<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K/A
(Amendment No. 3)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 16, 1993
McCAW CELLULAR COMMUNICATIONS, INC.
A Delaware Commission File I.R.S. Employer
Corporation No. 1-9854 No. 91-1379052
5400 Carillon Point, Kirkland, Washington 98033
Telephone Number (206) 827-4500
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Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial statements of businesses to be merged.
(1) Report of Independent Auditors.
(2) AT&T's Consolidated Statements of Income for the
Years Ended December 31, 1993, 1992 and 1991.
(3) AT&T's Consolidated Balance Sheets at December 31,
1993 and 1992.
(4) AT&T's Consolidated Statements of Cash Flows for
the Years Ended December 31, 1993, 1992 and 1991.
(5) AT&T's Notes to Consolidated Financial Statements,
December 31, 1993.
(b) Pro Forma Financial Information.
(1) Unaudited Pro Forma Combined Statement of Income
for the Year Ended December 31, 1993
(2) Unaudited Pro Forma Combined Statement of Income
for the Year Ended December 31, 1992*
(3) Unaudited Pro Forma Combined Statement of Income
for the Year Ended December 31, 1991*
(4) Unaudited Pro Forma Combined Balance Sheet at
December 31, 1993
(5) Notes to Unaudited Pro Forma Combined Financial
Statements
_____________________
* Previously filed.
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(c) Exhibits.
Exhibits identified in parentheses below, on file with
the Securities and Exchange Commission ("SEC"), are
incorporated herein by reference as exhibits hereto.
Exhibit
Number
2(a) Agreement and Plan of Merger, dated August 16,
1993, among AT&T, Ridge Merger Corporation and the
Company (incorporated by reference to Exhibit 2(a)
to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993, as amended).
23(a) Consent of Coopers & Lybrand.
99(a) Agreement, dated as of August 16, 1993, among
AT&T, Craig O. McCaw, John E. McCaw, Jr., Bruce R.
McCaw and Keith W. McCaw, et al (incorporated by
reference to Exhibit 99(a) to the Company's
quarterly report on Form 10-Q for the quarter
ended June 30, 1993, as amended).
99(b) Press Release, dated August 16, 1993 (incorporated
by reference to Exhibit 99(b) to the Company's
quarterly report on Form 10-Q for the quarter
ended June 30, 1993, as amended).
99(c) Letter, dated August 16, 1993, from American
Telephone and Telegraph Company to McCaw Cellular
Communications, Inc. (incorporated by reference to
Exhibit 99(c) to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1993, as
amended).
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REPORT OF INDEPENDENT AUDITORS ..................................
To the Shareowners of American Telephone and Telegraph Company:
We have audited the consolidated balance sheets of American
Telephone and Telegraph Company (AT&T) and subsidiaries at December
31, 1993 and 1992, and the related consolidated statements of
income and cash flows for the years ended December 31, 1993, 1992
and 1991. These financial statements are the responsibility of
AT&T's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of AT&T and subsidiaries at December 31, 1993
and 1992, and the consolidated results of their operations and
their cash flows for the years ended December 31, 1993, 1992 and
1991, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, in 1993
AT&T changed its methods of accounting for postretirement benefits,
postemployment benefits and income taxes.
Coopers & Lybrand
1301 Avenue of the Americas
New York, New York
January 27, 1994
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CONSOLIDATED AT&T AND SUBSIDIARIES
STATEMENTS OF INCOME Years ended December 31
Dollars in millions (except per share amounts) 1993 1992 1991
==========================================================================
SALES AND REVENUES
Telecommunications services $39,863 $39,580 $38,805
Products and systems 17,798 16,473 15,941
Rentals and other services 6,991 6,957 6,959
Financial services and leasing 2,504 1,894 1,384
__________________________________________________________________________
TOTAL REVENUES 67,156 64,904 63,089
__________________________________________________________________________
COSTS
Telecommunications services
Access and other interconnection costs 17,709 18,132 18,395
Other costs 7,009 7,135 6,881
__________________________________________________________________________
Total telecommunications services 24,718 25,267 25,276
Products and systems 10,809 9,846 9,134
Rentals and other services 3,331 3,287 3,344
Financial services and leasing 1,711 1,310 1,071
__________________________________________________________________________
TOTAL COSTS 40,569 39,710 38,825
__________________________________________________________________________
GROSS MARGIN 26,587 25,194 24,264
__________________________________________________________________________
OPERATING EXPENSES
Selling, general and administrative expenses 16,782 15,950 16,220
Research and development expenses 3,069 2,911 3,114
Provisions for business restructuring 498 64 3,572
__________________________________________________________________________
TOTAL OPERATING EXPENSES 20,349 18,925 22,906
__________________________________________________________________________
OPERATING INCOME 6,238 6,269 1,358
Other income-net 541 352 208
Gain (loss) on sale of stock by subsidiaries (9) - 43
Interest expense 566 663 726
__________________________________________________________________________
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECTS OF ACCOUNTING CHANGES 6,204 5,958 883
Provision for income taxes 2,230 2,151 361
__________________________________________________________________________
Income before cumulative
effects of accounting changes 3,974 3,807 522
__________________________________________________________________________
Cumulative effects on prior years
of changes in accounting for:
Postretirement benefits (net of income
tax benefit of $4,294) (7,023) - -
Postemployment benefits (net of income
tax benefit of $681) (1,128) - -
Income taxes 383 - -
__________________________________________________________________________
Cumulative effects of accounting changes (7,768) - -
__________________________________________________________________________
NET INCOME (LOSS) $(3,794) $ 3,807 $ 522
==========================================================================
Weighted average common
shares outstanding (millions) 1,353 1,332 1,293
PER COMMON SHARE:
Income before cumulative effects
of accounting changes $ 2.94 $ 2.86 $ .40
Cumulative effects of accounting changes (5.74) - -
__________________________________________________________________________
NET INCOME (LOSS) $(2.80) $ 2.86 $ .40
==========================================================================
The notes on pages 8 through 29 are an integral part of the consolidated
financial statements.
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CONSOLIDATED AT&T AND SUBSIDIARIES
BALANCE SHEETS at December 31
Dollars in millions (except per share amount) 1993 1992
==========================================================================
ASSETS
Cash and temporary cash investments $ 532 $ 1,310
Receivables, less allowances of $1,003 and $829
Accounts receivable 11,933 11,040
Finance receivables 11,370 8,569
Inventories 3,187 2,659
Deferred income taxes 2,079 2,118
Other current assets 637 818
__________________________________________________________________________
TOTAL CURRENT ASSETS 29,738 26,514
__________________________________________________________________________
Property, plant and equipment-net 19,397 19,358
Investments 1,503 864
Finance receivables 3,815 3,643
Prepaid pension costs 3,576 3,480
Other assets 2,737 3,329
__________________________________________________________________________
TOTAL ASSETS $60,766 $57,188
==========================================================================
LIABILITIES AND DEFERRED CREDITS
Accounts payable $ 4,694 $ 5,045
Payroll and benefit-related liabilities 3,746 3,336
Postretirement and postemployment
benefit liabilities 1,301 -
Debt maturing within one year 10,904 7,600
Dividends payable 448 443
Other current liabilities 4,241 4,962
__________________________________________________________________________
TOTAL CURRENT LIABILITIES 25,334 21,386
__________________________________________________________________________
Long-term debt including capital leases 6,812 8,604
Postretirement and postemployment
benefit liabilities 9,082 -
Other liabilities 4,298 2,634
Deferred income taxes 275 4,660
Unamortized investment tax credits 270 350
Other deferred credits 263 181
__________________________________________________________________________
TOTAL LIABILITIES AND DEFERRED CREDITS 46,334 37,815
__________________________________________________________________________
MINORITY INTERESTS 582 452
__________________________________________________________________________
SHAREOWNERS' EQUITY
Common shares par value $1 per share 1,352 1,340
Authorized shares: 2,000,000,000
Outstanding shares: 1,352,398,000 at December 31, 1993;
1,339,831,000 at December 31, 1992
Additional paid-in capital 12,028 11,425
Guaranteed ESOP obligation (355) (407)
Foreign currency translation adjustments (32) 65
Retained earnings 857 6,498
__________________________________________________________________________
TOTAL SHAREOWNERS' EQUITY 13,850 18,921
__________________________________________________________________________
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $60,766 $57,188
==========================================================================
The notes on pages 8 through 29 are an integral part of the consolidated
financial statements.
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CONSOLIDATED AT&T AND SUBSIDIARIES
STATEMENTS OF CASH FLOWS Years ended December 31
Dollars in millions 1993 1992 1991
==========================================================================
OPERATING ACTIVITIES
Net income $(3,794) $ 3,807 $ 522
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effects of accounting changes 7,768 - -
Depreciation 3,626 3,540 3,568
Provision for uncollectibles 1,635 1,945 1,233
Provisions for business restructuring 498 64 3,572
(Increase) in accounts receivable (2,082) (1,489) (2,108)
(Increase) decrease in inventories (540) 551 (59)
(Decrease) increase in accounts payable (331) 30 109
Net (increase) in other operating
assets and liabilities (52) (1,084) (1,382)
Other adjustments for non-cash items-net 401 510 560
__________________________________________________________________________
NET CASH PROVIDED BY OPERATING ACTIVITIES 7,129 7,874 6,015
__________________________________________________________________________
INVESTING ACTIVITIES
Capital expenditures net of proceeds from
sale or disposal of property, plant and
equipment of $241, $250 and $119 (3,701) (3,933) (3,860)
Increase in finance receivables, net of
lease-related repayments of $3,633,
$4,325 and $3,521 (3,483) (3,878) (3,052)
Net (increase) decrease in investments (540) (12) 473
Acquisitions, net of cash acquired (414) (202) (29)
Other investing activities-net (201) (167) 69
__________________________________________________________________________
NET CASH USED IN INVESTING ACTIVITIES (8,339) (8,192) (6,399)
__________________________________________________________________________
FINANCING ACTIVITIES
Proceeds from long-term debt issuance 2,456 2,928 1,300
Retirements of long-term debt (3,483) (3,684) (1,196)
Issuance of common shares 619 689 1,164
Dividends paid (1,774) (1,748) (1,563)
Increase in short-term borrowings-net 2,586 1,341 969
Other financing activities-net 25 (72) 2
__________________________________________________________________________
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 429 (546) 676
__________________________________________________________________________
Effect of exchange rate changes on cash 3 26 (19)
__________________________________________________________________________
Net (decrease) increase in cash and
temporary cash investments (778) (838) 273
Cash and temporary cash investments at
beginning of year 1,310 2,148 1,875
__________________________________________________________________________
Cash and temporary cash investments at
end of year $ 532 $ 1,310 $ 2,148
==========================================================================
The notes on pages 8 through 29 are an integral part of the consolidated
financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AMERICAN TELEPHONE AND
TELEGRAPH COMPANY (AT&T)
AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ............................
CONSOLIDATION
Ownership of affiliates Accounting method
_____________________________________________________________________
More than 50% Fully consolidated
20% to 50% Equity method
Less than 20% Cost method
_____________________________________________________________________
We include the accounts of operations located outside the U.S. on the basis
of their fiscal years, ended either November 30 or December 31.
CURRENCY TRANSLATION
For the business we transact in currencies other than U.S. dollars, we
translate income statement amounts at average exchange rates for the year,
and we translate assets and liabilities at year-end exchange rates. We show
the adjustments from balance sheet translation as a separate component of
shareowners' equity.
REVENUE RECOGNITION
Revenue from Basis of recognition
_____________________________________________________________________
Telecommunications Minutes of traffic processed and
Services contracted fees
Products and Systems Upon performance of contractual
obligations
Rentals and Other Proportionately over contract
Services period or as services are
performed
Financial Services Over the life of the finance
and Leasing receivables using the interest
method
_____________________________________________________________________
RESEARCH AND DEVELOPMENT
We expense research and development expenditures as incurred (including
development costs of software that we plan to sell) until technological
feasibility is established. After that time, we capitalize the remaining
software production costs as other assets and amortize them to product costs
over the estimated period of sales.
INTEREST EXPENSE
Interest expense is the interest on short-term and long-term debt and accrued
liabilities, excluding the interest related to our financial services
operations, which is included in cost of financial services and leasing, and
net of interest capitalized in connection with construction.
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INVESTMENT TAX CREDITS
For financial reporting purposes, we amortize investment tax credits as a
reduction to the provision for income taxes over the useful lives of the
property that produced the credits.
EARNINGS PER SHARE
We use the weighted average number of shares of common stock and common stock
equivalents outstanding during each period to compute earnings per common
share. Common stock equivalents are stock options that we assume to be
exercised for the purposes of this computation.
TEMPORARY CASH INVESTMENTS
We consider temporary cash investments to be cash equivalents for cash flow
reporting purposes. They are highly liquid and have original maturities
generally of three months or less.
INVENTORIES
We state inventories at the lower of cost or market. We determine cost
principally on a first-in, first-out (FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT
We state property, plant and equipment at cost and determine depreciation
using either the group or unit method. The unit method is used primarily for
factory facilities, laboratory equipment, large computer systems, and certain
international earth stations and submarine cables. The group method is used
for most other depreciable assets. When we dispose of assets that were
depreciated using the unit method, we include the gains or losses in
operating results. When we sell or retire plant that was depreciated using
the group method, we deduct the original cost from the plant account and from
accumulated depreciation.
We use accelerated depreciation methods for factory facilities and digital
equipment used in the telecommunications network, except switching equipment
placed in service before 1989. All other plant and equipment is depreciated
on a straight-line basis.
GOODWILL
Goodwill is the difference between the purchase price and the fair value of
net assets acquired in business combinations treated as purchases. We
amortize goodwill on a straight-line basis over the periods benefited,
principally in the range of 10 to 15 years.
RECLASSIFICATIONS
We reclassified certain amounts for previous years to conform with the 1993
presentation.
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2. CHANGES IN ACCOUNTING PRINCIPLES ......................................
POSTRETIREMENT BENEFITS
We adopted Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
effective January 1, 1993. This standard requires us to accrue estimated
future retiree benefits during the years employees are working and
accumulating these benefits. Previously, we expensed health care benefits as
claims were incurred and life insurance benefits as plans were funded.
When we adopted the new standard, we had an accumulated liability related
to past service from retirees and active employees. A portion of that
liability was provided for by group life insurance benefits and trusts for
health care benefits funded before 1993.
We also reimburse the divested regional Bell companies for a portion of
their costs to provide health care benefits, increases in pensions and other
benefits to predivestiture retirees under the terms of the Divestiture Plan
of Reorganization. Through 1992 we expensed these reimbursements as
incurred. In January 1993 we recognized this liability in connection with
the adoption of SFAS No. 106.
We elected to record a one-time pretax charge of $11,317 million to record
the unfunded portions of these liabilities. That charge reflects $12,986
million of liabilities less $1,669 million of plan assets and amounts
previously recorded. After taxes, that charge was $7,023 million ($5.19 per
share), including $1,375 million for predivestiture retirees. Apart from
these cumulative effects on prior years of the accounting change, our change
in accounting had no material effect on net income in 1993 and is not
expected to affect net income materially in future periods. This change does
not affect cash flows.
POSTEMPLOYMENT BENEFITS
We also adopted SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993. Analogous to SFAS No. 106, this
standard requires us to accrue for estimated future postemployment benefits,
including separation payments, during the years employees are working and
accumulating these benefits, and for disability payments when the
disabilities occur. Before this change in accounting, we recognized costs
for separations when they were identified and disability benefits when they
were paid.
When we adopted the new standard, we had an accumulated liability for
payments to employees who were then disabled and for benefits related to the
past service of active employees. We recorded a one-time pretax charge of
$1,809 million to record the unprovided portion of these liabilities. That
charge reflects $2,221 million of liabilities less $412 million of reserves
for business restructuring activities that were established before 1993 and
reclassified to postemployment liabilities as part of this accounting change.
After taxes, that charge was $1,128 million ($0.83 per share). The change in
accounting reduced operating income by $301 million, and net income by $171
million ($0.13 per share) in 1993. This change does not affect cash flows.
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INCOME TAXES
We also adopted SFAS No. 109, "Accounting for Income Taxes," effective
January 1, 1993. Among other provisions, this standard requires us to
compute deferred tax accounts using the enacted corporate income tax rates
for the years in which the taxes will be paid or refunds received. Before
1993 our deferred tax accounts reflected the rates in effect when we made the
deferrals.
Because corporate income tax rates in 1993 were lower than the rates that
existed before the 1986 Tax Act, our adoption of the new standard raised net
income by $383 million ($0.28 per share). Apart from this benefit, the new
accounting method had no material effect on net income in 1993. Unless
Congress changes tax rates, we do not expect this change to affect net income
materially in future periods. This change does not affect cash flows.
3. PROSPECTIVE ACCOUNTING CHANGES ........................................
DEBT AND EQUITY SECURITIES
In 1994 we must adopt SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." This standard addresses the accounting and
reporting for investments in equity securities that have readily determinable
fair values and for all investments in debt securities. We do not expect
this new standard to affect net income materially at or after adoption, and
it will not affect cash flows.
IMPAIRED LOANS
By 1995 we must adopt SFAS No. 114, "Accounting by Creditors for Impairment
of a Loan." This standard requires us to compute present values for impaired
loans when determining our allowances for credit losses. We do not expect
this new standard to affect net income materially at or after adoption, and
it will not affect cash flows.
4. PROSPECTIVE MERGER WITH MCCAW CELLULAR COMMUNICATIONS, INC. (MCCAW) ...
On August 16, 1993 AT&T and McCaw entered into a definitive agreement to
merge McCaw and a subsidiary of AT&T, making McCaw a wholly owned subsidiary
of AT&T.
In the merger, each share of McCaw's Class A and Class B common stock will
be converted into one share of AT&T common stock. However, if the 20-day-
average market price of the AT&T common stock as of five business days before
the merger is less than $53 per share, the conversion ratio will be adjusted
upward to provide shares of AT&T common stock having an aggregate market
price of $53 for each share of McCaw common stock, subject to a maximum of
1.111 shares of AT&T common stock. If the 20-day-average market price of
AT&T common stock as of five business days before the merger is
greater than $71.73 per share, the conversion ratio will be adjusted downward
to provide shares of AT&T common stock having an aggregate market price of
$71.73 for each share of McCaw common stock, subject to a minimum of .909 of
a share of AT&T common stock.
Pursuant to a separate agreement, AT&T has granted McCaw the right, in the
event the merger does not close, to require AT&T to purchase from McCaw $600
million of McCaw's Class A common stock at a price of $51.25 per share.
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The merger is subject to a number of conditions, including the receipt of
regulatory approvals, expiration of the waiting period under the Hart-Scott-
Rodino Antitrust Improvements Act (HSR Act), receipt of opinions that the
merger will be tax free and will be accounted for as a pooling of interests,
and McCaw stockholder approval. McCaw stockholders holding a majority of the
voting power of the McCaw common stock, including members of the McCaw family
and British Telecommunications plc, have agreed to vote in favor of the
merger.
The waiting period under the HSR Act will not expire until 20 days after
AT&T and McCaw have substantially complied with a September 1993 request from
the U.S. Department of Justice (DOJ) for additional information and
documents.
In August 1993 AT&T and McCaw filed applications seeking consent of the FCC
to the proposed transfer of control of McCaw's radio licenses to AT&T. A
number of AT&T's competitors have sought to have conditions imposed on the
merger or to deny FCC consent. Final comments were filed in January 1994.
AT&T and McCaw filed applications with nine state regulatory commissions
seeking approval or a statement of non-opposition to the merger. All of the
states, except California have done so. In California, AT&T and McCaw
entered into a settlement agreement with the original opposing parties
regarding the provision of cellular and interexchange services in that state.
In January 1994 AT&T and McCaw filed a reply to objections to the settlement.
BellSouth Corp. (BellSouth) filed a motion in federal court in December
1993 contending that AT&T requires a waiver of the antitrust consent decree
to proceed with the merger. In January 1994 the DOJ filed a response that
supported that motion in part. AT&T is seeking expedited determination of
the issues raised by BellSouth's motion or, alternatively, an expedited
waiver of any relevant decree provisions.
5. SUPPLEMENTARY FINANCIAL INFORMATION ...................................
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Dollars in millions 1993 1992 1991
====================================================================
INCLUDED IN COSTS OF PRODUCTS AND SYSTEMS
Amortization of software production costs $ 359 $ 315 $ 311
====================================================================
COSTS OF FINANCIAL SERVICES AND LEASING
Interest expense $ 506 $ 485 $ 445
Depreciation, allowance for losses, etc. 1,205 825 626
____________________________________________________________________
Costs of financial services and leasing $1,711 $1,310 $1,071
====================================================================
INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Amortization of goodwill $ 76 $ 68 $ 52
====================================================================
OTHER INCOME-NET
Interest income $ 119 $ 149 $ 170
Royalties and dividends 59 48 55
Earnings applicable to minority interests (9) 56 (1)
Miscellaneous-net 372 99 (16)
____________________________________________________________________
Other income-net $ 541 $ 352 $ 208
====================================================================
DEDUCTED FROM INTEREST EXPENSE
Capitalized interest $ 72 $ 62 $ 79
====================================================================
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SUPPLEMENTARY BALANCE SHEET INFORMATION
Dollars in millions at December 31 1993 1992
===========================================================
INVENTORIES
Completed goods $ 1,893 $ 1,689
Work in process and raw materials 1,294 970
___________________________________________________________
Inventories $ 3,187 $ 2,659
===========================================================
PROPERTY, PLANT AND EQUIPMENT
Land and improvements $ 746 $ 690
Buildings and improvements 8,512 8,243
Machinery, electronic and other equipment 31,635 31,117
___________________________________________________________
Total property, plant and equipment 40,893 40,050
Less: Accumulated depreciation 21,496 20,692
___________________________________________________________
Property, plant and equipment-net $19,397 $19,358
===========================================================
INVESTMENTS
Accounted for by the equity method $ 698 $ 627
Stated at lower of cost or market 805 237
___________________________________________________________
Investments $ 1,503 $ 864
===========================================================
OTHER ASSETS
Unamortized software production costs $ 413 $ 521
Goodwill, net of accumulated amortization 894 766
Prepaid postretirement healthcare costs - 773
Deferred charges and other 1,430 1,269
___________________________________________________________
Other assets $ 2,737 $ 3,329
===========================================================
DEBT MATURING WITHIN ONE YEAR
Commercial paper $ 8,761 $ 6,053
Long-term debt 1,860 1,158
Long-term lease obligations 52 108
Other notes 231 281
___________________________________________________________
Debt maturing within one year $10,904 $ 7,600
===========================================================
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SUPPLEMENTARY CASH FLOW INFORMATION
Dollars in millions 1993 1992 1991
====================================================================
Interest payments net of
amounts capitalized $ 1,284 $ 1,118 $ 1,058
Income tax payments 1,675 697 1,308
====================================================================
The following table displays the non-cash items excluded from the
consolidated statements of cash flows:
Dollars in millions 1993 1992 1991
====================================================================
Machinery and equipment acquired under
capital lease obligations $ 15 $ 60 $ 114
====================================================================
EXCHANGE OF STOCK
Net assets $ (43) - -
Investments 260 - -
____________________________________________________________________
$ 217 - -
====================================================================
ACQUISITION ACTIVITIES
Net receivables $ 12 $ 130 $ 3
Inventories 1 48 5
Property, plant and equipment 139 76 36
Accounts payable (7) (37) (30)
Short- and long-term debt (3) (93) (4)
Other operating assets and liabilities-net 272 78 19
____________________________________________________________________
Net non-cash items 414 202 29
Net cash used for acquisitions $ 414 $ 202 $ 29
====================================================================
6. BUSINESS RESTRUCTURING AND OTHER CHARGES...............................
Provisions for business restructuring include the estimated costs of specific
plans to close offices, consolidate facilities, relocate employees and
fulfill contractual obligations, and of other activities involved in
restructuring operations. These provisions also cover separation payments
made as a result of special offers related to defined benefit plans. Before
we changed our accounting for postemployment benefits in 1993, costs for
other types of separation payments were also included in these provisions.
Our $498 million in provisions for business restructuring in 1993 covered
$227 million of costs at AT&T Global Information Solutions (including, in
millions, $137 for special termination benefits, $43 for closing facilities,
$18 for employee relocation, $19 for contractual obligations and $10 for
other related expenses). We also provided $215 million for reengineering
customer support functions for telecommunications services (including, in
millions, $55 for employee relocation, $25 for outplacement
costs, $30 for legal contingencies and $105 for closing facilities, lease
terminations and asset abandonments associated with centralizing support
services). The remaining provisions consist of $23 million related to
closing plants for manufacturing telecommunications network systems, and $33
million for employee relocation, outplacement services and legal liabilities
related to restructuring operations that service the U.S. federal government.
In 1991 we recorded approximately $4.5 billion of business restructuring
and other charges, reducing net income by $2,863 million ($2.21 per share).
The charges covered estimated costs of changes in our computer operations,
PBX operations and product distribution processes; consolidating operations
in leased and owned buildings and recognizing costs of vacant space;
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<PAGE> 15
eliminating a future subsidy to an Alaskan long distance company; writing
down an investment; and other restructuring-related activities, merger-
related expenses and other charges. We recorded these charges as $3,572
million in provisions for business restructuring; $501 million as selling,
general and administrative expenses; $123 million as cost of products and
systems; and the remainder as other costs and expenses, including other
income - net. Charges included in other accounts in 1991 were primarily for
expenses related to the restructuring activities, writing down impaired
assets and merger-related expenses.
The remaining reserves for separation payments at January 1, 1993, were
included in the cumulative effect of the change in accounting for
postemployment benefits. We believe that the balance of reserves for all
other business restructuring activities, $1,440 million at December 31, 1993,
is adequate for the completion of those activities.
7. OTHER INCOME-NET.......................................................
In June 1993 we sold our remaining 77% interest in UNIX System Laboratories,
Inc. to Novell, Inc. (Novell) in exchange for approximately 3% of Novell
common stock. Our gain on the sale was $217 million.
We sold our remaining interest in Compagnie Industriali Riunite S.p.A. in
1993 for a slight gain. We reduced the carrying value of that investment by
$68 million in 1992 and by $218 million in 1991 because of a sustained
decline in its market value.
In 1991 we had a $171 million gain from selling our 19% equity investment
in Sun Microsystems, Inc.
8. SALE OF STOCK BY SUBSIDIARIES ........................................
In August 1993 AT&T Capital Corporation sold 5,750,000 shares of common stock
in an initial public offering and approximately 850,000 shares of common
stock in a management offering. That was about 14% of the shares
outstanding, so our ownership is now about 86%. The shares were sold at
$21.50 per share, yielding net proceeds of $115 million excluding $18 million
of recourse loans attributable to the management offering. Because of these
loans, we recorded a $9 million loss on the sale. When the loans are
collected in seven years, we expect to report a net $6 million gain from this
sale of stock.
In 1991 UNIX Systems Laboratories, Inc. sold about 20% of its stock to
other companies to encourage their support for open computing standards. We
had a $43 million gain on that sale. Proceeds from the sale were in cash and
we did not provide for deferred taxes on the gain.
<PAGE>
<PAGE> 16
9. INCOME TAXES .........................................................
This table shows the principal reasons for the difference between the effective
tax rate and the United States Federal statutory income tax rate:
Dollars in millions 1993 1992 1991
====================================================================
U.S. Federal statutory income tax rate 35% 34% 34%
Federal income tax at statutory rate $2,171 $2,026 $ 300
Amortization of investment tax credits (92) (221) (142)
State and local income taxes, net of
federal income tax effect 247 230 63
Foreign rate differential 45 75 54
Taxes on repatriated and accumulated
foreign income, net of tax credits (20) 67 (12)
Research credits (47) (18) (5)
Capital loss carryforward - (13) 32
Effect of tax rate change on
deferred tax assets (73) - -
Other differences-net (1) 5 71
____________________________________________________________________
Provision for income taxes $2,230 $2,151 $ 361
====================================================================
Effective income tax rate 36.0% 36.1% 40.9%
====================================================================
The U.S. and foreign components of income before income taxes
and the provision for income taxes are presented in this
table:
Dollars in millions 1993 1992 1991
==============================================================
INCOME BEFORE INCOME TAXES
United States $5,906 $5,628 $ 373
Foreign 298 330 510
______________________________________________________________
$6,204 $5,958 $ 883
==============================================================
PROVISION FOR INCOME TAXES
CURRENT
Federal $ 878 $ 503 $ 820
State and local 200 124 192
Foreign 169 215 302
______________________________________________________________
1,247 842 1,314
______________________________________________________________
DEFERRED
Federal 924 1,387 (829)
State and local 180 225 (96)
Foreign (41) (85) 140
______________________________________________________________
1,063 1,527 (785)
______________________________________________________________
Deferred investment tax
credits-net* (80) (218) (168)
______________________________________________________________
Provision for income taxes $2,230 $2,151 $ 361
==============================================================
* Net of amortization of $92 in 1993, $221 in 1992 and $142 in
1991.
Deferred tax liabilities are taxes we expect to pay in future
periods. Similarly, deferred tax assets are taxes we expect to get
refunded in future periods. Deferred taxes arise because of
differences in the book and tax bases of certain assets and
liabilities.
<PAGE>
<PAGE> 17
This table shows the December 31, 1993 amounts of deferred tax
assets and liabilities, which include the effects of our January
1, 1993 accounting changes:
Dollars in millions Assets Liabilities
==============================================================
Property, plant and equipment $ - $3,492
Business restructuring charges 666 -
Employee, postretirement and
postemployment benefits 4,056 56
Reserves and allowances 1,053 -
Unamortized investment tax credits 119 -
Other 152 494
Valuation allowance (201) -
______________________________________________________________
Deferred income taxes $5,845 $4,042
==============================================================
Prior year financial statements were not restated to reflect
the new accounting standards. This table shows the principal
sources of deferred taxes in prior years:
Dollars in millions 1992 1991
==============================================================
Property, plant and equipment $ 929 $ 511
Business restructuring charges 218 (1,103)
Employee pensions and other benefits 234 (26)
Reserves and allowances 108 (208)
Other timing differences-net 38 41
______________________________________________________________
Deferred income taxes $1,527 $ (785)
==============================================================
10. LEASES ...............................................................
AS LESSOR
We provide financing on sales of our products and those of other
companies and lease our products to customers under sales-type
leases. This table displays our net investment in direct financing
and sales-type leases:
Dollars in millions at December 31 1993 1992
===========================================================
Minimum lease payments receivable $4,226 $3,780
Estimated unguaranteed residual values 543 484
Unearned income (797) (736)
Allowance for credit losses (110) (91)
___________________________________________________________
Net investment $3,862 $3,437
===========================================================
This table shows the scheduled maturities of the $4,226
million minimum lease payments receivable on these leases at
December 31, 1993:
1994 1995 1996 1997 1998 Later Years
===========================================================
$1,434 $1,080 $797 $489 $234 $192
===========================================================
<PAGE>
<PAGE> 18
We lease airplanes, energy-producing facilities and transportation
equipment under leveraged leases having original terms ranging from 10 to 30
years, expiring in various years from 1994 through 2020. This table shows
our net investment in leveraged leases:
Dollars in millions at December 31 1993 1992
===========================================================
Rentals receivable (net of principal
and interest on non-recourse notes) $1,010 $1,021
Estimated residual value
of leased property 782 784
Unearned and deferred income (537) (626)
Allowance for credit losses (22) (19)
___________________________________________________________
Investment in leveraged leases 1,233 1,160
Deferred taxes (994) (719)
___________________________________________________________
Net investment $ 239 $ 441
===========================================================
We lease equipment to others through operating leases, the
majority of which are cancelable. This table shows our net
investment in operating leases:
Dollars in millions at December 31 1993 1992
===========================================================
Machinery, electronic and other equipment $2,694 $2,839
Less: Accumulated depreciation 1,230 1,364
___________________________________________________________
Net investment $1,464 $1,475
===========================================================
This table shows the $557 million of future minimum rentals
receivable under noncancelable operating leases at
December 31, 1993:
1994 1995 1996 1997 1998 Later Years
===========================================================
$251 $157 $83 $32 $11 $23
===========================================================
AS LESSEE
We lease land, buildings and equipment through contracts that expire
in various years through 2025. Our rental expense under operating
leases, in millions, was $1,041 in 1993, $1,121 in 1992 and $1,461 in
1991. The table below shows our future minimum lease payments due
under noncancelable leases at December 31, 1993. Such payments total
$3,004 million for operating leases. The net present value of such
payments on capital leases was $163 million after deducting estimated
executory costs of $1 million and imputed interest of $23 million.
1994 1995 1996 1997 1998 Later Years
=====================================================================
Operating
leases $650 $488 $328 $281 $225 $1,032
Capital
leases 91 44 22 17 8 5
_____________________________________________________________________
Minimum lease
payments $741 $532 $350 $298 $233 $1,037
=====================================================================
<PAGE>
<PAGE> 19
11. SHAREOWNERS' EQUITY ..................................................
Foreign
Additional Currency
Common Paid-in Translation Retained
Dollars in millions Shares Capital Adjustments Earnings
=====================================================================
At December 31, 1990 $1,275 $ 9,497 $ 50 $ 5,580
1991
Net income - - - 522
Dividends declared - - - (1,612)
Shares issued:
Under employee plans 6 120 - 34
Under shareowner plans 11 381 - -
In private placement 18 629 - -
Shares repurchased (1) (3) - (20)
Translation adjustments - - 108 -
Other changes - - - 95
_____________________________________________________________________
At December 31, 1991 1,309 10,624 158 4,599
1992
Net income - - - 3,807
Dividends declared - - - (1,759)
Shares issued:
Under employee plans 10 298 - -
Under shareowner plans 10 402 - -
For merger with Teradata 11 103 - -
Teradata balance recorded - - - (178)
Shares repurchased - (2) - -
Translation adjustments - - (93) -
Other changes - - - 29
_____________________________________________________________________
At December 31, 1992 1,340 11,425 65 6,498
1993
Net income - - - (3,794)
Dividends declared - - - (1,780)
Shares issued:
Under employee plans 4 157 - -
Under shareowner plans 8 450 - -
Shares repurchased - (4) - -
Translation adjustments - - (97) -
Other changes - - - (67)
_____________________________________________________________________
At December 31, 1993 $1,352 $12,028 $ (32) $ 857
=====================================================================
In 1992 we recorded the retained earnings of Teradata Corporation (Teradata)
as of January 1, after making adjustments associated with the merger. In
September 1991 NCR Corporation (NCR) issued 6.3 million shares of NCR common
stock in connection with the merger with AT&T. The shares were converted
into approximately 17.9 million shares of our common stock upon consummation
of the merger.
In March 1990 we issued 13.4 million new shares of common stock in
connection with the establishment of an ESOP feature for the non-management
savings plan. The shares are being allocated to plan participants over ten
years commencing in July 1990 as contributions are made to the plan.
We have 100 million authorized shares of preferred stock at $1 par value.
No preferred stock is currently issued or outstanding.
<PAGE>
<PAGE> 20
12. LONG-TERM DEBT OBLIGATIONS ...........................................
This table shows the outstanding long-term debt obligations in
millions at December 31:
Interest Rates Maturities 1993 1992
===================================================================
DEBENTURES
4 3/8% to 4 3/4% 1996-1999 $ 750 $ 750
5 1/8% to 7 1/8% 2000-2001 500 1,673
8 1/8% to 9% 2022-2031 1,676 2,576
NOTES
4 1/4% to 7 3/4% 1994-2004 3,605 2,515
7 4/5% to 8 19/20% 1994-2006 445 740
9% to 12 7/8% 1994-2020 616 1,036
Variable rate 1994-1999 923 191
___________________________________________________________________
8,515 9,481
Long-term lease obligations 163 302
Other 89 148
Less: Unamortized discount-net 43 61
___________________________________________________________________
8,724 9,870
Less: Amounts maturing within one year 1,912 1,266
___________________________________________________________________
Total long-term obligations $6,812 $8,604
===================================================================
This table shows the maturities, at December 31, 1993, of the
$8,515 million in debentures and notes:
1994 1995 1996 1997 1998 Later Years
===================================================================
$1,860 $1,245 $902 $198 $665 $3,645
===================================================================
A consortium of lenders provides revolving credit facilities of $6 billion
to AT&T and $2 billion to AT&T Capital Corp. (AT&T Capital). These facilities
are intended for general corporate purposes, which include support for AT&T's
and AT&T Capital's commercial paper. They were unused at December 31, 1993.
13. EMPLOYEE BENEFIT PLANS ...............................................
PENSION PLANS
We sponsor non-contributory defined benefit plans covering the majority of
our employees. Benefits for management employees are principally based on
career-average pay. Benefits for occupational employees are not directly
pay-related.
Pension contributions are principally determined using the aggregate cost
method and are primarily made to trust funds held for the sole benefit of
plan participants. We compute pension cost using the projected unit credit
method and assumed a long-term rate of return on plan assets of 9.0% in 1993,
9.0% in 1992 and 8.6% in 1991. Pension cost includes the following
components:
<PAGE>
<PAGE> 21
Dollars in millions 1993 1992 1991
====================================================================
Service cost-benefits earned during
the period $ 536 $ 452 $ 303
Interest cost on projected benefit
obligation 2,294 2,225 2,136
Amortization of unrecognized prior
service costs 251 346 310
Credit for expected return on plan
assets* (3,108) (2,973) (2,728)
Amortization of transition asset (502) (502) (502)
Charges for special pension options 74 11 108
____________________________________________________________________
Net pension cost (credit) $ (455) $ (441) $ (373)
====================================================================
*The actual return on plan assets was $5,068 in 1993, $2,153 in 1992
and $6,980 in 1991.
This table shows the funded status of the defined benefit plans:
Dollars in millions at December 31 1993 1992
====================================================================
Actuarial present value of accumulated
benefit obligation, including vested benefits
of $28,119 and $24,818, respectively $30,943 $27,316
====================================================================
Plan assets at fair value $41,481 $38,767
Less: Actuarial present value of projected
benefit obligation 32,680 28,719
____________________________________________________________________
Excess of assets over projected benefit obligation 8,801 10,048
Unrecognized prior service costs 2,052 2,200
Unrecognized transition asset (3,960) (4,463)
Unrecognized net gain (3,513) (4,613)
Net minimum liability of non-qualified plans (72) (45)
____________________________________________________________________
Prepaid pension costs $ 3,308 $ 3,127
====================================================================
We used these rates and assumptions to calculate the projected
benefit obligation:
At December 31 1993 1992
====================================================================
Weighted-average discount rate 7.5% 8.3%
Rate of increase in future
compensation levels 5.0% 5.0%
____________________________________________________________________
The prepaid pension costs shown above are net of pension liabilities for
plans where accumulated plan benefits exceed assets. Such liabilities are
included in other liabilities in the consolidated balance sheets.
We are amortizing over approximately 15.9 years the unrecognized transition
asset related to our 1986 adoption of SFAS No. 87, "Employers' Accounting for
Pensions." We amortize prior service costs primarily on a straight-line
basis over the average remaining service period of active employees. Our
plan assets consist primarily of listed stocks (including $378 million and
$451 million of AT&T common stock at December 31, 1993 and 1992,
respectively), corporate and governmental debt, real estate investments, and
cash and cash equivalents.
<PAGE>
<PAGE> 22
SAVINGS PLANS
We sponsor savings plans for the majority of our employees. The plans allow
employees to contribute a portion of their pretax and/or after-tax income in
accordance with specified guidelines. We match a percentage of the employee
contributions up to certain limits. Our contributions in millions amounted
to $347 in 1993, $331 in 1992 and $279 in 1991.
14. POSTRETIREMENT BENEFITS ..............................................
Our benefit plans for retirees include health care benefits, life insurance
coverage and telephone concessions. This table shows the components of the
net postretirement benefit cost:
Dollars in millions 1993
===========================================================
Service cost-benefits earned during the period $ 95
Interest cost on accumulated postretirement
benefit obligation 868
Credit for expected return on plan assets* (180)
Amortization of unrecognized prior service costs 29
Charge for special options 29
___________________________________________________________
Net postretirement benefit cost $841
===========================================================
* The actual return on plan assets was $243.
We did not restate our 1991 and 1992 financial statements to reflect the
change in accounting for retiree benefits. This table shows our actual
postretirement benefit costs on a pay-as-you-go basis in those years:
Dollars in millions at December 31, 1992 1991
=====================================================================
Cost of health care benefits for retirees $532 $532
Cost of life insurance benefits for retirees 3 26
Cost of telephone concessions and other benefits 39 35
Payments to regional Bell companies
for predivestiture retirees 145 125
_____________________________________________________________________
Postretirement benefit cost $719 $718
=====================================================================
We had approximately 142,200 retirees in 1993, 141,200 in 1992 and 138,500
in 1991.
Our plan assets consist primarily of listed stocks, corporate and
governmental debt, cash and cash equivalents and life insurance
contracts. This table shows the funded status of our postretirement benefit
plans reconciled with the amounts recognized in the consolidated balance
sheet:
Dollars in millions at December 31 1993
===========================================================
Accumulated postretirement benefit obligation
Retirees $ 8,928
Fully eligible active plan participants 893
Other active plan participants 2,092
___________________________________________________________
Accumulated postretirement benefit obligation 11,913
Plan assets at fair value 2,900
___________________________________________________________
Unfunded postretirement obligation 9,013
Unrecognized prior service costs 283
Unrecognized net loss 569
___________________________________________________________
Accrued postretirement benefit obligation $ 8,161
===========================================================<PAGE>
<PAGE> 23
We made these assumptions in valuing our postretirement
benefit obligation at December 31, 1993:
===========================================================
Weighted-average discount rate 7.5%
Expected long-term rate of return
on plan assets 9.0%
Assumed rate of increase in the per
capita cost of covered health care benefits 9.4%
===========================================================
We assumed that the growth in the per capita cost of covered health care
benefits (the health care cost trend rate) would gradually decline after 1994
to 5.6% by the year 2021 and then remain level. This assumption greatly
affects the amounts reported. To illustrate, increasing the assumed trend
rate by 1% in each year would raise our accumulated postretirement benefit
obligation at December 31, 1993 by $758 million and our 1993 postretirement
benefit costs by $64 million.
15. STOCK OPTIONS ........................................................
In our Long Term Incentive Program, we grant stock options, stock
appreciation rights (SARs), either in tandem with stock options or
free-standing, and other awards. On January 1 of each year, 0.6% of the
outstanding shares of our common stock become available for grant. The
exercise price of any stock option is equal to or greater than the stock
price when the option is granted. When granted in tandem, exercise of an
option or SAR cancels the other to the extent of such exercise. Option
transactions are shown below:
Number of Shares 1993 1992 1991
===================================================================
Balance at January 1 25,588,351 24,877,209 19,657,362
Options assumed in merger
with Teradata - 1,848,642 -
Options granted 4,729,651 4,948,371 8,312,922
Options and SARs exercised (3,994,569) (5,752,053) (2,874,129)
Average price $27.62 $20.44 $19.53
Options forfeited (162,996) (333,818) (218,946)
At December 31:
Options outstanding 26,160,437 25,588,351 24,877,209
Average price $36.78 $32.58 $29.77
Options exercisable 17,942,984 17,832,355 17,713,781
Shares available for grant 19,626,553 16,592,924 13,852,914
===================================================================
During 1993 167,747 SARs were exercised and no SARs were granted. At
December 31, 1993, 925,210 SARs remained unexercised and all of these were
exercisable.
Before our mergers with NCR and Teradata, stock options were granted under
the separate stock option plans of those companies. No new options can be
granted under those plans.
<PAGE>
<PAGE> 24
16. SEGMENT INFORMATION ..................................................
INDUSTRY SEGMENTS
Our operations in the global information movement and management industry
involve providing long distance telecommunications services, business
information processing systems, and other systems, products and services that
combine communications and computers. Our operations in the financial
services and leasing industry involve direct financing and finance leasing
programs for our products and the products of other companies, leasing
products to customers under operating leases and being in the general-purpose
credit card business. Miscellaneous other activities, including the
distribution of computer equipment through retail outlets, in the aggregate,
represent less than 10% of revenues, operating income and identifiable assets
and are included in the information movement and management segment.
Revenues between industry segments are not material.
Dollars in millions 1993 1992 1991
====================================================================
REVENUES
Information movement and management $64,652 $63,010 $61,705
Financial services and leasing 2,504 1,894 1,384
____________________________________________________________________
$67,156 $64,904 $63,089
====================================================================
OPERATING INCOME
Information movement and management $ 6,509 $ 6,840 $ 2,008
Financial services and leasing 339 193 (34)
Corporate and non-operating (644) (1,075) (1,091)
____________________________________________________________________
Income before income taxes $ 6,204 $ 5,958 $ 883
====================================================================
ASSETS
Information movement and management $43,515 $41,987 $41,307
Financial services and leasing 17,033 14,003 9,809
Corporate assets 934 1,607 2,533
Eliminations (716) (409) (294)
____________________________________________________________________
$60,766 $57,188 $53,355
====================================================================
DEPRECIATION AND AMORTIZATION
Information movement and management $ 3,682 $ 3,541 $ 3,852
Financial services and leasing 431 352 160
====================================================================
CAPITAL EXPENDITURES
Information movement and management $ 3,232 $ 3,286 $ 3,372
Financial services and leasing 457 633 472
____________________________________________________________________
TOTAL LIABILITIES
Financial services and leasing $15,329 $12,250 $ 8,720
====================================================================
<PAGE>
<PAGE> 25
GEOGRAPHIC SEGMENTS
Transfers between geographic areas are on terms and conditions comparable
with sales to external customers. The methods followed in developing the
geographic area data require the use of estimation techniques and do not take
into account the extent to which product development, manufacturing and
marketing depend upon each other. Thus the information may not be indicative
of results if the geographic areas were independent organizations.
Dollars in millions 1993 1992 1991
=====================================================================
REVENUES-EXTERNAL CUSTOMERS
United States $61,580 $59,234 $57,647
Other geographic areas 5,576 5,670 5,442
_____________________________________________________________________
$67,156 $64,904 $63,089
=====================================================================
TRANSFERS BETWEEN GEOGRAPHIC AREAS
(ELIMINATED IN CONSOLIDATION)
United States $ 1,374 $ 1,077 $ 870
Other geographic areas 1,125 911 884
_____________________________________________________________________
$ 2,499 $ 1,988 $ 1,754
=====================================================================
OPERATING INCOME
United States $ 7,095 $ 7,081 $ 1,578
Other geographic areas (247) (48) 396
Corporate and non-operating (644) (1,075) (1,091)
_____________________________________________________________________
Income before income taxes $ 6,204 $ 5,958 $ 883
=====================================================================
ASSETS
United States $54,738 $51,735 $46,863
Other geographic areas 6,901 5,373 4,931
Corporate assets 934 1,607 2,533
Eliminations (1,807) (1,527) (972)
_____________________________________________________________________
$60,766 $57,188 $53,355
=====================================================================
Data on other geographic areas pertain to operations that are located
outside of the U.S. Our revenues from all international activities, including
those in the table, international telecommunications services and exports,
provided 25.2% of consolidated revenues in 1993.
Business restructuring and other charges were taken primarily in the
information movement and management segment and the U.S. geographic area.
Corporate assets are principally cash and temporary cash investments.
17. FINANCIAL INSTRUMENTS ................................................
We use various financial instruments in the normal course of our business.
By their nature all such instruments involve risk, and our maximum potential
loss may exceed the amount recognized in our balance sheet. As is customary
for these types of instruments, we usually do not require collateral or other
security from other parties to these instruments. However, because we
control our exposure to credit risk through credit approvals, credit limits
and monitoring procedures, we believe that our reserves for losses are
adequate.
<PAGE>
<PAGE> 26
COMMITMENTS TO EXTEND CREDIT
We participate in the general-purpose credit card business through AT&T
Universal Card Services Corp., a wholly owned subsidiary. We purchase
essentially all cardholder receivables under an agreement with the Universal
Bank, a subsidiary of Synovus Financial Corporation, which issues the cards.
LETTERS OF CREDIT
Letters of credit are purchased guarantees that ensure our performance or
payment to third parties in accordance with specified terms and conditions.
GUARANTEES OF DEBT
From time to time, we guarantee the financing for product purchases by
customers outside the U.S., and the debt of certain unconsolidated joint
ventures.
INTEREST RATE SWAP AGREEMENTS
We enter into interest rate swap agreements to manage our exposure to changes
in interest rates. The agreements generally involve the exchange of fixed or
floating interest payments without the exchange of the underlying principal
amounts.
FOREIGN EXCHANGE CONTRACTS
We enter into foreign currency exchange contracts, including forward, option
and swap contracts, to manage our exposure to changes in currency exchange
rates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Financial instrument Valuation method
=====================================================================
Universal Card finance receivables Carrying amounts. These accrue
interest at a prime-based rate.
All other finance receivables Future cash flows discounted at
market rates.
Debt excluding capital leases Market quotes or based on rates
available to us for debt with
similar terms and maturities.
Commitments to extend credit Receivables we would need to
purchase if all Universal Card
accounts were used up to their
full credit limits.
Letters of credit Fees paid to obtain the
obligations.
Guarantees of debt Costs to terminate agreements.
Interest rate swap agreements Costs to terminate agreements.
Foreign exchange contracts Market quotes.
=====================================================================
<PAGE>
<PAGE> 27
The table below shows the carrying or contract/notional amounts and
estimated fair values of material financial instruments used in the
normal course of our business.
Dollars in millions 1993 1992
=====================================================================
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
=====================================================================
ON BALANCE SHEET
Finance receivables
other than leases $10,320 $10,337 $ 7,798 $ 7,803
Debt excluding capital leases 17,553 17,883 15,902 16,126
=====================================================================
CONTRACT/ Contract/
NOTIONAL Notional
AMOUNT Amount
=====================================================================
OFF BALANCE SHEET*
Commitments to extend credit $64,864 $39,934
Letters of credit 680 455
Guarantees of debt 455 271
Interest rate swap agreements 3,685 1,713
Foreign exchange:
Forward contracts 783 972
Swap contracts 361 369
Option contracts - 35
=====================================================================
*The fair values of off-balance-sheet instruments are negligible.
18. CONTINGENCIES ........................................................
In the normal course of business we are subject to proceedings, lawsuits and
other claims, including proceedings under government laws and regulations
related to environmental and other matters. Such matters are subject to many
uncertainties, and outcomes are not predictable with assurance.
Consequently, we are unable to ascertain the ultimate aggregate amount of
monetary liability or financial impact with respect to these matters at
December 31, 1993. While these matters could affect the operating results of
any one quarter when resolved in future periods, we believe that after final
disposition, any monetary liability or financial impact to us beyond that
provided for at year-end would not be material to our annual consolidated
financial statements.
19. AT&T CREDIT HOLDINGS, INC. ...........................................
In connection with the March 31, 1993 legal restructuring of AT&T Capital
Holdings, Inc. (formerly AT&T Capital Corporation), we issued a direct, full
and unconditional guarantee of all the outstanding public debt of AT&T Credit
Holdings, Inc. (formerly AT&T Credit Corporation).
AT&T Credit Holdings, Inc. holds the majority of AT&T's investment in AT&T
Capital Corporation and the lease finance assets of the former AT&T Credit
Corporation. The table below shows summarized consolidated financial
information for AT&T Credit Holdings, Inc., which consolidates the accounts
of AT&T Capital Corporation. Financial information for prior periods was
restated for the legal restructuring. The summarized financial information
includes transactions with AT&T that are eliminated in consolidation.
<PAGE>
<PAGE> 28
Dollars in millions 1993 1992
===============================================================
Total revenue $1,432 $1,351
Interest expense 284 293
Operating and administrative expense 384 375
Income before cumulative effect of
change in accounting 70 100
Cumulative effect of change in
accounting (SFAS No. 109) 22 -
Net income 48 100
===============================================================
Finance receivables $6,220 $5,565
Net investment in operating lease assets 978 1,099
Total assets 7,886 7,252
Total debt 4,639 4,633
Total liabilities 6,867 6,422
Minority interest 251 110
Total shareowner's equity 768 720
===============================================================
20. QUARTERLY INFORMATION (UNAUDITED) ....................................
Quarters-Dollars in millions FIRST SECOND THIRD FOURTH
==================================================================
1993
Total revenues $15,719 $16,316 $16,662 $18,459
Gross margin 6,202 6,547 6,581 7,257
Income before cumulative
effects of accounting
changes 936 1,005 1,051 982
Net income (loss) (6,832) 1,005 1,051 982
Per common share:
Income before cumulative
effects of accounting
changes .69 .74 .78 .72
Net income (loss) (5.07) .74 .78 .72
Dividends declared .33 .33 .33 .33
Stock price*:
High 59 1/8 63 7/8 65 61 3/8
Low 50 1/8 53 3/4 57 3/8 52
Quarter-end close 56 3/4 63 58 7/8 52 1/2
==================================================================
1992
Total revenues $15,375 $15,845 $16,180 $17,504
Gross margin 5,912 6,185 6,269 6,828
Net income 883 961 963 1,000
Per common share:
Net Income .67 .72 .72 .75
Dividends declared .33 .33 .33 .33
Stock price*:
High 41 3/8 44 5/8 45 3/8 53 1/8
Low 36 5/8 40 1/8 42 40 5/8
Quarter-end close 40 3/4 43 43 5/8 51
===================================================================
* Stock prices obtained from the Composite Tape.
The number of weighted average shares outstanding increases as we issue new
common shares for employee plans, shareowner plans and other purposes. For
this reason, the sum of quarterly earnings per common share may not be the
same as earnings per common share for the year, and the per share effects of
unusual items in a quarter may differ from the per share effects of those
same items for the year.
<PAGE>
<PAGE> 29
In the second quarter of 1993, we recorded $278 million in provisions for
business restructuring activities. The effect of these provisions was offset
by the $217 million gain from selling UNIX System Laboratories, Inc. and
other miscellaneous credits. In the fourth quarter of 1993, we recorded a
$190 million provision for business restructuring at AT&T Global Information
Solutions, which reduced net income by $119 million ($0.09 per share).
As a result of adopting SFAS No. 112, data for the first three quarters of
1993 were restated. The following table shows the net effects of this
accounting change, which represent the differences between the amounts shown
and the amounts originally reported:
Quarters-Dollars in millions First Second Third
=====================================================================
Gross margin $ (39) $ (39) $ (42)
Income before cumulative effects
of accounting changes (60) (39) (22)
Cumulative effect of
accounting change (1,128) - -
Net income (loss) (1,188) (39) (22)
Per common share:
Income before cumulative effects
of accounting changes (.05) (.03) (.02)
Cumulative effect of
accounting change (.83) - -
Net income (loss) (.88) (.03) (.02)
=====================================================================
<PAGE>
<PAGE> 30
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 proposed merger (the "Merger") of McCaw Cellular
Communications, Inc. ("McCaw") with a subsidiary of American Telephone and
Telegraph Company ("AT&T") pursuant to an Agreement and Plan of Merger dated
August 16, 1993 (the "Merger Agreement") 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> 31
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>
<PAGE> 32
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> 33
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> 34
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> 35
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 in the Merger
(the "Exchange Ratio") will be one share of AT&T common stock (an "AT&T
Common Share") for each share of McCaw's Class A Common Stock and Class B
Common Stock (together, the "McCaw Common Stock"); provided, however, that
(i) in the event the Closing Date Market Price (as defined below) of one
AT&T Common Share 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). The Closing Date Market Price is the average of the last reported
sale price on the New York Stock Exchange, Inc. for the 20 most recent
trading days ending on the fifth day prior to the date of closing of the
Merger.
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>
<PAGE> 36
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>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this amendment to be
signed on its behalf by the undersigned thereunto duly
authorized.
McCAW CELLULAR COMMUNICATIONS, INC.
ANDREW A. QUARTNER
-----------------------------------
Andrew A. Quartner
Senior Vice President-Law
Date: April 18, 1994
<PAGE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number
2(a) Agreement and Plan of Merger, dated August 16,
1993, among AT&T, Ridge Merger Corporation and the
Company (incorporated by reference to Exhibit 2(a)
to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1993, as amended).
23(a) Consent of Coopers & Lybrand.
99(a) Agreement, dated as of August 16, 1993, among
AT&T, Craig O. McCaw, John E. McCaw, Jr., Bruce R.
McCaw and Keith W. McCaw, et al (incorporated by
reference to Exhibit 99(a) to the Company's
quarterly report on Form 10-Q for the quarter
ended June 30, 1993, as amended).
99(b) Press Release, dated August 16, 1993 (incorporated
by reference to Exhibit 99(b) to the Company's
quarterly report on Form 10-Q for the quarter
ended June 30, 1993, as amended).
99(c) Letter, dated August 16, 1993, from American
Telephone and Telegraph Company to McCaw Cellular
Communications, Inc. (incorporated by reference to
Exhibit 99(c) to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1993, as
amended).
Exhibit 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the
Registration Statements (Registration Statement Nos. 33-20985,
33-27820, 33-43772, 33-50317, 33-55812 and 33-66078) of McCaw
Cellular Communications, Inc. ("McCaw") of our report, dated
January 27, 1993, on our audits of the consolidated financial
statements of American Telephone and Telegraph Company and its
subsidiaries, which is included in McCaw's Current Report on Form
8-K/A (Amendment No. 3) dated August 16, 1993.
COOPERS & LYBRAND
New York, New York
April 15, 1994
