-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, p1edgQ6HkYMtv//x1dQDNoGrH1CAGNFj/I9+HfjfsBQnlvHOkzbRN28WSZLDmUZP 2dvnjdbW/iE55B4/0XEJsQ== 0000005907-94-000006.txt : 19940308 0000005907-94-000006.hdr.sgml : 19940308 ACCESSION NUMBER: 0000005907-94-000006 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940304 ITEM INFORMATION: 5 FILED AS OF DATE: 19940307 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN TELEPHONE & TELEGRAPH CO CENTRAL INDEX KEY: 0000005907 STANDARD INDUSTRIAL CLASSIFICATION: 4813 IRS NUMBER: 134924710 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 34 SEC FILE NUMBER: 001-01105 FILM NUMBER: 94514852 BUSINESS ADDRESS: STREET 1: 32 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 100132412 BUSINESS PHONE: 2126055500 8-K 1 8-K FILING 1 SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report: March 4, 1994 AMERICAN TELEPHONE AND TELEGRAPH COMPANY A New York Commission File I.R.S. Employer Corporation No. 1-1105 No. 13-4924710 32 Avenue of the Americas, New York, New York 1001 3-2412 Telephone Number (212) 387-5400 2 Form 8-K March 4, 1994 Item 5. Other Events. American Telephone and Telegraph Company is filing herewith audited consolidated financial statements for the year ended December 31, 1993. OUR GROWTH COMES FROM COMPETING SUCCESSFULLY WORLDWIDE IN BOTH OLD AND NEW MARKETS, OFFERING NEW TECHNOLOGY AND HIGH-QUALITY PRODUCTS AND SERVICES. FINANCIAL SECTION A DISCUSSION AND ANALYSIS OF OUR RESULTS AND OPERATIONS.......... Global economic conditions improved in 1993, but growth was still sluggish. In Europe and Japan the weak conditions of 1991 and 1992 continued this past year. Against this backdrop, we reported a 3.5% increase in total revenues in 1993, a pickup from the 2.9% increase in 1992. We made three accounting changes this past year. Because new rules apply to all U.S. companies, we changed our accounting for retiree benefits, postemployment benefits and income taxes. The net after-tax charge to bring our financial statements in line with the new accounting methods caused us to report a net loss for the year. Excluding that net charge and the increase in 1993 expenses caused by the change in accounting for postemployment benefits and a fourth-quarter restructuring charge, our per share earnings were $3.15 in 1993. These accounting changes do not affect cash flows; they only change the expenses we report. CONSOLIDATED INCOME STATEMENT INFORMATION Dollars in millions 1993 1992 1991 - ----------------------------------------------------------------- Total revenues $67,156 $64,904 $63,089 Total costs 40,569 39,710 38,825 _________________________________________________________________ Gross margin 26,587 25,194 24,264 Provisions for business restructuring 498 64 3,572 Other operating expenses 19,851 18,861 19,334 _________________________________________________________________ Operating income $ 6,238 $ 6,269 $ 1,358 ================================================================= Income before cumulative effects of accounting changes $ 3,974 $ 3,807 $ 522 Cumulative effects of accounting changes (7,768) - - _________________________________________________________________ Net Income (Loss) $(3,794) $ 3,807 $ 522 ================================================================= Gross margin percentage 39.6% 38.8% 38.5% Operating margin percentage 9.3% 9.7% 2.2% ================================================================= 3 Form 8-K March 4, 1994 In our new accounting for retiree benefits, we estimate and book expenses for retiree benefits during the years employees are working and accumulating these future benefits. When we used the former "pay-as-you-go" accounting, we simply booked our contributions to trust funds for life insurance benefits and the actual claims for benefits such as health care and telephone concessions as they occurred. To use the new method, we made assumptions about trends in health care costs, interest rates and average life expectancy. Then we estimated the future payments for benefits to all present retirees and for accumulated benefits of active employees. We then placed this $11.3 billion liability on the books to reflect those estimated future obligations at January 1, 1993, expressed in today's dollars. From now on, we will continue to record the expenses as employees accumulate future benefits so that our liability for retiree benefits is always up to date. We expect our annual expenses to be at about the same level we recorded before this accounting change. ***************************************************************** WHY DO WE MAKE ACCOUNTING CHANGES? The goal of financial reporting and our objective at AT&T is to give investors the information they need to understand how we're doing over time and in comparison with other companies. Sometimes accounting rule-makers issue new rules for all companies. At other times, we decide to change our methods because of trends in our business or industry. HOW DO WE MAKE THE CHANGES? We first figure out what our balance sheet would look like if we had always used the new accounting methods. Then we make all the adjustments needed to catch up with those new methods. Our income statement shows the net impact of all those adjustments as "cumulative effects on prior years of changes in accounting." WHAT DO THE CHANGES MEAN TO RESULTS? Accounting changes sometimes have a large effect on reported earnings in the year of a change, but the effects on future earnings may be quite small once we bring the balance sheet up to date. Because the cumulative effects come from earlier years, many investors set them aside when looking at current results. The income statement format allows investors to see our results easily with or without these cumulative effects of accounting changes. ***************************************************************** 4 Form 8-K March 4, 1994 *****************************************************************
AT&T VERSUS S&P 500 TOTAL SHAREHOLDER RETURNS ASSUMING REINVESTMENT OF DIVIDENDS In Dollars 600 * 500 * # 400 * # * * # *# # 300 * *# # * # # # * 200 *# * *# *# *# *# # * * * # # 100 *# *# # 0 -------------------------------------------------------------------- 1/84 84 85 86 87 88 89 90 91 92 93 * AT&T # S&P Your investment has outperformed the S&P 500 for the past decade. Assumes $100 invested in the new AT&T Common Stock and in the S&P 500 Index on January 1, 1984 and all dividends reinvested.
***************************************************************** Our new accounting for postemployment benefits, including payments for separations and disabilities, is very similar to our new accounting for retiree benefits. We must book expenses for future separations during the years employees are working and accumulating service with the company, and for disability benefits when the disabilities occur. Using the former method, we booked expenses for separations when we identified them and expenses for disabilities when we made payments. We used our experience over the past five years to estimate future separations. In the future, we will adjust our estimates based on the number of employees who actually leave our payroll with these payments. Because we book expenses every quarter using this accounting method instead of booking expenses when we make plans to restructure our business, this change increased our costs and expenses by $301 million in 1993, and reduced our earnings by $171 million, or $0.13 per share. We expect our earnings in 1994 to be similarly reduced. 5 Form 8-K March 4, 1994 Our new accounting for income taxes uses the enacted tax rates to compute both deferred and current taxes. That means we must refigure our deferred tax assets and liabilities whenever Congress changes tax rates. Using our former method, we held deferred tax assets and liabilities at their original values even when tax rates changed. Because federal corporate tax rates are lower now than they were before the 1986 Tax Act, we had a gain when we changed to the new accounting method. Apart from the effects of changes in statutory tax rates, we do not expect the new accounting to affect future earnings materially. AN OVERVIEW OF OUR BUSINESS OPERATIONS Our core business is to meet the communications and computing needs of our customers by using networks to move and manage information. We divide the revenues and costs of this core business into three categories on our income statement: telecommunications services, products and systems, and rentals and other services. AT&T Capital Corporation (AT&T Capital) and AT&T Universal Card Services Corp. (Universal Card) are partners with our core business units as well as innovators in the financial services industry. We include their revenues and costs in a separate category on our income statement: financial services and leasing. Customer demand for the products and services of our core business continues to grow despite weak economic conditions worldwide. Technological advances and brisk competition are making electronic communications and computing ever more useful and economical. Our financial services businesses are also growing because we are investing in new assets. We look forward to greater revenue growth in 1994 than in 1993 because of a strengthening economy and the expected completion of our merger with the fast-growing McCaw Cellular Communications, Inc. (McCaw). ***************************************************************** OUR MERGER WITH MCCAW AIMS TO GIVE OUR CUSTOMERS A MORE COMPREHENSIVE SERVICE OFFERING AND OUR INVESTORS FASTER GROWTH AND HIGHER LONG-TERM RETURNS ON THEIR INVESTMENT. Our plan is for McCaw's owners to exchange their McCaw stock for new AT&T stock. Then all owners of the post-merger AT&T will share in the benefits and risks of the combined operations. The people, assets and capital of the two firms won't change just because of this merger. In mergers like this, we simply add up the earnings, assets, liabilities and equity of the two companies and become one company. We used this same method, called a "pooling of interests," for the merger of AT&T and NCR in 1991. After a merger, financial statements and all other financial information show the combined amounts as if there had always been only one company. To help you picture this, we included some of these combined amounts at the bottom of the ten-year summary of selected financial data. We computed these amounts assuming the merger was already completed using a one-for-one exchange of shares as AT&T and McCaw proposed in the merger agreement. ***************************************************************** 6 Form 8-K March 4, 1994
TEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA (UNAUDITED) Dollars in millions (except per share amounts) Jan. 1, 1993* 1992 1991* 1990 1989 1988* 1987 1986* 1985 1984 1984 - ------------------------------------------------------------------------------------------------------------------------------ RESULTS OF OPERATIONS Total revenues $67,156 $64,904 $63,089 $62,191 $61,100 $61,756 $60,530 $61,906 $63,130 $60,318 Research and development expenses 3,069 2,911 3,114 2,935 3,098 2,988 2,810 2,599 2,527 2,477 Operating income (loss) 6,238 6,269 1,358 5,496 5,024 (2,275) 4,281 999 3,569 2,824 Income before cumulative effects of accounting changes 3,974 3,807 522 3,104 3,109 (1,230) 2,463 651 1,872 1,713 Net income (loss) (3,794) 3,807 522 3,104 3,109 (1,230) 2,463 476 1,872 1,713 Earnings (loss) per common share before cumulative effects of accounting changes 2.94 2.86 0.40 2.42 2.40 (0.94) 1.82 0.42 1.31 1.23 Earnings (loss) per common share (2.80) 2.86 0.40 2.42 2.40 (0.94) 1.82 0.29 1.31 1.23 Dividends declared per common share 1.32 1.32 1.32 1.32 1.20 1.20 1.20 1.20 1.20 1.20 - ------------------------------------------------------------------------------------------------------------------------------ ASSETS AND CAPITAL Property, plant and equipment - net $19,397 $19,358 $18,689 $18,661 $17,023 $16,394 $21,866 $22,061 $23,133 $22,167 $21,416 Total assets 60,766 57,188 53,355 48,322 42,187 39,869 44,014 43,617 44,683 43,418 39,156 Long-term debt including capital leases 6,812 8,604 8,484 9,354 8,377 8,350 8,027 7,789 8,026 8,943 9,462 Common shareowners' equity 13,850 18,921 16,228 15,883 14,723 13,705 16,617 15,946 16,951 15,839 14,413 Net capital expenditures 3,701 3,933 3,860 4,018 3,951 4,288 3,805 3,904 4,295 3,685 - ------------------------------------------------------------------------------------------------------------------------------
7 Form 8-K March 4, 1994
TEN-YEAR SUMMARY OF SELECTED FINANCIAL DATA (Cont'd) (UNAUDITED) Dollars in millions (except per share amounts) Jan. 1, 1993* 1992 1991* 1990 1989 1988* 1987 1986* 1985 1984 1984 - ------------------------------------------------------------------------------------------------------------------------------ OTHER INFORMATION Operating income (loss) as a percentage of revenues 9.3% 9.7% 2.2% 8.8% 8.2% (3.7)% 7.1% 1.6% 5.7% 4.7% Net income (loss) as a percentage of revenues (5.6)% 5.9% 0.8% 5.0% 5.1% (2.0)% 4.1% 0.8% 3.0% 2.8% Return on average common equity (29.0)% 21.1% 3.1% 19.7% 21.8% (7.2)% 15.0% 2.2% 10.7% 10.5% Data at year-end except last column: Stock price per share $52.50 $51.00 $39.125 $30.125 $45.50 $28.75 $27.00 $25.00 $25.00 $19.50 $17.875 Book value per common share $10.24 $14.12 $12.39 $12.46 $11.54 $10.55 $12.66 $11.91 $12.58 $12.00 $11.39 Debt ratio 56.1% 46.1% 48.9% 47.6% 43.0% 41.6% 36.1% 34.4% 34.5% 36.5% 40.1% Debt ratio excluding financial services 28.3% 25.4% 34.7% 38.3% 36.3% 37.3% 32.5% 32.2% 32.9% 36.2% 40.1% Employees 308,700 312,700 317,100 328,900 339,500 364,700 365,000 378,900 399,600 427,200 435,000 - ------------------------------------------------------------------------------------------------------------------------------ PROFORMA INFORMATION REFLECTING THE PROSPECTIVE MERGER OF AT&T AND MCCAW Total revenues $69,351 $66,647 $64,455 $63,228 $61,604 $62,067 $60,726 $61,975 $63,159 $60,326 Total costs and expenses 62,853 60,119 62,981 57,684 56,720 64,496 56,585 61,000 59,689 57,501 Net income (loss) (5,906) 3,442 171 3,666 2,820 (1,527) 2,374 434 1,856 1,712 Earnings (loss) per common share (3.83) 2.27 0.12 2.50 1.96 (1.07) 1.64 0.30 1.29 1.22 Total assets 69,392 66,104 62,072 57,036 45,228 41,945 45,583 44,305 44,824 43,461 Total long-term debt 11,802 14,166 13,683 14,579 10,116 10,172 9,060 8,234 8,104 8,963 Common shareowners' equity 13,373 20,312 17,972 17,928 15,727 13,694 16,913 15,849 16,945 15,852 - ------------------------------------------------------------------------------------------------------------------------------ * 1993 data reflect a $7.8 billion net charge for three accounting changes. 1991 data reflect $4.5 billion of business restructuring and other charges. 1988 data reflect a $6.7 billion charge due to accelerated digitization of the long distance network. 1986 data reflect $3.2 billion of charges for business restructuring, an accounting change and other items.
8 Form 8-K March 4, 1994 CHANGES IN OUR COMPETITIVE LANDSCAPE ***************************************************************** MULTIMEDIA NETWORKS WILL LEAD TO NEW WAYS OF COMMUNICATING AND COMPUTING AND NEW FORMS OF EDUCATION AND ENTERTAINMENT. Telephone and cable television firms are forming alliances to speed their delivery of multimedia services to the home. A notable example is the proposed merger of Bell Atlantic Corp. and Tele-Communications Inc. Focusing on the programming to be provided by these networks, QVC Network Inc. and Viacom Inc. were competing to acquire Paramount Communications Inc., the entertainment company, at year-end. Several firms are announcing major new networks. Pacific Bell's planned $16 billion network is a good example. AT&T, as a supplier of network systems and services and a provider of multimedia products and services, will be a supplier as well as a customer and competitor of these firms. The new alliances and networks, increasing competition, and changes in technology and regulation are all leading to more choices for customers. These trends should also lower our costs to reach customers over local networks. Success in this new multimedia environment will depend on innovation and giving customers value for their purchases. COMPETITION IS GLOBAL AND INCREASINGLY BETWEEN MULTINATIONAL FIRMS WITH PARTNERS FROM DIFFERENT NATIONS. To offer one-stop shopping for telecommunications services to companies that do business globally, we formed WorldPartners with Kokusai Denshin Denwa Co. Ltd. of Japan and Singapore Telephone. We intend to also find European partners or build networks there ourselves, spending as much as $350 million. British Telecom Plc and MCI Communications Corp.(MCI) also formed an alliance, as did Germany's Deutsche Bundespost Telekom and France Telecom. British Telecom applied to the FCC to provide long distance service in the U.S. We applied to provide service in the U.K. and also asked the FCC to prevent non-U.S. carriers from operating in the U.S. unless we can compete in their home markets. We extended our rivalry with MCI to Canada through an alliance with Unitel Communications, Inc. MCI is allied with the Stentor consortium there. Mexico will open long distance services to competition from U.S. carriers in 1996 as part of the North American Free Trade Agreement (NAFTA). NAFTA should also aid our sales of network systems to Mexico. In 1993 we signed an important agreement with the People's Republic of China, where we will compete with Canada's Northern Telecom Ltd., France's Alcatel Alsthom S.A., Sweden's Telefon AB L.M. Ericsson and possibly others. This past year we also won our first contract to supply switching equipment to Japan, a market that is dominated by Fujitsu Ltd. and NEC Corp. ***************************************************************** 9 Form 8-K March 4, 1994 Cost controls, coupled with our revenue growth, caused our gross margin percentage to improve the past two years. Operating expenses grew 7.5% in 1993, mainly because of marketing and sales efforts for telecommunications services and provisions for business restructuring. Such marketing and sales expenses also rose in 1992, but total operating expenses declined because of restructuring and other charges in 1991. To increase our presence outside the U.S., we are hiring employees, building plants and forming joint ventures. However, during the past two years the economies of Europe and Japan were very weak and we needed to restructure some of our overseas operations. For these reasons we reported an operating loss in our operations outside the U.S. both years. Nevertheless, we continue to believe that these operations and markets provide excellent opportunities for future growth in revenues and earnings. All our business units face stiff competition. Prices and technology are under continual pressure. Such market conditions, along with a slow-growing economy, make the ongoing need for active cost controls even more urgent. Managers must continuously assess their resource needs and consider further steps to reduce costs. Sometimes these steps will include consolidating facilities, disposing of assets, reducing work force or withdrawing from markets. Like other manufacturers, we use, dispose of and clean up substances that are regulated under environmental protection laws. We also have been named a potentially responsible party (PRP) at a number of Superfund sites. At most of these sites, our share is very limited and there are other PRPs who can be expected to contribute to the cleanup costs. We review potential cleanup costs and costs of compliance with environmental laws and regulations regularly. Using engineering estimates of total cleanup costs, we estimate our potential liability for all currently and previously owned properties where some cleanup may be required, including each Superfund site where we are named a PRP. We provide reserves for these potential costs and regularly review the adequacy of our reserves. In addition, we forecast our expenses and capital expenditures for existing and planned compliance programs as part of our regular corporate planning process. Despite these procedures, it is very difficult to estimate the future impact of actions regarding environmental matters, including potential liabilities to us. However, we believe that cleanup costs and costs related to environmental proceedings and ongoing compliance with present laws will not have a material effect on our future expenditures, earnings or competitive position beyond that provided for at year-end. Many of our employees are represented by unions. In 1992 AT&T management and union bargainers negotiated innovative labor agreements with provisions for employees' career security and well-being as well as higher wages and increased employee ownership of the business. Under the wage portion of the agreements, employees at the top of each wage schedule received increases of 4% in 1992 and 3.9% in 1993, and will receive an increase of 3.9% in 1994. Pensions are increased by 13% for those who retire after May 31, 1992. The agreements also retained management flexibility to react to business conditions while enhancing education, training and job-changing opportunities for employees. 10 Form 8-K March 4, 1994 TELECOMMUNICATIONS SERVICES...................................... These revenues grew 0.7% in 1993 and 2.0% in 1992, driven by volume growth. Billed minutes for switched services rose 5.5% in 1993 and 6% in 1992, paced by business services. Volume growth exceeds revenue growth as customers select more of the higher- value, lower-priced services made possible by our greater efficiency. This shift in the mix of services that customers select lowers average per-minute revenues. In the latter half of 1993 we raised some of our prices and fees - about $500 million on an annual basis. These increases were primarily for services where customer demand is not very sensitive to price. In late December we filed for 1994 price increases of $750 million on an annual basis and also announced a new discount plan for high- volume callers. We expect the effects on revenues of this discount plan and those 1994 price increases to offset each other. In January 1994 we also proposed to raise prices for some business services by $165 million on an annual basis. We expect improving economic conditions and higher prices to cause our telecommunications services to grow faster in 1994 than in 1993. TELECOMMUNICATIONS SERVICES Dollars in millions 1993 1992 1991 - ----------------------------------------------------------------- Total revenues $39,863 $39,580 $38,805 _________________________________________________________________ Costs Access and other interconnection costs 17,709 18,132 18,395 Other costs 7,009 7,135 6,881 _________________________________________________________________ Total costs 24,718 25,267 25,276 _________________________________________________________________ Gross margin $15,145 $14,313 $13,529 ================================================================= Gross margin percentage 38.0% 36.2% 34.9% ================================================================= This past year we announced AT&T TrueVoice(#) service, a new, patented technology to improve the sound quality on calls placed within the continental U.S. and Canada. We expect to complete the national rollout by April 1994 so that AT&T TrueVoice service will operate automatically on every call placed on our network. We believe it gives us a competitive advantage that will help us attract and keep customers. Markets for telecommunications services are extremely competitive. AT&T is the market leader, but we saw another small decline in our market share this past year. Our own data and the data of the Federal Communications Commission (FCC) show that our market share is about 60% of the minutes billed for inter-LATA switched services. We withstood an important challenge to our market position when the FCC allowed customers of inbound "800" services to switch carriers without penalties for a 90-day period in 1993. We retained 95% of our 531 largest customers and won contracts away from our competitors. Many of these customers signed long-term contracts, so we emerged from this "Fresh Look" period with signed contracts having a greater dollar value than those we had before. (#) Registered Trademark 11 Form 8-K March 4, 1994 The FCC and state utility commissions regulate our services, and many more rules are imposed on us than on our competitors. Because of fierce competition and rapid changes in technology and customer needs, the FCC adopted "price caps" in 1989, increasing our flexibility to respond to those market conditions. Since then, the FCC has removed all limits on our prices for many business services. However, the FCC decided in June 1993 to continue price caps for residential services instead of reducing regulation of AT&T. Total costs of telecommunications services declined this past year; costs in 1992 were about level with those in 1991. Despite higher calling volumes, access and other interconnection costs dropped both years largely because of lower prices from telephone companies to reach customers over local networks. The 1993 decrease in other costs was mainly due to lower uncollectibles. We also had lower depreciation expense because we reduced plant additions. The 1992 increase in other costs was associated with higher service volumes. We also had higher uncollectibles because of fraud and the weak economy. PRODUCTS AND SYSTEMS............................................. Despite a weak global economy and intense price competition, our sales grew 8.0% in 1993 and 3.3% in 1992. Sales outside the U.S. grew at a faster rate than U.S. sales and contributed more than half the increase in both years. Based on our current expectations for the global economy, we expect greater sales growth in 1994. PRODUCTS AND SYSTEMS Dollars in millions 1993 1992 1991 - ----------------------------------------------------------------- Revenues Telecommunications network products and systems $ 8,345 $ 7,691 $ 7,490 Computer products and systems 3,597 3,433 3,667 Communications products and systems 3,438 3,098 2,852 Microelectronics products, special-design products for U.S. government, and other* 2,418 2,251 1,932 _________________________________________________________________ Products and systems 17,798 16,473 15,941 _________________________________________________________________ Total costs 10,809 9,846 9,134 _________________________________________________________________ Gross margin $ 6,989 $ 6,627 $ 6,807 ================================================================= Gross margin percentage 39.3% 40.2% 42.7% ================================================================= * "Other" is composed principally of media, predominantly for use with automated teller machines and point-of-sale equipment, and business forms. 12 Form 8-K March 4, 1994 Revenues from sales of telecommunications network products and systems grew 8.5% in 1993 and 2.7% in 1992. The 1993 increase came chiefly from higher sales of wireless products, switching equipment and operations systems. In 1992 the growth came mainly from higher sales of cable systems and switching equipment. Sales outside the U.S. rose both years while U.S. sales grew in 1993. Orders were heavily weighted toward the 1991 start of a seven- year, $600 million contract to supply GTE Corporation with wireless equipment, so U.S. sales were lower in 1992. Many countries are modernizing their communications networks. This will lead to many sales opportunities in the years ahead. We expect to partner with these countries because we provide a full range of integrated products and services and, sometimes, assistance in financing their equipment purchases. In February 1993 we signed an agreement with the State Planning Commission of the People's Republic of China. Under that proposed partnership, we expect to engage in local research, development and manufacturing of central office switching equipment, cellular communications systems and telecommunications networks for use in that country. Sales to the regional Bell companies grew in 1993 after staying about level in 1992. In 1993 Pacific Bell announced plans to construct a broadband network over seven years. We were selected as a critical supplier and systems integrator for the project, and expect up to $5 billion in revenues from the project. Other regional carriers also have plans to modernize their networks. Because we provide the latest digital technology and services, we expect to win some sizable contracts. Revenues from sales of computer products and systems rose 4.8% in 1993 after falling 6.4% in 1992. The growth in 1993 came mainly from higher U.S. sales of workstations, automated teller machines, and mid-range and high-end systems for enterprise-wide computing. The decline in 1992 was mainly due to the loss of sales from some products that were phased out after the 1991 merger of AT&T and NCR Corporation (NCR). In both years we faced fierce competitive pricing, particularly for lower-end computer products, and weak economic and market conditions in Europe and Japan. We recorded no revenues from UNIX System Laboratories, Inc. (USL) in 1993 because we sold our ownership interest and included USL's net results in other income-net. USL's revenues from computer products were $74 million in 1992 and $71 million in 1991. Revenues from sales of communications products and systems grew 11.0% in 1993 and 8.6% in 1992. About two-thirds of the growth in 1993 came from higher sales of business communications products and systems. We also had higher sales of consumer- oriented products, submarine cables and data communications equipment. The growth in revenues from consumer communications products reflected higher sales of cellular products, corded telephones, telephone answering devices and non-AT&T products such as pagers and electronic games, which was partially offset by lower sales of cordless telephones. The increase in sales of consumer-oriented products was larger in 1992, driven by higher sales of cordless telephones and telephone answering systems. Sales of submarine cables, business communications systems and data communications equipment also contributed to the growth in revenues that year. [GRAPHIC](See appendix for description) 13 Form 8-K March 4, 1994 In total, revenues from sales of microelectronics products, special-design products for the federal government, and other products and systems grew 7.4% in 1993 and 16.5% in 1992. Growth in both years came mainly from higher sales of microelectronics components and power systems to original equipment manufacturers outside the U.S. Sales of media and business forms were steady in 1993 after rising in 1992. Because of reduced spending by the U.S. federal government, sales of special-design products, such as secure phones, declined both years. Higher sales levels caused costs of products and systems to increase both years. Pricing pressures and changes in our product sales mix caused the gross margin percentage to decline. RENTALS AND OTHER SERVICES....................................... These revenues were about level the last three years. Higher revenues from newer telecommunications services and maintenance contracts for communications systems were offset by the continuing and expected decline in rentals of communications equipment. The fast-growing revenues from "other rentals and services" come from many different services, such as network management and satellite services, which generate small revenue streams. We expect the principal trends in this revenue category to continue in 1994. RENTALS AND OTHER SERVICES Dollars in millions 1993 1992 1991 - ----------------------------------------------------------------- Revenues Computer products and systems $2,514 $2,667 $2,676 Communications products and systems rentals 1,174 1,409 1,674 Communications products and systems services 1,457 1,375 1,299 Other* 1,846 1,506 1,310 _________________________________________________________________ Rentals and other services 6,991 6,957 6,959 _________________________________________________________________ Total costs 3,331 3,287 3,344 _________________________________________________________________ Gross margin $3,660 $3,670 $3,615 ================================================================= Gross margin percentage 52.4% 52.8% 51.9% ================================================================= * "Other" is composed principally of global messaging and electronic mail services, telemarketing services, information technology services and facility rentals. Although the gross margin percentage improved since 1991 because of a smaller work force, the continuing shift in revenue mix to other services from higher-margin rentals led to a decline in the margin percentage in 1993. 14 Form 8-K March 4, 1994 ***************************************************************** DEBT TO EQUITY ANALYSIS AT&T Consolidated and AT&T's Core Business In Billions of Dollars 40 #D 30 #D #D #D #D #D #D #D @D #D @D #D 20 #D @D #E @D #D #E @D #E @E #D @D #E @E #E @E #E @D 10 #E @E #E @E #E @E #E @E #E @E #E @E #E @E #E @E #E @E 0 #E @E #E @E #E @E 1991 1992 1993 ------------------------------------------------ D: Debt E: Equity #: AT&T including Financial Services and Leasing @: AT&T's Core Business Most of our debt is for Universal Card and AT&T Capital. Our goal is a 30% debt ratio for our core business. The accounting changes reduced our equity in 1993. ***************************************************************** FINANCIAL SERVICES AND LEASING................................... These revenues grew 32.2% in 1993 and 36.8% in 1992. Both Universal Card and AT&T Capital contributed to the growth by profitably expanding their portfolios of earning assets. We expect continuing growth in these revenues, earnings and assets in 1994. FINANCIAL SERVICES AND LEASING In millions 1993 1992 1991 - ----------------------------------------------------------------- Revenues AT&T Capital $ 1,360 $ 1,266 $ 1,160 Universal Card 1,228 831 475 Eliminations, adjustments and other* (84) (203) (251) _________________________________________________________________ Total revenues $ 2,504 $ 1,894 $ 1,384 Total costs 1,711 1,310 1,071 _________________________________________________________________ Gross margin $ 793 $ 584 $ 313 ================================================================= Gross margin percentage 31.7% 30.8% 22.6% Operating income (loss) $ 339 $ 193 $ (34) Operating margin percentage 13.5% 10.2% (2.5)% Assets $17,033 $14,003 $ 9,809 ================================================================= Universal Card Information: Finance receivables $ 9,154 $ 6,606 $ 3,786 Accounts 11.7 10.3 7.6 ================================================================= * "Other" is composed principally of revenues from certain lease finance assets AT&T retained when AT&T Capital was reorganized. 15 Form 8-K March 4, 1994 Universal Card is the second largest competitor in its industry measured by customer accounts. Since its start in 1990 Universal Card pioneered a variety of innovative promotions to add new accounts, many involving the transfer of balances from other credit cards. But our credit approval and monitoring have kept our percentage of delinquent balances and write-offs below industry norms. Universal Card became profitable in 1992, well ahead of our projection when we entered the business. After an initial public offering of its common stock in August 1993, AT&T Capital became the largest publicly owned equipment leasing and financing company in the U.S. AT&T still owns about 86% of its stock, so its results are still fully consolidated in our financial statements. We unconditionally guaranteed all of AT&T Capital's outstanding debt at the end of March 1993, before its legal reorganization. Since then, all AT&T Capital debt has been issued using its own credit. This change makes it financially independent and permits us to focus on the financing needs of our core business. The growth in costs of financial services and leasing over the last two years came from the higher volume of financing and credit card transactions. The improved gross margin percentage mainly reflects the maturation of the credit card receivables portfolio. A lower cost of funds due to lower interest rates in 1993 also contributed to the improved margin percentage. By 1995 we must change our accounting for the loans we make to customers. Under the new rules we must consider delays or reduced payments of interest as well as principal when we value loans that may not be fully repaid. We do not expect this change to affect our costs or expenses materially. OPERATING EXPENSES............................................... Selling, general and administrative expenses increased 5.2% in 1993, largely because of advertising and promotions, and sales and sales support activities to protect our core business. Such spending, and costs to expand outside the U.S. and into new markets, will continue to grow. These expenses also rose in 1992, but the increase was not evident because 1991 expenses included $501 million in charges related to business restructuring activities and the merger of AT&T and NCR. Research and development expenses increased 5.4% in 1993, but decreased 6.5% in 1992. The increase was mainly for work on cellular technology, advanced communications services and devices, and projects aimed at international growth. In 1992 we streamlined development work on telecommunications network systems and consolidated development activities for computer systems following the merger of AT&T and NCR. In 1993 AT&T Global Information Solutions (formerly NCR) offered an early retirement program and a voluntary separation program to its U.S.-based employees. That unit expects to reduce its work force by about 15%, or 7,500 employees, in 1994. About 2,200 employees accepted the early retirement offer. Employees accepting the voluntary separation package must respond before February 1994. 16 Form 8-K March 4, 1994 Our 1993 provisions for business restructuring cover special benefits provided to employees accepting early retirement offers as well as other costs of closing facilities and relocating employees. In addition to the changes at AT&T Global Information Solutions, we are re-engineering and centralizing support services for telecommunications services. These ongoing efforts to raise productivity are part our commitment to meet the challenge of intense competition. Our 1991 provisions for business restructuring were primarily for costs to make changes in our computer and business equipment operations and in our use of leased and owned space. The changes in our computer operations were initiated because of the merger of AT&T and NCR. OTHER INCOME STATEMENT ITEMS..................................... Other income-net depends mostly on our cash balance and the results and changes in our investments and joint ventures. Over the last two years we reduced our balance of cash and temporary cash investments because we have easy access to financing when we need it. Our interest income declined over the past two years because we had less cash on hand and interest rates were lower. Income from our equity investments, coupled with our sharing of earnings from AT&T subsidiaries that are partly owned by other companies, declined in 1993 after increasing in 1992. Miscellaneous pretax gains and losses caused the largest shifts in other income-net over the three years: -In 1993 we had a $217 million gain when we exchanged our remaining 77% interest in UNIX System Laboratories, Inc. (USL) for about 3% ownership of Novell, Inc., a leading software development company. -We sold our remaining interest in Compagnie Industriali Riunite S.p.A. (CIR) in 1993 for a slight gain. Because of declines in its market value, we wrote down that investment by $68 million in 1992 and by $218 million in 1991. CIR's value had declined along with the Italian securities market and because of lower earnings from its principal holding, Ing. C. Olivetti & C., S.p.A. -In 1991 we had a $171 million gain from selling our investment in Sun Microsystems, Inc. Sales of stock by our subsidiaries produced a $9 million loss in 1993 and a $43 million gain in 1991. The 1993 loss came from deducting recourse loans made to AT&T Capital's senior management so they would purchase shares and take a larger personal stake in the success of the business following the initial public offering. When the loans are repaid in seven years, we expect to report a net $6 million gain on this offering. The $43 million gain in 1991 came from USL selling stock to other companies to encourage their support for open computing standards. Interest expense declined over the past two years because of benefits from refinancing long-term debt at favorable rates and reduced requirements for contingent liabilities. The benefits of refinancing, which were partly offset by costs of that refinancing such as call premiums, were responsible for about half of the decline in 1993 and two-thirds of the decline in 1992. 17 Form 8-K March 4, 1994 INCOME TAXES INFORMATION Dollars in millions 1993 1992 1991 - ----------------------------------------------------------------- Income before income taxes and cumulative effects of accounting changes $6,204 $5,958 $ 883 Provision for income taxes* 2,230 2,151 361 ================================================================= Effective income tax rate 36.0% 36.1% 40.9% Income taxes paid $1,675 $ 697 $1,308 ================================================================= * The cumulative effects of accounting changes include the tax effects of those adjustments. The provisions for income taxes increased the past two years mainly because of higher "book income," that is, the income before income taxes and cumulative effects of accounting changes. The effective tax rate was at about the same level in 1993 and 1992. The rate was much higher in 1991 because the tax effects of restructuring charges were magnified by the lower income before income taxes. Congress increased the federal statutory tax rate to 35% in August 1993 and made the change retroactive to January 1, 1993. We recognized a $73 million benefit from adjusting our deferred tax assets for the new rate. But that benefit was mostly offset by the increase in taxes on 1993 taxable income, caused by the higher rate. Consequently, this change in rates did not affect our 1993 net income materially. TOTAL ASSETS, WORKING CAPITAL AND LIQUIDITY...................... Net working capital - current assets less current liabilities - is a measure of our ability to cover short-term liabilities with assets that we expect to convert to cash soon. For example, collecting receivables helps us to pay our suppliers. We reduced our cash balance and working capital in 1993 to lower our "opportunity" costs of maintaining that capital. Our financial condition gives us easy access to financing when we need it, so we now target a cash balance under $800 million. BALANCE SHEET INFORMATION Dollars in millions 1993 1992 Change - ----------------------------------------------------------------- Working capital $ 4,404 $ 5,128 $ (724) Cash and temporary cash investments 532 1,310 (778) Total assets 60,766 57,188 3,578 Total debt 17,716 16,204 1,512 Total shareowners' equity 13,850 18,921 (5,071) ================================================================= Days sales outstanding for core business 59.5 63.2 (3.7) Inventory turnover 3.4 3.2 0.2 ================================================================= 18 Form 8-K March 4, 1994 The growth in accounts receivable comes from our higher sales levels. Days sales outstanding in our core business, defined as average accounts receivable divided by average daily revenues in our core business, declined because of improved receivables management. To spur further growth in revenues and earnings for financial services and leasing, we invested in additional finance receivables from our credit card and equipment financing and leasing businesses. We keep a close watch on account status, which has helped us maintain a low level of delinquent balances and write-offs. Higher inventory levels are associated with our sales growth, which we expect to continue in 1994. Improved inventory management in 1993 led to increased inventory turnover. Making better use of existing capacity on our long distance network, we reduced capital expenditures in 1993. Our plant additions were at about the same level as depreciation, leaving property, plant and equipment, net of accumulated depreciation, essentially unchanged. The fair value of our pension plan assets is greater than our projected pension obligations. Those plan assets are earning a return that exceeds the growth in pension liabilities. In addition, we are amortizing a transition asset related to our 1986 change in pension accounting over 15.9 years, which produces about $500 million of income each year. Consequently, we had pension income that added to our prepaid pension costs. Under an agreement with unions representing many of our employees, we transferred some of these excess pension assets over the past two years to fund retiree health care benefits. Before 1993, we included these prepaid health care costs in other assets. However, when we added the liabilities for retiree benefits to our balance sheet in 1993, because of the new accounting rule, we netted these prepaid costs with the liabilities. We did something similar when we netted the trusts for disability payments with liabilities for separations and disabilities. Our net liabilities for postretirement and postemployment liabilities are now combined on our balance sheet. Our recognition of these liabilities created additional deferred tax assets. The increase in investments mainly reflects a $400 million purchase of McCaw stock in February 1993. We also acquired shares in Novell, Inc. and Unitel Communications, Inc. (Unitel). In 1994 we must change the way we report and account for investments in equity securities that have readily determinable fair values and all debt securities. We do not expect this change to have a material effect on our earnings or financial position. Accounts payable are lower because of reduced access and other interconnection costs. Payroll and benefit-related liabilities are higher mainly due to increases in the associated expenses and benefit costs. Other current liabilities declined because some restructuring reserves were reclassified to postemployment liabilities (because of our accounting change) and others were used for restructuring. 19 Form 8-K March 4, 1994 Higher debt maturing within one year chiefly reflects commercial paper we issued to support financial services. Lower long-term debt, including capital leases, was the net result of our refinancing and redemption activities. Our recognition of predivestiture retirees' benefits led to higher other liabilities. Minority interests, which represent other companies' ownership interests in our net assets, increased mainly because of the sale of 14% ownership in AT&T Capital in August 1993. Despite the increase in income before cumulative effects of accounting changes, operating cash flows declined in 1993 after growing the year before. The decline was mainly due to higher inventories and accounts receivable. The greater cash flow in 1992 reflected a smaller increase in working capital requirements and higher earnings compared with 1991. For the three years operating cash flows covered our net capital expenditures and dividend payments. We expect such cash flows to continue covering capital expenditures and dividends in 1994. INVESTING ACTIVITIES............................................. Net capital expenditures were $3.7 billion in 1993, compared with $3.9 billion the two previous years. Most of our capital expenditures are for the AT&T Worldwide Intelligent Network. In 1993 we reduced capital expenditures for the network because technological advances permit us to use existing capacity more efficiently. Net expenditures for the network, at market price, were $2.2 billion in 1993, compared with $3.0 billion in 1992 and $2.5 billion in 1991. These additions provide for growth, modernization and enhanced reliability. Other capital expenditures are for equipment and facilities used in leasing operations, manufacturing, and research and development. We expect our net capital expenditures for the network and in total to remain at about the same level in 1994. We are also investing in finance receivables, particularly credit card receivables, to increase revenues and earnings from our financial services businesses. These capital requirements will continue growing in 1994. In 1993 we made a $400 million investment in McCaw and reached a definitive agreement on a merger. Our alliance will undertake joint projects and marketing efforts. We also acquired a 20% equity interest in Unitel for cash and advanced telecommunications equipment valued at approximately $120 million. In 1991 equity investments were a net source of cash because we had net proceeds of $687 million from selling our shares in Sun Microsystems, Inc. [GRAPHIC] (See appendix for description) We have a 49% interest in a joint venture with GTE, called AG Communications Systems Corporation, which is developing new technology and capabilities for GTE's digital switching systems. By agreement, our ownership will increase to 80% in 1994 and to 100% in 2004. When we raise our ownership in 1994, we will fully consolidate this venture in our financial statements. 20 Form 8-K March 4, 1994 FINANCING ACTIVITIES AND CAPITALIZATION.......................... The growth of our financial services and leasing business over the past three years was the primary reason for the increase in total debt outstanding and for most of our financing needs. We expect increasing capital requirements for financial services in 1994. Over the past three years we took advantage of favorable levels of interest rates to extend debt maturities by refinancing a substantial amount of long-term debt. Much of the financing activity shown on our statements of cash flows relates to these refinancing activities. The ratio of total debt to total capital (total debt plus total equity) increased to 56.1% at December 31, 1993, compared with 46.1% at December 31, 1992, primarily because of the effects on equity of adopting accounting changes. Excluding financial services and leasing operations, the debt ratio increased to 28.3% at December 31, 1993, compared with 25.4% at December 31, 1992. For the past three years we have issued new shares of common stock in our shareowner and employee plans. In connection with the merger in 1991, NCR sold 6.3 million shares of common stock held as Treasury stock (approximately 17.9 million shares of AT&T common stock after conversion). The proceeds from all newly issued shares were used for general corporate purposes. The dilution in earnings per share from new issuances was not material. We sell equity interests in AT&T subsidiaries only when opportunities or circumstances warrant. We have no present plans to sell material interests in subsidiaries. Excluding the cumulative effects of the 1993 accounting changes, return on equity was 19.2%, compared with 21.1% in 1992. 21 Form 8-K March 4, 1994 REPORT OF MANAGEMENT ........................................ Management is responsible for the preparation, integrity and objectivity of the financial statements and all other financial information included in this report. Management is also responsible for maintaining a system of internal controls as a fundamental requirement for the operational and financial integrity of results. The financial statements, which reflect the consolidated accounts of AT&T and subsidiaries, and other financial information shown were prepared in conformity with generally accepted accounting principles. Estimates included in the financial statements were based on judgments of qualified personnel. To maintain its system of internal controls, management carefully selects key personnel and establishes the organizational structure to provide an appropriate division of responsibility. We believe it is essential to conduct business affairs in accordance with the highest ethical standards as set forth in the AT&T Code of Conduct. These guidelines and other informational programs are designed and used to ensure that policies, standards and managerial authorities are understood throughout the organization. Our internal auditors monitor compliance with the system of internal controls by means of an annual plan of internal audits. On an ongoing basis, the system of internal controls is reviewed, evaluated and revised as necessary in light of the results of constant management oversight, internal and independent audits, changes in AT&T's business and other conditions. Management believes that the system of internal controls, taken as a whole, provides reasonable assurance that (1) financial records are adequate and can be relied upon to permit the preparation of financial statements in conformity with generally accepted accounting principles, and (2) access to assets occurs only in accordance with management's authorizations. The Audit Committee of the Board of Directors, which is composed of directors who are not employees, meets periodically with management, the internal auditors and the independent auditors to review the manner in which these groups of individuals are performing their responsibilities and to carry out the Audit Committee's oversight role with respect to auditing, internal controls and financial reporting matters. Periodically, both the internal auditors and the independent auditors meet privately with the Audit Committee. These auditors also have access to the Audit Committee and its individual members at any time. The financial statements in this annual report have been audited by Coopers & Lybrand, Independent Auditors. Their audits were conducted in accordance with generally accepted auditing standards and include consideration of the internal control structure and selective tests of transactions. Their report follows. Richard W. Miller Robert E. Allen Executive Vice President, Chairman of the Board, Chief Financial Officer Chief Executive Officer 22 Form 8-K March 4, 1994 REPORT OF INDEPENDENT AUDITORS .................................. To the Shareowners of American Telephone and Telegraph Company: We have audited the consolidated balance sheets of American Telephone and Telegraph Company (AT&T) and subsidiaries at December 31, 1993 and 1992, and the related consolidated statements of income and cash flows for the years ended December 31, 1993, 1992 and 1991. These financial statements are the responsibility of AT&T's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of AT&T and subsidiaries at December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for the years ended December 31, 1993, 1992 and 1991, in conformity with generally accepted accounting principles. As discussed in Note 2 to the financial statements, in 1993 AT&T changed its methods of accounting for postretirement benefits, postemployment benefits and income taxes. Coopers & Lybrand 1301 Avenue of the Americas New York, New York January 27, 1994 23 Form 8-K March 4, 1994 CONSOLIDATED AT&T AND SUBSIDIARIES STATEMENTS OF INCOME Years ended December 31 Dollars in millions (except per share amounts) 1993 1992 1991 ========================================================================== SALES AND REVENUES Telecommunications services $39,863 $39,580 $38,805 Products and systems 17,798 16,473 15,941 Rentals and other services 6,991 6,957 6,959 Financial services and leasing 2,504 1,894 1,384 __________________________________________________________________________ TOTAL REVENUES 67,156 64,904 63,089 __________________________________________________________________________ COSTS Telecommunications services Access and other interconnection costs 17,709 18,132 18,395 Other costs 7,009 7,135 6,881 __________________________________________________________________________ Total telecommunications services 24,718 25,267 25,276 Products and systems 10,809 9,846 9,134 Rentals and other services 3,331 3,287 3,344 Financial services and leasing 1,711 1,310 1,071 __________________________________________________________________________ TOTAL COSTS 40,569 39,710 38,825 __________________________________________________________________________ GROSS MARGIN 26,587 25,194 24,264 __________________________________________________________________________ OPERATING EXPENSES Selling, general and administrative expenses 16,782 15,950 16,220 Research and development expenses 3,069 2,911 3,114 Provisions for business restructuring 498 64 3,572 __________________________________________________________________________ TOTAL OPERATING EXPENSES 20,349 18,925 22,906 __________________________________________________________________________ OPERATING INCOME 6,238 6,269 1,358 Other income-net 541 352 208 Gain (loss) on sale of stock by subsidiaries (9) - 43 Interest expense 566 663 726 __________________________________________________________________________ INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECTS OF ACCOUNTING CHANGES 6,204 5,958 883 Provision for income taxes 2,230 2,151 361 __________________________________________________________________________ Income before cumulative effects of accounting changes 3,974 3,807 522 __________________________________________________________________________ Cumulative effects on prior years of changes in accounting for: Postretirement benefits (net of income tax benefit of $4,294) (7,023) - - Postemployment benefits (net of income tax benefit of $681) (1,128) - - Income taxes 383 - - __________________________________________________________________________ Cumulative effects of accounting changes (7,768) - - __________________________________________________________________________ NET INCOME (LOSS) $(3,794) $ 3,807 $ 522 ========================================================================== Weighted average common shares outstanding (millions) 1,353 1,332 1,293 PER COMMON SHARE: Income before cumulative effects of accounting changes $ 2.94 $ 2.86 $ .40 Cumulative effects of accounting changes (5.74) - - __________________________________________________________________________ NET INCOME (LOSS) $(2.80) $ 2.86 $ .40 ========================================================================== The notes on pages 26 through 48 are an integral part of the consolidated financial statements. 24 Form 8-K March 4, 1994 CONSOLIDATED AT&T AND SUBSIDIARIES BALANCE SHEETS at December 31 Dollars in millions (except per share amount) 1993 1992 ========================================================================== ASSETS Cash and temporary cash investments $ 532 $ 1,310 Receivables, less allowances of $1,003 and $829 Accounts receivable 11,933 11,040 Finance receivables 11,370 8,569 Inventories 3,187 2,659 Deferred income taxes 2,079 2,118 Other current assets 637 818 __________________________________________________________________________ TOTAL CURRENT ASSETS 29,738 26,514 __________________________________________________________________________ Property, plant and equipment-net 19,397 19,358 Investments 1,503 864 Finance receivables 3,815 3,643 Prepaid pension costs 3,576 3,480 Other assets 2,737 3,329 __________________________________________________________________________ TOTAL ASSETS $60,766 $57,188 ========================================================================== LIABILITIES AND DEFERRED CREDITS Accounts payable $ 4,694 $ 5,045 Payroll and benefit-related liabilities 3,746 3,336 Postretirement and postemployment benefit liabilities 1,301 - Debt maturing within one year 10,904 7,600 Dividends payable 448 443 Other current liabilities 4,241 4,962 __________________________________________________________________________ TOTAL CURRENT LIABILITIES 25,334 21,386 __________________________________________________________________________ Long-term debt including capital leases 6,812 8,604 Postretirement and postemployment benefit liabilities 9,082 - Other liabilities 4,298 2,634 Deferred income taxes 275 4,660 Unamortized investment tax credits 270 350 Other deferred credits 263 181 __________________________________________________________________________ TOTAL LIABILITIES AND DEFERRED CREDITS 46,334 37,815 __________________________________________________________________________ MINORITY INTERESTS 582 452 __________________________________________________________________________ SHAREOWNERS' EQUITY Common shares par value $1 per share 1,352 1,340 Authorized shares: 2,000,000,000 Outstanding shares: 1,352,398,000 at December 31, 1993; 1,339,831,000 at December 31, 1992 Additional paid-in capital 12,028 11,425 Guaranteed ESOP obligation (355) (407) Foreign currency translation adjustments (32) 65 Retained earnings 857 6,498 __________________________________________________________________________ TOTAL SHAREOWNERS' EQUITY 13,850 18,921 __________________________________________________________________________ TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $60,766 $57,188 ========================================================================== The notes on pages 26 through 48 are an integral part of the consolidated financial statements. 25 Form 8-K March 4, 1994 CONSOLIDATED AT&T AND SUBSIDIARIES STATEMENTS OF CASH FLOWS Years ended December 31 Dollars in millions 1993 1992 1991 ========================================================================== OPERATING ACTIVITIES Net income $(3,794) $ 3,807 $ 522 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effects of accounting changes 7,768 - - Depreciation 3,626 3,540 3,568 Provision for uncollectibles 1,635 1,945 1,233 Provisions for business restructuring 498 64 3,572 (Increase) in accounts receivable (2,082) (1,489) (2,108) (Increase) decrease in inventories (540) 551 (59) (Decrease) increase in accounts payable (331) 30 109 Net (increase) in other operating assets and liabilities (52) (1,084) (1,382) Other adjustments for non-cash items-net 401 510 560 __________________________________________________________________________ NET CASH PROVIDED BY OPERATING ACTIVITIES 7,129 7,874 6,015 __________________________________________________________________________ INVESTING ACTIVITIES Capital expenditures net of proceeds from sale or disposal of property, plant and equipment of $241, $250 and $119 (3,701) (3,933) (3,860) Increase in finance receivables, net of lease-related repayments of $3,633, $4,325 and $3,521 (3,483) (3,878) (3,052) Net (increase) decrease in investments (540) (12) 473 Acquisitions, net of cash acquired (414) (202) (29) Other investing activities-net (201) (167) 69 __________________________________________________________________________ NET CASH USED IN INVESTING ACTIVITIES (8,339) (8,192) (6,399) __________________________________________________________________________ FINANCING ACTIVITIES Proceeds from long-term debt issuance 2,456 2,928 1,300 Retirements of long-term debt (3,483) (3,684) (1,196) Issuance of common shares 619 689 1,164 Dividends paid (1,774) (1,748) (1,563) Increase in short-term borrowings-net 2,586 1,341 969 Other financing activities-net 25 (72) 2 __________________________________________________________________________ NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 429 (546) 676 __________________________________________________________________________ Effect of exchange rate changes on cash 3 26 (19) __________________________________________________________________________ Net (decrease) increase in cash and temporary cash investments (778) (838) 273 Cash and temporary cash investments at beginning of year 1,310 2,148 1,875 __________________________________________________________________________ Cash and temporary cash investments at end of year $ 532 $ 1,310 $ 2,148 ========================================================================== The notes on pages 26 through 48 are an integral part of the consolidated financial statements. 26 Form 8-K March 4, 1994 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMERICAN TELEPHONE AND TELEGRAPH COMPANY (AT&T) AND SUBSIDIARIES 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ............................ CONSOLIDATION Ownership of affiliates Accounting method _____________________________________________________________________ More than 50% Fully consolidated 20% to 50% Equity method Less than 20% Cost method _____________________________________________________________________ We include the accounts of operations located outside the U.S. on the basis of their fiscal years, ended either November 30 or December 31. CURRENCY TRANSLATION For the business we transact in currencies other than U.S. dollars, we translate income statement amounts at average exchange rates for the year, and we translate assets and liabilities at year-end exchange rates. We show the adjustments from balance sheet translation as a separate component of shareowners' equity. REVENUE RECOGNITION Revenue from Basis of recognition _____________________________________________________________________ Telecommunications Minutes of traffic processed and Services contracted fees Products and Systems Upon performance of contractual obligations Rentals and Other Proportionately over contract Services period or as services are performed Financial Services Over the life of the finance and Leasing receivables using the interest method _____________________________________________________________________ RESEARCH AND DEVELOPMENT We expense research and development expenditures as incurred (including development costs of software that we plan to sell) until technological feasibility is established. After that time, we capitalize the remaining software production costs as other assets and amortize them to product costs over the estimated period of sales. INTEREST EXPENSE Interest expense is the interest on short-term and long-term debt and accrued liabilities, excluding the interest related to our financial services operations, which is included in cost of financial services and leasing, and net of interest capitalized in connection with construction. 27 Form 8-K March 4, 1994 INVESTMENT TAX CREDITS For financial reporting purposes, we amortize investment tax credits as a reduction to the provision for income taxes over the useful lives of the property that produced the credits. EARNINGS PER SHARE We use the weighted average number of shares of common stock and common stock equivalents outstanding during each period to compute earnings per common share. Common stock equivalents are stock options that we assume to be exercised for the purposes of this computation. TEMPORARY CASH INVESTMENTS We consider temporary cash investments to be cash equivalents for cash flow reporting purposes. They are highly liquid and have original maturities generally of three months or less. INVENTORIES We state inventories at the lower of cost or market. We determine cost principally on a first-in, first-out (FIFO) basis. PROPERTY, PLANT AND EQUIPMENT We state property, plant and equipment at cost and determine depreciation using either the group or unit method. The unit method is used primarily for factory facilities, laboratory equipment, large computer systems, and certain international earth stations and submarine cables. The group method is used for most other depreciable assets. When we dispose of assets that were depreciated using the unit method, we include the gains or losses in operating results. When we sell or retire plant that was depreciated using the group method, we deduct the original cost from the plant account and from accumulated depreciation. We use accelerated depreciation methods for factory facilities and digital equipment used in the telecommunications network, except switching equipment placed in service before 1989. All other plant and equipment is depreciated on a straight-line basis. GOODWILL Goodwill is the difference between the purchase price and the fair value of net assets acquired in business combinations treated as purchases. We amortize goodwill on a straight-line basis over the periods benefited, principally in the range of 10 to 15 years. RECLASSIFICATIONS We reclassified certain amounts for previous years to conform with the 1993 presentation. 28 Form 8-K March 4, 1994 2. CHANGES IN ACCOUNTING PRINCIPLES ...................................... POSTRETIREMENT BENEFITS We adopted Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," effective January 1, 1993. This standard requires us to accrue estimated future retiree benefits during the years employees are working and accumulating these benefits. Previously, we expensed health care benefits as claims were incurred and life insurance benefits as plans were funded. When we adopted the new standard, we had an accumulated liability related to past service from retirees and active employees. A portion of that liability was provided for by group life insurance benefits and trusts for health care benefits funded before 1993. We also reimburse the divested regional Bell companies for a portion of their costs to provide health care benefits, increases in pensions and other benefits to predivestiture retirees under the terms of the Divestiture Plan of Reorganization. Through 1992 we expensed these reimbursements as incurred. In January 1993 we recognized this liability in connection with the adoption of SFAS No. 106. We elected to record a one-time pretax charge of $11,317 million to record the unfunded portions of these liabilities. That charge reflects $12,986 million of liabilities less $1,669 million of plan assets and amounts previously recorded. After taxes, that charge was $7,023 million ($5.19 per share), including $1,375 million for predivestiture retirees. Apart from these cumulative effects on prior years of the accounting change, our change in accounting had no material effect on net income in 1993 and is not expected to affect net income materially in future periods. This change does not affect cash flows. POSTEMPLOYMENT BENEFITS We also adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits," effective January 1, 1993. Analogous to SFAS No. 106, this standard requires us to accrue for estimated future postemployment benefits, including separation payments, during the years employees are working and accumulating these benefits, and for disability payments when the disabilities occur. Before this change in accounting, we recognized costs for separations when they were identified and disability benefits when they were paid. When we adopted the new standard, we had an accumulated liability for payments to employees who were then disabled and for benefits related to the past service of active employees. We recorded a one-time pretax charge of $1,809 million to record the unprovided portion of these liabilities. That charge reflects $2,221 million of liabilities less $412 million of reserves for business restructuring activities that were established before 1993 and reclassified to postemployment liabilities as part of this accounting change. After taxes, that charge was $1,128 million ($0.83 per share). The change in accounting reduced operating income by $301 million, and net income by $171 million ($0.13 per share) in 1993. This change does not affect cash flows. 29 Form 8-K March 4, 1994 INCOME TAXES We also adopted SFAS No. 109, "Accounting for Income Taxes," effective January 1, 1993. Among other provisions, this standard requires us to compute deferred tax accounts using the enacted corporate income tax rates for the years in which the taxes will be paid or refunds received. Before 1993 our deferred tax accounts reflected the rates in effect when we made the deferrals. Because corporate income tax rates in 1993 were lower than the rates that existed before the 1986 Tax Act, our adoption of the new standard raised net income by $383 million ($0.28 per share). Apart from this benefit, the new accounting method had no material effect on net income in 1993. Unless Congress changes tax rates, we do not expect this change to affect net income materially in future periods. This change does not affect cash flows. 3. PROSPECTIVE ACCOUNTING CHANGES ........................................ DEBT AND EQUITY SECURITIES In 1994 we must adopt SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." This standard addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. We do not expect this new standard to affect net income materially at or after adoption, and it will not affect cash flows. IMPAIRED LOANS By 1995 we must adopt SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." This standard requires us to compute present values for impaired loans when determining our allowances for credit losses. We do not expect this new standard to affect net income materially at or after adoption, and it will not affect cash flows. 4. PROSPECTIVE MERGER WITH MCCAW CELLULAR COMMUNICATIONS, INC. (MCCAW) ... On August 16, 1993 AT&T and McCaw entered into a definitive agreement to merge McCaw and a subsidiary of AT&T, making McCaw a wholly owned subsidiary of AT&T. In the merger, each share of McCaw's Class A and Class B common stock will be converted into one share of AT&T common stock. However, if the 20- day-average market price of the AT&T common stock as of five business days before the merger is less than $53 per share, the conversion ratio will be adjusted upward to provide shares of AT&T common stock having an aggregate market price of $53 for each share of McCaw common stock, subject to a maximum of 1.111 shares of AT&T common stock. If the 20-day-average market price of AT&T common stock as of five business days before the merger is greater than $71.73 per share, the conversion ratio will be adjusted downward to provide shares of AT&T common stock having an aggregate market price of $71.73 for each share of McCaw common stock, subject to a minimum of .909 of a share of AT&T common stock. Pursuant to a separate agreement, AT&T has granted McCaw the right, in the event the merger does not close, to require AT&T to purchase from McCaw $600 million of McCaw's Class A common stock at a price of $51.25 per share. 30 Form 8-K March 4, 1994 The merger is subject to a number of conditions, including the receipt of regulatory approvals, expiration of the waiting period under the Hart- Scott-Rodino Antitrust Improvements Act (HSR Act), receipt of opinions that the merger will be tax free and will be accounted for as a pooling of interests, and McCaw stockholder approval. McCaw stockholders holding a majority of the voting power of the McCaw common stock, including members of the McCaw family and British Telecommunications plc, have agreed to vote in favor of the merger. The waiting period under the HSR Act will not expire until 20 days after AT&T and McCaw have substantially complied with a September 1993 request from the U.S. Department of Justice (DOJ) for additional information and documents. In August 1993 AT&T and McCaw filed applications seeking consent of the FCC to the proposed transfer of control of McCaw's radio licenses to AT&T. A number of AT&T's competitors have sought to have conditions imposed on the merger or to deny FCC consent. Final comments were filed in January 1994. AT&T and McCaw filed applications with nine state regulatory commissions seeking approval or a statement of non-opposition to the merger. All of the states, except California have done so. In California, AT&T and McCaw entered into a settlement agreement with the original opposing parties regarding the provision of cellular and interexchange services in that state. In January 1994 AT&T and McCaw filed a reply to objections to the settlement. BellSouth Corp. (BellSouth) filed a motion in federal court in December 1993 contending that AT&T requires a waiver of the antitrust consent decree to proceed with the merger. In January 1994 the DOJ filed a response that supported that motion in part. AT&T is seeking expedited determination of the issues raised by BellSouth's motion or, alternatively, an expedited waiver of any relevant decree provisions. 5. SUPPLEMENTARY FINANCIAL INFORMATION ................................... SUPPLEMENTARY INCOME STATEMENT INFORMATION Dollars in millions 1993 1992 1991 ==================================================================== INCLUDED IN COSTS OF PRODUCTS AND SYSTEMS Amortization of software production costs $ 359 $ 315 $ 311 ==================================================================== COSTS OF FINANCIAL SERVICES AND LEASING Interest expense $ 506 $ 485 $ 445 Depreciation, allowance for losses, etc. 1,205 825 626 ____________________________________________________________________ Costs of financial services and leasing $1,711 $1,310 $1,071 ==================================================================== INCLUDED IN SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Amortization of goodwill $ 76 $ 68 $ 52 ==================================================================== OTHER INCOME-NET Interest income $ 119 $ 149 $ 170 Royalties and dividends 59 48 55 Earnings applicable to minority interests (9) 56 (1) Miscellaneous-net 372 99 (16) ____________________________________________________________________ Other income-net $ 541 $ 352 $ 208 ==================================================================== DEDUCTED FROM INTEREST EXPENSE Capitalized interest $ 72 $ 62 $ 79 ==================================================================== 31 Form 8-K March 4, 1994 SUPPLEMENTARY BALANCE SHEET INFORMATION Dollars in millions at December 31 1993 1992 =========================================================== INVENTORIES Completed goods $ 1,893 $ 1,689 Work in process and raw materials 1,294 970 ___________________________________________________________ Inventories $ 3,187 $ 2,659 =========================================================== PROPERTY, PLANT AND EQUIPMENT Land and improvements $ 746 $ 690 Buildings and improvements 8,512 8,243 Machinery, electronic and other equipment 31,635 31,117 ___________________________________________________________ Total property, plant and equipment 40,893 40,050 Less: Accumulated depreciation 21,496 20,692 ___________________________________________________________ Property, plant and equipment-net $19,397 $19,358 =========================================================== INVESTMENTS Accounted for by the equity method $ 698 $ 627 Stated at lower of cost or market 805 237 ___________________________________________________________ Investments $ 1,503 $ 864 =========================================================== OTHER ASSETS Unamortized software production costs $ 413 $ 521 Goodwill, net of accumulated amortization 894 766 Prepaid postretirement healthcare costs - 773 Deferred charges and other 1,430 1,269 ___________________________________________________________ Other assets $ 2,737 $ 3,329 =========================================================== DEBT MATURING WITHIN ONE YEAR Commercial paper $ 8,761 $ 6,053 Long-term debt 1,860 1,158 Long-term lease obligations 52 108 Other notes 231 281 ___________________________________________________________ Debt maturing within one year $10,904 $ 7,600 =========================================================== 32 Form 8-K March 4, 1994 SUPPLEMENTARY CASH FLOW INFORMATION Dollars in millions 1993 1992 1991 ==================================================================== Interest payments net of amounts capitalized $ 1,284 $ 1,118 $ 1,058 Income tax payments 1,675 697 1,308 ==================================================================== The following table displays the non-cash items excluded from the consolidated statements of cash flows: Dollars in millions 1993 1992 1991 ==================================================================== Machinery and equipment acquired under capital lease obligations $ 15 $ 60 $ 114 ==================================================================== EXCHANGE OF STOCK Net assets $ (43) - - Investments 260 - - ____________________________________________________________________ $ 217 - - ==================================================================== ACQUISITION ACTIVITIES Net receivables $ 12 $ 130 $ 3 Inventories 1 48 5 Property, plant and equipment 139 76 36 Accounts payable (7) (37) (30) Short- and long-term debt (3) (93) (4) Other operating assets and liabilities-net 272 78 19 ____________________________________________________________________ Net non-cash items 414 202 29 Net cash used for acquisitions $ 414 $ 202 $ 29 ==================================================================== 6. BUSINESS RESTRUCTURING AND OTHER CHARGES............................... Provisions for business restructuring include the estimated costs of specific plans to close offices, consolidate facilities, relocate employees and fulfill contractual obligations, and of other activities involved in restructuring operations. These provisions also cover separation payments made as a result of special offers related to defined benefit plans. Before we changed our accounting for postemployment benefits in 1993, costs for other types of separation payments were also included in these provisions. Our $498 million in provisions for business restructuring in 1993 covered $227 million of costs at AT&T Global Information Solutions (including, in millions, $137 for special termination benefits, $43 for closing facilities, $18 for employee relocation, $19 for contractual obligations and $10 for other related expenses). We also provided $215 million for reengineering customer support functions for telecommunications services (including, in millions, $55 for employee relocation, $25 for outplacement costs, $30 for legal contingencies and $105 for closing facilities, lease terminations and asset abandonments associated with centralizing support services). The remaining provisions consist of $23 million related to closing plants for manufacturing telecommunications network systems, and $33 million for employee relocation, outplacement services and legal liabilities related to restructuring operations that service the U.S. federal government. In 1991 we recorded approximately $4.5 billion of business restructuring and other charges, reducing net income by $2,863 million ($2.21 per share). The charges covered estimated costs of changes in our computer operations, PBX operations and product distribution processes; consolidating operations in leased and owned buildings and recognizing costs of vacant space; 33 Form 8-K March 4, 1994 eliminating a future subsidy to an Alaskan long distance company; writing down an investment; and other restructuring-related activities, merger- related expenses and other charges. We recorded these charges as $3,572 million in provisions for business restructuring; $501 million as selling, general and administrative expenses; $123 million as cost of products and systems; and the remainder as other costs and expenses, including other income - net. Charges included in other accounts in 1991 were primarily for expenses related to the restructuring activities, writing down impaired assets and merger-related expenses. The remaining reserves for separation payments at January 1, 1993, were included in the cumulative effect of the change in accounting for postemployment benefits. We believe that the balance of reserves for all other business restructuring activities, $1,440 million at December 31, 1993, is adequate for the completion of those activities. 7. OTHER INCOME-NET....................................................... In June 1993 we sold our remaining 77% interest in UNIX System Laboratories, Inc. to Novell, Inc. (Novell) in exchange for approximately 3% of Novell common stock. Our gain on the sale was $217 million. We sold our remaining interest in Compagnie Industriali Riunite S.p.A. in 1993 for a slight gain. We reduced the carrying value of that investment by $68 million in 1992 and by $218 million in 1991 because of a sustained decline in its market value. In 1991 we had a $171 million gain from selling our 19% equity investment in Sun Microsystems, Inc. 8. SALE OF STOCK BY SUBSIDIARIES ........................................ In August 1993 AT&T Capital Corporation sold 5,750,000 shares of common stock in an initial public offering and approximately 850,000 shares of common stock in a management offering. That was about 14% of the shares outstanding, so our ownership is now about 86%. The shares were sold at $21.50 per share, yielding net proceeds of $115 million excluding $18 million of recourse loans attributable to the management offering. Because of these loans, we recorded a $9 million loss on the sale. When the loans are collected in seven years, we expect to report a net $6 million gain from this sale of stock. In 1991 UNIX Systems Laboratories, Inc. sold about 20% of its stock to other companies to encourage their support for open computing standards. We had a $43 million gain on that sale. Proceeds from the sale were in cash and we did not provide for deferred taxes on the gain. 34 Form 8-K March 4, 1994 9. INCOME TAXES ......................................................... This table shows the principal reasons for the difference between the effective tax rate and the United States Federal statutory income tax rate: Dollars in millions 1993 1992 1991 ==================================================================== U.S. Federal statutory income tax rate 35% 34% 34% Federal income tax at statutory rate $2,171 $2,026 $ 300 Amortization of investment tax credits (92) (221) (142) State and local income taxes, net of federal income tax effect 247 230 63 Foreign rate differential 45 75 54 Taxes on repatriated and accumulated foreign income, net of tax credits (20) 67 (12) Research credits (47) (18) (5) Capital loss carryforward - (13) 32 Effect of tax rate change on deferred tax assets (73) - - Other differences-net (1) 5 71 ____________________________________________________________________ Provision for income taxes $2,230 $2,151 $ 361 ==================================================================== Effective income tax rate 36.0% 36.1% 40.9% ==================================================================== The U.S. and foreign components of income before income taxes and the provision for income taxes are presented in this table: Dollars in millions 1993 1992 1991 ============================================================== INCOME BEFORE INCOME TAXES United States $5,906 $5,628 $ 373 Foreign 298 330 510 ______________________________________________________________ $6,204 $5,958 $ 883 ============================================================== PROVISION FOR INCOME TAXES CURRENT Federal $ 878 $ 503 $ 820 State and local 200 124 192 Foreign 169 215 302 ______________________________________________________________ 1,247 842 1,314 ______________________________________________________________ DEFERRED Federal 924 1,387 (829) State and local 180 225 (96) Foreign (41) (85) 140 ______________________________________________________________ 1,063 1,527 (785) ______________________________________________________________ Deferred investment tax credits-net* (80) (218) (168) ______________________________________________________________ Provision for income taxes $2,230 $2,151 $ 361 ============================================================== * Net of amortization of $92 in 1993, $221 in 1992 and $142 in 1991. Deferred tax liabilities are taxes we expect to pay in future periods. Similarly, deferred tax assets are taxes we expect to get refunded in future periods. Deferred taxes arise because of differences in the book and tax bases of certain assets and liabilities. 35 Form 8-K March 4, 1994 This table shows the December 31, 1993 amounts of deferred tax assets and liabilities, which include the effects of our January 1, 1993 accounting changes: Dollars in millions Assets Liabilities ============================================================== Property, plant and equipment $ - $3,492 Business restructuring charges 666 - Employee, postretirement and postemployment benefits 4,056 56 Reserves and allowances 1,053 - Unamortized investment tax credits 119 - Other 152 494 Valuation allowance (201) - ______________________________________________________________ Deferred income taxes $5,845 $4,042 ============================================================== Prior year financial statements were not restated to reflect the new accounting standards. This table shows the principal sources of deferred taxes in prior years: Dollars in millions 1992 1991 ============================================================== Property, plant and equipment $ 929 $ 511 Business restructuring charges 218 (1,103) Employee pensions and other benefits 234 (26) Reserves and allowances 108 (208) Other timing differences-net 38 41 ______________________________________________________________ Deferred income taxes $1,527 $ (785) ============================================================== 10. LEASES ............................................................... AS LESSOR We provide financing on sales of our products and those of other companies and lease our products to customers under sales-type leases. This table displays our net investment in direct financing and sales-type leases: Dollars in millions at December 31 1993 1992 =========================================================== Minimum lease payments receivable $4,226 $3,780 Estimated unguaranteed residual values 543 484 Unearned income (797) (736) Allowance for credit losses (110) (91) ___________________________________________________________ Net investment $3,862 $3,437 =========================================================== This table shows the scheduled maturities of the $4,226 million minimum lease payments receivable on these leases at December 31, 1993: 1994 1995 1996 1997 1998 Later Years =========================================================== $1,434 $1,080 $797 $489 $234 $192 =========================================================== 36 Form 8-K March 4, 1994 We lease airplanes, energy-producing facilities and transportation equipment under leveraged leases having original terms ranging from 10 to 30 years, expiring in various years from 1994 through 2020. This table shows our net investment in leveraged leases: Dollars in millions at December 31 1993 1992 =========================================================== Rentals receivable (net of principal and interest on non-recourse notes) $1,010 $1,021 Estimated residual value of leased property 782 784 Unearned and deferred income (537) (626) Allowance for credit losses (22) (19) ___________________________________________________________ Investment in leveraged leases 1,233 1,160 Deferred taxes (994) (719) ___________________________________________________________ Net investment $ 239 $ 441 =========================================================== We lease equipment to others through operating leases, the majority of which are cancelable. This table shows our net investment in operating leases: Dollars in millions at December 31 1993 1992 =========================================================== Machinery, electronic and other equipment $2,694 $2,839 Less: Accumulated depreciation 1,230 1,364 ___________________________________________________________ Net investment $1,464 $1,475 =========================================================== This table shows the $557 million of future minimum rentals receivable under noncancelable operating leases at December 31, 1993: 1994 1995 1996 1997 1998 Later Years =========================================================== $251 $157 $83 $32 $11 $23 =========================================================== AS LESSEE We lease land, buildings and equipment through contracts that expire in various years through 2025. Our rental expense under operating leases, in millions, was $1,041 in 1993, $1,121 in 1992 and $1,461 in 1991. The table below shows our future minimum lease payments due under noncancelable leases at December 31, 1993. Such payments total $3,004 million for operating leases. The net present value of such payments on capital leases was $163 million after deducting estimated executory costs of $1 million and imputed interest of $23 million. 1994 1995 1996 1997 1998 Later Years ===================================================================== Operating leases $650 $488 $328 $281 $225 $1,032 Capital leases 91 44 22 17 8 5 _____________________________________________________________________ Minimum lease payments $741 $532 $350 $298 $233 $1,037 ===================================================================== 37 Form 8-K March 4, 1994 11. SHAREOWNERS' EQUITY .................................................. Foreign Additional Currency Common Paid-in Translation Retained Dollars in millions Shares Capital Adjustments Earnings ===================================================================== At December 31, 1990 $1,275 $ 9,497 $ 50 $ 5,580 1991 Net income - - - 522 Dividends declared - - - (1,612) Shares issued: Under employee plans 6 120 - 34 Under shareowner plans 11 381 - - In private placement 18 629 - - Shares repurchased (1) (3) - (20) Translation adjustments - - 108 - Other changes - - - 95 _____________________________________________________________________ At December 31, 1991 1,309 10,624 158 4,599 1992 Net income - - - 3,807 Dividends declared - - - (1,759) Shares issued: Under employee plans 10 298 - - Under shareowner plans 10 402 - - For merger with Teradata 11 103 - - Teradata balance recorded - - - (178) Shares repurchased - (2) - - Translation adjustments - - (93) - Other changes - - - 29 _____________________________________________________________________ At December 31, 1992 1,340 11,425 65 6,498 1993 Net income - - - (3,794) Dividends declared - - - (1,780) Shares issued: Under employee plans 4 157 - - Under shareowner plans 8 450 - - Shares repurchased - (4) - - Translation adjustments - - (97) - Other changes - - - (67) _____________________________________________________________________ At December 31, 1993 $1,352 $12,028 $ (32) $ 857 ===================================================================== In 1992 we recorded the retained earnings of Teradata Corporation (Teradata) as of January 1, after making adjustments associated with the merger. In September 1991 NCR Corporation (NCR) issued 6.3 million shares of NCR common stock in connection with the merger with AT&T. The shares were converted into approximately 17.9 million shares of our common stock upon consummation of the merger. In March 1990 we issued 13.4 million new shares of common stock in connection with the establishment of an ESOP feature for the non-management savings plan. The shares are being allocated to plan participants over ten years commencing in July 1990 as contributions are made to the plan. We have 100 million authorized shares of preferred stock at $1 par value. No preferred stock is currently issued or outstanding. 38 Form 8-K March 4, 1994 12. LONG-TERM DEBT OBLIGATIONS ........................................... This table shows the outstanding long-term debt obligations in millions at December 31: Interest Rates Maturities 1993 1992 =================================================================== DEBENTURES 4 3/8% to 4 3/4% 1996-1999 $ 750 $ 750 5 1/8% to 7 1/8% 2000-2001 500 1,673 8 1/8% to 9% 2022-2031 1,676 2,576 NOTES 4 1/4% to 7 3/4% 1994-2004 3,605 2,515 7 4/5% to 8 19/20% 1994-2006 445 740 9% to 12 7/8% 1994-2020 616 1,036 Variable rate 1994-1999 923 191 ___________________________________________________________________ 8,515 9,481 Long-term lease obligations 163 302 Other 89 148 Less: Unamortized discount-net 43 61 ___________________________________________________________________ 8,724 9,870 Less: Amounts maturing within one year 1,912 1,266 ___________________________________________________________________ Total long-term obligations $6,812 $8,604 =================================================================== This table shows the maturities, at December 31, 1993, of the $8,515 million in debentures and notes: 1994 1995 1996 1997 1998 Later Years =================================================================== $1,860 $1,245 $902 $198 $665 $3,645 =================================================================== A consortium of lenders provides revolving credit facilities of $6 billion to AT&T and $2 billion to AT&T Capital Corp. (AT&T Capital). These facilities are intended for general corporate purposes, which include support for AT&T's and AT&T Capital's commercial paper. They were unused at December 31, 1993. 13. EMPLOYEE BENEFIT PLANS ............................................... PENSION PLANS We sponsor non-contributory defined benefit plans covering the majority of our employees. Benefits for management employees are principally based on career-average pay. Benefits for occupational employees are not directly pay-related. Pension contributions are principally determined using the aggregate cost method and are primarily made to trust funds held for the sole benefit of plan participants. We compute pension cost using the projected unit credit method and assumed a long-term rate of return on plan assets of 9.0% in 1993, 9.0% in 1992 and 8.6% in 1991. Pension cost includes the following components: 39 Form 8-K March 4, 1994 Dollars in millions 1993 1992 1991 ==================================================================== Service cost-benefits earned during the period $ 536 $ 452 $ 303 Interest cost on projected benefit obligation 2,294 2,225 2,136 Amortization of unrecognized prior service costs 251 346 310 Credit for expected return on plan assets* (3,108) (2,973) (2,728) Amortization of transition asset (502) (502) (502) Charges for special pension options 74 11 108 ____________________________________________________________________ Net pension cost (credit) $ (455) $ (441) $ (373) ==================================================================== *The actual return on plan assets was $5,068 in 1993, $2,153 in 1992 and $6,980 in 1991. This table shows the funded status of the defined benefit plans: Dollars in millions at December 31 1993 1992 ==================================================================== Actuarial present value of accumulated benefit obligation, including vested benefits of $28,119 and $24,818, respectively $30,943 $27,316 ==================================================================== Plan assets at fair value $41,481 $38,767 Less: Actuarial present value of projected benefit obligation 32,680 28,719 ____________________________________________________________________ Excess of assets over projected benefit obligation 8,801 10,048 Unrecognized prior service costs 2,052 2,200 Unrecognized transition asset (3,960) (4,463) Unrecognized net gain (3,513) (4,613) Net minimum liability of non-qualified plans (72) (45) ____________________________________________________________________ Prepaid pension costs $ 3,308 $ 3,127 ==================================================================== We used these rates and assumptions to calculate the projected benefit obligation: At December 31 1993 1992 ==================================================================== Weighted-average discount rate 7.5% 8.3% Rate of increase in future compensation levels 5.0% 5.0% ____________________________________________________________________ The prepaid pension costs shown above are net of pension liabilities for plans where accumulated plan benefits exceed assets. Such liabilities are included in other liabilities in the consolidated balance sheets. We are amortizing over approximately 15.9 years the unrecognized transition asset related to our 1986 adoption of SFAS No. 87, "Employers' Accounting for Pensions." We amortize prior service costs primarily on a straight-line basis over the average remaining service period of active employees. Our plan assets consist primarily of listed stocks (including $378 million and $451 million of AT&T common stock at December 31, 1993 and 1992, respectively), corporate and governmental debt, real estate investments, and cash and cash equivalents. 40 Form 8-K March 4, 1994 SAVINGS PLANS We sponsor savings plans for the majority of our employees. The plans allow employees to contribute a portion of their pretax and/or after-tax income in accordance with specified guidelines. We match a percentage of the employee contributions up to certain limits. Our contributions in millions amounted to $347 in 1993, $331 in 1992 and $279 in 1991. 14. POSTRETIREMENT BENEFITS .............................................. Our benefit plans for retirees include health care benefits, life insurance coverage and telephone concessions. This table shows the components of the net postretirement benefit cost: Dollars in millions 1993 =========================================================== Service cost-benefits earned during the period $ 95 Interest cost on accumulated postretirement benefit obligation 868 Credit for expected return on plan assets* (180) Amortization of unrecognized prior service costs 29 Charge for special options 29 ___________________________________________________________ Net postretirement benefit cost $841 =========================================================== * The actual return on plan assets was $243. We did not restate our 1991 and 1992 financial statements to reflect the change in accounting for retiree benefits. This table shows our actual postretirement benefit costs on a pay-as-you-go basis in those years: Dollars in millions at December 31, 1992 1991 ===================================================================== Cost of health care benefits for retirees $532 $532 Cost of life insurance benefits for retirees 3 26 Cost of telephone concessions and other benefits 39 35 Payments to regional Bell companies for predivestiture retirees 145 125 _____________________________________________________________________ Postretirement benefit cost $719 $718 ===================================================================== We had approximately 142,200 retirees in 1993, 141,200 in 1992 and 138,500 in 1991. Our plan assets consist primarily of listed stocks, corporate and governmental debt, cash and cash equivalents and life insurance contracts. This table shows the funded status of our postretirement benefit plans reconciled with the amounts recognized in the consolidated balance sheet: Dollars in millions at December 31 1993 =========================================================== Accumulated postretirement benefit obligation Retirees $ 8,928 Fully eligible active plan participants 893 Other active plan participants 2,092 ___________________________________________________________ Accumulated postretirement benefit obligation 11,913 Plan assets at fair value 2,900 ___________________________________________________________ Unfunded postretirement obligation 9,013 Unrecognized prior service costs 283 Unrecognized net loss 569 ___________________________________________________________ Accrued postretirement benefit obligation $ 8,161 =========================================================== 41 Form 8-K March 4, 1994 We made these assumptions in valuing our postretirement benefit obligation at December 31, 1993: =========================================================== Weighted-average discount rate 7.5% Expected long-term rate of return on plan assets 9.0% Assumed rate of increase in the per capita cost of covered health care benefits 9.4% =========================================================== We assumed that the growth in the per capita cost of covered health care benefits (the health care cost trend rate) would gradually decline after 1994 to 5.6% by the year 2021 and then remain level. This assumption greatly affects the amounts reported. To illustrate, increasing the assumed trend rate by 1% in each year would raise our accumulated postretirement benefit obligation at December 31, 1993 by $758 million and our 1993 postretirement benefit costs by $64 million. 15. STOCK OPTIONS ........................................................ In our Long Term Incentive Program, we grant stock options, stock appreciation rights (SARs), either in tandem with stock options or free-standing, and other awards. On January 1 of each year, 0.6% of the outstanding shares of our common stock become available for grant. The exercise price of any stock option is equal to or greater than the stock price when the option is granted. When granted in tandem, exercise of an option or SAR cancels the other to the extent of such exercise. Option transactions are shown below: Number of Shares 1993 1992 1991 =================================================================== Balance at January 1 25,588,351 24,877,209 19,657,362 Options assumed in merger with Teradata - 1,848,642 - Options granted 4,729,651 4,948,371 8,312,922 Options and SARs exercised (3,994,569) (5,752,053) (2,874,129) Average price $27.62 $20.44 $19.53 Options forfeited (162,996) (333,818) (218,946) At December 31: Options outstanding 26,160,437 25,588,351 24,877,209 Average price $36.78 $32.58 $29.77 Options exercisable 17,942,984 17,832,355 17,713,781 Shares available for grant 19,626,553 16,592,924 13,852,914 =================================================================== During 1993 167,747 SARs were exercised and no SARs were granted. At December 31, 1993, 925,210 SARs remained unexercised and all of these were exercisable. Before our mergers with NCR and Teradata, stock options were granted under the separate stock option plans of those companies. No new options can be granted under those plans. 42 Form 8-K March 4, 1994 16. SEGMENT INFORMATION .................................................. INDUSTRY SEGMENTS Our operations in the global information movement and management industry involve providing long distance telecommunications services, business information processing systems, and other systems, products and services that combine communications and computers. Our operations in the financial services and leasing industry involve direct financing and finance leasing programs for our products and the products of other companies, leasing products to customers under operating leases and being in the general- purpose credit card business. Miscellaneous other activities, including the distribution of computer equipment through retail outlets, in the aggregate, represent less than 10% of revenues, operating income and identifiable assets and are included in the information movement and management segment. Revenues between industry segments are not material. Dollars in millions 1993 1992 1991 ==================================================================== REVENUES Information movement and management $64,652 $63,010 $61,705 Financial services and leasing 2,504 1,894 1,384 ____________________________________________________________________ $67,156 $64,904 $63,089 ==================================================================== OPERATING INCOME Information movement and management $ 6,509 $ 6,840 $ 2,008 Financial services and leasing 339 193 (34) Corporate and non-operating (644) (1,075) (1,091) ____________________________________________________________________ Income before income taxes $ 6,204 $ 5,958 $ 883 ==================================================================== ASSETS Information movement and management $43,515 $41,987 $41,307 Financial services and leasing 17,033 14,003 9,809 Corporate assets 934 1,607 2,533 Eliminations (716) (409) (294) ____________________________________________________________________ $60,766 $57,188 $53,355 ==================================================================== DEPRECIATION AND AMORTIZATION Information movement and management $ 3,682 $ 3,541 $ 3,852 Financial services and leasing 431 352 160 ==================================================================== CAPITAL EXPENDITURES Information movement and management $ 3,232 $ 3,286 $ 3,372 Financial services and leasing 457 633 472 ____________________________________________________________________ TOTAL LIABILITIES Financial services and leasing $15,329 $12,250 $ 8,720 ==================================================================== 43 Form 8-K March 4, 1994 GEOGRAPHIC SEGMENTS Transfers between geographic areas are on terms and conditions comparable with sales to external customers. The methods followed in developing the geographic area data require the use of estimation techniques and do not take into account the extent to which product development, manufacturing and marketing depend upon each other. Thus the information may not be indicative of results if the geographic areas were independent organizations. Dollars in millions 1993 1992 1991 ===================================================================== REVENUES-EXTERNAL CUSTOMERS United States $61,580 $59,234 $57,647 Other geographic areas 5,576 5,670 5,442 _____________________________________________________________________ $67,156 $64,904 $63,089 ===================================================================== TRANSFERS BETWEEN GEOGRAPHIC AREAS (ELIMINATED IN CONSOLIDATION) United States $ 1,374 $ 1,077 $ 870 Other geographic areas 1,125 911 884 _____________________________________________________________________ $ 2,499 $ 1,988 $ 1,754 ===================================================================== OPERATING INCOME United States $ 7,095 $ 7,081 $ 1,578 Other geographic areas (247) (48) 396 Corporate and non-operating (644) (1,075) (1,091) _____________________________________________________________________ Income before income taxes $ 6,204 $ 5,958 $ 883 ===================================================================== ASSETS United States $54,738 $51,735 $46,863 Other geographic areas 6,901 5,373 4,931 Corporate assets 934 1,607 2,533 Eliminations (1,807) (1,527) (972) _____________________________________________________________________ $60,766 $57,188 $53,355 ===================================================================== Data on other geographic areas pertain to operations that are located outside of the U.S. Our revenues from all international activities, including those in the table, international telecommunications services and exports, provided 25.2% of consolidated revenues in 1993. Business restructuring and other charges were taken primarily in the information movement and management segment and the U.S. geographic area. Corporate assets are principally cash and temporary cash investments. 17. FINANCIAL INSTRUMENTS ................................................ We use various financial instruments in the normal course of our business. By their nature all such instruments involve risk, and our maximum potential loss may exceed the amount recognized in our balance sheet. As is customary for these types of instruments, we usually do not require collateral or other security from other parties to these instruments. However, because we control our exposure to credit risk through credit approvals, credit limits and monitoring procedures, we believe that our reserves for losses are adequate. 44 Form 8-K March 4, 1994 COMMITMENTS TO EXTEND CREDIT We participate in the general-purpose credit card business through AT&T Universal Card Services Corp., a wholly owned subsidiary. We purchase essentially all cardholder receivables under an agreement with the Universal Bank, a subsidiary of Synovus Financial Corporation, which issues the cards. LETTERS OF CREDIT Letters of credit are purchased guarantees that ensure our performance or payment to third parties in accordance with specified terms and conditions. GUARANTEES OF DEBT From time to time, we guarantee the financing for product purchases by customers outside the U.S., and the debt of certain unconsolidated joint ventures. INTEREST RATE SWAP AGREEMENTS We enter into interest rate swap agreements to manage our exposure to changes in interest rates. The agreements generally involve the exchange of fixed or floating interest payments without the exchange of the underlying principal amounts. FOREIGN EXCHANGE CONTRACTS We enter into foreign currency exchange contracts, including forward, option and swap contracts, to manage our exposure to changes in currency exchange rates. FAIR VALUES OF FINANCIAL INSTRUMENTS Financial instrument Valuation method ===================================================================== Universal Card finance receivables Carrying amounts. These accrue interest at a prime-based rate. All other finance receivables Future cash flows discounted at market rates. Debt excluding capital leases Market quotes or based on rates available to us for debt with similar terms and maturities. Commitments to extend credit Receivables we would need to purchase if all Universal Card accounts were used up to their full credit limits. Letters of credit Fees paid to obtain the obligations. Guarantees of debt Costs to terminate agreements. Interest rate swap agreements Costs to terminate agreements. Foreign exchange contracts Market quotes. ===================================================================== 45 Form 8-K March 4, 1994 The table below shows the carrying or contract/notional amounts and estimated fair values of material financial instruments used in the normal course of our business. Dollars in millions 1993 1992 ===================================================================== CARRYING FAIR Carrying Fair AMOUNT VALUE Amount Value ===================================================================== ON BALANCE SHEET Finance receivables other than leases $10,320 $10,337 $ 7,798 $ 7,803 Debt excluding capital leases 17,553 17,883 15,902 16,126 ===================================================================== CONTRACT/ Contract/ NOTIONAL Notional AMOUNT Amount ===================================================================== OFF BALANCE SHEET* Commitments to extend credit $64,864 $39,934 Letters of credit 680 455 Guarantees of debt 455 271 Interest rate swap agreements 3,685 1,713 Foreign exchange: Forward contracts 783 972 Swap contracts 361 369 Option contracts - 35 ===================================================================== *The fair values of off-balance-sheet instruments are negligible. 18. CONTINGENCIES ........................................................ In the normal course of business we are subject to proceedings, lawsuits and other claims, including proceedings under government laws and regulations related to environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Consequently, we are unable to ascertain the ultimate aggregate amount of monetary liability or financial impact with respect to these matters at December 31, 1993. While these matters could affect the operating results of any one quarter when resolved in future periods, we believe that after final disposition, any monetary liability or financial impact to us beyond that provided for at year-end would not be material to our annual consolidated financial statements. 19. AT&T CREDIT HOLDINGS, INC. ........................................... In connection with the March 31, 1993 legal restructuring of AT&T Capital Holdings, Inc. (formerly AT&T Capital Corporation), we issued a direct, full and unconditional guarantee of all the outstanding public debt of AT&T Credit Holdings, Inc. (formerly AT&T Credit Corporation). AT&T Credit Holdings, Inc. holds the majority of AT&T's investment in AT&T Capital Corporation and the lease finance assets of the former AT&T Credit Corporation. The table below shows summarized consolidated financial information for AT&T Credit Holdings, Inc., which consolidates the accounts of AT&T Capital Corporation. Financial information for prior periods was restated for the legal restructuring. The summarized financial information includes transactions with AT&T that are eliminated in consolidation. 46 Form 8-K March 4, 1994 Dollars in millions 1993 1992 =============================================================== Total revenue $1,432 $1,351 Interest expense 284 293 Operating and administrative expense 384 375 Income before cumulative effect of change in accounting 70 100 Cumulative effect of change in accounting (SFAS No. 109) 22 - Net income 48 100 =============================================================== Finance receivables $6,220 $5,565 Net investment in operating lease assets 978 1,099 Total assets 7,886 7,252 Total debt 4,639 4,633 Total liabilities 6,867 6,422 Minority interest 251 110 Total shareowner's equity 768 720 =============================================================== 20. QUARTERLY INFORMATION (UNAUDITED) .................................... Quarters-Dollars in millions FIRST SECOND THIRD FOURTH ================================================================== 1993 Total revenues $15,719 $16,316 $16,662 $18,459 Gross margin 6,202 6,547 6,581 7,257 Income before cumulative effects of accounting changes 936 1,005 1,051 982 Net income (loss) (6,832) 1,005 1,051 982 Per common share: Income before cumulative effects of accounting changes .69 .74 .78 .72 Net income (loss) (5.07) .74 .78 .72 Dividends declared .33 .33 .33 .33 Stock price*: High 59 1/8 63 7/8 65 61 3/8 Low 50 1/8 53 3/4 57 3/8 52 Quarter-end close 56 3/4 63 58 7/8 52 1/2 ================================================================== 1992 Total revenues $15,375 $15,845 $16,180 $17,504 Gross margin 5,912 6,185 6,269 6,828 Net income 883 961 963 1,000 Per common share: Net Income .67 .72 .72 .75 Dividends declared .33 .33 .33 .33 Stock price*: High 41 3/8 44 5/8 45 3/8 53 1/8 Low 36 5/8 40 1/8 42 40 5/8 Quarter-end close 40 3/4 43 43 5/8 51 =================================================================== * Stock prices obtained from the Composite Tape. The number of weighted average shares outstanding increases as we issue new common shares for employee plans, shareowner plans and other purposes. For this reason, the sum of quarterly earnings per common share may not be the same as earnings per common share for the year, and the per share effects of unusual items in a quarter may differ from the per share effects of those same items for the year. 47 Form 8-K March 4, 1994 In the second quarter of 1993, we recorded $278 million in provisions for business restructuring activities. The effect of these provisions was offset by the $217 million gain from selling UNIX System Laboratories, Inc. and other miscellaneous credits. In the fourth quarter of 1993, we recorded a $190 million provision for business restructuring at AT&T Global Information Solutions, which reduced net income by $119 million ($0.09 per share). As a result of adopting SFAS No. 112, data for the first three quarters of 1993 were restated. The following table shows the net effects of this accounting change, which represent the differences between the amounts shown and the amounts originally reported: Quarters-Dollars in millions First Second Third ===================================================================== Gross margin $ (39) $ (39) $ (42) Income before cumulative effects of accounting changes (60) (39) (22) Cumulative effect of accounting change (1,128) - - Net income (loss) (1,188) (39) (22) Per common share: Income before cumulative effects of accounting changes (.05) (.03) (.02) Cumulative effect of accounting change (.83) - - Net income (loss) (.88) (.03) (.02) ===================================================================== 48 Form 8-K March 4, 1994 APPENDIX On page 12 of this Current Report on Form 8-K a pie chart appears containing the following information: 1993 SOURCES OF REVENUES In Percentages of Total Revenues 8.3% INTERNATIONAL REVENUES - From operations located in other countries 16.9% INTERNATIONAL REVENUES - From U.S. operations (international telecommunications services, and exports) 74.8% U.S. REVENUES Because we have gained a foothold in many markets that are growing faster than those in the U.S., we expect international revenues to contribute strongly to our revenue growth. On page 19 of this Current Report on Form 8-K a pie chart appears containing the following information: 1993 INVESTING ACTIVITIES In Percentages of $8.3 Billion Net Cash Flows 44.4% NET CAPITAL EXPENDITURES Worldwide Intelligent Network Research and Development facilities Manufacturing facilities Other 41.8% NET INCREASE IN FINANCE RECEIVABLES AT&T Universal Card AT&T Capital Corp. finance programs 13.8% EQUITY INVESTMENTS AND OTHER McCaw Communications, Inc. Unitel Communications, Inc. Others (e.g.,WorldPartners, The ImagiNation Network, Inc., General Magic Corp.) Investments in our network, financial operations and alliances pave the way for further growth in revenues and earnings. 49 Form 8-K March 4, 1994 Item 7. Financial Statements and Exhibits. (c) Exhibits. Exhibit Number ------- 23 Consent of Coopers & Lybrand. 50 Form 8-K American Telephone and Telegraph Company March 4, 1994 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. American Telephone and Telegraph Company By S. L. Prendergast Vice President and Treasurer March 4, 1994 51 Form 8-K March 4, 1994 EXHIBIT INDEX Exhibit Number ------- 23 Consent of Coopers & Lybrand. EX-23 2 EXHIBIT 23 Exhibit (23) CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the registration statements of American Telephone and Telegraph Company ("AT&T" or the "Company") on Form S-3 for the Shareowner Dividend Reinvestment and Stock Purchase Plan (Registration No. 33-49093), Form S-8 for the AT&T 1984 Stock Option Plan (Registration No. 2-90983), Form S-8 for the AT&T Long Term Savings and Security Plan (Registration Nos. 33-34265 and 33-31362), Form S-8 for the AT&T Long Term Savings Plan for Management Employees (Registration Nos. 33-34264, 33-29256, 33-21937 and 33-14373), Form S-8 for the AT&T Retirement Savings and Profit Sharing Plan (Registration No. 33-39708), Form S-8 for Shares Issuable Under the Stock Option Plan of the AT&T 1987 Long Term Incentive Program (Registration No. 33-20276), Form S-8 for the Shares for Growth Program (Registration No. 33-49089), Form S-4 for the Consent Solicitation Statement/Prospectus (Registration No. 33-52119), Form S-8 for the NCR Corporation Savings Plan (Registration No. 33-42917), Form S-8 for the 1992 NCR Employee Stock Purchase Plan (Registration No. 33-48845), Form S-8 for the AT&T Capital Corporation Retirement and Savings Plan (Registration No. 33-50821), Form S-8 for the AT&T of Puerto Rico, Inc. Long Term Savings Plan for Management Employees (Registration No. 33- 50819), Form S-8 for the AT&T of Puerto Rico, Inc. Long Term Savings and Security Plan (Registration No. 33-50817), Form S-8 for the AGCS Savings Plan (Registration No. 33-50827), Form S-8 for the AGCS Hourly Savings Plan (Registration No. 33-50829), Form S-3 for the AT&T $2,500,000,000 Notes and Warrants to Purchase Notes (Registration No. 33-44438), and Form S-3 for the AT&T $2,600,000,000 Notes and Warrants to Purchase Notes (Registration No. 33-49589), and in the Post-Effective Amendment Nos. 1, 2 and 3 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-42150) for the NCR Corporation 1989 Stock Compensation Plan (Registration No. 33-42150-01), the NCR Corporation 1984 Stock Option Plan (Registration No. 33-42150-02) and the NCR Corporation 1976 Stock Option Plan (Registration No. 33-42150-03), respectively, the Post-Effective Amendment Nos. 1, 2 and 3 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-26801) for the Eaton Financial Corporation Amended and Restated Non-Statutory Directors' Stock Option Plan (Registration No. 33-26801-01), the Eaton Financial Corporation Amended and Restated Employees' Incentive Stock Option Plan (Registration No. 33-26801-02) and the Eaton Financial Corporation Amended and Restated 1988 Nonqualified Stock Option Plan (Registration No. 33-26801-03), respectively, and the Post-Effective Amendment Nos. 1 and 2 on Form S-8 to Form S-4 Registration Statement (Registration No. 33-45302) for the Teradata Corporation 1987 Incentive and Other Stock Option Plan (Registration No. 33-45302-01) and the Teradata Corporation Directors' Stock Option Plan (Registration No. 33-45302-02), respectively, of our report, which includes an explanatory paragraph regarding the change in 1993 in methods of accounting for postretirement benefits, postemployment benefits and income taxes, dated January 27, 1994, on our audits of the consolidated financial statements of the Company and its subsidiaries at December 31, 1993 and 1992, and for the years ended December 31, 1993, 1992 and 1991, which report is incorporated by reference in this Current Report on Form 8-K. COOPERS & LYBRAND 1301 Avenue of the Americas New York, New York March 4, 1994 -----END PRIVACY-ENHANCED MESSAGE-----