[AT&T Logo Omitted]
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News Release
FOR RELEASE THURSDAY, OCTOBER 21, 2004
AT&T Announces Third-Quarter 2004 Earnings
o Consolidated revenue of $7.6 billion
o Third-quarter loss per diluted share of $8.95
o Adjusted earnings per diluted share of $0.75 - reflects lower depreciation
due to asset impairment
BEDMINSTER, N.J. -- AT&T (NYSE: T) today reported a net loss of $7.1 billion, or
$8.95 per diluted share, for the third quarter of 2004. The company's
current-quarter net loss includes non-cash asset impairment charges, as well as
net restructuring and other charges. This compares to net income of $418
million, or earnings per diluted share of $0.53, in the third quarter of 2003,
which also included net restructuring and other charges.
Excluding the asset impairment and net restructuring and other charges and their
associated tax benefits, adjusted net income for the quarter was $593 million,
or adjusted earnings per diluted share of $0.75. This includes an after-tax
benefit from lower depreciation of $331 million, or $0.42 per diluted share, due
to the asset impairment charges. A reconciliation of reported earnings per
diluted share to adjusted earnings per diluted share is provided in the
appendices on page 11 of this document.
"Our results for the third quarter demonstrate significant progress in
transforming AT&T's cost structure and delivering a more effective business
model for the future," said David W. Dorman, AT&T's Chairman and CEO. "Our
ongoing focus on customer experience is generating marked improvements in our
overall service metrics while our process and systems investments are yielding
important productivity benefits for both AT&T and our customers."
AT&T reported third-quarter 2004 consolidated revenue of $7.6 billion, which
included $5.6 billion from AT&T Business and $2.0 billion from AT&T Consumer.
Consolidated revenue was flat sequentially, and declined 11.7 percent versus the
third quarter of 2003, primarily due to continued declines in long-distance (LD)
voice and data revenue.
AT&T's third-quarter 2004 consolidated operating loss was $11.3 billion.
Excluding the asset impairment charges of $11.4 billion and net restructuring
and other charges of $1.1 billion, adjusted operating income was $1.2 billion.
This reflected a depreciation benefit of $537 million due to the asset
impairment charges. On an EBITDA basis, the company reported consolidated
EBITDA, excluding the asset impairment and net restructuring and other charges,
of $1.8 billion in the third quarter of 2004 and a margin of 24.1 percent. This
compares to consolidated EBITDA of $2.1 billion and a margin of 24.5 percent in
the prior-year third quarter and $1.6 billion and a margin of 21.4 percent in
the second quarter of 2004, both of which exclude net restructuring and other
charges. In addition, EBITDA for the third quarter of 2003 included an access
expense adjustment of $125 million.
AT&T UNIT HIGHLIGHTS
AT&T Business
o Revenue was $5.6 billion, a decline of 10.4 percent from the prior-year
third quarter. Pricing pressure and continued declines in retail volumes
negatively affected the unit's revenue performance. On a sequential basis,
the 0.6 percent increase in revenue was positively impacted by revenue from
a customer disconnect of prepaid network capacity. Without this item,
revenue would have been flat, reflecting a positive impact of higher
equipment sales.
o Long-distance voice revenue decreased 16.3 percent from the prior-year
third quarter, driven by continued pricing pressure in both the retail and
wholesale businesses, as well as a continued decline in retail volumes.
Partially offsetting these declines was an increase in lower-priced
wholesale minutes. Volumes were down slightly on a year-over-year basis,
due to a decline in retail volumes largely offset by growth in wholesale
volumes.
o Local voice revenue grew 3.3 percent from the prior-year third quarter.
Local access lines totaled nearly 4.7 million at the end of the current
period, representing an increase of nearly 56,000 lines from the end of the
second quarter of 2004.
o Data revenue declined 9.7 percent from the prior-year third quarter.
Revenue was negatively affected by pricing pressure, weak demand and
technology migration. On a sequential basis, data revenue increased 0.2
percent. Data revenue was positively impacted by the customer disconnect of
prepaid network capacity. Without the impact of this item, data revenue
would have declined slightly sequentially.
o IP&E-services revenue grew 6.8 percent over the prior-year third quarter.
The year-over-year growth was primarily driven by strength in advanced
services, including Enhanced Virtual Private Network and IP-enabled frame.
o Outsourcing, professional services and other revenue declined 9.7 percent
from the prior-year third quarter due to terminating outsourcing contracts
and customers reducing scope, partially offset by strength in government
professional services and equipment sales. Excluding equipment sales, the
year-over-year decline was 14.0 percent. On a sequential basis, revenue
increased by 8.1 percent. Excluding equipment sales, revenue increased 3.0
percent sequentially.
o AT&T Business EBITDA, excluding the asset impairment and net restructuring
and other charges, was $1.4 billion for the current quarter, yielding a
margin of 24.3%. This compares with EBITDA of $1.6 billion in the
prior-year third quarter, yielding a margin of 25.8%.
o The third-quarter operating loss was $11.1 billion, including asset
impairment charges of $11.3 billion and net restructuring and other charges
of $529 million primarily related to employee separations. Excluding these
charges, adjusted operating income was $764 million, yielding an adjusted
margin of 13.5 percent.
o The adjusted operating income, excluding asset impairment and net
restructuring and other charges, includes a depreciation benefit of $527
million due to the asset impairment charge.
o As a result of the third-quarter asset impairment charges, AT&T Business'
network-related charges to AT&T Consumer decreased by $28 million. This
resulted in a reduction of AT&T Business' profitability and an increase in
AT&T Consumer's profitability, which is eliminated upon consolidation.
o Adjusting for the impacts of the asset impairment charges, operating income
was $265 million, yielding an operating margin of 4.7 percent.
o Capital expenditures for the quarter were $391 million as AT&T Business
continued to invest in its network and systems to drive continued cost
efficiencies and expand its customer-focused networking capabilities.
o During the third quarter, a number of sizable customer wins and contract
extensions were signed with companies including Ford Motor Company,
Continental Airlines, Elizabeth Arden, Siemens AG, the American Automobile
Association and participating member companies of the Blue Cross and Blue
Shield Association, among many others.
o Looking forward, the company commented that the business environment
continues to be very challenging. In the fourth quarter of 2004, the
company expects the normal impact of seasonality, as well as ongoing
pricing pressure, to negatively impact sequential revenue and margin
results.
AT&T Consumer
o Revenue was $2.0 billion, a decline of 15.2 percent versus the prior-year
third quarter, driven by lower standalone LD voice revenue as a result of
the continued impact of competition, wireless and Internet substitution and
customer migration to lower-priced products, partially offset by targeted
price increases.
o Third-quarter operating income was $281 million, including asset impairment
charges of $59 million and net restructuring and other charges of $129
million primarily related to employee separations. Excluding these charges,
adjusted operating income was $469 million, yielding a margin of 23.7
percent.
o The adjusted operating income, excluding the asset impairment and net
restructuring and other charges, includes a depreciation benefit of $10
million due to the asset impairment charges.
o As a result of the third-quarter asset impairment charges, AT&T Consumer's
network-related charges from AT&T Business decreased by $28 million. This
resulted in a reduction of AT&T Business' profitability and an increase in
AT&T Consumer's profitability, which is eliminated upon consolidation.
o Adjusting for the impacts of the asset impairment charges, operating income
was $431 million, yielding an operating margin of 21.8 percent.
o On a sequential basis, much of the operating margin improvement was driven
by the reduction in the company's sales and marketing expenses. The company
expects to generate approximately $700 million in annualized savings by
shifting its focus away from traditional services.
o As of September 30, 2004, AT&T Consumer offered its residential VoIP AT&T
CallVantageSM Service in 170 major markets throughout the U.S. (covering
62% of U.S. households). The company also announced retail distribution
partnerships with retail outlets Amazon, Circuit City and Best Buy.
o At the end of the third quarter, AT&T Consumer had over 26 million
stand-alone LD and bundled customers.
OTHER CONSOLIDATED FINANCIAL HIGHLIGHTS
o The third-quarter consolidated operating loss was $11.3 billion, including
asset impairment charges of $11.4 billion and net restructuring and other
charges of $1.1 billion primarily related to employee separations.
Excluding these charges, adjusted operating income was $1.2 billion,
yielding a margin of 15.6 percent.
o The adjusted operating income, excluding the asset impairment and net
restructuring and other charges, includes a depreciation benefit of $537
million due to the asset impairment charge. Excluding this benefit,
operating income was $657 million, yielding an operating margin of 8.6
percent.
o The asset impairment charge for the quarter of $11.4 billion primarily
reflects a decrease in the fair value of property, plant and equipment and
internal-use software. The decrease reflects the impact of sustained
pricing pressure and evolution of services toward newer technologies in the
business market as well as changes in the regulatory environment, which led
to a shift away from traditional consumer services.
o Primarily as a result of the asset impairment charges, the company's
deferred tax liability was reduced by $4.3 billion. The impairment charges
will not impact the timing or magnitude of future tax payments.
o Net restructuring and other charges for the quarter were $1.1 billion and
primarily consisted of employee separation costs related to both AT&T
Business and AT&T Consumer, including $339 million of benefit plan
curtailment costs. The curtailment portion of the restructuring charge is
recorded in "Corporate and Other."
o The company anticipates that its 2004 workforce-reduction target of greater
than 20 percent will result in annualized cost savings of approximately
$1.2 billion.
o AT&T repurchased $420 million of U.S. dollar- and Euro-denominated debt
during the third quarter, which resulted in a loss of $27 million recorded
in other (expense) income.
o Free cash flow was $1.1 billion for the quarter. Free cash flow is defined
as cash flows provided by operating activities of $1.5 billion less cash
used for capital expenditures and other additions of $0.4 billion.
o AT&T ended the quarter with net debt of $7.0 billion, a $0.9 billion
decrease from the end of the second quarter of 2004. Net debt is defined as
total debt of $10.5 billion less cash of $2.6 billion, restricted cash of
$0.5 billion and net foreign debt fluctuations of $0.4 billion.
o During the third quarter of 2004, AT&T generated EBITDA less capital
expenditures (excluding asset impairment and net restructuring and other
charges) of $1.4 billion, bringing the year-to-date total to $3.8 billion.
GUIDANCE
o The company announced that it expects to exceed its
EBITDA-less-capital-expenditures target for the full year, as it continues
to effectively manage costs. AT&T is reiterating or updating its 2004
financial guidance as follows:
o Reiteration of capital expenditures of approximately $1.8 billion
o Consolidated EBITDA-less-capital-expenditures (excluding asset
impairment and net restructuring and other charges) target of around
$4.8 billion
o AT&T Consumer fourth-quarter 2004 operating margin of around 20
percent
DEFINITIONS and NOTES
AT&T Business
LD Voice - includes all of AT&T's domestic and international LD revenue,
including Intralata toll when purchased as part of an LD calling plan.
Local Voice - includes all local calling and feature revenue, Intralata toll
when purchased as part of a local calling plan, as well as Inter-carrier local
revenue.
Data Services- includes bandwidth services (dedicated private line services
through high-capacity optical transport), frame relay and asynchronous transfer
mode (ATM) revenue for LD and local, as well as revenue for managed data
services.
Internet Protocol & Enhanced Services (IP&E-services) - includes all services
that ride on the IP common backbone or that use IP technology, including managed
IP services, as well as application services (e.g., hosting, security).
Outsourcing, Professional Services & Other - includes complex bundled solutions
primarily in the wide area/local area network space, AT&T's professional
services revenue associated with the company's federal government customers, as
well as all other Business revenue (and eliminations) not previously defined.
Data, IP&E-Services - Percent Managed - managed services refers to AT&T's
management of a client's network or network and applications including
applications that extend to the customer premise equipment.
Data, IP&E-Services - Percent International - a data service that either
originates or terminates outside of the United States, or an IP&E-service
installed or wholly delivered outside the United States.
AT&T Consumer
Bundled Services - includes any customer with a local relationship as a starting
point, and all other AT&T subscription-based voice products provided to that
customer.
Standalone LD, Transactional & Other Services - includes any customer with
solely a long-distance relationship, non-voice products, or a non
subscription-based relationship.
Other Definitions and Notes
EBITDA - Earnings before interest, taxes, depreciation and amortization is
calculated as operating income plus depreciation and amortization.
Restricted cash - $0.5 billion of cash that collateralizes a portion of private
debt and is included in "other current assets" on the balance sheet.
Foreign currency fluctuations - represents mark-to-market adjustments, net of
cash collateral collected, that increased the debt balance by approximately $0.4
billion at September 30, 2004, on non-U.S. denominated debt of about $1.5
billion. AT&T has entered into foreign exchange hedges that substantially offset
the fluctuations in the debt balance. The offsetting mark-to-market adjustments
of the hedges are included in "other current assets" and "other assets" on the
balance sheet.
AT&T Corp. Consolidated Statements of Operations (Unaudited)
Dollars in millions (except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
REVENUE (1)
AT&T Business $ 5,645 $ 6,301 $ 17,128 $ 19,188
AT&T Consumer 1,980 2,334 6,098 7,202
Corporate and Other 13 14 38 40
---------------------- --------------------------
Total Revenue 7,638 8,649 23,264 26,430
OPERATING EXPENSES
Access and other connection 2,411 2,785 7,530 8,191
Costs of services and products 1,783 1,954 5,406 5,923
Selling, general and administrative 1,603 1,793 5,110 5,551
Depreciation and amortization 647 1,224 3,128 3,607
Asset impairment and net restructuring and other charges 12,469 64 12,736 134
---------------------- --------------------------
Total operating expenses 18,913 7,820 33,910 23,406
Operating (loss) income (11,275) 829 (10,646) 3,024
Other (expense) income, net (34) (7) (172) 89
Interest (expense) (192) (289) (611) (917)
---------------------- --------------------------
(Loss) income from continuing operations before income taxes, minority
interest income and net earnings (losses) related to equity investments (11,501) 533 (11,429) 2,196
Benefit (provision) for income taxes 4,384 (72) 4,723 (677)
Minority interest income - - 1 1
Net earnings (losses) related to equity investments 2 (3) 2 3
---------------------- --------------------------
(Loss) income from continuing operations (7,115) 458 (6,703) 1,523
(Loss) from discontinued operations - net of income taxes - (13) - (13)
---------------------- --------------------------
(Loss) income before cumulative effect of accounting change (7,115) 445 (6,703) 1,510
Cumulative effect of accounting change - net of income taxes - (27) - 15
---------------------- --------------------------
Net (loss) income $ (7,115) $ 418 $ (6,703) $ 1,525
====================== ==========================
Weighted-average common shares (millions) 795 789 794 787
Weighted-average common shares and potential common shares (millions) 795 791 794 788
PER BASIC SHARE:
(Loss) earnings from continuing operations $ (8.95) $ 0.58 $ (8.44) $ 1.94
(Loss) from discontinued operations $ - $(0.02) $ - $(0.02)
Cumulative effect of accounting change $ - $(0.03) $ - $ 0.02
---------------------- --------------------------
(Loss) earnings per basic share $ (8.95) $ 0.53 $ (8.44) $ 1.94
====================== ==========================
PER DILUTED SHARE:
(Loss) earnings from continuing operations $ (8.95) $ 0.58 $ (8.44) $ 1.93
(Loss) from discontinued operations $ - $(0.02) $ - $(0.01)
Cumulative effect of accounting change $ - $(0.03) $ - $ 0.02
---------------------- --------------------------
(Loss) earnings per diluted share $ (8.95) $ 0.53 $ (8.44) $ 1.94
====================== ==========================
Dividends declared per share $0.2375 $0.2375 $0.7125 $0.6125
<FN>
(1)Prior period amounts have been restated to reflect the transfer of the remaining payphone business from AT&T Consumer to AT&T
Business.
</FN>
AT&T Corp. Consolidated Statements of Operations (Unaudited)
Dollars in millions (except per share amounts)
3Q04 2Q04 1Q04 4Q03 3Q03 2Q03 1Q03 2003
REVENUE (1)
AT&T Business $ 5,645 $ 5,611 $ 5,872 $ 5,887 $ 6,301 $ 6,428 $ 6,459 $ 25,075
AT&T Consumer 1,980 2,011 2,107 2,198 2,334 2,354 2,514 9,400
Corporate and Other 13 14 11 14 14 13 13 54
Total revenue 7,638 7,636 7,990 8,099 8,649 8,795 8,986 34,529
OPERATING EXPENSES
Access and other connection 2,411 2,481 2,638 2,606 2,785 2,708 2,698 10,797
Costs of services and products 1,783 1,759 1,864 1,702 1,954 1,958 2,011 7,625
Selling, general and administrative 1,603 1,763 1,744 1,828 1,793 1,837 1,921 7,379
Depreciation and amortization 647 1,231 1,250 1,263 1,224 1,197 1,186 4,870
Asset impairment and net restructuring
and other charges 12,469 54 213 67 64 66 4 201
Total operating expenses 18,913 7,288 7,709 7,466 7,820 7,766 7,820 30,872
Operating (loss) income (11,275) 348 281 633 829 1,029 1,166 3,657
Other (expense) income, net (34) 36 (174) 102 (7) 86 10 191
Interest (expense) (192) (191) (228) (241) (289) (296) (332) (1,158)
(Loss) income from continuing operations
before income taxes, minority interest income
and net earnings (losses) related to equity
investments (11,501) 193 (121) 494 533 819 844 2,690
Benefit (provision) for income taxes 4,384 (87) 426 (139) (72) (308) (297) (816)
Minority interest income - 1 - - - - 1 1
Net earnings (losses) related to equity
investments 2 1 (1) (15) (3) 25 (19) (12)
(Loss) income from continuing operations (7,115) 108 304 340 458 536 529 1,863
(Loss) from discontinued operations - net of
income taxes - - - - (13) - - (13)
(Loss) income before cumulative effect of
accounting changes (7,115) 108 304 340 445 536 529 1,850
Cumulative effect of accounting changes, net
of income taxes - - - - (27) - 42 15
Net (loss) income $ (7,115) $ 108 $ 304 $ 340 $ 418 $ 536 $ 571 $1,865
Weighted-average common shares (millions) 795 794 793 791 789 787 784 788
Weighted-average common shares and potential
common shares (millions) 795 797 796 793 791 787 785 789
PER BASIC SHARE:
(Loss) earnings from continuing operations $ (8.95) $ 0.14 $ 0.38 $ 0.43 $ 0.58 $ 0.68 $ 0.67 $ 2.37
(Loss) from discontinued operations - - - - (0.02) - - (0.02)
Cumulative effect of accounting changes - - - - (0.03) - 0.06 0.02
(Loss) earnings per basic share $ (8.95) $ 0.14 $ 0.38 $ 0.43 $ 0.53 $ 0.68 $ 0.73 $ 2.37
PER DILUTED SHARE:
(Loss) earnings from continuing operations $ (8.95) $ 0.14 $ 0.38 $ 0.43 $ 0.58 $ 0.68 $ 0.67 $ 2.36
(Loss) from discontinued operations - - - - (0.02) - - (0.02)
Cumulative effect of accounting changes - - - - (0.03) - 0.06 0.02
(Loss) earnings per diluted share $ (8.95) $ 0.14 $ 0.38 $ 0.43 $ 0.53 $ 0.68 $ 0.73 $ 2.36
<FN>
(1)Prior period amounts have been restated to reflect the transfer of the remaining payphone business from AT&T Consumer to AT&T
Business.
</FN>
AT&T Corp. Historical Segment Data (Unaudited)
Dollars in millions
3Q04 2Q04 1Q04 4Q03 3Q03 2Q03 1Q03 2003
AT&T Business (1)
LD Voice $ 2,364 $ 2,386 $ 2,613 $ 2,501 $ 2,820 $ 2,895 $ 2,983 $ 11,199
Local Voice 390 404 389 386 379 384 335 1,484
Total Voice 2,754 2,790 3,002 2,887 3,199 3,279 3,318 12,683
Data Services (2) 1,693 1,690 1,715 1,846 1,875 1,943 1,956 7,620
IP&E-Services (2) 587 565 553 554 550 509 489 2,102
Total Data and IP&E-Services 2,280 2,255 2,268 2,400 2,425 2,452 2,445 9,722
Outsourcing, Professional Services
& Other 611 566 602 600 677 697 696 2,670
Total revenue 5,645 5,611 5,872 5,887 6,301 6,428 6,459 25,075
Operating (loss) income(3) (7) (11,095) 152 83 282 413 601 599 1,895
Operating margin (196.5%) 2.7% 1.4% 4.8% 6.6% 9.3% 9.3% 7.6%
Capital expenditures(8) 391 463 470 740 995 763 636 3,134
Depreciation & amortization (7) 610 1,176 1,192 1,200 1,162 1,133 1,126 4,621
Total Data and IP&E-Services -
% managed (2) 32% 32% 32% 32% 32% 31% 30% 31%
Total Data and IP&E-Services -
% international 15% 15% 15% 14% 14% 14% 14% 14%
LD volume growth - yr/yr -2% 0% 2% 7% 15% 12% 12% 11%
LD volume % wholesale 56% 54% 54% 53% 51% 47% 45% 50%
- ------------------------------------------------------------------------------------------------------------------------------------
AT&T Consumer (1)
Standalone LD, Transactional and
Other Services $ 1,256 $ 1,327 $ 1,462 $ 1,604 $ 1,813 $ 1,894 $ 2,090 $ 7,401
Bundled Services 724 684 645 594 521 460 424 1,999
Total revenue 1,980 2,011 2,107 2,198 2,334 2,354 2,514 9,400
Operating income(4) (7) 281 240 371 435 503 485 633 2,056
Operating margin 14.2% 11.9% 17.6% 19.8% 21.6% 20.6% 25.2% 21.9%
Capital expenditures 9 15 13 19 14 19 22 74
Depreciation & amortization (7) 15 33 32 35 35 36 35 141
Local customers (in thousands) 4,477 4,677 4,364 3,950 3,547 3,130 2,778 3,950
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate and Other (1)
Revenue $ 13 $ 14 $ 11 $ 14 $ 14 $ 13 $ 13 $ 54
Operating (loss)(5) (461) (44) (173) (84) (87) (57) (66) (294)
Capital expenditures(8) 6 2 2 13 198 8 4 223
Depreciation & amortization 22 22 26 28 27 28 25 108
- ------------------------------------------------------------------------------------------------------------------------------------
Total AT&T
Revenue $ 7,638 $ 7,636 $ 7,990 $ 8,099 $ 8,649 $ 8,795 $ 8,986 $ 34,529
Operating (loss) income(6) (11,275) 348 281 633 829 1,029 1,166 3,657
Operating margin (147.6%) 4.6% 3.5% 7.8% 9.6% 11.7% 13.0% 10.6%
Capital expenditures(8) 406 480 485 772 1,207 790 662 3,431
Depreciation & amortization (7) 647 1,231 1,250 1,263 1,224 1,197 1,186 4,870
<FN>
(1) Prior period amounts have been restated to reflect the transfer of the remaining payphone business from AT&T Consumer to AT&T
Business.
(2) Prior period amounts have been restated to reflect the division of international managed services revenue into Data Services
and IP&E-Services, consistent with the classifications of domestic managed services. This reclassification had no impact on
"Total Data and IP&E-Services revenue," or total revenue.
(3) Includes asset impairment and net restructuring and other (charges) of ($11,859M) in 3Q04, ($52M) in 2Q04, ($91M) in 1Q04,
($33M) in 4Q03, ($53M) in 3Q03, ($47M) in 2Q03 and ($4M) in 1Q03, totaling ($137M) in 2003.
(4) Includes asset impairment and net restructuring and other (charges) of ($188M) in 3Q04, ($1M) in 1Q04, ($17M) in 4Q03, ($4M)
in 3Q03 and ($5M) in 2Q03, totaling ($26M) in 2003.
(5) Includes asset impairment and net restructuring and other (charges) of ($422M) in 3Q04, ($2M) in 2Q04, ($121M) in 1Q04, ($17M)
in 4Q03, ($7M) in 3Q03 and ($14M) in 2Q03, totaling ($38M) in 2003.
(6) Includes asset impairment and net restructuring and other (charges) of ($12,469M) in 3Q04, ($54M) in 2Q04, ($213M) in 1Q04,
($67M) in 4Q03, ($64M) in 3Q03, ($66M) in 2Q03 and ($4M) in 1Q03, totaling ($201M) in 2003.
(7) As a result of the third-quarter 2004 asset impairment charge, third-quarter depreciation and amortization expense for AT&T
Business and AT&T Consumer decreased by $527 million and $10 million, respectively. In addition, as a result of the transport
service arrangement between AT&T Business and AT&T Consumer, network-related charges from AT&T Business (recorded as
contra-expense) to AT&T Consumer were reduced by $28 million for the third quarter as a result of the lower depreciation and
amortization expense recorded by AT&T Business. This resulted in a reduction in AT&T Business' operating income and an
increase in AT&T Consumer's operating income.
(8) Includes $433M in 3Q03 related to the adoption of FIN 46 of which $241M is included in Business and $192M is included in
Corporate and Other.
</FN>
AT&T Corp. Consolidated Balance Sheets (Unaudited)
Dollars in millions
September 30, December 31,
2004 2003
ASSETS
Cash and cash equivalents $ 2,627 $ 4,353
Accounts receivable, less allowances of $589 and $579 3,516 4,036
Deferred income taxes 1,098 715
Other current assets 1,278 744
---------------------------------------
Total Current Assets 8,519 9,848
Property, plant and equipment, net of accumulated
depreciation of $1,155 and $34,300 11,654 24,376
Goodwill 4,778 4,801
Other purchased intangible assets, net of accumulated amortization
of $396 and $320 394 499
Prepaid pension costs 3,939 3,861
Other assets 2,707 4,603
---------------------------------------
TOTAL ASSETS $ 31,991 $ 47,988
=======================================
LIABILITIES
Accounts payable and accrued expenses $ 2,586 $ 3,256
Compensation and benefit-related liabilities 2,215 1,783
Debt maturing within one year 1,582 1,343
Other current liabilities 2,246 2,501
---------------------------------------
Total Current Liabilities 8,629 8,883
Long-term debt 8,881 13,066
Long-term compensation and benefit-related liabilities 3,947 3,528
Deferred income taxes 1,138 5,395
Other long-term liabilities and deferred credits 2,929 3,160
---------------------------------------
Total Liabilities 25,524 34,032
---------------------------------------
SHAREOWNERS' EQUITY
Common Stock, $1 par value, authorized 2,500,000,000 shares;
issued and outstanding 795,590,783 shares (net of 171,983,367
treasury shares) at September 30, 2004 and 791,911,022 shares (net
of 172,179,303 treasury shares) at December 31, 2003 796 792
Additional paid-in capital 27,287 27,722
Accumulated deficit (21,414) (14,707)
Accumulated other comprehensive (loss) income (202) 149
---------------------------------------
Total Shareowners' Equity 6,467 13,956
---------------------------------------
TOTAL LIABILITIES & SHAREOWNERS' EQUITY $ 31,991 $ 47,988
=======================================
AT&T Corp. Consolidated Statements of Cash Flows (Unaudited)
Dollar in millions
Nine Months Ended
September 30,
2004 2003
Operating Activities
Net (loss) income $ (6,703) $ 1,525
Deduct:
Loss from discontinued operations - net of income taxes - (13)
Cumulative effect of accounting change - net of income taxes - 15
----------------------------
(Loss) income before cumulative effect of accounting change (6,703) 1,523
Adjustments to reconcile income before cumulative effect of accounting
change to net cash provided by operating activities:
Net gains on sales of businesses and investments (16) (51)
Loss on early extinguishment of debt 301 85
Asset impairment, net restructuring and other charges 12,662 87
Depreciation and amortization 3,128 3,607
Provision for uncollectible receivables 371 588
Deferred income taxes (4,451) 1,105
Net pretax losses related to equity investments (4) (28)
Decrease in receivables 178 231
(Decrease) in accounts payable and accrued expenses (488) (428)
Net change in other operating assets and liabilities (839) 443
Other adjustments, net (128) (49)
----------------------------
Net Cash Provided by Operating Activities of Continuing Operations 4,011 7,113
----------------------------
Investing Activities
Capital expenditures and other additions (1,459) (2,413)
Proceeds from sale or disposal of property, plant and equipment 58 134
Investment distributions and sales 37 120
Net dispositions (acquisitions) of businesses, net of cash disposed/acquired 8 (158)
Decrease (increase) in restricted cash 7 (22)
Other investing activities, net 9 (50)
----------------------------
Net Cash (Used in) Investing Activities of Continuing Operations (1,340) (2,389)
----------------------------
Financing Activities
Retirement of long-term debt, including redemption premiums (3,711) (4,576)
(Decrease) in short-term borrowings, net (511) (1,263)
Issuance of AT&T common shares 45 92
Dividends paid on common stock (565) (442)
Other financing activities, net 345 202
----------------------------
Net Cash (Used in) Financing Activities of Continuing Operations (4,397) (5,987)
----------------------------
Net (decrease) in cash and cash equivalents (1,726) (1,263)
Cash and cash equivalents at beginning of year 4,353 8,014
----------------------------
Cash and Cash Equivalents at End of Period $ 2,627 $ 6,751
============================
AT&T Corp. Reconciliation of Non-GAAP Measures
AT&T is providing information on net debt, EBITDA and related margins, EBITDA
less capital expenditures and free cash flows because these measures are
commonly used by the investment community for evaluation purposes. AT&T is
providing information on adjusted operating income and related margins due to
the magnitude of the asset impairment and net restructuring and other charges
taken during the quarter and the distortion they have on reported results and
trends. Net debt, adjusted operating income, EBITDA, EBITDA less capital
expenditures and free cash flows should be considered in addition to, but not in
lieu of, other measures of liquidity, profitability and cash flows reported in
accordance with generally accepted accounting principles. Additionally, they may
not be comparable to similarly captioned measures reported by other companies.
Net (Loss) Income and Earnings Per Share
For the three months ended For the three months ended For the three months ended
(dollars in millions, except per September 30, 2003 June 30, 2004 September 30, 2003
share amounts)
Net (loss) income EPS Net income EPS Net income EPS
Reported (loss) earnings ($7,115) ($8.95) $108 $0.14 $418 $0.53
Adjustments:
Add:
Net restructuring and other charges 668 0.84 33 0.04 40 0.05
Asset impairment charges 7,040 8.86 - - - -
------------ ------------- ------------ ------------- ----------- ------------
Subtotal - adjusted earnings $593 $0.75 $141 $0.18 $458 $0.58
------------ ------------- ------------ ------------- ----------- ------------
Less:
Depreciation benefit (331) (0.42) - - - -
------------ ------------- ------------ ------------- ----------- ------------
Adjusted earnings, excluding
depreciation benefit $262 $0.33 $141 $0.18 $458 $0.58
============ ============= ============ ============= =========== ============
Operating Income
(dollars in millions) For the three months ended September 30, 2004
AT&T Business AT&T Consumer Corp. and Other Consolidated
Reported operating (loss) income and
margin ($11,095) (196.5%) $281 14.2% ($461) NMF ($11,275) (147.6%)
Adjustments:
Add:
Net restructuring and other charges 529 129 422 1,080
Asset impairment charges 11,330 59 - 11,389
-------- --------- -------- ---------
Subtotal - adjusted operating income
(loss) and margin $764 13.5% $469 23.7% ($39) NMF $1,194 15.6%
-------- --------- -------- ---------
Less:
Depreciation benefit, including
impact of transport agreeement (1) (499) (38) - (537)
-------- --------- -------- ---------
Adjusted operating income (loss) and
margin excluding depreciation benefit $265 4.7% $431 21.8% ($39) NMF $657 8.6%
======== ========= ======== =========
<FN>
(1) As a result of the third-quarter 2004 asset impairment charge, third-quarter depreciation and amortization expense for AT&T
Business and AT&T Consumer decreased by $527 million and $10 million, respectively. In addition, as a result of the
transport service arrangement between AT&T Business and AT&T Consumer, network-related charges from AT&T Business
(recorded as contra-expense) to AT&T Consumer were reduced by $28 million for the third quarter as a result of the lower
depreciation and amortization expense recorded by AT&T Business. This resulted in a reduction in AT&T Business' operating
income and an increase in AT&T Consumer's operating income.
</FN>
AT&T Corp. Reconciliation of Non-GAAP Measures, continued
EBITDA, Excluding Asset Impairment and Net Restructuring and Other Charges, to Net Income
(dollars in millions) For the three months ended:
September 30, June 30, September 30,
2004 2004 2003
EBITDA margin (1) 24.1% 21.4% 24.5%
EBITDA (1) $1,841 $1,633 $2,117
Depreciation and amortization (647) (1,231) (1,224)
Net restructuring and other charges (1,080) (54) (64)
Asset impairment charges (11,389) - -
------------------ ------------------ -----------------
Subtotal operating (loss) income ($11,275) $348 $829
------------------ ------------------ -----------------
Other (expense) income, net (34) 36 (7)
Interest (expense) (192) (191) (289)
Benefit (provision) for income taxes 4,384 (87) (72)
Minority interest income - 1 -
Net (losses) income related to equity investments 2 1 (3)
------------------ ------------------ -----------------
Net (loss) income from continuing operations ($7,115) $108 $458
------------------ ------------------ -----------------
Net (loss) from discontinued operations - - (13)
Cumulative effect of accounting change - - (27)
------------------ ------------------ -----------------
Net (loss) income ($7,115) $108 $418
================== ================== =================
<FN>
(1) Excluding asset impairment and net restructuring and other charges
</FN>
AT&T Business EBITDA, Excluding Asset Impairment and Net Restructuring and Other
Charges, to Operating (Loss) Income
(dollars in millions) For the three months ended:
September 30, 2004 September 30, 2003
EBITDA and margin (1) $1,374 24.3% $1,628 25.8%
Impact of transport agreement 28 -
EBITDA and margin (1) excluding impact of transport agreement (2) $1,402 24.8% $1,628 25.8%
Depreciation and amortization (610) (1,162)
Net restructuring and other charges (529) (53)
Asset impairment charges, net of impact of transport agreement (2) (11,358) -
----------- -----------
Operating (loss) income and margin ($11,095) (196.5%) $413 6.6%
----------- -----------
<FN>
(1) Excluding asset impairment and net restructuring and other charges.
(2) As a result of the third-quarter 2004 asset impairment charge, third-quarter depreciation and amortization expense for AT&T
Business and AT&T Consumer decreased by $527 million and $10 million, respectively. In addition, as a result of the transport
service arrangement between AT&T Business and AT&T Consumer, network-related charges from AT&T Business (recorded as
contra-expense) to AT&T Consumer were reduced by $28 million for the third quarter as a result of the lower depreciation and
amortization expense recorded by AT&T Business. This resulted in a reduction in AT&T Business' operating income and an increase
in AT&T Consumer's operating income.
</FN>
AT&T Corp. Reconciliation of Non-GAAP Measures, continued
EBITDA, Excluding Asset Impairment and Net Restructuring and Other Charges, Less Capital Expenditures
to Cash Provided by Operating Activities:
For the three months For the nine months
(dollars in millions) ended ended For the year ended
September 30, 2004 September 30, 2004 December 31, 2004
(dollars in billions)
(all projected numbers
are approximate)
EBITDA (1) less capital expenditures $1,435 $3,847 $4.8
Add capital expenditures 406 1,371 1.8
--------------------- --------------------- ----------------------
EBITDA (1) $1,841 $5,218 $6.6
----------------------
Other cash (expenses) receipts (2) (112) (483) (1.3) - (1.2)
Changes in working capital and other
operating assets & liabilities (181) (724) (0.4) - (0.3)
--------------------- --------------------- ----------------------
Cash provided by operating activities $1,548 $4,011 4.9 - 5.0
===================== ===================== ======================
<FN>
(1) Excluding asset impairment and net restructuring and other charges
(2) Other cash expenses primarily include taxes, interest expense and net restructuring and other charge payments.
</FN>
Net Debt
Net debt is defined as total debt, less cash, restricted cash and net
foreign debt fluctuations:
(dollars in millions) September 30, 2004
Total debt $10,463
Less: Cash 2,627
Restricted cash 494
Foreign debt fluctuations 360
------------------------
Net debt $6,982
========================
Note to Financial Media: AT&T executives will discuss the company's performance
in a two-way conference call for financial analysts at 8:15 a.m. ET today.
Reporters are invited to listen to the call. U.S. callers should dial
888-428-4473 to access the call. Callers outside the U.S. should dial +
1-651-291-0561.
In addition, Internet rebroadcasts of the call will be available on the AT&T web
site beginning later today. The web site address is www.att.com/ir. An audio
rebroadcast of the conference call will also be available beginning at 12:40PM
on Thursday, October 21 through 11:59PM on Tuesday, October 26. To access the
audio rebroadcast, U.S. callers can dial 800-475-6701, access code 696624.
Callers outside the U.S. should dial +1-320-365-3844, access code 696624.
The foregoing contains "forward-looking statements" which are based on
management's beliefs as well as on a number of assumptions concerning future
events made by and information currently available to management. Readers are
cautioned not to put undue reliance on such forward-looking statements, which
are not a guarantee of performance and are subject to a number of uncertainties
and other factors, many of which are outside AT&T's control, that could cause
actual results to differ materially from such statements. These risk factors
include the impact of increasing competition, continued capacity oversupply,
regulatory uncertainty and the effects of technological substitution, among
other risks. For a more detailed description of the factors that could cause
such a difference, please see AT&T's10-K, 10-Q, 8-K and other filings with the
Securities and Exchange Commission. AT&T disclaims any intention or obligation
to update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. This information is presented solely to
provide additional information to further understand the results of AT&T.
# # #