Pro Forma Revenue Increases 3.7 Percent, Reported Revenue Up 3.9 Percent
NEW YORK – AT&T said today third quarter earnings for AT&T Common Stock Group were $0.35 per diluted share on a reported basis, or $1.319 billion, compared to $0.50 per diluted share, for the year-ago quarter. AT&T Common Stock Group’s operational earnings, which exclude certain gains and charges as well as the impact of certain ownership interests, were $0.38 per diluted share, or $1.440 billion, a decrease of 24.0 percent compared to the $0.50 per diluted share from the year-ago quarter.
Pro forma revenue for the third quarter increased 3.7 percent year-over-year and was led by Wireless Services, Broadband, and Business Services but partially offset by declines in Consumer Services. On a reported basis, third quarter revenue was $16.975 billion compared to $16.333 billion for the year-ago quarter.
The company’s Wireless and Broadband segments both reported solid revenue gains for the quarter. Wireless revenue grew 36.6 percent due to an increase in the number of subscribers. AT&T Broadband revenue grew 10.8 percent on a pro forma basis. In addition, nearly 600,000 new digital video, telephony and high-speed data service units were added this quarter.
Business Services’ data and Internet protocol (data/IP) services revenue now accounts for almost a third of revenue from the company’s business services and grew more than 20.0 percent and its outsourcing business grew 20.2 percent on a pro forma basis. However, this was largely offset by an accelerated decline in Business Services voice revenue, resulting in an overall pro forma revenue increase of 2.5 percent for the third quarter.
Consumer Services’ revenue continued to decline given increased competition in the long distance market, movement of customers to optional calling plans and increased use of wireless services as a substitute for calling card and direct-dial wireline services.
"For the past three years, AT&T’s strategy has been all about building our growth businesses and reducing our dependence on a mature long distance voice business," said Chairman and CEO C. Michael Armstrong. " In 1997, our growth businesses accounted for only about 20 percent of AT&T’s revenue. This year, they will represent about half. At the same time we see an accelerated industry-wide decline in consumer and business long distance voice.
"AT&T is showing strong results in our wireless, broadband and growth units of business services, which produced more than $22 billion in pro forma revenue and grew about 20 percent in the past nine months.
"In fact," Armstrong said, "this quarter we added an additional 126,000 cable-telephony customers and we’re on target to meet our year-end goal of 500,000-650,000. And today AT&T Broadband is leading the industry in digital video, cable telephony and high-speed data customers."
3rd Quarter at a Glance |
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3rd Quarter Highlights |
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3Q00 |
vs 3Q99 |
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- Total Revenue |
$17.0b |
Business Services Revenue (1) |
$7.1b |
2.5% |
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- Reported EPS |
$0.35 |
Consumer Services Revenue (1) |
$4.7b |
(10.9%) |
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- Operational EPS (4) |
$0.38 |
Wireless Services Revenue (2) |
$2.8b |
36.6% |
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- Operational Cash EPS (4) |
$0.53 |
Broadband Revenue (3) |
$2.4b |
10.8% |
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- SG&A and Costs of Services and Products to-Revenue |
46.8% |
Operational EBITDA (4) |
$6.0b |
16.6% |
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Operational EBIT (4) |
$3.2b |
6.8% |
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- Total Assets |
$213.2b |
Wireless Subscribers – Consolidated Mkts (5) |
12.6m |
38.4% |
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- Capital Expenditures |
$3.6b |
Wireless Subscribers – Total (6) |
15.0m |
26.2% |
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(1) Revenue growth represents a comparison to third quarter 1999 pro forma revenue, adjusted for the impact of Concert, the IBM Global Network acquisition, and the elimination of per-line charges by the FCC, as applicable.
(2) Includes the Wireless acquisition of properties in the San Francisco Bay area. Excluding these properties, revenue increased 27.3 percent.
(3) Revenue growth is based on third quarter 2000 revenue compared with pro forma revenue for the year-ago quarter, adjusted for the impact of the MediaOne acquisition and all closed cable transactions.
(4) Excludes certain gains and charges as well as the impact of AT&T’s ownership interests in Cablevision Systems Corp. (Cablevision) and Time Warner Entertainment (TWE).
(5) Includes subscribers from the acquisition of properties in the San Francisco Bay area, Wireless One Network L.P., and properties in the San Diego area.
(6) Includes partnership markets.
Highlights
Business Unit Highlights:
IP services, which include IP connectivity services and Virtual Private Network Services (VPN), grew more than 50 percent during the third quarter. On a combined basis, packet services (frame relay, ATM and IP) grew over 50 percent during the quarter.
Operational EBITDA and EBIT for Business Services increased 13.5 percent and 14.8 percent, respectively, over the year-ago quarter. The increase was primarily due to selling, general and administrative expense (SG&A) cost control efforts and revenue growth partially offset by the impact of customers contributed to Concert. The equity earnings of Concert are reported within Corporate and Other.
AT&T Solutions, part of Business Services, increased outsourcing revenue 20.2 percent to $875 million in the third quarter, compared to pro forma revenue of $728 million for the third quarter of 1999. The increase is primarily due to new contract signings and add-on business from existing clients.
Customers have responded well to AT&T’s any distance New York Local One Rate offer, which combines both local and long distance service, approaching 650,000 net customers since its introduction.
Operational EBITDA for Consumer Services decreased 15.2 percent and operational EBIT decreased 14.1 percent over the year-ago quarter. Operational EBITDA and EBIT margins continue to remain strong at 42.7 percent and 39.7 percent, respectively, reflecting continued cost control efforts, primarily in SG&A.
Consolidated subscribers totaled 12.6 million at the end of the third quarter. Consolidated net subscriber additions totaled approximately 750,000 in the third quarter, an increase of 195.1 percent over the year-ago quarter. Total subscribers, including partnership markets in which AT&T does not have a controlling interest, were nearly 15 million at the end of the third quarter, a 26.2 percent increase over the year-ago quarter.
EBITDA excluding other income was $472 million in third quarter, an increase of 18.6 percent from the year-ago quarter. The EBITDA improvement from the prior year was primarily the result of increased revenue in mobility services, as well as lower off-network roaming expense. These improvements were partially offset by increased customer acquisition costs associated with an increase in gross subscriber additions, increased network costs attributable to the growth in subscribers and their minutes of use, as well as increased information technology costs to support growth in the subscriber base.
Operational EBIT for Wireless Services was $105 million in the third quarter of 2000 as compared to $54 million in the third quarter of 1999. The improvement was primarily driven by higher EBITDA excluding other income and higher other income due to interest income on allocated initial public offering proceeds. These were partially offset by higher depreciation and amortization expenses associated with an increased asset base.
Additional third quarter financial results for AT&T Wireless Group can be obtained in a supplemental news release the company issued today, which is available at http://www.att.com/wirelessir.
Broadband ended the quarter with approximately 888,000 high-speed data customers compared with approximately 689,000 in the second quarter and about 297,000 customers a year ago. Net additions for the quarter were approximately 197,000, a 59 percent increase from approximately 124,000 customers added in the second quarter.
The company continues to ramp its broadband telephony efforts. At the end of the third quarter, AT&T provided broadband telephony service to about 350,000 customers in 17 major markets, a 56 percent increase from the 224,000 customers we had at the end of the second quarter. By the end of the quarter, AT&T ramped to about 2,100 telephony installations per day.
Broadband added approximately 273,000 net digital video customers in the third quarter and ended the quarter with more than 2.5 million digital video subscribers.
Broadband pro forma operational EBITDA, excluding other income, decreased 12.7% in the third quarter of 2000 to $538 million, compared with $616 million in the year ago quarter. The decrease was primarily due to higher programming costs, MediaOne merger integration costs and increased personnel costs associated with market-based changes in the compensation structure, partially offset by higher revenue.
Operational EBITDA and EBIT for Corporate and Other improved $509 million to $219 million and improved $468 million to negative $40 million in the third quarter, respectively, compared with the same period of 1999. The improvements were primarily due to a larger pension credit in 2000 largely driven by a higher pension trust asset base resulting from increased investment returns, and higher other income due to increased gains on sales of miscellaneous investments and higher interest income. Also contributing to the improvements were lower SG&A expenses, including cost control efforts.
Today’s earnings announcement refers to AT&T Group, which does not include the results of Liberty Media Group, which reports its results separately. A detailed explanation of third quarter business unit performance can be found on the Internet at http://www.att.com/ir/.
Definitions:
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 document also contains certain information such as operational EPS, operational cash EPS and reported and operational EBIT and EBITDA that are not presented in accordance with generally accepted accounting principles. This information is presented solely to provide additional information to further understand the results of AT&T.
AT&T Group Combined Statements of Income (Unaudited) |
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For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
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Dollars in Millions |
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(except per share amounts) |
2000 |
1999 |
2000 |
1999 |
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Revenue |
$ 16,975 |
$16,333 |
$49,097 |
$46,202 |
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Operating Expenses |
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Access and other connection |
3,255 |
3,654 |
10,460 |
11,054 |
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Costs of services and products |
4,547 |
3,932 |
12,578 |
10,660 |
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Selling, general and administrative |
3,397 |
3,442 |
9,796 |
10,060 |
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Depreciation and other amortization |
1,919 |
1,558 |
5,182 |
4,408 |
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Amortization of goodwill, franchise costs and other purchased intangibles |
879 |
358 |
1,661 |
900 |
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Net restructuring and other charges |
24 |
- |
797 |
702 |
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Total operating expenses |
14,021 |
12,944 |
40,474 |
37,784 |
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Operating income |
2,954 |
3,389 |
8,623 |
8,418 |
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Other income (expense) |
71 |
(375) |
486 |
(254) |
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Interest expense |
946 |
493 |
2,158 |
1,188 |
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Income before income taxes |
2,079 |
2,521 |
6,951 |
6,976 |
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Provision for income taxes |
763 |
888 |
2,127 |
2,679 |
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Income available to common shareowners |
$ 1,316 |
$ 1,633 |
$4,824 |
$ 4,297 |
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AT&T Common Stock Group: |
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Earnings |
$ 1,319 |
$1,633 |
$4,805 |
$4,297 |
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Weighted average shares and |
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potential common shares (millions)* |
3,842 |
3,267 |
3,471 |
3,114 |
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Earnings per basic share |
$ 0.35 |
$ 0.51 |
$ 1.41 |
$ 1.41 |
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Earnings per diluted share |
$ 0.35 |
$ 0.50 |
$ 1.40 |
$ 1.39 |
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Dividends declared per share |
$ 0.22 |
$ 0.22 |
$ 0.66 |
$ 0.66 |
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AT&T Wireless Group: |
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(Losses) earnings ** |
$ (3) |
- |
$ 19 |
- |
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Weighted average shares (millions)* |
360 |
- |
360 |
- |
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(Losses) earnings per basic and diluted share |
$ (0.01) |
- |
$ 0.05 |
- |
1999 amounts have been restated to conform to the current year presentation.
*Amounts represent the weighted-average shares assuming dilution from the potential conversion of debt and equity securities and the potential exercise of outstanding stock options and other performance awards. Basic shares for AT&T Common Stock, assuming no dilution, were 3,752 million and 3,195 million for the three months ended September 30, 2000 and 1999, respectively, and 3,397 million and 3,045 million for the nine months ended September 30, 2000, and 1999, respectively. No difference exists between the number of AT&T Wireless Group basic and diluted shares for the periods displayed.
**
Earnings for the nine months ended September 30, 2000, represent earnings since April 27, 2000, the effective date of the Initial Public Offering of AT&T Wireless Group tracking stock.
EPS Reconciliation
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For the three months ended | ||||||||||||||||||||||||
(Dollars in millions, except per share amounts) |
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September 30, 2000 |
September 30, 1999 | |||||||||||||||||||||||
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After-tax |
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Diluted EPS |
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After-tax |
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Diluted EPS | |||||||||||||||
Reported Income attributable to AT&T Common Stock Group |
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$1,319 |
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$0.35 |
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$1,633 |
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$0.50 | |||||||||||||||
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Add : |
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Losses of Cablevision and TWE (pretax $172 3Q00 & $112 3Q99) |
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106 |
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0.03 |
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69 |
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0.02 | |||||||||||||||
Net restructuring and other charges (pretax $24 3Q00) |
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15 |
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Less : |
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Gains on sales and other ( pretax $110 3Q99) |
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-- |
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69 |
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0.02 | |||||||||||||||
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Operational earnings attributable to AT&T Common Stock Group |
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$1,440 |
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$0.38 |
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$1,633 |
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$0.50 | |||||||||||||||
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David P. Caouette - AT&T
908-221-6382 (office)
888-602-8132 (pager)
caouette@att.com
June Rochford - AT&T
908-221-8165 (office)
jrochford@att.com
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