Deciphering Financial Statements (AT&T Corporation)
The following information was extracted from the 1998 annual report of AT&T Corporation (all dollar amounts are in millions):
|
|
1998 |
1997 |
1996 |
1995 |
1994 |
1993 |
1992 |
1991 |
|
Total revenues |
$53,223 |
$51,577 |
$50,688 |
$79,609 |
$75,094 |
$69,351 |
$66,647 |
$64,455 |
|
Operating income |
7,487 |
6,836 |
8,709 |
1,215 |
7,949 |
6,498 |
6,529 |
1,428 |
|
Net income |
6,398 |
4,415 |
5,793 |
139 |
4,710 |
(5,906) |
3,442 |
171 |
|
Common share |
|
|
|
|
|
|
|
|
|
owners’ equity |
16,949 |
18,910 |
17,320 |
17,274 |
17,921 |
13,374 |
20,313 |
17,973 |
• 1998 data reflect $2.5 billion of pretax business restructuring charges.
• 1995 data reflect $7.8 billion of pretax business restructuring and other charges.
• 1993 data reflect a $9.6 billion net charge for three accounting changes.
• 1991 data reflect $4.5 billion of pretax business restructuring and other charges.
Instructions:
1. For each year 1991–1998,calculate operating income as a percentage of total revenues, net income (loss) as a percentage of total revenues, and return on common equity (use end of year equity).
2. Repeat (1) after adding back the effects of the special charges in 1991, 1993, 1995, and 1998. For calculating net income, assume that the incremental income tax rate is 40%.
3. A large portion of the special charges in 1991 and 1995 were related to asset write downs. These write downs were recorded before FASB Statement No. 144 was issued; thus, more flexibility occurred in determining when an asset was impaired. Comment on the impact of special charges on the usefulness of financial accounting data.