SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 22, 2002
Date of report (Date of earliest event reported)
AT&T CORP.
(Exact Name of Registrant as Specified in Charter)
NEW YORK 1-1105 13-4924710
(State or Other (Commission File (IRS Employer
Jurisdiction Number) Identification No.)
of Incorporation)
900 Rt. 202/206 N., Bedminster, New Jersey 07921
(Address of Principal Executive Offices, including Zip Code)
(908) 532-1754
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former Name or Former Address, if Changed Since Last Report)
ITEM 5. OTHER EVENTS.
On Tuesday, October 22, 2002, AT&T Corp. issued the following press release:
AT&T Earns 6 Cents Per Diluted Share from Continuing Operations,
Excluding Other Income
Reported Earnings are 5 Cents Per Diluted Share from Continuing Operations
on Revenue of $12 Billion
BEDMINSTER, N.J. - AT&T (NYSE: T) today announced third-quarter earnings of
$0.06 per diluted share from continuing operations, excluding other income. In
the same quarter last year, AT&T reported a loss of $0.02 on the same basis. As
previously reported, on January 1, 2002, AT&T adopted Statement of Financial
Accounting Standards No. 142, which eliminated amortization of goodwill and
franchise costs. The amortization of these items in the third quarter of 2001
reduced reported earnings from continuing operations by $0.11 per diluted share.
On a reported basis, the company earned $0.05 per diluted share from continuing
operations, compared with a loss of $0.69 in the year-ago quarter.
Revenue for the quarter was $12.0 billion, a decline of 8.3 percent from the
year-ago quarter on a reported basis and a decline of 7.4 percent on a pro forma
basis. Pro forma revenue adjusts for significant cable dispositions and the
deconsolidation of Excite@Home. The quarter's lower revenue was primarily due to
continued declines in long distance voice services, partially offset by growth
at AT&T Broadband in telephony, high-speed data and digital video, and growth
areas of AT&T Business, primarily data/Internet protocol (IP)/managed services.
"We had a good third quarter and posted solid results as we remained focused on
executing the operational basics of our business," said AT&T Chairman and CEO C.
Michael Armstrong. "Following the spinoff of AT&T Broadband and its merger with
Comcast, AT&T will be well positioned for the future with a top-notch leadership
team, a world-class network, a sound financial structure and a wealth of
opportunity in the marketplace," Armstrong said.
Following the anticipated spinoff of AT&T Broadband later this quarter, the
primary business of AT&T will be communications services, provided by the AT&T
Business and AT&T Consumer units.
"Our communications services units made a solid showing in the quarter,
reflecting our focus on the fundamentals of operating strong voice and data
businesses and seizing growth opportunities," said David Dorman, AT&T chairman-
and CEO-elect. "AT&T Business rededicated itself to executing in the marketplace
and meeting customer needs across its product portfolio, and AT&T Consumer
accelerated its local service momentum, entering two more states and increasing
its `any distance' customer count by 24 percent over the previous quarter,"
Dorman said.
Unit Highlights
Note: all comparisons are third quarter 2002 vs. third quarter 2001 unless
otherwise noted
AT&T Business
o Revenue $6.7 billion, down 1.6 percent
o Revenue year-to-date $20.0 billion, down 4.5 percent over same period
last year
o EBIT, excluding other income, $876 million; EBIT margin on the same
basis 13.1 percent vs. 14.5 percent
o EBIT, excluding other income year-to-date, $2.64 billion, down 21
percent over same period last year
o Long distance voice revenue decline slowed to about 8 percent with a
slight volume increase - reflects steady improvement from the previous
quarter decline of approximately 12 percent and first quarter 2002
decline of approximately 19 percent
o Data/IP/Managed services grew about 7 percent (about 6 percent,
excluding customer premises equipment)
o Local voice revenue up approximately 5 percent, driven partly by
strong performance of "All-in-One" bundle for retail small business
market
o Outlook: Expect revenue and EBIT margin, excluding other income, at or
marginally better than the favorable end of previously stated ranges
of: revenue, 4.5 to 5 percent full-year decline; EBIT margin, excluding
other income, 2 to 3 percentage point decline from 2001 margin of 13.3
percent
AT&T Consumer
o Revenue $2.8 billion, down 25.9 percent due to continued trends of
wireless and Internet substitution, competition, and customer migration
to lower priced plans and products
o Revenue year-to-date $8.8 billion, down 23 percent over same period
last year
o EBIT, excluding other income, $595 million; EBIT margin on same basis
21.3 percent vs. 33.9 percent
o EBIT, excluding other income year-to-date, $2.2 billion, down 42.1
percent over same period last year
o Any Distance service offered to about 1.9 million customers in eight
states at end of quarter - a 24 percent sequential growth rate;
entered local market in California and New Jersey. By mid- October,
had 2 million Any Distance customers.
o Outlook: Maintain previously stated revenue and EBIT margin, excluding
other income, outlook: Revenue, expect to come in at favorable end of
mid-20 percent range decline; EBIT margin, excluding other income,
expect high single-digit percentage decline
AT&T Communications Services
AT&T Communications Services primarily includes AT&T Business Services and AT&T
Consumer Services.
o Outlook: Not providing fourth quarter EPS outlook due to expected AT&T
Broadband spinoff and reverse stock split; anticipate capital
expenditures (excluding AT&T Broadband), in the lower end of the
previously announced range of $3.8 to $4.2 billion.
AT&T Broadband
o Revenue $2.5 billion, up 8.2 percent on a pro forma basis, adjusted for
significant closed cable dispositions and acquisitions, and up 6.4
percent on a reported basis
o Revenue growth driven primarily by advanced services (telephony,
high-speed data, digital video)
o EBITDA, excluding other income, $569 million; $676 million excluding
other income and Comcast merger-related costs
o EBITDA margin, excluding other income, 22.3 percent; 26.5 percent
excluding other income and Comcast merger-related costs
o RGUs 559,000 net additions in the quarter: 285,000 digital video,
172,000 high-speed data, 102,000 telephony additions
o Basic video subscribers down about 129,000 primarily due to competition
o Outlook: Maintain ranges for full-year revenue and EBITDA, excluding
other income: revenue growth rate in low double-digit percentage;
EBITDA range, excluding other income, of $2.4 to $2.5 billion
3rd Quarter at a Glance 3rd Quarter Highlights
3Q02 % change from 3Q01 EPS from continuing operations, excluding $0.06
other income
AT&T revenue $11.96B (7.4%)* Reported EPS from continuing operations $0.05
AT&T Business revenue $6.70B (1.6%) Reported EPS $0.05
AT&T Consumer revenue $2.79B (25.9%) Total Assets $138.0B
AT&T Broadband revenue $2.55B 8.2%* Debt, net of cash, monetizations and foreign $29.7B
exchange hedges
EBITDA, excluding other income $3.24B (15.0%)
Reported EBITDA $3.28B NMF**
EBIT,excluding other income $1.19B (22.3%)
Reported EBIT $1.24B 133.8%
Capital expenditures $2.06B 4.6%
*Increase (decrease) is calculated on a pro forma basis
by adjusting third quarter 2001 revenue for significant cable acquisitions and
dispositions closed in 2001 and the deconsolidation of Excite@Home, as
applicable, as if these events occurred on January 1, 2001.
** Not a meaningful comparison
DEFINITIONS
AT&T Group does not include the results of Liberty Media Group, which was
tracked as a separate class of stock through August 10, 2001, the split-off
date.
EBIT refers to earnings before interest, taxes, extraordinary item, cumulative
effect of accounting changes, dividend requirements on preferred stock, premium
on exchange of AT&T Wireless tracking stock and discontinued operations.
EBIT, excluding other income/expense, refers to EBIT, excluding other
income/expense, and pretax net losses/earnings related to equity investments.
EBITDA refers to EBIT, excluding depreciation and amortization, and pretax
minority interest other than Excite@Home's minority interest.
EBITDA, excluding other expense/income, refers to EBITDA, excluding other
income/expense, and pretax net losses/earnings related to equity investments.
EBIT margin refers to EBIT as a percentage of reported revenue.
EBITDA margin refers to EBITDA as a percentage of reported revenue.
EPS from continuing operations, excluding other income/expense, refers to
earnings per share, excluding other income/expense, net losses/earnings related
to equity investments, extraordinary item, cumulative effect of accounting
changes, dividend requirements on preferred stock, premium on exchange of AT&T
Wireless tracking stock and discontinued operations.
Pro forma revenue: Third quarter 2001 revenue is adjusted for significant cable
acquisitions and dispositions closed in 2001 and the deconsolidation of
Excite@Home, as if these events occurred on January 1, 2001.
AT&T Group
Combined Statements of Operations (Unaudited)
-----------------------------------------------------------------------------------------------------------------------------------
For the Three Months For the Nine Months
Ended Sept. 30, Ended Sept. 30,
Dollars in Millions (except per share amounts) 2002 2001 2002 2001
------------------------------------------------------------------------------------------------------------------------------------
Revenue $ 11,956 $ 13,035 $ 36,044 $ 39,773
Operating Expenses
Costs of services and products 3,333 3,476 9,962 10,458
Access and other connection 2,696 3,033 8,267 9,289
Selling, general and administrative 2,712 2,488 7,902 7,953
Depreciation and amortization 1,981 2,274 5,835 7,036
Net restructuring and other charges
(26) 399 30 1,494
Goodwill and franchise impairment charges
- - 16,479 -
------- ------- -------- ---------
Total operating expenses 10,696 11,670 48,475 36,230
---------- --------- --------- ---------
Operating income (loss) 1,260 1,365 (12,431) 3,543
Other income (expense), net 56 320 (935) (771)
Interest (expense) (748) (786) (2,231) (2,426)
----- ----- ------- -------
Income (loss) from continuing operations before income taxes, minority interest and
dividends on subsidiary preferred stock and net (losses) related to equity
investments 568 899 (15,597) 346
(Provision) benefit for income taxes (312) 70 4,053 288
Minority interest and dividends on subsidiary preferred stock (38) 177 (126) 1,015
Net (losses) related to equity investments (11) (3,352) (1,032) (4,389)
----- ------- ------- --------
Income (loss) from continuing operations 207 (2,206) (12,702) (2,740)
(Loss) income from discontinued operations-net of tax - - (88) 150
Gain on disposition of discontinued operations - 13,503 - 13,503
------- ------- ------ ------
Income (loss) before extraordinary gain and cumulative effect of accounting changes 207 11,297 (12,790) 10,913
Extraordinary gain- net of tax - - 48 -
Cumulative effect of accounting changes- net of tax
- - (856) 359
--------- ------- ------- ------
Net income (loss) of AT&T Group 207 11,297 (13,598) 11,272
Dividend requirements of preferred stock, net - (235) - (652)
Premium on exchange of AT&T Wireless tracking stock
- - - ( 80)
-------- ------- --------- -------
Income (loss) attributable to common shareowners $ 207 $11,062 $ (13,598) $ 10,540
------ ------- ---------- --------
AT&T Common Stock Group :
Earnings (loss) $ 207 $ 11,062 $ (13,598) $ 10,505
Weighted-average shares (millions) 3,848 3,534 3,681 3,677
Weighted-average shares and potential common shares (millions)* 3,850 3,534 3,681 3,677
Earnings (loss) from continuing operations per basic and diluted share $ 0.05 $ (0.69) $ (3.45) $(0.94)
(Loss) earnings from discontinued operations per basic and diluted share - - (0.02) 0.03
Gain on disposition of discontinued operations per basic and diluted share - 3.82 - 3.67
Extraordinary gain per basic and diluted share - - 0.01 -
Earnings from cumulative effect of accounting change per basic and diluted share
- - (0.23) 0.10
--------- ------ ------ ----
Earnings (loss) per basic and diluted share $ 0.05 $ 3.13 $ (3.69) $ 2.86
Dividends declared per share $0.0375 $0.0375 $0.1125 $0.1125
AT&T Wireless Group:
Earnings $ - $ - $ - $ 35
Weighted-average shares (millions) - - - 438
Weighted-average shares and potential common shares (millions)* - - - 438
Earnings per basic and diluted share $ - $ - $ - $ 0.08
*Weighted-average shares assumes dilution from the potential conversion of debt
and equity securities and the potential exercise of outstanding stock options
and other performance awards, unless they are anti-dilutive to earnings (loss)
per diluted share.
AT&T EPS RECONCILIATION
The following table reconciles the reported earnings (loss) from continuing
operations per diluted share to earnings (loss) from continuing operations
excluding other income (expense) per diluted share:
For the three months ended September 30,
2002 2001
Reported earnings (loss) from continuing
operations per diluted share
$0.05 ($0.69)
-------------------------- ---------------------------
Less reconciling items:
Other income (expense), net(1) (0.01) 0.28
Net (losses) related to equity investments - (0.95)
-------------------------- ---------------------------
-------------------------- ---------------------------
(0.01) (0.67)
-------------------------- ---------------------------
-------------------------- ---------------------------
Earnings per diluted share from continuing $0.06 ($0.02)
operations excluding other income (expense)
========================== ===========================
========================== ===========================
---------------------------------------------------- -------------------------- ----- ---------------------------
(1) Other income (expense) is income on a pre-tax basis, but an expense on an
after-tax basis in the third quarter of 2002 due to the taxes associated with
the impairment charges recorded on certain leveraged leases of aircraft ($0.2
billion pre-tax). The nature of leveraged leases and the anticipated loss on
those leases caused a limited tax benefit.
AT&T Group
Combined Balance Sheets (Unaudited)
--------------------------------------------------------------------------------------------------------------------
September 30, December 31,
Dollars in Millions 2002 2001
-------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 6,926 $ 10,592
Accounts receivable, less allowances of $800 and $827 6,882 7,736
Other receivables 402 1,645
Investments 459 668
Deferred income taxes 2,048 1,230
Other current assets
995 657
--- ---
Total Current Assets 17,712 22,528
Property, plant and equipment, net of accumulated depreciation of $35,678
and $32,046 41,364 41,322
Goodwill, net of accumulated amortization of $1,307 in 2001 20,517 24,675
Franchise costs, net of accumulated amortization of $2,501 in 2001 29,084 42,819
Other purchased intangible assets, net of accumulated amortization of $846
and $647 2,003 2,222
Investments and related advances 17,920 23,818
Prepaid pension costs 3,522 3,337
Other assets 5,916 4,561
----- -----
TOTAL ASSETS $ 138,038 $ 165,282
========== ==========
LIABILITIES
Accounts payable $ 4,342 $ 4,744
Payroll and benefit-related liabilities 1,599 2,084
Debt maturing within one year 6,560 12,958
AT&T Canada obligation 3,525 -
Other current liabilities
4,652 5,641
------ ------
Total Current Liabilities 20,678 25,427
Long-term debt 36,371 40,527
Long-term benefit-related liabilities 3,707 3,594
Deferred income taxes 24,452 28,160
Other long-term liabilities and deferred credits
3,868 7,614
----- -----
Total Liabilities
89,076 105,322
------- -------
Minority interest 1,371 3,560
Company-Obligated Convertible Quarterly Income Preferred Securities of
Subsidiary Trust Holding Solely Subordinated Debt Securities of AT&T 4,728 4,720
SHAREOWNERS' EQUITY
AT&T Common Stock, $1 par value, authorized 6,000,000,000 shares; issued and
outstanding 3,851,084,978 shares (net of 858,888,662 treasury shares) at
September 30, 2002, and 3,542,405,744 shares (net of 851,746,431 treasury
shares) at December 31, 2001 3,851 3,542
Additional paid-in capital 53,530 49,265
Accumulated (deficit) (14,383) (785)
Accumulated other comprehensive (loss)
(135) (342)
----- -----
Total Shareowners' Equity
42,863 51,680
------- ------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 138,038 $ 165,282
========== ==========
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
888-428-4480 to access the call. Callers outside the U.S. should dial
+ 1 612-332-0819.
In addition, Internet rebroadcasts of the call will be available on the AT&T
website beginning later today. The website address is http://www.att.com/ir. A
copy of the earnings commentary is also available online. An audio rebroadcast
of the conference call will be available beginning in the afternoon on Tuesday,
October 22 until midnight on Thursday, October 24. To access the replay, please
visit http://www.att.com/ir, or U.S. callers can dial 800-475-6701, access code
653832. Callers outside the U.S. should dial +1 320-365-3844, access code
653832.
The foregoing are "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. For a more detailed description of the
factors that could cause such a difference, please see AT&T's 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.
# # #
AT&T also reported that, in light of recent publicly reported
developments, AT&T is examining the impact to it if various telecommunications
companies and vendors are unable to satisfy their agreements with AT&T,
including the separation agreements between AT&T and Lucent Technologies Inc.
While AT&T has not completed its review and can not quantify the impact, if any,
it is possible that under certain circumstances any such inability could have a
negative financial and operational impact on AT&T, which may be material.
AT&T also reported that it had decided to expense stock options grants,
commencing prospectively to options granted in 2003 and beyond. Given the number
of variables that must be used in determining the value and number of options
granted as well as market conditions, the Company is not possible to determine
precisely what the future impact on income would be at this time.
AT&T also noted that on October 21, 2002 its affiliate, AT&T Latin
America Corp., announced that it anticipates a liquidity shortfall commencing in
the fourth quarter of 2002. AT&T said that AT&T Latin America's current
situation has no impact on AT&T's ability to meet global business customers'
needs, whether those customers' operations are based in or extend to the Latin
America region. AT&T's investment in AT&T Latin America currently has a book
value of $1.2 billion. The recorded value of AT&T's investment could be impacted
by actions taken by AT&T Latin America. AT&T holds a 69 percent economic stake
and a 95% voting stake in AT&T Latin America.
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 hereunto duly authorized.
Date: October 22, 2002
AT&T CORP.
By: /s/ Robert S. Feit
-------------------------------------
Name: Robert S. Feit
Title: Vice President - Law and
Secretary