabilities:
Current portion of long-term debt $158,925 $90,906
Accounts payable 159,129 124,339
Accrued expenses 333,481 326,052
Unearned revenues and customer
deposits 69,118 59,123
--------- ---------
Total current liabilities 720,653 600,420
Long-term debt, net of
current portion 4,989,746 5,562,393
Net deferred tax liability 1,955,687 1,899,581
Other noncurrent liabilities 131,499 131,844
--------- ---------
Total liabilities 7,797,585 8,194,238
--------- ---------
Commitments and contingencies
Redeemable preferred stock of
a subsidiary 1,305,248 1,170,948
--------- ---------
Stockholders deficiency:
Preferred stock, $0.01 par:
Authorized 10,000,000 shares;
none issued
Common stock, $0.01 par:
Class A: Authorized 400,000,000
shares; issued and outstanding,
1993, 148,411,196;
1992, 124,769,731 1,484 1,247
Class B: Authorized 200,000,000
shares; issued and outstanding,
1993, 60,142,047;
1992, 61,356,282 602 614
Additional paid-in capital 2,888,565 2,244,637
Deficit (2,928,555) (2,656,239)
--------- ---------
Total stockholders
deficiency (37,904) (409,741)
--------- ---------
$9,064,929 $8,955,445
========== =========
See notes to consolidated financial statements.<PAGE>
<PAGE> F-5
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars In Thousands, Except Per Share Amounts)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Net revenues $2,194,810 $1,743,336 $1,365,571
--------- --------- ---------
Expenses:
Operating 1,385,231 1,079,116 888,419
Corporate 22,343 19,529 16,514
Depreciation 225,239 179,747 143,231
Valuation loss on equipment 123,559 -- --
Amortization of intangible assets 178,360 205,452 201,617
--------- --------- ---------
1,934,732 1,483,844 1,249,781
--------- --------- ---------
Income from operations 260,078 259,492 115,790
--------- --------- ---------
Other income (expense):
Interest expense (394,187) (490,040) (577,992)
Gain on dispositions of assets, net 141,180 2,530 249,479
Interest income 21,680 17,892 30,072
Equity in income of unconsolidated
investees 71,071 40,177 22,874
Other (76,265) -- 6,241
--------- --------- ---------
(236,521) (429,441) (269,326)
--------- --------- ---------
Income (loss) before income taxes,
minority interest, extraordinary item
and cumulative effect of the
change in accounting for income taxes 23,557 (169,949) (153,536)
Income tax (expense) benefit (97,919) 34,992 26,817
-------- --------- ---------
Loss before minority interest,
extraordinary item and cumulative
effect of the change in
accounting for income taxes (74,362) (134,957) (126,719)
</TABLE> (continued)<PAGE>
<PAGE> F-6
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF OPERATIONS (continued)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars In Thousands, Except Per Share Amounts)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Minority interest:
Income of consolidated subsidiaries $(18,620) $(16,349) $(14,000)
Provision for preferred stock dividend
of a subsidiary (134,300) (134,300) (134,300)
--------- --------- ---------
Loss before extraordinary item and
cumulative effect of the change
in accounting for income taxes (227,282) (285,606) (275,019)
Extraordinary item: Loss on early
extinguishment of debt, net of
income tax benefit (45,034) -- --
Cumulative effect of the change in
accounting for income taxes -- -- (1,956,346)
--------- --------- ---------
Net loss $(272,316) $(285,606) $(2,231,365)
========== ========== ============
Weighted average number of common and
common equivalent shares outstanding 202,948,471 182,675,314 181,487,069
=========== =========== ===========
Per share amounts:
Loss before extraordinary item and
cumulative effect of the change in
accounting for income taxes $(1.12) $(1.60) $(1.62)
Extraordinary item: Loss on early
extinguishment of debt, net of
income tax benefit (0.22) -- --
Cumulative effect of the change in
accounting for income taxes -- -- (10.78)
--------- --------- ---------
Net loss $(1.34) $(1.60) $ (12.40)
========= ========= =========
</TABLE> See notes to consolidated financial statements.
<PAGE>
<PAGE> F-7
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS INVESTMENT (DEFICIENCY)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars In Thousands)
<CAPTION>
Common Stock
----------------------------------------- Total
Class A Class B Additional stockholders'
------------------- ------------------ paid-in investment
Shares Amount Shares Amount capital Deficit (deficiency)
------ ------ ------ ------ ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1990 112,810,611 $1,128 66,389,937 $664 $2,156,722 $(113,803) $2,044,711
Stock issued 2,462,761 25 60,448 60,473
Options exercised
and related income
tax benefits 67,071 1 548,399 5 6,771 6,777
Conversion of common
stock 5,865,342 58 (5,865,342) (58)
Compensation attributable
to stock options
vesting 2,226 2,226
Net loss (2,231,365) (2,231,365)
Accretion of mandatory
repurchase obligation,
net (18,445) (18,445)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31,
1991 121,205,785 1,212 61,072,994 611 2,226,167 (2,363,613) (135,623)
Stock issued 94,751 1 2,245 2,246
Options exercised 231,734 2 3,520,749 35 12,281 12,318
Conversion of
common stock 3,237,461 32 (3,237,461) (32)
Compensation attributable
to stock options
vesting 3,944 3,944
Net loss (285,606) (285,606)
Accretion of mandatory
repurchase obligation,
net (7,020) (7,020)
--------- --------- --------- --------- --------- --------- ---------
(continued)
/TABLE
<PAGE>
<PAGE> F-8
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS INVESTMENT (DEFICIENCY) (continued)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars In Thousands)
<CAPTION>
Common Stock
---------------------------------------- Total
Class A Class B Additional stockholders'
------------------- ------------------ paid-in investment
Shares Amount Shares Amount capital Deficit (deficiency)
------ ------ ------ ------ ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1992 124,769,731 $1,247 61,356,282 $614 $2,244,637 $(2,656,239) $(409,741)
Stock issued 20,655,667 207 614,511 614,718
Options exercised 1,198,563 12 573,000 6 27,635 27,653
Conversion of
common stock 1,787,235 18 (1,787,235) (18)
Compensation attributable
to stock options
vesting 1,782 1,782
Net loss (272,316) (272,316)
--------- --------- --------- --------- --------- --------- ---------
Balance, December 31,
1993 148,411,196 $1,484 60,142,047 $602 $2,888,565 $(2,928,555) $(37,904)
========== ====== ========== ==== ========== =========== =========
See notes to consolidated financial statements.
/TABLE
<PAGE>
<PAGE> F-9
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars In Thousands)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net loss $(272,316) $(285,606) $(2,231,365)
---------- ---------- ----------
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 403,599 385,199 344,848
Gain on dispositions of assets, net (141,180) (2,530) (249,479)
Cumulative effect of change in
accounting for income taxes -- -- 1,956,346
Equity in income of unconsolidated
investees (71,071) (40,177) (22,874)
Premium on early extinguishment of debt 48,131 -- --
Valuation loss and other 206,146 -- (6,241)
Minority interest:
Income of consolidated subsidiaries 18,620 16,349 14,000
Provision for preferred stock
dividend of a subsidiary 134,300 134,300 134,300
Amortization of costs associated with
long-term debt 25,430 41,173 57,812
Changes in operating assets and
liabilities:
Accounts receivable, net (85,105) (47,065) (50,565)
Other current assets (50,265) (10,231) 46,038
Accounts payable 36,455 16,276 26,427
Accrued expenses (2,866) 11,439 82,531
Unearned revenues and customer
deposits 11,927 14,599 12,412
Net deferred tax liability 28,532 (77,860) (46,703)
Other noncurrent liabilities 2,402 1,810 3,400
Other 1,783 3,944 23,770
---------- ---------- ----------
566,838 447,226 2,326,022
Net cash provided by ---------- ---------- ----------
operating activities 294,522 161,620 94,657
---------- ---------- ----------
(continued)
/TABLE
<PAGE>
<PAGE> F-10
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars In Thousands)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Investing activities:
Purchase or acquisition of:
Cellular systems, net $ -- $(106,384) $ --
Marketable securities (300,076) (176,966) (403,690)
Property and equipment, net (594,923) (394,743) (516,245)
Licensing costs (89,257) (19,542) (14,872)
Other intangible assets, net (878) (15,974) (8,476)
Other assets (1,921) (15,946) (14,796)
Minority interests (41,169) (679) (7,585)
Investments in and advances to
unconsolidated investees (47,580) (44,766) (22,714)
Sale or redemption of:
Cellular systems, net 185,621 -- 360,586
Marketable securities 411,895 267,824 224,158
Distributions from investments 116,860 89,290 63,411
Contributions from minority
interest holders 35,290 13,471 11,992
Other investing activities, net 454 (10,094) 7,064
--------- --------- ---------
Net cash used in investing
activities (325,684) (414,509) (321,167)
--------- --------- ---------
Financing activities:
Proceeds from long-term debt 1,930,350 439,650 484,659
Principal and premium payments
on long-term debt (2,396,397) (47,979) (463,357)
Repurchase of subsidiary's warrants -- (89,924) --
Net proceeds from issuance of
common stock 434,511 14,564 3,617
Deferred financing costs -- -- (5,534)
--------- --------- --------
Net cash (used in) provided
by financing activities (31,536) 316,311 19,385
--------- --------- ---------
Increase (decrease) in cash and
cash equivalents (62,698) 63,422 (207,125)
(continued)
/TABLE
<PAGE>
<PAGE> F-11
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(Dollars In Thousands)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents,
beginning of year 201,606 138,184 345,309
--------- --------- ---------
Cash and cash equivalents, end of year $138,908 $201,606 $138,184
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid (received) for:
Interest $427,264 $454,359 $525,071
======== ======== ========
Income taxes $58,457 $30,012 $(68,958)
/TABLE
<PAGE>
<PAGE> F-12
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. Summary of significant accounting policies:
Principles of consolidation:
The consolidated financial statements include the accounts of McCaw
Cellular Communications, Inc., a Delaware corporation, and its
majority-owned subsidiary companies (the Company), including LIN
Broadcasting Corporation, together with its subsidiaries (LIN).
The Company s consolidated financial statements include 100% of the
assets, liabilities and results of operations of subsidiaries (both
corporations and partnerships) in which the Company has a voting
interest of greater than 50%. The ownership interest of the other
interest holders is reflected as minority interests. Losses in
consolidated corporations (including LIN s) attributable to minority
interest holders in excess of their respective share of the
subsidiaries net equity are not eliminated in consolidation. All
significant intercompany accounts and transactions have been
eliminated.
Certain reclassifications were made to prior years amounts to conform
with the 1993 presentation.
Operations:
The Company s activities primarily consist of the acquisition of
interests in cellular licensees and the construction, operation and
expansion of cellular, air-to-ground, messaging and broadcasting
communications systems. The Company has experienced substantial net
losses, exclusive of gains on dispositions of assets, and has had
insufficient internally generated funds to cover capital, operating
expenditures and debt service since its inception.
Cash and cash equivalents:
Cash equivalents consist of repurchase obligations, certificates of
deposit, commercial paper and other investments with a maturity of 90
days or less when purchased. The carrying amount reported in the
balance sheets for cash and cash equivalents approximates fair value.
<PAGE>
<PAGE> F-13
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. Summary of significant accounting policies (continued):
Marketable securities:
The Company invests excess cash in marketable securities which include
equity and debt securities, certificates of deposit and other
investment instruments with maturities greater than 90 days when
purchased. Marketable securities are stated at the lower of aggregate
cost or market value. At December 31, 1993 and 1992, aggregate cost
approximated market value. The Company recognized net gains of
approximately $1.1, $1.0 and $13.5 million on sales of marketable
securities in 1993, 1992 and 1991, respectively. The gains are
reflected in the accompanying statements of operations as gain on
dispositions of assets, net.
Revenue recognition:
Cellular and air-to-ground air time is recorded as revenue as earned.
Sales of equipment and related services are recorded when goods and
services are delivered. Cellular access charges and messaging
services generally are billed in advance and recognized as revenue
when the services are provided. Broadcast revenue is billed when
contracted and recognized during the period the advertising is aired
or appears in publications.
Property and equipment:
Property and equipment are stated at cost. Repair and maintenance
costs are charged to expense when incurred. Renewals and betterments
are capitalized. Gains or losses on disposition of property and
equipment are reflected in income currently. Depreciation is computed
using the straight-line method over the estimated useful lives of the
assets which are generally 10 to 12 years for cellular, 2 to 12 years
for messaging, 10 to 20 years for broadcast, 3 to 12 years for air-to-
ground and 3 to 5 years for other equipment. Leasehold improvements
are amortized using the straight-line method over the terms of the
leases.
During 1993 certain cellular equipment was identified for early
replacement and reduced to its estimated realizable value (see
Footnote 4--Property and equipment).
<PAGE>
<PAGE> F-14
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. Summary of significant accounting policies (continued):
Licensing costs:
Licensing costs primarily represent costs incurred to develop or
acquire cellular and messaging licenses. Generally, amortization
begins with the commencement of service to customers and is computed
using the straight-line method over a period of 40 years.
Other intangible assets:
Other intangible assets primarily represent costs allocated in
acquisitions to customer contracts, broadcast licenses, network
affiliations and goodwill. Customer contracts are amortized using the
straight-line method over the expected term of the customers service,
generally 3 years. Broadcast licenses, network affiliations and
goodwill are amortized using the straight-line method over a period of
40 years.
Income taxes:
The Company provides for income taxes currently payable and for
deferred income taxes resulting from temporary differences in the
recognition of income and expense for financial reporting and tax
reporting purposes.
During the first quarter of 1993, the Company retroactively adopted
Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," effective January 1, 1991. SFAS No.
109 requires an asset and liability approach for financial accounting
and reporting for income tax purposes. The principal impact of SFAS
No. 109 on the Company relates to the requirement that a deferred tax
liability be provided to recognize the differences in book and tax
basis for certain intangible assets recorded as a result of purchase
business combinations, such as the Company s acquisition of LIN and
LIN s acquisition of Metromedia s indirect interest in the New York
City licensee. The adoption of SFAS No. 109 retroactive to January 1,
1991 resulted in an increase to the 1991 net loss for the cumulative
effect of the change of $1,956 million or $10.78 per share and an
increase of the deferred tax liability of $1,956 million.
<PAGE>
<PAGE> F-15
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
1. Summary of significant accounting policies (continued):
Net loss per share:
Net loss per share is computed based on the weighted average number of
common and common equivalent shares outstanding during the year. In
the years where the Company has reported a net loss, only common
shares outstanding are considered since the assumed conversion of
options and convertible securities would be antidilutive. The
computation of 1992 and 1991 net loss per share also reflects the
accretion of the mandatory repurchase obligation of McCaw Cellular,
Inc. (MCI) warrants net of the accretion of warrants held by the
Company.
Recently issued accounting standards:
In December 1992, the Financial Accounting Standards Board issued
Statement No. 112, Employers Accounting for Postemployment Benefits.
This statement is effective for fiscal years beginning after December
15, 1993 and requires accrual of the expected cost of benefits
provided to former or inactive employees after employment but before
retirement either over the period of employment or as an expense at
the date of the event giving rise to the benefits. The Company has
decided to adopt Statement No. 112, effective January 1, 1994. All
such postemployment benefits provided by the Company in prior years
have not been material, and accordingly, the adoption of Statement No.
112 will not have a material impact on the financial position or
results of operations of the Company.
2. Significant acquisitions and dispositions:
1993 Transactions:
On January 8, 1993, the Company and Associated Communications
Corporation (Associated) completed the formation of a joint venture
combining Associated s 6% interest in Bay Area Cellular Telephone
Company (BACTC) and the Company s 50% interest in the Buffalo, New
York A Block cellular system (AM Partners). Associated and the
Company each have a 50% ownership interest in AM Partners. In
addition, Associated purchased the Company s 34.17% interest in the A
Block cellular system in Albany, New York, its 100% interest in the A
Block cellular system in Glens Falls, New York and its 28.57% interest
in the A Block cellular system in Rochester, New York. The total
price for the three combined interests was approximately $85.6 million
on<PAGE>
<PAGE> F-16
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
2. Significant acquisitions and dispositions (continued):
which the Company recognized an after tax gain of approximately $35.5
million.
On September 1, 1993, the Company and PacTel, a subsidiary of Pacific
Telesis Group, completed the formation of a 99-year joint venture
combining PacTel s 61.1% interest in BACTC and its approximate 34%
interest in the A Block cellular system in Dallas and the Company s
32.9% interest in BACTC, certain of its interests in the A Block
cellular systems in Vallejo, Santa Rosa and Carmel/Monterey/Salinas,
California, and certain of its interests in the A Block cellular
systems in Kansas City, St. Joseph and Lawrence, Kansas/Missouri
(collectively, CMT Partners). PacTel and the Company each have a 50%
ownership interest in CMT Partners. In addition, PacTel directly
purchased the Company s 100% interest in the A Block cellular system
in Wichita, Kansas and an approximate 78% interest in the A Block
cellular system in Topeka, Kansas for $100 million. The Company
recognized an after tax gain on the sale of approximately $56 million,
subject to certain purchase price adjustments.
The primary effect on the consolidated balance sheet of the formation
of CMT Partners, net of cash, was to increase investments
approximately $97.7 million, decrease property and equipment
approximately $55.0 million and decrease licensing costs and other
intangible assets approximately $44.5 million.
The Company completed the acquisition of interests in several A Block
cellular licensees in exchange for approximately 2.2 million shares of
the Company s Class A Common Stock for an approximate $96.1 million.
1992 Transaction:
On January 7, 1992, the Company completed the acquisition from Crowley
Cellular Telecommunications Limited Partnership, of its 100% interests
in the A Block cellular systems in Waco, Texas and Daytona Beach,
Florida, as well as certain minority interests in other cellular
systems for approximately $107 million in cash.
<PAGE>
<PAGE> F-17
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
2. Significant acquisitions and dispositions (continued):
1991 Transaction:
On September 20, 1991 the Company sold to BellSouth Enterprises, Inc.
(BellSouth) the Company s cellular interests in Indiana, Wisconsin and
Illinois (Upper Midwest Cellular Systems) for approximately $360
million in cash and BellSouth s approximate 29% interest in the A
Block cellular system in Rochester, New York valued at $21.0 million.
In addition, as part of the transaction, the Company released Graphic
Scanning Corporation (Graphic) from a pending lawsuit and terminated
the pending formation of a joint venture between the Company and
Graphic to which the Company would have contributed the cellular
interests sold to BellSouth and Graphic would have contributed its 50%
interest in Milwaukee, Wisconsin. Under the joint venture agreement,
the Company would have had to pay Graphic approximately $50 million in
exchange for an additional interest in the profits of the joint
venture. The termination of the joint venture agreement eliminated
this contingent obligation. The Company recognized an after tax gain
of approximately $153.3 million on the sale.
3. Other current assets
December 31,
1993 1992
---- ----
(In thousands)
Inventories $40,190 $20,268
Accounts and notes receivable 36,603 16,343
Prepaids and other 29,248 15,306
------- -------
$106,041 $51,917
======== =======
<PAGE>
<PAGE> F-18
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
4. Property and equipment:
December 31,
1993 1992
---- ----
(In thousands)
Cellular $1,579,839 $1,310,765
Messaging 106,148 102,401
Broadcast 99,766 95,566
Air-to-ground 68,954 --
Other 264,635 219,095
------- -------
2,119,342 1,727,827
Less accumulated
depreciation and
amortization 784,330 494,322
------- -------
1,335,012 1,233,505
Construction in progress 281,468 205,553
------- -------
$1,616,480 $1,439,058
========== ==========
During 1993, the Company entered into agreements to replace and
upgrade certain cellular equipment in its Minnesota, Rocky Mountain
and Southwest markets during 1994 and 1995. The new equipment will be
digital compatible. As a result, the Company adjusted the cellular
equipment to reflect its estimated realizable value at the time of
replacement. The excess of net book value of the cellular equipment
over the estimated realizable value as of its replacement date has
been reflected as a valuation loss on equipment in the accompanying
financial statements.
5. Investments:
Subsidiary corporations and joint ventures in which the Company has
investments with voting interests of at least 20% but not more than
50% are reported on the equity method. Under the equity method,
investments are stated at cost and are adjusted for the Company s
share of undistributed earnings and losses. Partnerships in which the
Company has ownership interests not exceeding 50% are also reported on
the equity method. The excess of the Company s investment over the
underlying book value of the investees net assets
<PAGE>
<PAGE> F-19
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
5. Investments (continued):
has been allocated to licensing costs and customer contracts and is
being amortized consistent with the amortization periods for those
assets. Amortization of this excess of $45.9, $74.3 and $73.9 million
for the years ended December 31, 1993, 1992 and 1991, respectively, is
reflected in the accompanying statements of operations in equity in
income of unconsolidated investees. At December 31, 1993 and 1992,
the investments accounted for under the equity method exceeded the
Company s share of the underlying net assets by approximately $1,447.0
and $1,599.5 million, respectively.
Ownership percentages of significant investees are as follows:
December 31,
1993 1992
---- ----
Equity investments held
directly by the Company:
CMT Partners(1) 50.00% --
Bay Area Cellular
Telephone Company(1) -- 32.90%
AM Partners(1) 50.00% --
Buffalo Telephone Company(1) -- 50.00%
Albany Telephone Company(1) -- 34.17%
Genesee Telephone Company
(Rochester, NY)(1) -- 28.57%
Cybertel Cellular Telephone
Company (St. Louis, MO) 15.00% 15.00%
Northeast Pennsylvania Cellular
Telephone Company -- 34.26%
SmarTone Limited (Hong Kong) 27.00% 27.00%
Movitel del Noroeste, SA de CV
(States of Sinaloa and
Sonora, Mexico) 22.00% 22.00%<PAGE>
<PAGE> F-20
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
5. Investments (continued):
December 31,
1993 1992
---- ----
Cellular One Group 48.75% 48.75%
Equity investments held
by LIN(2):
Houston Cellular Telephone
Company 56.25% 56.25%
Los Angeles Cellular
Telephone Company 39.97% 39.97%
Metrophone (Philadelphia) 49.99% 49.99%
American Mobile Satellite
Corporation(3) 12.49% 32.35%
Galveston Cellular
Telephone Company(4) 42.07% 41.93%
(1) See Footnote 2 for description of transactions affecting the Company s
equity investment interests in 1993.
(2) LIN s ownership percentages reflect LIN s equity interest in each
investee. LIN s voting interest in both Houston Cellular Telephone
Company and Los Angeles Cellular Telephone Company was 50% at December
31, 1993 and 1992.
(3) At December 31, 1993 and 1992 the Company, excluding LIN, held a 4.91%
and 12.72% direct interest in American Mobile Satellite Corporation
(AMSC), respectively. LIN owned an interest of 7.58% and 19.63% at
December 31, 1993 and 1992, respectively. The fair value of the
Company s investment in AMSC at December 31, 1993 is approximately
$62.8 million based on the closing price of AMSC s publicly traded
stock.
(4) At December 31, 1993 and 1992 the Company, excluding LIN, held a 7.47%
and 9.76% direct interest in Galveston Cellular Telephone Company.
LIN owned an interest of 34.60% and 32.17% at December 31, 1993 and
1992, respectively.
<PAGE>
<PAGE> F-21
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<CAPTION>
5. Investments (continued):
The following is a summary of combined results of operations and financial position of these significant investments
accounted for under the equity method:
Investments held directly by:
-------------------------------------------------------------
LIN McCaw LIN McCaw LIN McCaw
1993 1993 1992 1992 1991 1991
----- ----- ----- ----- ----- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues $760,800 $368,400 $654,800 $301,100 $537,000 $240,900
======== ======== ======== ======== ======== ========
Net income $255,700 $76,200 $238,100 $59,600 $207,800 $47,000
======== ======== ======== ======== ======== ========
Current assets $183,600 $101,000 $137,500 $82,400 $119,500 $89,700
Other 488,000 528,200 423,700 369,000 366,300 266,700
-------- -------- -------- -------- -------- --------
Total assets $671,600 $629,200 $561,200 $451,400 $485,800 $356,400
======== ======== ======== ======== ======== ========
Current liabilities $128,000 $66,600 $ 83,200 $ 75,500 $75,600 $84,800
Other 100,900 63,900 130,900 83,400 42,500 23,600
-------- -------- -------- -------- -------- --------
Total liabilities 228,900 130,500 214,100 158,900 118,100 108,400
Equity 442,700 498,700 347,100 292,500 367,700 248,000
-------- -------- -------- -------- -------- --------
Total liabilities and equity $671,600 $629,200 $561,200 $451,400 $485,800 $356,400
======== ======== ======== ======== ======== ========
/TABLE
<PAGE>
<PAGE> F-22
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
6. Accrued expenses:
December 31,
1993 1992
---- ----
(In thousands)
Interest $12,611 $71,346
Income taxes 34,241 45,340
Payroll and related benefits 55,913 38,571
Business taxes 39,543 32,064
Other 191,173 138,731
------- -------
$333,481 $326,052
======== ========
7. Long-term debt:
December 31,
1993 1992
---- ----
(In thousands)
McCaw Bank Credit
Facilities (a) $3,400,000 $2,229,650
LIN Bank Credit
Facilities (b) 1,698,338 1,769,682
Senior and senior subordinated
notes and debentures (c) -- 1,195,555
Convertible senior subordinated
debentures (d) -- 399,720
Other (e) 50,333 58,692
------- -------
5,148,671 5,653,299
Less current portion 158,925 90,906
------- -------
$4,989,746 $5,562,393
========== ==========
<PAGE>
<PAGE> F-23
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
7. Long-term debt (continued):
(a) McCaw Bank Credit Facilities
The Company has arranged $4,000 million in financing with a group of
banks through two Revolving Credit and Term Loan Agreements. During
the fourth quarter of 1993, the Company renegotiated its existing
$3,000 million Bank Credit Facility and entered into a new $1,000
million Bank Credit Facility (together the McCaw Bank Credit
Facilities). The renegotiation of the $3,000 million facility
resulted in an extension of the commencement of principal repayment
from June of 1994 to March of 1996 and a change in certain financial
covenants and other terms. Included in other expenses is
approximately $79 million in nonrecurring charges associated with the
McCaw Bank Credit Facilities.
Under the McCaw Bank Credit Facilities, interest is payable at an
applicable margin above the prevailing prime, LIBOR or CD rate.
Interest is fixed for a period ranging from one month to twelve
months, depending on availability of the interest basis selected,
although if the Company selects a prime-based loan, the interest rate
will fluctuate during the period as the prime rate fluctuates.
The Company does not expect its operations to generate sufficient
cash to meet its expenditure requirements for the next few years. In
order to meet its substantial debt service obligations and to fund
its other operating and capital requirements, the Company will have
to borrow significant additional amounts under the McCaw Bank Credit
Facilities. There are conditions in the McCaw Bank Credit Facilities
which must be satisfied before the banks will lend additional
amounts. If these conditions are not satisfied, the banks may
conclude it is not in their best interests to lend additional amounts
to the Company. Among these conditions are ratios of senior debt and
combined debt to cash flow (as defined in the McCaw Bank Credit
Facilities) and cash flow to combined debt service. (See Footnote 16
-- Merger with American Telephone and Telegraph Company.)
Beginning March 31, 1996 and at the end of each fiscal quarter
thereafter until the maturity date (which will be on or about March
31, 2000), the Company will be required to make payments amortizing
the amount<PAGE>
<PAGE> F-24
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
7. Long-term debt (continued):
(a) McCaw Bank Credit Facilities (continued):
outstanding under the McCaw Bank Credit Facilities on December 31,
1995. In addition, the Company will be required to apply cash
proceeds from certain sales of assets and, after January 1, 1996, its
excess cash flow (as defined in the McCaw Bank Credit Facilities), to
the prepayment of loans. At December 31, 1993, $2,550 million was
outstanding under the $3,000 million facility and $850 million was
outstanding under the $1,000 million facility. As of March 15, 1994,
the Company has borrowed net additional amounts of $80 million under
its Bank Credit Facilities. The weighted average interest rate was
4.85% for the $3,000 million facility and 4.74% for the $1,000
million facility at December 31, 1993. The McCaw Bank Credit
Facilities provide for annual fees of .5% of the unused commitments.
At December 31, 1993, the Company has interest rate protection in the
form of a swap arrangement and interest caps on LIBOR covering $100
million and $800 million, respectively, of the outstanding amounts on
the McCaw Bank Credit Facilities. These arrangements expire between
February 1994 and March 1996.
The book value of the amounts outstanding under the McCaw Bank Credit
Facilities at December 31, 1993 accrue interest at a variable rate
plus an applicable margin as described above. Since the borrowings
are repriced for periods ranging from one month to twelve months
based on changes in the market rates, the book value of the amounts
outstanding under the Bank Credit Facilities at December 31, 1993
approximate fair value.
(b) LIN Bank Credit Facilities
LIN has arranged financing through two bank facilities. LIN Cellular
Network, Inc. (LCNI), a wholly owned subsidiary of LIN (owning all of
LIN's cellular operations other than Philadelphia), has an aggregate
of $1,476 million outstanding and $240 million available as of
December 31, 1993 (the Cellular Facility). LIN Television
Corporation (LTC), a wholly owned subsidiary of LIN (owning all of
LIN's television operations other than WOOD-TV), has $222 million
outstanding and no additional amounts available as of <PAGE>
<PAGE> F-25
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
7. Long-term debt (continued):
(b) LIN Bank Credit Facilities (continued):
December 31, 1993 (the Broadcast Facility), (collectively the LIN
Bank Credit Facilities).
During the second quarter of 1993, LIN renegotiated its Cellular
Facility. This resulted in an extension in the commencement of
amortization of the $400 million revolving portion of the Cellular
Facility from September 1993 to March 1996 and a change in certain
financial covenants and other terms.
At December 31, 1993, $222 million was outstanding under the
Broadcast Facility and $1,476 million was outstanding under the
Cellular Facility. As of March 15, 1994, LIN has not borrowed
additional amounts under its Bank Credit Facilities.
Under the LIN Bank Credit Facilities, interest is payable at the
prevailing prime, LIBOR or CD rate, plus an applicable margin.
Interest is fixed for a period ranging from one month to twelve
months, depending on availability of the interest basis selected,
although if LIN selects a prime-based loan, the interest rate will
fluctuate during the period as the prime rate fluctuates. The
applicable margin for each loan will be determined each quarter on
the basis of the borrowing subsidiaries' ratio of adjusted senior
debt to cash flow (as defined in the LIN Bank Credit Facilities).
There are conditions in the LIN Bank Credit Facilities which must be
satisfied before the banks will lend additional amounts. If these
conditions are not satisfied, the banks may conclude it is not in
their best interest to lend additional amounts to LIN. Among these
conditions are ratios of senior debt and combined debt to cash flow
and cash flow to debt service or fixed charges (as defined in the LIN
Bank Credit Facilities).
On March 31, 1991 and September 30, 1993, LTC and LCNI, respectively,
began making payments amortizing the amounts outstanding under the
LIN Bank Credit Facilities. Quarterly payments will continue until
December 31, 1998 for LTC and June 30, 2000 for LCNI. <PAGE>
<PAGE> F-26
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
7. Long-term debt (continued):
(b) LIN Bank Credit Facilities (continued):
In addition, both LTC and LCNI will be required to apply cash
proceeds from certain sales of assets, not reinvested in similar
assets, and excess cash flow (as defined in the LIN Bank Credit
Facilities) to the prepayment of loans. LIN has not guaranteed the
repayment of amounts under the LIN Bank Credit Facilities.
The weighted average interest rate was 4.46% and 4.69% for the
Cellular and Broadcast Facilities, respectively, at December 31,
1993. The Cellular and Broadcast Facilities provide for annual fees
of .5% of the unused commitments. In order to manage interest rate
exposure, LIN has entered into interest rate swap and cap agreements
covering $50 million and $840 million of its outstanding debt,
respectively, as of December 31, 1993. The costs of the interest
caps are deferred and charged to interest expense over their
respective lives.
The book value of the amounts outstanding under the LIN Bank Credit
Facilities at December 31, 1993 accrue interest at a variable rate
plus an applicable margin as described above. Since the borrowings
are repriced for periods ranging from one month to twelve months
based on the changes in the market rates, the book value of the
amounts outstanding at December 31, 1993 approximate fair value.
(c) On December 31, 1993, the Company redeemed for cash all of its
outstanding 12.75% senior notes of MCI, 13% senior subordinated notes
of MCI, 12.95% senior subordinated debentures and 14% senior
subordinated debentures. The redemption price on the 12.75% senior
notes was 100% of the $125 million principal amount, plus accrued
interest. The redemption price on the 13% senior subordinated notes
was 103% of the $150 million principal amount, plus accrued interest.
The redemption price of the 12.95% senior subordinated debentures was
104.6% of the approximate $531 million principal amount, plus accrued
interest. The redemption price on the 14% senior subordinated
debentures was 104.9% of the $400 million principal amount, plus
accrued interest. The Company paid<PAGE>
<PAGE> F-27
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
7. Long-term debt (continued):
premiums of approximately $48 million on the redemption of the notes
and charged to expense approximately $25 million in unamortized
financing costs and original issue discounts. All costs associated
with the early redemption, net of related income tax benefit, are
reflected as an extraordinary item in the accompanying financial
statements.
During 1991, the Company exchanged 2.4 million shares of Class A
Common Stock for $68.7 million principal amount of outstanding 12.95%
Senior Subordinated debentures.
(d) On March 4, 1993, the Company announced the redemption of all its
outstanding 8% convertible senior subordinated debentures and all its
outstanding 11.5% convertible senior subordinated discount
debentures. Between the announcement of the redemption and the
termination on March 31, 1993 of the right of holders to convert,
approximately $113.9 million of the 8% debentures were converted into
approximately 3.8 million shares of the Company s Class A Common
Stock. On April 5, 1993, the Company redeemed the remaining $0.3
million of the 8% debentures and $285.5 million of the 11.5%
debentures for cash.
(e) Debt included in Other has interest rates that float with the prime
rate and reprices as the prime rate changes; therefore, book value
approximates fair value at December 31, 1993.
Funds available under the McCaw Bank Credit Facilities can only be
utilized by the Company and certain of its subsidiaries other than LIN.
Proceeds from LIN s Credit Facilities are only available to LIN and its
subsidiaries.
The McCaw Bank Credit Facilities, the LIN Bank Credit Facilities and
certain of the other loan agreements described above contain restrictions
relating to (i) investments in certain subsidiaries, (ii) the incurrence
of debt, (iii) distributions and dividends to stockholders, (iv) mergers
and sales of assets, (v) prepayments of subordinated indebtedness, (vi)
the creation of liens, and (vii) the issuance of preferred stock. In
addition, the Company and its subsidiaries are required to maintain
compliance with certain financial covenants.<PAGE>
<PAGE> F-28
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
7. Long-term debt (continued):
Following is a schedule of maturities of long-term debt for each of the
next five years and thereafter:
Year Ending December 31, Maturities
(In thousands)
1994 $158,925
1995 198,749
1996 588,951
1997 970,137
1998 1,208,909
Thereafter 2,023,000
---------
$5,148,671
==========
The stock of substantially all subsidiaries of the Company and of LIN and
their ownership interests in entities holding cellular licenses are
pledged or encumbered as security for the Company s and LIN s
indebtedness.
The terms of various indebtedness incurred by the Company, LIN and the
Company s operating systems restrict dividends or other distributions and
loans by the Company, LIN and such systems.
8. Redeemable preferred stock of a subsidiary:
On August 10, 1990, LIN completed its acquisition of Metromedia Company s
interest in the New York City A Block licensee (the Metromedia
Transaction). In addition to the cash portion of the purchase price for
the Metromedia interests, LIN s subsidiary, LCH, issued $850 million of
newly issued Class A Redeemable Preferred Stock (the LCH Preferred Stock)
to Metromedia. Metromedia has subsequently transferred the LCH Preferred
Stock to a subsidiary of Comcast Corporation.
The holder of the LCH Preferred Stock is entitled to appoint two members
of the LCH Board of Directors and will be entitled to dividends if and
when declared by the Board. Under the terms of the Preferred Stock, LCH
is accruing dividends at the rate of 15.8% per year. LCH is not required
to declare or pay dividends in cash, but such dividends are cumulative and
must be paid in the event of certain redemptions of the Preferred Stock.
<PAGE>
<PAGE> F-29
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
8. Redeemable preferred stock of a subsidiary (continued):
LCH may redeem the Preferred Stock at any time at a price equal, at its
option, to either:
(1) delivery of all of the issued and outstanding capital stock of LCH s
subsidiary (LIN-Penn), which holds LIN's ownership interest in the
Philadelphia A Block cellular system and its GuestInformant specialty
publishing business, plus cash equal to 15% of the fair market value
of all businesses (currently, only WOOD, formerly WOTV, LIN's
broadcast business in Grand Rapids-Kalamazoo-Battle Creek, Michigan)
then operated by LCH (the "Operating Business Portion"); or
(2) a cash amount equal to the greater of (a) the fair market value of
the issued and outstanding capital stock of LIN-Penn plus the
Operating Business Portion and (b) $850 million, plus, in each case,
dividends which would have accrued on the Preferred Stock from the
issuance date (to the extent not previously paid) at the rate of
15.8% per year.
LCH is required to redeem the Preferred Stock in the year 2000 (if not
redeemed prior to such time) at a price comparable to that described
above. In certain circumstances, the holder of the LCH Preferred Stock
may require the corporate parent of LCH to purchase the LCH Preferred
Stock. The terms of the Stock Acquisition Agreement executed pursuant to
the issuance of the LCH Preferred Stock contains numerous covenants
pertaining to LCH which, among other things, include restrictions on (i)
the incurrence of debt, (ii) liens, (iii) forgiveness of debt, (iv)
mergers, etc., (v) disposition of assets, and (vi) dispositions of certain
stock.
Management estimates the fair value of the Preferred Stock at December 31,
1993 to be $554.8 million. This represents the estimated fair value of
the capital stock of LIN-Penn plus 15% of the Operating Business Portion
at December 31, 1993, based on various valuation approaches.
<PAGE>
<PAGE> F-30
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
9. Stockholders investment:
Stock option plans:
The Company's various stock option plans that were adopted by the
Company s Board of Directors are summarized below.
Equity Purchase Program:
The Amended and Restated Equity Purchase Program (EPP) provides for
the issuance of restricted stock and grants of incentive stock
options, non-qualified stock options and stock appreciation rights
(SARs). The maximum number of shares of Class A Common Stock
authorized for issuance under the EPP is 12,000,000 shares.
1987 Stock Option Plan:
Under the 1987 Stock Option Plan, 319,000 shares of Class A Common
Stock are authorized for issuance on exercise of non-qualified
options. All options expire ten years and one day from the date of
grant. The options are considered compensatory, and the Company
recognized compensation expense over the vesting period, which ended
in 1989, based on the excess of the fair market value of the Class A
Common Stock at the measurement date over $6.75 per share, the
exercise price of the option.
1983 Non-Qualified Stock Option Plan:
This plan provides for the grant of rights to purchase shares of Class
A and Class B Common Stock under a non-qualified stock option plan and
through SARs. Under the terms of the amended plan, 15,000,000 shares
in the aggregate of Class A and Class B Common Stock are authorized
for grant. These options are exercisable at any time within a period
of fifteen years from the date of grant. The options are considered
compensatory, and the Company recognizes compensation expense over the
vesting period based on the excess of the fair market value of the
Class A Common Stock at the measurement date over the exercise price
of the option.
<PAGE>
<PAGE> F-31
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
9. Stockholders' investment (continued):
Stock option plans (continued):
1992 Stock Option Plan for Non-Employee Directors:
The 1992 Stock Option Plan for Non-Employee Directors (Director Plan)
provides for the grant of options to acquire up to a total of 100,000
shares of the Company's Class A Common Stock, to be granted to each
non-employee director who was not elected or appointed to the Board by
virtue of their affiliation with BT USA. Grants of 1,000 shares per
director are automatically received annually. The exercise price is
equal to the fair market value of the stock on the date of grant. The
options are fully vested and immediately exercisable on the date of
grant. Options are exercisable for ten years.
1992 Stock Option Plan for British Telecom Directorships:
This plan provides for the grant of options to acquire up to a total
of 25,000 shares of the Company's Class A Common Stock. BT USA will
automatically receive annual grants of 1,000 shares for each BT
Director who is then serving on the Board. The exercise price is
equal to the fair market value of the stock on the date of grant and
the options are fully vested and immediately exercisable on the date
of grant. Options are exercisable for ten years.
<PAGE>
<PAGE> F-32
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<CAPTION>
9. Stockholders' investment (continued):
Stock option plans (continued):
Activity of the plans is summarized as follows:
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Options outstanding,
beginning of year 11,188,747 12,390,747 10,864,261
Options granted 2,531,704 2,632,197 2,279,492
Options exercised (1,771,563) (3,752,483) (615,470)
Options canceled or forfeited (97,847) (81,714) (137,536)
---------- ---------- ----------
Options outstanding,
end of year 11,851,041 11,188,747 12,390,747
========== ========== ==========
Range of option prices are as follows:
Options exercised $1.00-$39.00 $0.41-$25.00 $2.29-$25.00
Options outstanding,
end of year $1.00-$50.50 $1.00-$39.00 $0.41-$39.00
/TABLE
<PAGE>
<PAGE> F-33
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
9. Stockholders' investment (continued):
Stock option plans (continued):
At December 31, 1993, 6,120,853 options to purchase the Company s
Class A and Class B Common Stock were exercisable, 5,730,188 were
exercisable subject to vesting and 5,637,754 shares were available for
option grant.
Employee stock purchase plan:
The Employee Stock Purchase Plan (ESPP) provides for the purchase of
shares of Class A Common Stock through regular payroll deductions.
The total number of shares authorized to be issued under the ESPP is
500,000. The ESPP expires in August 1997, and restricts an employee
to purchase no more than $25,000 of stock in any calendar year under
any qualified employee stock purchase plan. Shares may be issued to
eligible employees on the last day of each calendar month. The
purchase price is 85% of the average of the bid and asked price of the
Class A Common Stock on such a date. During 1993, 108,884 shares of
Class A Common Stock were purchased at prices ranging from $27.52 to
$48.20 per share.
Warrant repurchase:
On June 18, 1992, MCI, a wholly owned subsidiary of the Company,
called for the repurchase of all of the warrants issued to purchase an
aggregate of 2,250,000 shares of MCI common stock effective July 1,
1992. These warrants contained a mandatory redemption requirement in
which MCI was obligated to repurchase the warrants no later than July
1, 1997. The repurchase price at July 1, 1992 of $60.4523 per share
represented the minimum value as set forth in the warrant agreement.
The final redemption of approximately $89.9 million did not include
the 762,495 warrants held by the Company.
<PAGE>
<PAGE> F-34
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
10. Shareholders agreements:
Certain controlling shareholders of the Company have entered into a
shareholders agreement which, among other things, contains provisions
relating to the election of directors and other voting agreements,
procedures in the event of a sale of the Company and certain
restrictions on the conversion, transfer or sale of common stock of
the Company. Certain controlling shareholders of the Company have
also entered into a shareholders agreement with British Telecom.
This agreement also contains provisions relating to the election of
directors, procedures in the event of a sale of the Company and
restrictions on the transfer or sale of common stock of the Company.
Both agreements expire in 1999 and include renewal options for an
additional period not to exceed ten years. All parties to the
shareholders agreement and British Telecom voted all their shares in
favor of the Merger with AT&T (See Footnote 16 -- Merger with American
Telephone and Telegraph Company).
<PAGE>
<PAGE> F-35
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
11. Income taxes:
Deferred taxes are determined based on the estimated future tax
effects of differences between the financial statement and the tax
basis of assets and liabilities given the provisions of the enacted
tax laws. The components of the net deferred tax liability are as
follows:
December 31,
1993 1992
---- ----
(In thousands)
Deferred tax liabilities:
Property and equipment,
licensing costs and
other intangibles $2,115,261 $1,967,690
Other 26,975 48,334
---------- ----------
Total deferred tax
liability 2,142,236 2,016,024
---------- ----------
Deferred tax assets:
Net operating loss
and alternative
minimum tax credit
carry forwards (130,485) (116,443)
Finance costs (30,189) --
Other (30,300) --
---------- ----------
(190,974) (116,443)
Valuation allowance 4,425 --
---------- ----------
Total deferred tax asset (186,549) (116,443)
---------- ----------
Net deferred tax liability $1,955,687 $1,899,581
========== ==========
<PAGE>
<PAGE> F-36
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
11. Income taxes (continued):
The components of income tax (expense) benefit exclusive of the tax
effect of the extraordinary item, are as follows:
Year Ended December 31,
1993 1992 1991
---- ---- ----
(In thousands)
Current:
Federal $(72,519) $(22,265) $(1,250)
State (7,869) (25,780) (18,944)
------- ------- -------
(80,388) (48,045) (20,194)
------- ------- -------
Deferred:
Federal 14,182 78,793 41,993
State (31,713) 4,244 5,018
------- ------- -------
(17,531) 83,037 47,011
------- ------- -------
$(97,919) $34,992 $26,817
========= ======= =======
At December 31, 1993, the Company, exclusive of LIN, has
approximately $172 million of regular tax operating loss carry
forwards which expire in the years 2007 and 2008. The Company,
exclusive of LIN, has alternative minimum tax credits aggregating
approximately $33 million, which carry forward indefinitely for
federal income tax purposes. These credits can be used in the
future to the extent that the Company s regular tax liability
exceeds their liability calculated under the alternative minimum tax
system.
The Omnibus Budget Reconciliation Act of 1993 increased the
corporate tax rate to 35% from 34% effective January 1, 1993.
Pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," the Company recorded an additional
tax expense of $49.6 million, with a corresponding increase in
deferred tax liability.
The following table reconciles the amount which would be provided by
applying the 35% federal income tax rate in 1993, and the 34%
federal income tax rate in 1992 and 1991, to income (loss) before
(expense) benefit for income taxes to the income taxes actually
provided.<PAGE>
<PAGE> F-37
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
11. Income taxes (continued):
Year Ended December 31,
1993 1992 1991
---- ---- ----
(In thousands)
(Expense) benefit
assuming federal
statutory rates $(8,245) $57,783 $ 52,203
Amortization of goodwill (4,744) (5,875) (6,012)
State and local taxes,
net of federal tax
benefit (39,860) (14,214) (9,191)
Equity investments 2,019 4,169 3,770
Tax expense not
provided on minority
partners share
of income 4,126 4,734 3,343
Increase in federal
statutory rate (49,568) -- --
Other (1,647) (11,605) (17,296)
-------- -------- --------
$(97,919) $34,992 $26,817
========= ======= =======
12. Retirement benefits:
LIN has a contributory retirement plan covering certain employees of
LIN and its wholly owned television subsidiaries who meet certain
requirements, including length of service and age. Pension benefits
vest upon completion of five years of service and are computed,
subject to certain adjustments, by multiplying 1.25% of the
employee's last three years average annual compensation times the
number of years of credited service. Funding is based upon legal
requirements and tax considerations. No funding was required during
the three year period ended December 31, 1993.
<PAGE>
<PAGE> F-38
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<CAPTION>
12. Retirement benefits (continued):
The components of LIN's net pension expense for 1993, 1992 and 1991 are as follows:
1993 1992 1991
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost of current period $791 $583 $ 454
Interest cost on projected
benefit obligation 2,632 2,458 2,241
Actual return on plan assets (962) (2,053) (7,812)
Net amortization of unrecognized net
transition assets and deferral of
variance from actual return on assets (906) 466 6,494
------- ------- -------
Net pension expense $1,555 $1,454 $1,377
======= ======= =======
/TABLE
<PAGE>
<PAGE> F-39
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<CAPTION>
12. Retirement benefits (continued):
The following table sets forth the LIN pension plans' funded status and amounts recognized in the balance sheets
at December 31, 1993 and 1992:
1993 1992
----------------------- -----------------------
Funded Unfunded Funded Unfunded
------ -------- ------- --------
(In thousands)
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated plan benefits
(including vested benefits
of $35,385 in 1993
and $31,247 in 1992) $36,668 $ 370 $32,165 $216
======== ======== ======== ========
Plan assets at fair value,
primarily publicly traded
stocks and bonds $37,593 $-- $ 37,783 $--
Less projected benefit obligation
for service rendered to date 38,896 641 33,394 360
-------- -------- -------- --------
Plan assets in excess of
(less than) projected
benefit obligation (1,303) (641) 4,389 (360)
Unrecognized prior service cost 6,603 76 7,831 90
Unrecognized net (gain) loss (2,005) 262 (7,182) 109
Unrecognized net transition asset
being recognized over 15 years (2,507) (130) (2,820) (146)
-------- -------- -------- --------
Prepaid (accrued) pension cost
included in balance sheet $788 $(433) $ 2,218 $(307)
======== ======== ======== ========
/TABLE
<PAGE>
<PAGE> F-40
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
12. Retirement benefits (continued):
The assumed weighted average discount rate was 7.0% for 1993 and 7.75%
for 1992 and 1991. The rate of increase in future compensation levels
is assumed to be 5.5% for 1993 and 7.0% for 1992 and 1991. The
expected long-term rate of return on assets is assumed to be 8.0% for
1993 and 8.5% for 1992 and 1991.
Due to a change in the Internal Revenue Service code section 415
limits in April 1992, plan benefit changes resulting from the change
in control of LIN that were expected to be paid from the unfunded plan
have been shifted to the funded plan for the year ended 1992. As a
result of this change, $1.1 million of the accrued liability of the
unfunded plan was shifted to the funded plan during 1992.
13. Commitments and contingencies:
Lease commitments:
The Company is committed under operating leases principally for
facilities, cell sites and office space, and other operating
agreements with remaining terms from one to twenty-three years with
options for additional periods. Certain leases provide for payment by
the lessee of taxes, maintenance and insurance.
Future minimum payments required under operating leases and agreements
that have an initial or remaining noncancellable lease term in excess
of one year at December 31, 1993 are summarized below:
Year ending December 31,
1994 $51,030
1995 45,992
1996 39,649
1997 33,591
1998 27,626
Thereafter 161,377
--------
$359,265
========
Total rent expense amounted to approximately $53.9, $46.6, and
$36.9 million in 1993, 1992 and 1991, respectively.
<PAGE>
<PAGE> F-41
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
13. Commitments and contingencies (continued):
Litigation:
In May 1990, a suit was filed in the United States District Court for
the District of Columbia against the Company by the former owners (the
Charisma Group) of cellular interests which the Company acquired in
1986 and 1987 and some of which the Company sold in its transaction
with Contel Cellular Inc. (the Charisma Litigation). The suit alleges
that the transaction with Contel breached an agreement that would have
required the Company to share with the Charisma Group up to 25% of the
net capital gains from such sale.
During the same period that the Company acquired cellular interests
from the Charisma Group in 1986 and 1987, the Company also acquired
similar interests from Maxcell Telecom Plus, Inc. (Maxcell). On
November 1, 1993, Maxcell and its parent, Telecom Plus, Inc. (TPI)
filed a suit in the Circuit Court, Palm Beach County, Florida alleging
that the Company made certain oral representations to the former
owners of Maxcell that they would be treated identically to the
Charisma Group in connection with their sale of interests to the
Company, and that the alleged agreement made by the Company with the
Charisma Group violated that oral agreement (the TPI Litigation). In
an apparent response to defendant's motion to dismiss, plaintiff filed
an amended complaint. Plaintiff s allegations in the amended
complaint include claims for fraud, breach of contract, breach of
implied contract, interference with contract, breach of fiduciary
duty, constructive trust, promissory estoppel, breach of covenant of
good faith and fair dealing, conspiracy and concealment. Various
types of relief including rescission, reformation, damages and
punitive damages are sought. Former owners of Charisma are co-
defendants individually and as class defendants.
The Company believes that the Plaintiffs in both suits are not
entitled to the relief sought and is defending the lawsuits
vigorously. The Company initially filed a response to the complaint
denying the allegations in the Charisma Litigation and asserting
various affirmative defenses, and has subsequently filed counter
claims and third-party claims in such litigation. The Company also
filed two motions for summary judgment dismissing the Charisma
Litigation. The <PAGE>
<PAGE> F-42
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
13. Commitments and contingencies (continued):
Litigation (continued):
Court denied those summary judgment motions. Discovery in the
Charisma Litigation is proceeding; no trial date has been set. In the
TPI Litigation, defendant's motion to dismiss is still pending.
Management believes the results of the Charisma Litigation and the TPI
Litigation will not have a material adverse impact on the financial
position or results of operations of the Company.
On August 15, 1993, the Company entered into a Memorandum of
Understanding which would result in the settlement of the litigation
entitled In re McCaw Cellular Communications, Inc. Shareholders
Litigation, Consolidated Civil Action No. 12793, described in the
Company s Current Report on Form 8-K, dated November 17, 1992. The
settlement is subject to approval by the court, consummation of the
Company s proposed merger with American Telephone and Telegraph
Company (AT&T) and other customary conditions. The defendants have
denied, and continue to deny, that they have committed any violations
of law and, as the Memorandum of Understanding states, are entering
into the settlement solely to eliminate the burden and expense of
further litigation. If approved, the settlement will release all
claims of the Company s stockholders in connection with or that arise
out of the subject matter of the action, the Company s proposed
strategic alliance with AT&T (which was abandoned when the proposed
merger with AT&T was agreed to), the proposed merger, the negotiation
and consideration of such transactions, and the fiduciary or
disclosure obligations of any of the defendants (or other persons to
be released) with respect to any of the foregoing. It is expected
that the Company s stockholders separately will be provided a notice
containing further information regarding the proposed settlement and
related proceedings, including a settlement hearing to be scheduled by
the court.
The Company is also party to certain litigation in the ordinary course
of business and to routine filings with the FCC, state regulatory
authorities and other proceedings which management believes are
immaterial to the Company.
<PAGE>
<PAGE> F-43
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<CAPTION>
14. Segment information:
The operations of the Company are classified into three business segments -- cellular, broadcast and other operations.
Other operations primarily consist of air-to-ground and messaging operations. The cellular segment incurs costs on
behalf of the other segment primarily associated with accounting, information and legal services. These costs have been
identified and are allocated to the other segment.
Following is certain financial information for the segments at December 31, 1993, 1992 and 1991 and for each of the
years then ended. Identifiable assets by business segment include assets directly identified with those operations and
exclude intersegment investments, loans and advances. Intersegment sales are insignificant. Capital expenditures
include amounts allocated to property and equipment in acquisitions.
<CAPTION>
1993 Cellular Broadcast Other Corporate Total
---- -------- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
(In thousands)
Net revenues $1,919,371 $145,533 $129,906 $-- $2,194,810
Depreciation and amortization 357,377 9,631 35,678 913 403,599
Valuation loss on equipment 123,559 -- -- -- 123,559
Income (loss) from operations 263,725 56,753 (37,144) (23,256) 260,078
Capital expenditures 483,930 8,276 106,171 406 598,783
Identifiable assets(1) 8,022,392 649,242 223,771 169,524 9,064,929
/TABLE
<PAGE>
<PAGE> F-44
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<CAPTION>
14. Segment information (continued):
1992(2) Cellular Broadcast Other Corporate Total
------- -------- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C>
(In thousands)
Net revenues $1,486,193 $142,920 $ 114,223 $-- $1,743,336
Depreciation and amortization 344,873 8,758 30,768 800 385,199
Income (loss) from operations 230,004 58,011 (8,194) (20,329) 259,492
Capital expenditures 370,961 4,361 38,015 10,351 423,688
Identifiable assets(1) 7,909,090 655,655 148,331 242,369 8,955,445
1991 Cellular Broadcast Other Corporate Total
---- -------- --------- ----- --------- -----
(In thousands)
Net revenues $1,135,240 $129,481 $ 100,850 $-- $1,365,571
Depreciation and amortization 305,027 8,753 30,467 601 344,848
Income (loss) from operations 84,735 51,724 (3,554) (17,115) 115,790
Capital expenditures 496,827 5,693 12,989 736 516,245
Identifiable assets(1) 7,673,303 660,997 117,090 276,247 8,727,637
<FN>
____________
(1) Corporate assets consist principally of cash, cash equivalents and marketable securities.
(2) Certain reclassifications have been made in order to be consistent with current year presentation.
/TABLE
<PAGE>
<PAGE> F-45
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<CAPTION>
15. Quarterly results of operations (unaudited):
The financial information presented below reflects all adjustments (consisting of normal recurring adjustments) which
are, in the opinion of management, necessary to a fair presentation of the results for the interim periods.
Summarized quarterly financial data for 1993 and 1992 is as follows:
1993 Quarter
First Second(1) Third Fourth
----- ------ ----- ------
(In thousands)
<S> <C> <C> <C> <C>
Net revenues $479,968 $540,477 $562,616 $611,749
Operating and corporate expenses 302,868 329,820 354,087 420,799
Depreciation 50,286 52,564 56,684 65,705
Valuation loss on equipment -- 46,583 -- 76,976
Amortization of intangible assets 47,759 43,182 43,229 44,190
-------- -------- -------- --------
Income from operations 79,055 68,328 108,616 4,079
Other expense, net (93,064) (90,424) (137,320) (166,552)
-------- -------- -------- --------
Loss before extraordinary item (14,009) (22,096) (28,704) (162,473)
Extraordinary item: Loss on
early extinguishment of debt,
net of income tax benefit -- -- -- (45,034)
-------- -------- -------- --------
Net loss $(14,009) $(22,096) $ (28,704) $(207,507)
======== ======== ======== =========
Per share amounts:
Loss before extraordinary item $(0.07) $ (0.11) $(0.14) $ (0.78)
Extraordinary item:
Loss on early extinguishment
of debt, net of income
tax benefit -- -- -- (0.22)
-------- -------- -------- --------
Net loss $(0.07) $(0.11) $(0.14) $(1.00)
======== ======== ======== ========
/TABLE
<PAGE>
<PAGE> F-46
<TABLE>
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
<CAPTION>
15. Quarterly results of operations (unaudited) (continued):
1992 Quarter
First Second Third Fourth
----- ------ ----- ------
(In thousands)
<S> <C> <C> <C> <C>
Net revenues $374,747 $426,394 $447,961 $494,234
Operating and corporate expenses 251,873 260,523 270,805 315,444
Depreciation 38,160 45,480 46,288 49,819
Amortization of intangible assets 51,377 51,569 52,583 49,923
-------- -------- -------- --------
Income from operations 33,337 68,822 78,285 79,048
Other expense, net (132,397) (134,643) (136,264) (141,794)
-------- -------- -------- --------
Net loss $(99,060) $(65,821) $(57,979) $(62,746)
========= ========= ========= =========
Net loss per share $(0.56) $ (0.38) $(0.32) $ (0.34)
========= ========= ========= =========
<FN>
_____________
Net loss per share is computed independently for each of the quarters presented. Therefore, the sum of the quarterly
net loss per share amounts will not necessarily equal the total for the year.
(1) Certain reclassifications were made to conform to year-end presentation.
/TABLE
<PAGE>
<PAGE> F-47
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
AND SUBSIDIARY COMPANIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
16. Merger with American Telephone and Telegraph Company:
On August 16, 1993, the Company entered into an Agreement and Plan of
Merger (the Merger Agreement) with AT&T, pursuant to which the Company
would become a wholly owned subsidiary of AT&T and each share of Class
A Common Stock and Class B Common Stock of the Company would be
converted into one AT&T common share, subject to certain adjustments.
Each outstanding option to purchase the Company s stock would be
assumed by AT&T and would be exercisable for a proportionate number of
AT&T common shares. The merger has been approved by the respective
Boards of Directors of AT&T and the Company and the Company's
stockholders, but is subject to the satisfaction of several
conditions, including the receipt of necessary governmental consents.
Each party will have a right to terminate the Merger Agreement if it
has not closed by September 30, 1994. Separately, AT&T has agreed to
purchase at the Company s option, exercisable in the event the Merger
Agreement is terminated, approximately 11.7 million newly issued
shares of the Company s Class A Common Stock at $51.25 per share, for
a total price of $600 million. This right will not be exercisable if
the merger is completed. Such transaction would be subject to the
receipt of necessary governmental approvals, which have not yet been
applied for or received.
Pursuant to the Merger Agreement, on February 8, 1994, the Company,
through a wholly owned subsidiary, entered into a credit agreement
with AT&T under which an aggregate of $350 million is available (the
AT&T Credit Agreement). Under the AT&T Credit Agreement, interest is
payable quarterly at an applicable margin in excess of the prevailing
LIBOR rate and is fixed for a period ranging from one month to twelve
months. Amounts outstanding under the AT&T Credit Agreement are due
and payable two years after the earlier of (i) the closing under the
Merger Agreement or (ii) the termination of the Merger Agreement. The
AT&T Credit Agreement provides for fees of .5% per annum on the unused
portion of the $350 million commitment. The assets of the wholly
owned subsidiary are pledged as security for this debt. As of March
15, 1994, $67.5 million was outstanding and $282.5 million was
available under the AT&T Credit Agreement.
Separately, on February 23, 1993, AT&T purchased approximately 14.5
million newly issued shares of the Company's Class A Common Stock at
$27.625 per share, for a total price of $400 million.
<PAGE> F-48
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
AT&T AND SUBSIDIARIES AND McCAW AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Statements of Income and
Balance Sheet give effect to the Merger on a pooling-of-interests basis of
accounting. These Unaudited Pro Forma Combined Financial Statements have
been prepared from the historical consolidated financial statements of AT&T
and McCaw and should be read in conjunction therewith.
This pro forma combined information is not necessarily indicative of
actual or future operating results or financial position that would have
occurred or will occur upon consummation of the Merger.
The Unaudited Pro Forma Combined Balance Sheet gives effect to the
Merger as if it had occurred on December 31, 1993, combining the balance
sheets of AT&T and McCaw at December 31, 1993. The Unaudited Pro Forma
Combined Statements of Income give effect to the Merger as if it had
occurred at the beginning of the period presented, combining the results of
AT&T and McCaw for the year ended December 31, 1993.
<PAGE>
<PAGE> F-49
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
AT&T AND SUBSIDIARIES AND McCAW AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended December 31, 1993
(Dollars in millions, except per share amounts)
Historical Pro Forma
AT&T McCaw Adjustments Combined
Sales and Revenues
Telecommunications services......... $39,863 $1,760 $41,623
Products and systems................ 17,798 - 17,798
Rentals and other services.......... 6,991 435 7,426
Financial services and leasing...... 2,504 - 2,504
Total revenues................. 67,156 2,195 69,351
Costs
Telecommunications services......... 24,718 821 25,539
Products and systems................ 10,809 - 10,809
Rentals and other services.......... 3,331 236 3,567
Financial services and leasing...... 1,711 - 1,711
Total costs.................... 40,569 1,057 41,626
Gross Margin........................ 26,587 1,138 27,725
Operating Expenses
Selling, general and administrative
expenses.......................... 16,782 878 17,660
Research and development expenses... 3,069 - 3,069
Provisions for business
restructuring..................... 498 - 498
Total operating expenses....... 20,349 878 21,227
Operating income.................... 6,238 260 6,498
Other income, net................... 541 139 680
Loss on sale of stock by a
subsidiary........................ 9 - 9
Interest expense.................... 566 394 960
Income before income taxes,
preferred stock dividend of a
subsidiary, extraordinary item
and cumulative effects
of accounting changes............. 6,204 5 6,209
Provision for income taxes ......... 2,230 98 2,328
Provision for preferred stock
dividend of a subsidiary.......... - 134 134
Extraordinary Item: Loss on extin-
guishment of debt, net of income
tax benefit....................... - 45 45
Income (loss) before cumulative
effects of accounting changes..... 3,974 (272) 3,702
Cumulative effects on prior years of
changes in accounting for:
Postretirement benefits, net... 7,023) - (7,023)
Postemployment benefits, net... (1,128) - (1,128)
Income taxes................... 383 - $(1,840)(3C) (1,457)
Cumulative effects of
accounting changes................ (7,768) - $(1,840) (9,608)
Net loss............................ $(3,794) $(272)$(1,840) $(5,906)
(continued)
<PAGE> F-50 American Telephone and Telegraph Company
Form 8-K/A#3
August 16, 1993
AT&T AND SUBSIDIARIES AND McCAW AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
(continued)
Year Ended December 31, 1993
(Dollars in millions, except per share amounts)
Historical Pro Forma
AT&T McCaw Adjustments Combined
Weighted average common shares
outstanding....................... 1,353 203 (12)(3B) 1,544
Per common share:
Income before cumulative effects of
accounting changes................ $ 2.94 $ 2.40
Cumulative effects of accounting
changes........................... (5.74) (6.22)
Net loss............................ $ (2.80) $(3.83)
Dividends declared per common share. $ 1.32 $ 1.32
See accompanying notes to unaudited pro forma combined financial statements
<PAGE>
<PAGE> F-51
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
AT&T AND SUBSIDIARIES AND McCAW AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1993
(Dollars in millions)
Historical Pro Forma
AT&T McCaw Adjustments Combined
ASSETS
Cash and temporary cash
investments ................. $ 532 $ 139 $ 671
Receivables, net of allowances
Accounts receivable ......... 11,933 327 12,260
Finance receivables ......... 11,370 - 11,370
Inventories ................... 3,187 40 3,227
Deferred income taxes ......... 2,079 - 2,079
Other current assets .......... 637 123 760
Total current assets ..... 29,738 629 30,367
Property, plant and
equipment, net .............. 19,397 1,616 21,013
Licensing costs, net .......... - 3,995 3,995
Investments ................... 1,503 1,961 $(400)(3B) 3,064
Finance receivables ........... 3,815 - 3,815
Prepaid pension costs ......... 3,576 - 3,576
Other assets, net ............. 2,737 864 (39)(3C) 3,562
TOTAL ASSETS .................. $60,766 $9,065 $(439) $69,392
LIABILITIES and
DEFERRED CREDITS
Accounts payable .............. $ 4,694 $ 159 $ 4,853
Payroll and benefit-related
liabilities ................. 3,746 56 3,802
Postretirement and postemploy-
ment benefit liabilities .... 1,301 - 1,301
Debt maturing within one year . 10,904 159 11,063
Dividends payable ............. 448 - 448
Other current liabilities ..... 4,241 347 4,588
Total current liabilities. 25,334 721 26,055
Long-term debt, including
capital leases .............. 6,812 4,990 11,802
Postretirement and postemploy-
ment benefit liabilities..... 9,082 - 9,082
Other liabilities ............. 4,298 65 4,363
Deferred income taxes ......... 275 1,956 2,231
Unamortized investment tax ....
credits ..................... 270 - 270
Other deferred credits......... 263 - 263
Total liabilities and
deferred credits ....... 46,334 7,732 54,066
Minority interests............. 582 66 648
Redeemable preferred stock
of a subsidiary ............. - 1,305 1,305
(continued)
<PAGE>
<PAGE> F-52
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
AT&T AND SUBSIDIARIES AND McCAW AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(continued)
December 31, 1993
(Dollars in millions)
Historical Pro Forma
AT&T McCaw Adjustments Combined
SHAREOWNERS' EQUITY
Common stock ............... $ 1,352 $ 2 $ 192 (3A) $ 1,546
Additional paid-in capital . 12,028 2,889 (192)(3A) 14,325
(400)(3B)
Guaranteed ESOP
obligation ............... (355) - (355)
Foreign currency translation
adjustments .............. (32) - (32)
Retained earnings (deficit). 857 (2,929) (39)(3C) (2,111)
Total shareowners'
equity (deficiency) . 13,850 (38) (439) 13,373
TOTAL LIABILITIES
& SHAREOWNERS' EQUITY .... $60,766 $9,065 $(439) $69,392
See accompanying notes to unaudited pro forma combined financial
statements.
<PAGE>
<PAGE> F-53
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
AT&T AND SUBSIDIARIES AND McCAW AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Dollars in millions, except per share amounts)
Note 1 - Historical Presentation
Certain amounts reported in McCaw's historical financial statements
have been reclassified to conform to the AT&T presentations in the
accompanying Unaudited Pro Forma Combined Balance Sheet and Statement of
Income. Such reclassifications are not material to the Unaudited Pro Forma
Combined Financial Statements.
Note 2 - Exchange Ratio
As set forth in the Merger Agreement, the Exchange Ratio will be one
AT&T Common Share for each share of McCaw Common Stock; provided, however,
that (i) in the event the Closing Date Market Price of one AT&T Common
Share (as such terms are defined in the Merger Agreement) is less than
$53.00, the Exchange Ratio will be equal to $53.00 divided by the Closing
Date Market Price of one AT&T Common Share, but in no event greater than
1.111 AT&T Common Shares, and (ii) in the event the Closing Date Market
Price of one AT&T Common Share is greater than $71.73, the Exchange Ratio
will be equal to $71.73 divided by the Closing Date Market Price of one
AT&T Common Share, but in no event less than .909 of an AT&T Common Share.
For purposes of the Unaudited Pro Forma Combined Financial Statements, an
Exchange Ratio of one AT&T Common Share per share of McCaw Common Stock (as
defined in the Merger Agreement) is assumed. If the maximum exchange ratio
of 1.111 were assumed, pro forma combined (loss) per share for the year
ended December 31, 1993 would be $(3.77).
Note 3 - Other Pro Forma Adjustments
(A) The McCaw Common Stock account has been adjusted to reflect the
assumed exchange of one AT&T Common Share, par value $1.00 per share, for
each of approximately 194.1 million shares of McCaw Common Stock, par value
$.01 per share, outstanding at December 31, 1993 (excluding shares of McCaw
Common Stock held by AT&T - see Note 3(B)). The difference between the par
value of the AT&T Common Shares and the par value of the McCaw Common
Stock, after giving effect to the assumed Exchange Ratio, is reflected as a
reduction to additional paid-in capital of $192.
(B) The $400 investment by AT&T in 14.5 million shares of Class A
Common Stock purchased in February 1993 has been eliminated. The weighted
average common shares outstanding for the year ended December 31, 1993 have
been adjusted to eliminate the impact of this purchase.
(C) McCaw's historical financial statements reflect the adoption of
SFAS No. 109, "Accounting for Income Taxes," retroactive to January 1,
1991. AT&T adopted SFAS No. 109 effective January 1, 1993. For conformity
purposes, the pro forma combined information for AT&T and McCaw has been
adjusted as if McCaw had adopted SFAS No. 109 on January 1, 1993. Such
adoption would result in the use of different tax assumptions related to
intangible assets McCaw acquired in purchase business combinations in 1991
and 1992 that would increase the cumulative effect of adopting SFAS No. 109
<PAGE> F-54
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
by $39. Accordingly, the pro forma combined net income and earnings per
common share have been decreased $1,840 and $1.19 for the year ended
December 31, 1993, respectively. Pro forma combined total assets and
shareowners' equity have been decreased $39 at December 31, 1993. Also,
effective January 1, 1993, AT&T adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." When McCaw adopts SFAS No. 112,
the impact on McCaw financial statements is expected to be immaterial.
(D) No adjustments have been reflected in the Unaudited Pro Forma
Combined Financial Statements for direct expenses related to the Merger.
Direct expenses included in the historical periods presented have not been
adjusted for in the Unaudited Pro Forma Combined Financial Statements.
Such amounts are not material.
(E) No adjustments to eliminate intercompany transactions and balances
have been made in the Unaudited Pro Forma Combined Financial Statements as
such amounts are not material.
(F) The cash dividends per common share in the Unaudited Pro Forma
Combined Financial Statements reflect AT&T's cash dividends declared in the
period presented. McCaw has never paid cash dividends on the McCaw Common
Stock.
Note 4 - Federal Income Tax Consequences of the Merger
The Unaudited Pro Forma Combined Financial Statements assume that the
Merger qualifies as a "tax-free" reorganization for federal income tax
purposes.
<PAGE>
<PAGE> 4
Form 8-K/A#3 American Telephone and Telegraph Company
August 16, 1993
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
April 18, 1994
<PAGE> 5
Exhibit Index
Exhibit
Number
23.1 Consent of Arthur Andersen & Co.
23.2 Consent of Ernst & Young
<PAGE> 1 Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report dated March 30, 1994, with respect to
McCaw Cellular Communications, Inc.'s financial statements
included in this Form 8-K, into AT&T's previously filed
Registration Statements, File Nos. 33-49093 and 33-49589.
ARTHUR ANDERSEN & CO.
Seattle, Washington
April 18, 1994
<PAGE> 1 Exhibit 23.2
Consent of Ernst & Young, Independent Auditors
We consent to the incorporation by reference in the Registration
Statements (Forms S-3 Nos. 33-49093 and 33-49589) and related
Prospectuses of American Telephone and Telegraph Company of our
report dated February 4, 1994, on the consolidated financial
statements of LIN Broadcasting Corporation and subsidiaries
included in Amendment No. 3 to the Current Report (Form 8-K) of
American Telephone and Telegraph Company dated August 16, 1993
filed with the Securities and Exchange Commission.
Ernst & Young
Seattle, Washington
April 18, 1994
