8-K 1 eightk042303.txt FORM 8-K FOR THE PERIOD APRIL 23, 2003. 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: April 23, 2003 AT&T CORP. (Exact Name of Registrant as Specified in Charter) New York (State or Other Jurisdiction of Incorporation) 1-1105 13-4924710 (Commission File Number) (IRS Employer Identification No.) One AT&T Way Bedminster, New Jersey 07921 (Address of Principal Executive (Zip Code) Offices) Registrant's telephone number, including area code: (800) 257-7865 Not Applicable (Former Name or Former Address, If Changed Since Last Report) A New York Commission File I.R.S. Employer Corporation No. 1-1105 No.13-4924710 Form 8-K AT&T Corp. April 23, 2003 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS. (c) EXHIBITS Exhibit 99 - Press release dated April 23, 2003. ITEM 9. REGULATION FD DISCLOSURE. On April 23, 2003, AT&T Corp. issued a press release announcing first quarter 2003 earnings. A copy of the press release is attached as Exhibit 99. This information furnished under "Item 9. Regulation FD Disclosure" is intended to be furnished under "Item 12. Results of Operations and Financial Condition" in accordance with SEC Release No. 33-8216. The information in this Form 8-K and the Exhibit attached hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. Form 8-K AT&T Corp. April 23, 2003 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. AT&T CORP. /s/ Robert S. Feit ---------------------------------- By: Vice President - Law and Secretary April 23, 2003 EXHIBIT 99 [AT&T LOGO OMITTED] News Release -------------------------------------------------------------------------------- FOR RELEASE WEDNESDAY, APRIL 23, 2003 AT&T Announces First Quarter 2003 Earnings o Earnings per diluted share from continuing operations of $0.67, compared to $0.60 per diluted share in the prior year first quarter o Consolidated revenue of $9.0 billion for the quarter o Operating income of $1.2 billion for the quarter BEDMINSTER, N.J. -- 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 o 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. o 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. o Total data services revenue declined 0.9 percent and IP&E-services revenue grew 9.1 percent, from the prior year quarter. o 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. o 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. o 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 o 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. o 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. o 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 o 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. o Capital expenditures for the first quarter were $662 million. o 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. o 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. Income Statement
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
Quarterly Income Statements
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)
Historical Segment Data
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. # # #