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: January 25, 1999
AT&T CORP.
A New York Commission File I.R.S. Employer
Corporation No. 1-1105 No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone Number (212) 387-5400
<PAGE>
Form 8-K
AT&T Corp.
January 25, 1999
Item 5. Other Events.
See Exhibit 99 to this Form 8-K.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
Exhibit 99 AT&T Corp. Press Release issued January 25 1999.
<PAGE>
Form 8-K
AT&T Corp.
January 25, 1999
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/ Marilyn J. Wasser
-----------------------------------
By: Marilyn J. Wasser
Vice President and Secretary
January 26, 1999
FOR RELEASE: MONDAY, JANUARY 25, 1999
AT&T's Fourth Quarter Operational Profits Were $1.00 Per Share,
An Increase of 45 Percent
1998 Operational Profits Were $3.45 Per Share
NEW YORK -- AT&T today announced that fourth quarter operational profits
from continuing operations were $1.00 per share on a diluted basis, an increase
of 44.9 percent compared to year-ago earnings of 69 cents per share. AT&T's
total revenues, compared to 1997, rose 4.8 percent for the fourth quarter. It
marked the fourth consecutive quarterly increase in total revenues.
AT&T's fourth quarter earnings from continuing operations, as reported,
were $1.12 per share, on a diluted basis, an increase of 62.3 percent compared
to the 69 cents per share earnings for the fourth quarter of 1997. Fourth
quarter results were impacted by a pre-tax benefit from restructuring and other
charges of $313 million primarily from the settlement of pension obligations for
former employees who accepted the company's voluntary retirement incentive
program, as well as a pre-tax benefit of $42 million resulting from the adoption
of a new accounting standard. AT&T's earnings per share from net income were
also $1.12 on a diluted basis in the fourth quarter.
For the full year, 1998 operational income from continuing operations was
$3.45 per share on a diluted basis, a 45.6 percent increase compared to the
$2.37 per share profit for 1997. The 1998 results were impacted by restructuring
and other charges, as well as benefits from gains on dispositions and the
adoption of a new accounting standard. Including the impact of these
non-operational items, 1998 income from continuing operations, as reported, was
$2.91 per diluted share, an increase of 22.3 percent compared to the $2.38 per
share profit reported for 1997. AT&T's earnings per share from net income were
$3.55 on a diluted basis.
Total revenues for the quarter increased 4.8 percent to $13.528 billion,
compared to $12.903 billion in the fourth quarter of 1997. For the full year,
revenues increased 3.2 percent, or $1.646 billion, to total $53.223 billion.
AT&T's business services, wireless services, Teleport Communications Group Inc.
(TCG), including ACC Corp., AT&T Solutions, international operations and
ventures and AT&T WorldNet units all contributed to the revenue growth. As
expected, AT&T's consumer services revenue declined, as the company aggressively
implemented its strategy of targeting and retaining profitable customers and
migrating them to more favorable optional calling plans, such as AT&T's One Rate
Plus plan.
"For the fourth quarter in a row, AT&T delivered strong earnings and met
investors' expectations," said AT&T Chairman C. Michael Armstrong. "We took
aggressive action in 1998 to strategically reposition AT&T for the future. We
will continue to build on that momentum this year, focusing on reducing costs,
building top line revenues and investing to grow."
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Previously Announced Share Repurchase and Stock Split
On January 8, 1999, the company announced that its Board of Directors
authorized the repurchase of up to $4 billion of AT&T common stock. The company
intends to repurchase shares from time to time prior to the closing of the
Tele-Communications, Inc. (TCI) merger through an open market share repurchase
program. AT&T will reissue the repurchased shares as part of the shares to be
issued to TCI shareholders. Purchases will not begin immediately and will be
subject to market conditions and Securities and Exchange Commission (SEC)
regulations, which could limit the actual number purchased.
AT&T also announced that it intends, following completion of the TCI
merger, to declare a three-for-two stock split of the company's common stock.
TCI Merger Update
On December 30, 1998, the company received clearance from the U.S.
Department of Justice to proceed with the TCI merger. On January 8, 1999, the
company announced that the SEC had declared the TCI merger proxy effective and
said it would begin mailing copies to shareowners. The proxy mailing is in
preparation for a special shareowners meeting the company expects to hold on
February 17, 1999, at the Meadowlands Exposition Center in Secaucus, N.J., to
vote on matters necessary to complete the merger.
1999 Financial Guidance
Also on January 8, 1999, the company announced that it expected EPS from
continuing operations for 1999 to be in the range of $4.20 to $4.30, excluding
the impact of its planned merger with TCI and the stock split and share
repurchase program. Assuming the merger closes at the end of the first quarter,
AT&T expects EPS dilution to be approximately $1.00 per share on a pro forma
basis.
AT&T also said that it expects 1999 revenue growth to range from five to
seven percent on a pro forma basis, including the effect of its planned mergers
with TCI and Vanguard Cellular Systems as well as the previously announced
agreement to acquire IBM's Global Network business.
For the first quarter of 1999, AT&T said it expects earnings in the range
of 92 to 95 cents per share, which would represent year-over-year earnings
growth between 33 and 38 percent.
Fourth Quarter Continuing Operations Highlights
- - Total revenues from wireless services rose $302 million, an increase of
25.1 percent from the fourth quarter of 1997. Revenues from
other/corporate, which includes TCG (including ACC), AT&T Solutions,
international operations and ventures and AT&T WorldNet services increased
$274 million, or 33.7 percent, compared to the fourth quarter of 1997.
Business services total revenues increased $259 million, or 4.7 percent,
compared to the year-ago quarter, driven by continued growth in data
services. Revenues from consumer services decreased $206 million, or 3.6
percent compared to the year-ago quarter.
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- - Total operating expenses for the fourth quarter of 1998 were $10.342
billion, a 5.2 percent decrease compared to the $10.912 billion reported
for the fourth quarter of 1997. The decline was impacted by the benefit
from restructuring and other charges as well as the adoption of a new
accounting standard relating to the capitalization of certain costs for
internal-use software development. Excluding these items, total operating
expenses for the fourth quarter of 1998 decreased 2.0 percent to $10.697
billion.
- - Access and other interconnection expenses fell by 4.8 percent, compared
with the fourth quarter of 1997. Consistent with previous quarters in 1998,
the decline is primarily the result of FCC-mandated per-minute access
charge reductions and AT&T's continued efforts to manage access costs and
lower international settlement rates. These decreases were largely offset
by Primary Interexchange Carrier Charges (PICC), the company's contribution
to the Universal Service Fund (USF) and volume increases. Revenues are
negatively impacted as the company passes through access charge savings to
its business and residential customers.
- - Selling, general and administrative (SG&A) expenses declined $516 million,
or 14.4 percent, when compared to the year-ago quarter. On a year-over-year
basis, this is the sixth consecutive quarter the company has reduced its
SG&A expenses as it continues to better manage the cost of doing business.
Excluding TCG and the favorable impact of a new accounting standard, the
company's 1998 SG&A expenses declined $1.602 billion, or 11.1 percent for
the year, achieving its goal to reduce expenses by $1.6 billion in 1998.
AT&T has committed to reducing SG&A expenses (excluding wireless and local)
to a SG&A-to-revenue ratio of 21 percent for 1999. For the fourth quarter
of 1998, AT&T's SG&A-to-revenue ratio was 22.5 percent, including the
benefit of the accounting change.
Fourth Quarter Results in Detail
Business Services
Total revenues from business services increased $259 million, or 4.7
percent, to $5.744 billion in the fourth quarter compared to $5.485 billion in
the fourth quarter of 1997. For the year, total revenues were $22.940 billion, a
4.1 percent increase from the $22.030 billion reported for 1997. Revenue growth
for both the fourth quarter and full year was driven primarily by continued
strength in data services, particularly in frame-relay and high-speed private
line services. Total data services revenues increased in the high teens for the
fourth quarter and full year.
Business long distance revenues for the fourth quarter was $5.720 billion,
an increase of 4.5 percent compared to the $5.475 billion reported for the
fourth quarter of 1997. For 1998, business long distance revenues totaled
$22.862 billion, up 3.9 percent from the $22.007 billion reported for 1997. As a
result of this performance, the company's 1998 business long distance revenues
surpassed consumer long distance revenues.
<PAGE>
Earnings before interest and taxes (EBIT) grew 26.5 percent when comparing
the fourth quarter 1998 to the comparable quarter in 1997. For the year, EBIT
grew 20.3 percent. The increases were primarily driven by growth in revenues as
well as continued progress toward AT&T's company-wide cost-reduction goals.
Consumer Services
Revenues from consumer services were $5.543 billion, a decrease of 3.6
percent when compared to the fourth quarter of 1997. Consumer services revenues
were $22.632 billion in 1998, a decline of 3.8 percent from the $23.527 billion
reported for 1997, within the expected range of decline.
In 1998, consumer services continued to migrate its most profitable
customers to optional calling plans as a key part of its strategy to retain and
grow its "high value" customer base. AT&T now has almost 26 million customers on
its One Rate plans, including 13 million on One Rate Plus. For the fourth
quarter, about 75 percent of AT&T's consumer long distance minutes were
generated by customers on optional calling plans.
Throughout the year and in the fourth quarter, the decline in long distance
revenues resulted from the movement of customers to optional calling plans as
well as reductions in access charges imposed by the FCC in 1997 and 1998, and
the substitution of wireless services for calling card and other long distance
services. These factors as well as competition in the U.S. and international
markets contributed to the decline in total consumer services revenues for the
fourth quarter and full year.
EBIT rose 29.7 percent to $1.975 billion, when compared to the fourth
quarter of 1997, driven primarily by more attractive international settlement
rates and a lower cost structure, including more cost-effective customer
acquisition and retention programs. The company has realized efficiencies by
simplifying and consolidating marketing messages as well as increased use of
alternate distribution channels. Declines in revenues partially offset some of
the benefits achieved by these efficiencies. For 1998, EBIT was $6.662 billion,
an increase of $1.568 billion, or 30.8 percent compared to the $5.094 billion
reported for 1997.
Wireless Services
Total revenues from wireless services, including product sales, increased
$302 million, or 25.1 percent, to $1.509 billion, compared to the fourth quarter
of 1997. This represents a 30.4 percent increase when adjusted for the sale of
the former AT&T Messaging Division. The company continues to benefit from the
strong market response to its Digital One Rate offer. For 1998, total revenues
increased 15.8 percent to $5.406 billion compared to 1997 (17.2 percent increase
adjusted for the Messaging sale).
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Total net subscriber additions for the fourth quarter were 445,000, an
increase of 90.1 percent compared to the fourth quarter of 1997. For the full
year, total net subscriber additions were 1.290 million, an increase of 36.4
percent compared to 1997. The increase reflects the on-going success of the
Digital One Rate offer. Since the program was introduced in May, 1998, AT&T has
signed on over 850,000 Digital One rate subscribers.
An important part of the company's strategy is to continue to migrate
customers to digital services, which generate lower network costs and improve
customer retention. Total digital subscribers represent 61 percent of the
company's 7.2 million consolidated wireless customer base as of December 31,
1998, compared with 29 percent at the end of 1997. Including AT&T's partnership
markets, approximately 5.1 million of the total 9.7 million customers were
digital subscribers on December 31, 1998.
Wireless earnings before interest, taxes, depreciation and amortization
(EBITDA) of $185 million for the fourth quarter declined by $53 million from the
year-ago quarter primarily due to increased cost of network operations,
incremental acquisition and migration costs associated with higher subscriber
additions and digital migrations and lower income from equity investments. These
decreases were partially offset by increased revenue. EBITDA, less other income,
increased 28.6 percent from the fourth quarter of 1997 despite the large
increase in net subscriber additions.
Other/Corporate
Revenues from other/corporate, which includes TCG (including ACC), AT&T
Solutions, AT&T WorldNet services and international operations and ventures,
increased $274 million, or 33.7 percent, to $1.087 billion compared with the
year-ago quarter. For the full year, revenues totaled $3.549 billion, an
increase of 31.2 percent from the $2.704 billion reported for 1997.
EBITDA for the fourth quarter was $8 million, compared with a loss of $538
million in the year-ago quarter. EBIT for the fourth quarter in 1998 was a loss
of $167 million compared to a loss of $688 million for the comparable 1997
quarter. EBIT and EBITDA for the fourth quarter of 1998 were impacted by the
benefit of the $313 million restructuring and other charges. The EBIT and EBITDA
improvements, excluding this benefit, are primarily due to lower employee
benefit costs as well as increased interest income on higher cash balances.
SUPPLEMENTAL DISCLOSURES
Local Services
Local services revenues for the fourth quarter totaled $292 million, a 53.8
percent increase from the $190 million reported for the fourth quarter of 1997.
The increase was driven by the continued growth in the local operations of TCG.
<PAGE>
EBITDA was a negative $89 million versus the negative $265 million posted
for the fourth quarter of 1997. For 1998, EBITDA was a negative $1.117 billion
versus a loss of $764 million in 1997. EBIT for the fourth quarter was a
negative $167 million compared to a loss of $339 million for the year-ago
quarter. For 1998, EBIT was a negative $1.428 billion versus a loss of $991
million in 1997. For the year, EBIT and EBITDA reflect the $601 million asset
impairment charge recorded in the first quarter and the $85 million of
merger-related costs recorded in the third quarter. The results reflect the
company's ongoing investments in local services.
AT&T Solutions
AT&T Solutions, the company's networking-centric professional services
business, grew revenues by 34.4 percent to $322 million in the fourth quarter
versus $239 million reported for the same period in 1997. For 1998, AT&T
Solutions revenues totaled $1.054 billion, an increase of 34.2 percent compared
to the $785 million in 1997. The revenue growth resulted from new contracts
signed during 1998 as well as the expansion of services provided to its clients.
With more than 800 clients, including Citibank, BancOne, McGraw-Hill,
United HealthCare, Textron, J.P. Morgan, Merrill Lynch and MasterCard
International, AT&T Solutions currently has potential for more than $9 billion
in revenues under signed contract. More than $7.5 billion in contracts were
signed in 1998.
In the fourth quarter, AT&T and IBM announced a series of strategic
agreements. AT&T will acquire IBM's Global Network business for $5 billion and
IBM will outsource a significant portion of its global networking needs to AT&T.
This five-year outsourcing contract has a minimum value of $5 billion, making it
the single largest networking contract ever awarded. In addition, AT&T has
agreed to outsource its internal data processing and applications processing
centers to IBM.
EBIT for AT&T Solutions was $16 million for the fourth quarter, a
significant increase from the negative $14 million reported for the same period
in 1997.
AT&T WorldNet and Other On-line Services
AT&T WorldNet and other on-line services includes AT&T WorldNet internet
access service for residential and business customers and web hosting and other
electronic commerce services. Revenues increased 59.3 percent to $108 million
versus $67 million for the year-ago quarter.
AT&T WorldNet serves 1.4 million subscribers (which includes 100,000
subscribers reflected in the company's International Operations and Ventures
results). Domestic AT&T WorldNet subscribers grew 11.9 percent sequentially and
26.9 percent for the year. Fourth quarter net subscriber increases were very
strong, exceeding the total increase in the first nine months of 1998.
EBIT improved in both the fourth quarter and full year. For 1998, EBIT was
a negative $431 million versus a negative $553 million, an improvement of 22.0
percent.
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International Operations and Ventures
International operations and ventures include AT&T's consolidated foreign
operations such as AT&T Communications Services UK, the company's transit and
reorigination businesses and international online services. This category does
not include bilateral international long-distance traffic. The equity earnings
or losses of AT&T's non-consolidated international joint ventures and alliances,
such as Alestra in Mexico and AT&T Canada Long Distance Services are also
included.
Revenues increased 27.1 percent to $278 million, versus $218 million for
the year-ago quarter. For the full year, revenues increased 23.0 percent to $876
million.
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.
# # #
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<TABLE>
AT&T
Consolidated Statements of Income
- --------------------------------------------------------------------------------
<CAPTION>
(Unaudited)
For the Three For the Twelve
Months Ended Months Ended
Dollars in Millions December 31, December 31,
(except per share amounts) 1998 (1) 1997 1998 (1) 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues................................ $13,528 $12,903 $53,223 $51,577
Operating Expenses
Access and other interconnection...... 3,679 3,862 15,328 16,350
Network and other communications
services ........................... 2,700 2,431 10,250 9,739
Depreciation and amortization......... 1,228 1,055 4,629 3,982
Selling, general and administrative... 3,048 3,564 13,015 14,670
Restructuring and other
Charges (2)......................... (313) - 2,514 -
-------- ------- -------- -------
Total Operating Expenses................ 10,342 10,912 45,736 44,741
-------- ------- -------- -------
Operating Income........................ 3,186 1,991 7,487 6,836
Other income - net...................... 78 72 1,247 443
Interest expense........................ 105 66 427 307
-------- ------- -------- -------
Income from continuing operations before
income taxes.......................... 3,159 1,997 8,307 6,972
Provision for income taxes.............. 1,171 746 3,072 2,723
-------- ------- -------- -------
Income from continuing operations....... 1,988 1,251 5,235 4,249
Income from discontinued operations (net
of taxes of $1 in 4Q 1997, $6 YTD 1998
and $50 YTD 1997)..................... - 11 10 100
Gain on sale of discontinued operation
(net of taxes of $799 YTD 1998 and
$43 YTD 1997)........................ - - 1,290 66
Extraordinary loss (net of taxes of
($80) in YTD 1998).................... - - (137) -
------- ------- -------- -------
Net Income ............................. $ 1,988 $ 1,262 $ 6,398 $ 4,415
======= ======= ======== =======
Weighted average common shares and
potential common shares (millions)* 1,769 1,801 1,800 1,789
Per Common Share - Basic:
Income from continuing operations....... $ 1.13 $ 0.70 $ 2.93 $ 2.39
Income from discontinued operations .... - 0.01 0.01 0.05
Gain on sale of discontinued operations. - - 0.73 0.04
Extraordinary loss...................... - - (0.08) -
-------- ------- -------- -------
Net Income ............................. $ 1.13 $ 0.71 $ 3.59 $ 2.48
======== ======= ======== =======
Per Common Share - Diluted:
Income from continuing operations....... $ 1.12 $ 0.69 $ 2.91 $ 2.38
Income from discontinued operations .... - 0.01 - 0.05
Gain on sale of discontinued operations. - - 0.72 0.04
Extraordinary loss...................... - - (0.08) -
-------- ------- -------- -------
======== ======= ======== =======
Net Income ............................. $ 1.12 $ 0.70 $ 3.55 $ 2.47
======== ======= ======== =======
Dividends declared per common share..... $ 0.33 $ 0.33 $ 1.32 $ 1.32
<FN>
Amounts represent the weighted-average shares assuming dilution from the
potential exercise of outstanding stock options (including SARS). Amounts are
reduced by 17, 15, 16 and 8 million shares for 4Q1998, 4Q1997, YTD 1998 and YTD
1997 respectively, assuming no dilution.
(1)
Results for the fourth quarter and full year of 1998 reflect the adoption of
Statement of Position (SOP)98-1, "Accounting for the Costs of Computer Sortware
Development Obtained for Internal Use," which requires entities to capitalize
certain internal use software development costs. This standard required the
restatement of each quarter of 1998 and impacted the Depreciation and
Amortization and SG&A lines of the income statement. The impact on the fourth
quarter was $42 million pre-tax, or about $0.01 per share and for the full year
of 1998 was $199 million pre-tax, or about $0.07 per share.
(2)
During the fourth quarter of 1998 AT&T recorded a net, pre-tax gain of $313
million, due primarily to the settlement of pension obligations for former
employees who accepted the company's Voluntary Retirement Incentive Program.
</FN>
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