AT&T Announces First Quarter 2003 Earnings
* Earnings Per Diluted Share from Continuing Operations of $0.67,
compared to $0.60 Per Diluted Share in the Prior Year First Quarter
* Consolidated Revenue of $9.0 Billion for the Quarter
* Operating Income of $1.2 Billion for the Quarter
BEDMINSTER, N.J., April 23 -- AT&T (NYSE: T) today reported
income from continuing operations of $529 million, or earnings per diluted
share of $0.67, for the first quarter of 2003. The company's current quarter
income from continuing operations compares favorably to income of $446
million, or earnings per diluted share of $0.60, in the first quarter of 2002.
First quarter 2003 net income of $571 million, or earnings per diluted
share of $0.73, included income of $42 million, or $0.06, related to the
cumulative effect of the adoption of a new accounting standard. First quarter
2002 net loss of $975 million, or $1.32 per diluted share, included losses of
$0.76 and $1.16 from discontinued operations and the cumulative effect of the
adoption of a new accounting standard, respectively.
"AT&T's solid first quarter results demonstrate our continued success in
executing in the marketplace, taking market share and growing key areas of our
business despite ongoing economic weakness and a difficult telecom services
operating environment," said AT&T Chairman and CEO David W. Dorman. "We
remain focused on meeting customer needs and further differentiating AT&T
through targeted investments aimed at improving our network capabilities and
cost structure in ways that our competitors simply cannot match."
AT&T reported first quarter 2003 consolidated revenue of $9.0 billion,
which included $6.4 billion from AT&T Business Services and $2.5 billion from
AT&T Consumer Services. This represents a decline of 5.9 percent versus the
first quarter of 2002, primarily due to continued declines in long distance
(LD) voice services, partially offset by growth in several key segments of
AT&T Business Services, as well as the continued success of AT&T Consumer
Services' bundled local and LD offering. AT&T Business Services revenue
declined by 1.4 percent compared with the prior year first quarter, while AT&T
Consumer Services revenue declined by 17.8 percent.
AT&T's first quarter 2003 operating income totaled $1.2 billion, resulting
in a consolidated operating margin of 13.0 percent. AT&T Business Services
posted operating income of $600 million, yielding a margin of 9.3 percent,
while AT&T Consumer Services generated operating income of $632 million,
yielding a margin of 24.9 percent.
Outlook
AT&T expects that it will meet or exceed its previously stated 2003
consolidated revenue growth and operating income margin guidance. The company
has lowered its guidance for 2003 capital expenditures from a prior range of
$3.3 to $3.5 billion to around $3.0 billion.
AT&T UNIT HIGHLIGHTS
Effective with the current reporting period, AT&T is providing additional
product-line revenue detail as part of its quarterly financial disclosures.
Within AT&T Business Services, the company is now providing quarterly revenue
for long distance voice, local voice, data services, Internet protocol &
enhanced services (IP&E-services), outsourcing, professional services & other
as well as additional operational details. Within AT&T Consumer Services, the
company is now providing quarterly revenue for standalone long distance,
transactional & other services, as well as bundled services.
AT&T Business Services
* Revenue was $6.4 billion, a decline of 1.4 percent from the prior year
first quarter. The unit's revenue performance reflects continued
weakness in retail demand and overall telecommunications spending,
partially offset by strong growth in local, wholesale and IP&E-services
revenue.
* The managed component of total data services, and IP&E-services revenue
grew nearly 7 percent from the prior year first quarter and now
comprises 30 percent of this revenue total.
* Total data services revenue declined 0.9 percent and IP&E-services
revenue grew 9.1 percent, from the prior year quarter.
* Local voice revenue grew approximately 25 percent from the prior year
first quarter. Local access lines grew approximately 24 percent versus
the first quarter of 2002, with approximately 157,000 lines being added
in the 2003 first quarter. Local access lines totaled nearly
3.8 million at the end of the current reporting period.
* Long distance voice revenue declined 2.9 percent on a year-over-year
basis, driven by continued pricing pressure and weakness in retail
demand, partially offset by growth in wholesale revenue. Volumes grew
approximately 12 percent on a year-over-year basis, driven by strong
wholesale growth, which more than offset the decline in retail volumes.
* Operating income totaled $600 million. Operating margin was
9.3 percent, compared with 13.3 percent in the prior year first
quarter. This decline is primarily due to continued pricing pressure,
weak retail demand resulting from a soft economy, and a mix shift from
higher margin retail LD service to lower margin wholesale service.
AT&T Consumer Services
* Revenue was $2.5 billion, a decline of 17.8 percent versus the prior
year first quarter, driven by the continued impact of wireless and
Internet substitution, competition and customer migration to lower
priced products and calling plans. The revenue decline was partially
offset by growth in bundled revenue, which nearly doubled compared to
the prior year first quarter and now represents approximately
17 percent of total AT&T Consumer revenue.
* Operating income totaled $632 million, yielding an operating margin of
24.9 percent, compared with 26.6 percent in the prior year first
quarter. The year-over-year decline reflects the impact of
substitution, competition, and mix shift, mitigated by the successful
management of expenses.
* At the end of the first quarter, AT&T Consumer provided local service
to approximately 2.8 million customers, an increase of more than
119 percent from the prior year first quarter. During the current
reporting period, AT&T announced an expanded presence in Georgia as
well as its intention to enter the District of Columbia, Indiana and
Massachusetts markets. The company expects to offer local service in
11 markets by the second quarter of 2003.
OTHER CONSOLIDATED FINANCIAL HIGHLIGHTS
* AT&T ended the quarter with net debt of $12.0 billion. Net debt is
defined as total debt of $18.1 billion less cash of $4.9 billion,
restricted cash of $0.5 billion and foreign debt fluctuations of
$0.8 billion.
* Capital expenditures for the first quarter were $662 million.
* The effective tax rate for the first quarter of 35.2 percent was
positively impacted by the recognition of tax benefits recorded in
connection with the exchange and sale of AT&T's remaining interest in
AT&T Wireless. The tax rate excluding these transactions would have
been 40.5 percent.
* AT&T realized a $20 million net reduction in operating expenses during
the first quarter of 2003 due to its adoption of Statement of Financial
Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations."
DEFINITIONS and NOTES
AT&T Business Services
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 Services revenue (and eliminations)
not previously defined. Also included revenue from AT&T Latin America prior
to the first quarter of 2003.
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 Services
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.
Local Customers - residential customers who subscribe to AT&T Local
service.
Bundled Households - number of households in targeted markets where there
is general availability of AT&T Local service.
Other Definitions and Notes
Restricted cash - includes $0.5 billion of cash that collateralizes a
portion of private debt and is included in other assets on the balance sheet.
Foreign currency fluctuations - represents mark-to-market adjustments that
increased the debt balance by approximately $0.8 billion at March 31, 2003, on
non-U.S. denominated debt of about $4.0 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 assets on the balance sheet.
Monetization - represents debt that was exchangeable into, and
collateralized by, shares of AT&T Wireless.
AT&T Corp. Consolidated Statements of Income (Unaudited)
Dollars in millions (except per share amounts)
Three Months Ended March 31,
2003 2002 Change
REVENUE
AT&T Business Services $6,437 $6,528 (1.4%)
AT&T Consumer Services 2,536 3,086 (17.8%)
Corporate and Other 13 (66) 119.7%
Total Revenue 8,986 9,548 (5.9%)
OPERATING EXPENSES
Access and other connection 2,698 2,788 (3.2%)
Costs of services and products 2,011 2,014 (0.1%)
Selling, general and
administrative 1,921 1,937 (0.8%)
Depreciation and amortization 1,186 1,175 1.0%
Net restructuring and other
charges 4 -- NA
Total operating expenses 7,820 7,914 (1.2%)
Operating Income 1,166 1,634 (28.7%)
Other income (expense), net 10 (55) 118.9%
Interest (expense) (332) (396) (16.0%)
Income from continuing operations
before income taxes, minority
interest income, and net
earnings (losses) related to
equity investments 844 1,183 (28.7%)
(Provision) for income taxes (297) (479) (38.0%)
Minority interest income 1 20 (96.6%)
Net (losses) related to equity
investments (19) (278) 93.2%
Income from continuing operations 529 446 18.5%
(Loss) from discontinued
operations - net of taxes -- (565) 100.0%
Cumulative effect of accounting
changes - net of taxes 42 (856) 104.9%
Net income (loss) $571 $(975) 158.6%
Weighted-average common shares
(millions) 784 709
Weighted-average common shares
and potential common shares
(millions) 785 738
PER BASIC SHARE:
Earnings from continuing
operations $0.67 $0.63 6.3%
(Loss) from discontinued
operations -- (0.80) 100.0%
Cumulative effect of accounting
changes 0.06 (1.21) 105.0%
Earnings (loss) per basic share $0.73 $(1.38) 152.9%
PER DILUTED SHARE:
Earnings from continuing
operations $0.67 $0.60 11.7%
(Loss) from discontinued
operations -- (0.76) 100.0%
Cumulative effect of accounting
changes 0.06 (1.16) 105.2%
Earnings (loss) per diluted share $0.73 $(1.32) 155.3%
Dividends declared per share $0.1875 $0.1875
AT&T Corp. Consolidated Statements of Income (Unaudited)
Dollars in millions (except per share amounts)
1Q03 4Q02 3Q02 2Q02 1Q02 2002
REVENUE
AT&T Business
Services $6,437 $6,588 $6,700 $6,742 $6,528 $26,558
AT&T Consumer
Services 2,536 2,736 2,794 2,911 3,086 11,527
Corporate and
Other 13 (34) (85) (73) (66) (258)
Total revenue 8,986 9,290 9,409 9,580 9,548 37,827
OPERATING
EXPENSES
Access and other
connection 2,698 2,576 2,679 2,747 2,788 10,790
Costs of services
and products 2,011 2,197 2,066 2,086 2,014 8,363
Selling, general
and
administrative 1,921 2,077 2,032 1,942 1,937 7,988
Depreciation and
amortization 1,186 1,257 1,243 1,213 1,175 4,888
Net restructuring
and other
charges 4 1,463 (26) -- -- 1,437
Total operating
expenses 7,820 9,570 7,994 7,988 7,914 33,466
Operating income
(loss) 1,166 (280) 1,415 1,592 1,634 4,361
Other income
(expense), net 10 208 (180) (50) (55) (77)
Interest
(expense) (332) (361) (355) (336) (396) (1,448)
Income (loss)
from continuing
operations
before income
taxes, minority
interest income,
and net earnings
(losses) related
to equity
investments 844 (433) 880 1,206 1,183 2,836
(Provision) for
income taxes (297) (225) (370) (513) (479) (1,587)
Minority interest
income 1 33 28 33 20 114
Net (losses)
earnings related
to equity
investments (19) 14 (13) (123) (278) (400)
Income (loss)
from continuing
operations 529 (611) 525 603 446 963
(Loss) from
discontinued
operations - net
of taxes -- (197) (318) (13,433) (565) (14,513)
Gain on
disposition of
discontinued
operations - net
of taxes -- 1,324 -- -- -- 1,324
Income (loss)
before
cumulative
effect of
accounting
changes 529 516 207 (12,830) (119) (12,226)
Cumulative effect
of accounting
changes, net of
taxes 42 -- -- -- (856) (856)
Net income (loss) $571 $516 $207 $(12,830) $(975) $(13,082)
Weighted-average
common shares
(millions) 784 776 770 730 709 746
Weighted-average
common shares
and potential
common shares
(millions) 785 776 788 750 738 766
PER BASIC SHARE:
Earnings (loss)
from continuing
operations $0.67 $(0.79) $0.68 $0.83 $0.63 $1.29
(Loss) from
discontinued
operations -- (0.26) (0.41) (18.41) (0.80) (19.44)
Gain on
disposition of
discontinued
operations -- 1.71 -- -- -- 1.77
Cumulative effect
of accounting
changes 0.06 -- -- -- (1.21) (1.15)
Earnings (loss)
per basic share $0.73 $0.66 $0.27 $(17.58) $(1.38) $(17.53)
PER DILUTED
SHARE:
Earnings (loss)
from continuing
operations $0.67 $(0.79) $0.67 $0.80 $0.60 $1.26
(Loss) from
discontinued
operations -- (0.26) (0.41) (17.91) (0.76) (18.95)
Gain on
disposition of
discontinued
operations -- 1.71 -- -- -- 1.73
Cumulative effect
of accounting
changes 0.06 -- -- -- (1.16) (1.12)
Earnings (loss)
per diluted
share $0.73 $0.66 $0.26 $(17.11) $(1.32) $(17.08)
Segment Disclosures (Unaudited)
Dollars in millions
1Q03 4Q02 3Q02 2Q02 1Q02 2002
AT&T Business
Services
LD Voice $2,961 $2,853 $3,129 $3,224 $3,048 $12,254
Local Voice 335 336 274 277 268 1,155
Total Voice 3,296 3,189 3,403 3,501 3,316 13,409
Data Services 2,000 2,079 2,086 2,077 2,018 8,260
IP&E-Services 445 442 421 406 408 1,677
Total Data
Services,
IP&E-Services 2,445 2,521 2,507 2,483 2,426 9,937
Outsourcing,
Professional
Services & Other 696 878 790 758 786 3,212
Total Revenue 6,437 6,588 6,700 6,742 6,528 26,558
Operating Income
(Loss)(1) 600 (612) 854 856 867 1,965
Operating Margin 9.3% (9.3%) 12.7% 12.7% 13.3% 7.4%
Capital
Expenditures 636 1,297 912 930 575 3,714
Depreciation &
Amortization 1,126 1,173 1,128 1,141 1,104 4,546
Total Data
Services,
IP&E-Services - %
managed 30% 30% 29% 29% 29% 29%
Total Data
Services,
IP&E-Services - %
international 14% 15% 14% 15% 13% 14%
LD Volume Growth -
Yr/Yr 12% 7% 2% (1%) (1%) N/A
LD Volume %
Wholesale 45% 42% 38% 34% 33% 37%
AT&T Consumer
Services
Standalone LD,
Transactional and
Other Services $2,112 $2,375 $2,499 $2,670 $2,869 $10,413
Bundled Services 424 361 295 241 217 1,114
Total Revenue 2,536 2,736 2,794 2,911 3,086 11,527
Operating Income(2) 632 389 595 787 821 2,592
Operating Margin 24.9% 14.2% 21.3% 27.0% 26.6% 22.5%
Capital
Expenditures 22 32 34 33 28 127
Depreciation &
Amortization 35 57 89 43 41 230
Local Customers (in
thousands) 2,778 2,423 1,916 1,549 1,266 2,423
Bundled Households
(in millions) 32.2 32.2 32.2 17.6 13.1 32.2
Corporate and Other
Revenue $13 $(34) $(85) $(73) $(66) $(258)
Operating Income
(Loss)(3) (66) (57) (34) (51) (54) (196)
Capital
Expenditures 4 17 23 13 10 63
Depreciation &
Amortization 25 27 26 29 30 112
Total AT&T
Revenue $8,986 $9,290 $9,409 $9,580 $9,548 $37,827
Operating Income
(Loss)(4) 1,166 (280) 1,415 1,592 1,634 4,361
Operating Margin 13.0% (3.0%) 15.0% 16.6% 17.1% 11.5%
Capital
Expenditures 662 1,346 969 976 613 3,904
Depreciation &
Amortization 1,186 1,257 1,243 1,213 1,175 4,888
(1) Includes business restructuring and asset impairment (charges)
benefits of ($1,230M) in 4Q02 and $27M in 3Q02.
(2) Includes business restructuring and asset impairment (charges)
benefits of ($223M) in 4Q02 and $12M in 3Q02.
(3) Includes business restructuring (charges) of ($10M) in 4Q02 and
($13M) in 3Q02.
(4) Includes business restructuring and asset impairment (charges)
benefits of ($1,463M) in 4Q02 and $26M in 3Q02.
AT&T Corp. Consolidated Balance Sheets (Unaudited)
Dollars in millions
March 31, December 31, %
2003 2002 Change
ASSETS
Cash and cash equivalents $4,900 $8,014 -38.9%
Accounts receivable, less
allowances of $697 and $669 5,028 5,286 -4.9%
Deferred income taxes 779 910 -14.4%
Other current assets 1,150 1,693 -32.1%
Total Current Assets 11,857 15,903 -25.4%
Property, plant and
equipment, net of
accumulated
depreciation of $32,096 and
$31,021 25,246 25,604 -1.4%
Goodwill 4,660 4,626 0.7%
Other purchased intangible
assets, net of accumulated
depreciation of $262 and
$244 542 556 -2.6%
Prepaid pension costs 3,655 3,596 1.6%
Other assets 4,463 4,987 -10.5%
TOTAL ASSETS $50,423 $55,272 -8.8%
LIABILITIES
Accounts payable $3,384 $3,819 -11.4%
Payroll and benefit-related
liabilities 941 1,519 -38.0%
Debt maturing within one year 4,346 3,762 15.5%
Other current liabilities 3,046 2,924 4.2%
Total Current Liabilities 11,717 12,024 -2.5%
Long-term debt 13,786 18,812 -26.7%
Long-term benefit-related
liabilities 4,095 4,001 2.3%
Deferred income taxes 4,768 4,739 0.6%
Other long-term liabilities
and deferred credits 3,359 3,384 -0.7%
Total Liabilities 37,725 42,960 -12.2%
SHAREOWNERS' EQUITY
AT&T Common Stock, $1 par
value, authorized
6,000,000,000 shares;
issued and outstanding
785,563,631 shares (net of
171,748,905 treasury shares)
at March 31, 2003 and
783,037,580 shares
(net of 171,801,716 treasury
shares) at December 31, 2002 786 783 0.3%
Additional paid-in capital 28,079 28,163 -0.3%
Accumulated deficit (15,995) (16,566) 3.4%
Accumulated other
comprehensive loss (172) (68) -153.5%
Total Shareowners' Equity 12,698 12,312 3.1%
TOTAL LIABILITIES &
SHAREOWNERS' EQUITY $50,423 $55,272 -8.8%
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 888-276-0010 to access the call. Callers outside the U.S. should dial +
1-612-326-1003.
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. An audio rebroadcast of the conference call will be
available beginning in the afternoon on Wednesday, April 23 until midnight on
Friday, April 25. To access the replay, please visit http://www.att.com/ir,
or U.S. callers can dial 800-475-6701, access code 661276. Callers outside
the U.S. should dial +1-320-365-3844, access code 661276.
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.
SOURCE AT&T
-0- 04/23/2003
/CONTACT: Media - Eileen Connolly, +1-908-234-8510, or Dan Lawler,
+1-908-234-6846, or Investor - Investor Relations, +1-908-532-1680, all of
AT&T/
/Web site: http://www.att.com/ir /
(T)
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