EX-99 2 eightk102104exh991.txt EXH. 99.1 - PRESS RELEASE TO AT&T'S 10/21/04 8-K [AT&T Logo Omitted] -------------------------------------------------------------------------------- News Release FOR RELEASE THURSDAY, OCTOBER 21, 2004 AT&T Announces Third-Quarter 2004 Earnings o Consolidated revenue of $7.6 billion o Third-quarter loss per diluted share of $8.95 o Adjusted earnings per diluted share of $0.75 - reflects lower depreciation due to asset impairment BEDMINSTER, N.J. -- AT&T (NYSE: T) today reported a net loss of $7.1 billion, or $8.95 per diluted share, for the third quarter of 2004. The company's current-quarter net loss includes non-cash asset impairment charges, as well as net restructuring and other charges. This compares to net income of $418 million, or earnings per diluted share of $0.53, in the third quarter of 2003, which also included net restructuring and other charges. Excluding the asset impairment and net restructuring and other charges and their associated tax benefits, adjusted net income for the quarter was $593 million, or adjusted earnings per diluted share of $0.75. This includes an after-tax benefit from lower depreciation of $331 million, or $0.42 per diluted share, due to the asset impairment charges. A reconciliation of reported earnings per diluted share to adjusted earnings per diluted share is provided in the appendices on page 11 of this document. "Our results for the third quarter demonstrate significant progress in transforming AT&T's cost structure and delivering a more effective business model for the future," said David W. Dorman, AT&T's Chairman and CEO. "Our ongoing focus on customer experience is generating marked improvements in our overall service metrics while our process and systems investments are yielding important productivity benefits for both AT&T and our customers." AT&T reported third-quarter 2004 consolidated revenue of $7.6 billion, which included $5.6 billion from AT&T Business and $2.0 billion from AT&T Consumer. Consolidated revenue was flat sequentially, and declined 11.7 percent versus the third quarter of 2003, primarily due to continued declines in long-distance (LD) voice and data revenue. AT&T's third-quarter 2004 consolidated operating loss was $11.3 billion. Excluding the asset impairment charges of $11.4 billion and net restructuring and other charges of $1.1 billion, adjusted operating income was $1.2 billion. This reflected a depreciation benefit of $537 million due to the asset impairment charges. On an EBITDA basis, the company reported consolidated EBITDA, excluding the asset impairment and net restructuring and other charges, of $1.8 billion in the third quarter of 2004 and a margin of 24.1 percent. This compares to consolidated EBITDA of $2.1 billion and a margin of 24.5 percent in the prior-year third quarter and $1.6 billion and a margin of 21.4 percent in the second quarter of 2004, both of which exclude net restructuring and other charges. In addition, EBITDA for the third quarter of 2003 included an access expense adjustment of $125 million. AT&T UNIT HIGHLIGHTS AT&T Business o Revenue was $5.6 billion, a decline of 10.4 percent from the prior-year third quarter. Pricing pressure and continued declines in retail volumes negatively affected the unit's revenue performance. On a sequential basis, the 0.6 percent increase in revenue was positively impacted by revenue from a customer disconnect of prepaid network capacity. Without this item, revenue would have been flat, reflecting a positive impact of higher equipment sales. o Long-distance voice revenue decreased 16.3 percent from the prior-year third quarter, driven by continued pricing pressure in both the retail and wholesale businesses, as well as a continued decline in retail volumes. Partially offsetting these declines was an increase in lower-priced wholesale minutes. Volumes were down slightly on a year-over-year basis, due to a decline in retail volumes largely offset by growth in wholesale volumes. o Local voice revenue grew 3.3 percent from the prior-year third quarter. Local access lines totaled nearly 4.7 million at the end of the current period, representing an increase of nearly 56,000 lines from the end of the second quarter of 2004. o Data revenue declined 9.7 percent from the prior-year third quarter. Revenue was negatively affected by pricing pressure, weak demand and technology migration. On a sequential basis, data revenue increased 0.2 percent. Data revenue was positively impacted by the customer disconnect of prepaid network capacity. Without the impact of this item, data revenue would have declined slightly sequentially. o IP&E-services revenue grew 6.8 percent over the prior-year third quarter. The year-over-year growth was primarily driven by strength in advanced services, including Enhanced Virtual Private Network and IP-enabled frame. o Outsourcing, professional services and other revenue declined 9.7 percent from the prior-year third quarter due to terminating outsourcing contracts and customers reducing scope, partially offset by strength in government professional services and equipment sales. Excluding equipment sales, the year-over-year decline was 14.0 percent. On a sequential basis, revenue increased by 8.1 percent. Excluding equipment sales, revenue increased 3.0 percent sequentially. o AT&T Business EBITDA, excluding the asset impairment and net restructuring and other charges, was $1.4 billion for the current quarter, yielding a margin of 24.3%. This compares with EBITDA of $1.6 billion in the prior-year third quarter, yielding a margin of 25.8%. o The third-quarter operating loss was $11.1 billion, including asset impairment charges of $11.3 billion and net restructuring and other charges of $529 million primarily related to employee separations. Excluding these charges, adjusted operating income was $764 million, yielding an adjusted margin of 13.5 percent. o The adjusted operating income, excluding asset impairment and net restructuring and other charges, includes a depreciation benefit of $527 million due to the asset impairment charge. o As a result of the third-quarter asset impairment charges, AT&T Business' network-related charges to AT&T Consumer decreased by $28 million. This resulted in a reduction of AT&T Business' profitability and an increase in AT&T Consumer's profitability, which is eliminated upon consolidation. o Adjusting for the impacts of the asset impairment charges, operating income was $265 million, yielding an operating margin of 4.7 percent. o Capital expenditures for the quarter were $391 million as AT&T Business continued to invest in its network and systems to drive continued cost efficiencies and expand its customer-focused networking capabilities. o During the third quarter, a number of sizable customer wins and contract extensions were signed with companies including Ford Motor Company, Continental Airlines, Elizabeth Arden, Siemens AG, the American Automobile Association and participating member companies of the Blue Cross and Blue Shield Association, among many others. o Looking forward, the company commented that the business environment continues to be very challenging. In the fourth quarter of 2004, the company expects the normal impact of seasonality, as well as ongoing pricing pressure, to negatively impact sequential revenue and margin results. AT&T Consumer o Revenue was $2.0 billion, a decline of 15.2 percent versus the prior-year third quarter, driven by lower standalone LD voice revenue as a result of the continued impact of competition, wireless and Internet substitution and customer migration to lower-priced products, partially offset by targeted price increases. o Third-quarter operating income was $281 million, including asset impairment charges of $59 million and net restructuring and other charges of $129 million primarily related to employee separations. Excluding these charges, adjusted operating income was $469 million, yielding a margin of 23.7 percent. o The adjusted operating income, excluding the asset impairment and net restructuring and other charges, includes a depreciation benefit of $10 million due to the asset impairment charges. o As a result of the third-quarter asset impairment charges, AT&T Consumer's network-related charges from AT&T Business decreased by $28 million. This resulted in a reduction of AT&T Business' profitability and an increase in AT&T Consumer's profitability, which is eliminated upon consolidation. o Adjusting for the impacts of the asset impairment charges, operating income was $431 million, yielding an operating margin of 21.8 percent. o On a sequential basis, much of the operating margin improvement was driven by the reduction in the company's sales and marketing expenses. The company expects to generate approximately $700 million in annualized savings by shifting its focus away from traditional services. o As of September 30, 2004, AT&T Consumer offered its residential VoIP AT&T CallVantageSM Service in 170 major markets throughout the U.S. (covering 62% of U.S. households). The company also announced retail distribution partnerships with retail outlets Amazon, Circuit City and Best Buy. o At the end of the third quarter, AT&T Consumer had over 26 million stand-alone LD and bundled customers. OTHER CONSOLIDATED FINANCIAL HIGHLIGHTS o The third-quarter consolidated operating loss was $11.3 billion, including asset impairment charges of $11.4 billion and net restructuring and other charges of $1.1 billion primarily related to employee separations. Excluding these charges, adjusted operating income was $1.2 billion, yielding a margin of 15.6 percent. o The adjusted operating income, excluding the asset impairment and net restructuring and other charges, includes a depreciation benefit of $537 million due to the asset impairment charge. Excluding this benefit, operating income was $657 million, yielding an operating margin of 8.6 percent. o The asset impairment charge for the quarter of $11.4 billion primarily reflects a decrease in the fair value of property, plant and equipment and internal-use software. The decrease reflects the impact of sustained pricing pressure and evolution of services toward newer technologies in the business market as well as changes in the regulatory environment, which led to a shift away from traditional consumer services. o Primarily as a result of the asset impairment charges, the company's deferred tax liability was reduced by $4.3 billion. The impairment charges will not impact the timing or magnitude of future tax payments. o Net restructuring and other charges for the quarter were $1.1 billion and primarily consisted of employee separation costs related to both AT&T Business and AT&T Consumer, including $339 million of benefit plan curtailment costs. The curtailment portion of the restructuring charge is recorded in "Corporate and Other." o The company anticipates that its 2004 workforce-reduction target of greater than 20 percent will result in annualized cost savings of approximately $1.2 billion. o AT&T repurchased $420 million of U.S. dollar- and Euro-denominated debt during the third quarter, which resulted in a loss of $27 million recorded in other (expense) income. o Free cash flow was $1.1 billion for the quarter. Free cash flow is defined as cash flows provided by operating activities of $1.5 billion less cash used for capital expenditures and other additions of $0.4 billion. o AT&T ended the quarter with net debt of $7.0 billion, a $0.9 billion decrease from the end of the second quarter of 2004. Net debt is defined as total debt of $10.5 billion less cash of $2.6 billion, restricted cash of $0.5 billion and net foreign debt fluctuations of $0.4 billion. o During the third quarter of 2004, AT&T generated EBITDA less capital expenditures (excluding asset impairment and net restructuring and other charges) of $1.4 billion, bringing the year-to-date total to $3.8 billion. GUIDANCE o The company announced that it expects to exceed its EBITDA-less-capital-expenditures target for the full year, as it continues to effectively manage costs. AT&T is reiterating or updating its 2004 financial guidance as follows: o Reiteration of capital expenditures of approximately $1.8 billion o Consolidated EBITDA-less-capital-expenditures (excluding asset impairment and net restructuring and other charges) target of around $4.8 billion o AT&T Consumer fourth-quarter 2004 operating margin of around 20 percent DEFINITIONS and NOTES AT&T Business 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 revenue (and eliminations) not previously defined. 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 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. Other Definitions and Notes EBITDA - Earnings before interest, taxes, depreciation and amortization is calculated as operating income plus depreciation and amortization. Restricted cash - $0.5 billion of cash that collateralizes a portion of private debt and is included in "other current assets" on the balance sheet. Foreign currency fluctuations - represents mark-to-market adjustments, net of cash collateral collected, that increased the debt balance by approximately $0.4 billion at September 30, 2004, on non-U.S. denominated debt of about $1.5 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 current assets" and "other assets" on the balance sheet.

AT&T Corp. Consolidated Statements of Operations (Unaudited) Dollars in millions (except per share amounts) Three Months Ended Nine Months Ended September 30, September 30, 2004 2003 2004 2003 REVENUE (1) AT&T Business $ 5,645 $ 6,301 $ 17,128 $ 19,188 AT&T Consumer 1,980 2,334 6,098 7,202 Corporate and Other 13 14 38 40 ---------------------- -------------------------- Total Revenue 7,638 8,649 23,264 26,430 OPERATING EXPENSES Access and other connection 2,411 2,785 7,530 8,191 Costs of services and products 1,783 1,954 5,406 5,923 Selling, general and administrative 1,603 1,793 5,110 5,551 Depreciation and amortization 647 1,224 3,128 3,607 Asset impairment and net restructuring and other charges 12,469 64 12,736 134 ---------------------- -------------------------- Total operating expenses 18,913 7,820 33,910 23,406 Operating (loss) income (11,275) 829 (10,646) 3,024 Other (expense) income, net (34) (7) (172) 89 Interest (expense) (192) (289) (611) (917) ---------------------- -------------------------- (Loss) income from continuing operations before income taxes, minority interest income and net earnings (losses) related to equity investments (11,501) 533 (11,429) 2,196 Benefit (provision) for income taxes 4,384 (72) 4,723 (677) Minority interest income - - 1 1 Net earnings (losses) related to equity investments 2 (3) 2 3 ---------------------- -------------------------- (Loss) income from continuing operations (7,115) 458 (6,703) 1,523 (Loss) from discontinued operations - net of income taxes - (13) - (13) ---------------------- -------------------------- (Loss) income before cumulative effect of accounting change (7,115) 445 (6,703) 1,510 Cumulative effect of accounting change - net of income taxes - (27) - 15 ---------------------- -------------------------- Net (loss) income $ (7,115) $ 418 $ (6,703) $ 1,525 ====================== ========================== Weighted-average common shares (millions) 795 789 794 787 Weighted-average common shares and potential common shares (millions) 795 791 794 788 PER BASIC SHARE: (Loss) earnings from continuing operations $ (8.95) $ 0.58 $ (8.44) $ 1.94 (Loss) from discontinued operations $ - $(0.02) $ - $(0.02) Cumulative effect of accounting change $ - $(0.03) $ - $ 0.02 ---------------------- -------------------------- (Loss) earnings per basic share $ (8.95) $ 0.53 $ (8.44) $ 1.94 ====================== ========================== PER DILUTED SHARE: (Loss) earnings from continuing operations $ (8.95) $ 0.58 $ (8.44) $ 1.93 (Loss) from discontinued operations $ - $(0.02) $ - $(0.01) Cumulative effect of accounting change $ - $(0.03) $ - $ 0.02 ---------------------- -------------------------- (Loss) earnings per diluted share $ (8.95) $ 0.53 $ (8.44) $ 1.94 ====================== ========================== Dividends declared per share $0.2375 $0.2375 $0.7125 $0.6125 (1)Prior period amounts have been restated to reflect the transfer of the remaining payphone business from AT&T Consumer to AT&T Business.

AT&T Corp. Consolidated Statements of Operations (Unaudited) Dollars in millions (except per share amounts) 3Q04 2Q04 1Q04 4Q03 3Q03 2Q03 1Q03 2003 REVENUE (1) AT&T Business $ 5,645 $ 5,611 $ 5,872 $ 5,887 $ 6,301 $ 6,428 $ 6,459 $ 25,075 AT&T Consumer 1,980 2,011 2,107 2,198 2,334 2,354 2,514 9,400 Corporate and Other 13 14 11 14 14 13 13 54 Total revenue 7,638 7,636 7,990 8,099 8,649 8,795 8,986 34,529 OPERATING EXPENSES Access and other connection 2,411 2,481 2,638 2,606 2,785 2,708 2,698 10,797 Costs of services and products 1,783 1,759 1,864 1,702 1,954 1,958 2,011 7,625 Selling, general and administrative 1,603 1,763 1,744 1,828 1,793 1,837 1,921 7,379 Depreciation and amortization 647 1,231 1,250 1,263 1,224 1,197 1,186 4,870 Asset impairment and net restructuring and other charges 12,469 54 213 67 64 66 4 201 Total operating expenses 18,913 7,288 7,709 7,466 7,820 7,766 7,820 30,872 Operating (loss) income (11,275) 348 281 633 829 1,029 1,166 3,657 Other (expense) income, net (34) 36 (174) 102 (7) 86 10 191 Interest (expense) (192) (191) (228) (241) (289) (296) (332) (1,158) (Loss) income from continuing operations before income taxes, minority interest income and net earnings (losses) related to equity investments (11,501) 193 (121) 494 533 819 844 2,690 Benefit (provision) for income taxes 4,384 (87) 426 (139) (72) (308) (297) (816) Minority interest income - 1 - - - - 1 1 Net earnings (losses) related to equity investments 2 1 (1) (15) (3) 25 (19) (12) (Loss) income from continuing operations (7,115) 108 304 340 458 536 529 1,863 (Loss) from discontinued operations - net of income taxes - - - - (13) - - (13) (Loss) income before cumulative effect of accounting changes (7,115) 108 304 340 445 536 529 1,850 Cumulative effect of accounting changes, net of income taxes - - - - (27) - 42 15 Net (loss) income $ (7,115) $ 108 $ 304 $ 340 $ 418 $ 536 $ 571 $1,865 Weighted-average common shares (millions) 795 794 793 791 789 787 784 788 Weighted-average common shares and potential common shares (millions) 795 797 796 793 791 787 785 789 PER BASIC SHARE: (Loss) earnings from continuing operations $ (8.95) $ 0.14 $ 0.38 $ 0.43 $ 0.58 $ 0.68 $ 0.67 $ 2.37 (Loss) from discontinued operations - - - - (0.02) - - (0.02) Cumulative effect of accounting changes - - - - (0.03) - 0.06 0.02 (Loss) earnings per basic share $ (8.95) $ 0.14 $ 0.38 $ 0.43 $ 0.53 $ 0.68 $ 0.73 $ 2.37 PER DILUTED SHARE: (Loss) earnings from continuing operations $ (8.95) $ 0.14 $ 0.38 $ 0.43 $ 0.58 $ 0.68 $ 0.67 $ 2.36 (Loss) from discontinued operations - - - - (0.02) - - (0.02) Cumulative effect of accounting changes - - - - (0.03) - 0.06 0.02 (Loss) earnings per diluted share $ (8.95) $ 0.14 $ 0.38 $ 0.43 $ 0.53 $ 0.68 $ 0.73 $ 2.36 (1)Prior period amounts have been restated to reflect the transfer of the remaining payphone business from AT&T Consumer to AT&T Business.

AT&T Corp. Historical Segment Data (Unaudited) Dollars in millions 3Q04 2Q04 1Q04 4Q03 3Q03 2Q03 1Q03 2003 AT&T Business (1) LD Voice $ 2,364 $ 2,386 $ 2,613 $ 2,501 $ 2,820 $ 2,895 $ 2,983 $ 11,199 Local Voice 390 404 389 386 379 384 335 1,484 Total Voice 2,754 2,790 3,002 2,887 3,199 3,279 3,318 12,683 Data Services (2) 1,693 1,690 1,715 1,846 1,875 1,943 1,956 7,620 IP&E-Services (2) 587 565 553 554 550 509 489 2,102 Total Data and IP&E-Services 2,280 2,255 2,268 2,400 2,425 2,452 2,445 9,722 Outsourcing, Professional Services & Other 611 566 602 600 677 697 696 2,670 Total revenue 5,645 5,611 5,872 5,887 6,301 6,428 6,459 25,075 Operating (loss) income(3) (7) (11,095) 152 83 282 413 601 599 1,895 Operating margin (196.5%) 2.7% 1.4% 4.8% 6.6% 9.3% 9.3% 7.6% Capital expenditures(8) 391 463 470 740 995 763 636 3,134 Depreciation & amortization (7) 610 1,176 1,192 1,200 1,162 1,133 1,126 4,621 Total Data and IP&E-Services - % managed (2) 32% 32% 32% 32% 32% 31% 30% 31% Total Data and IP&E-Services - % international 15% 15% 15% 14% 14% 14% 14% 14% LD volume growth - yr/yr -2% 0% 2% 7% 15% 12% 12% 11% LD volume % wholesale 56% 54% 54% 53% 51% 47% 45% 50% ------------------------------------------------------------------------------------------------------------------------------------ AT&T Consumer (1) Standalone LD, Transactional and Other Services $ 1,256 $ 1,327 $ 1,462 $ 1,604 $ 1,813 $ 1,894 $ 2,090 $ 7,401 Bundled Services 724 684 645 594 521 460 424 1,999 Total revenue 1,980 2,011 2,107 2,198 2,334 2,354 2,514 9,400 Operating income(4) (7) 281 240 371 435 503 485 633 2,056 Operating margin 14.2% 11.9% 17.6% 19.8% 21.6% 20.6% 25.2% 21.9% Capital expenditures 9 15 13 19 14 19 22 74 Depreciation & amortization (7) 15 33 32 35 35 36 35 141 Local customers (in thousands) 4,477 4,677 4,364 3,950 3,547 3,130 2,778 3,950 ------------------------------------------------------------------------------------------------------------------------------------ Corporate and Other (1) Revenue $ 13 $ 14 $ 11 $ 14 $ 14 $ 13 $ 13 $ 54 Operating (loss)(5) (461) (44) (173) (84) (87) (57) (66) (294) Capital expenditures(8) 6 2 2 13 198 8 4 223 Depreciation & amortization 22 22 26 28 27 28 25 108 ------------------------------------------------------------------------------------------------------------------------------------ Total AT&T Revenue $ 7,638 $ 7,636 $ 7,990 $ 8,099 $ 8,649 $ 8,795 $ 8,986 $ 34,529 Operating (loss) income(6) (11,275) 348 281 633 829 1,029 1,166 3,657 Operating margin (147.6%) 4.6% 3.5% 7.8% 9.6% 11.7% 13.0% 10.6% Capital expenditures(8) 406 480 485 772 1,207 790 662 3,431 Depreciation & amortization (7) 647 1,231 1,250 1,263 1,224 1,197 1,186 4,870 (1) Prior period amounts have been restated to reflect the transfer of the remaining payphone business from AT&T Consumer to AT&T Business. (2) Prior period amounts have been restated to reflect the division of international managed services revenue into Data Services and IP&E-Services, consistent with the classifications of domestic managed services. This reclassification had no impact on "Total Data and IP&E-Services revenue," or total revenue. (3) Includes asset impairment and net restructuring and other (charges) of ($11,859M) in 3Q04, ($52M) in 2Q04, ($91M) in 1Q04, ($33M) in 4Q03, ($53M) in 3Q03, ($47M) in 2Q03 and ($4M) in 1Q03, totaling ($137M) in 2003. (4) Includes asset impairment and net restructuring and other (charges) of ($188M) in 3Q04, ($1M) in 1Q04, ($17M) in 4Q03, ($4M) in 3Q03 and ($5M) in 2Q03, totaling ($26M) in 2003. (5) Includes asset impairment and net restructuring and other (charges) of ($422M) in 3Q04, ($2M) in 2Q04, ($121M) in 1Q04, ($17M) in 4Q03, ($7M) in 3Q03 and ($14M) in 2Q03, totaling ($38M) in 2003. (6) Includes asset impairment and net restructuring and other (charges) of ($12,469M) in 3Q04, ($54M) in 2Q04, ($213M) in 1Q04, ($67M) in 4Q03, ($64M) in 3Q03, ($66M) in 2Q03 and ($4M) in 1Q03, totaling ($201M) in 2003. (7) As a result of the third-quarter 2004 asset impairment charge, third-quarter depreciation and amortization expense for AT&T Business and AT&T Consumer decreased by $527 million and $10 million, respectively. In addition, as a result of the transport service arrangement between AT&T Business and AT&T Consumer, network-related charges from AT&T Business (recorded as contra-expense) to AT&T Consumer were reduced by $28 million for the third quarter as a result of the lower depreciation and amortization expense recorded by AT&T Business. This resulted in a reduction in AT&T Business' operating income and an increase in AT&T Consumer's operating income. (8) Includes $433M in 3Q03 related to the adoption of FIN 46 of which $241M is included in Business and $192M is included in Corporate and Other.

AT&T Corp. Consolidated Balance Sheets (Unaudited) Dollars in millions September 30, December 31, 2004 2003 ASSETS Cash and cash equivalents $ 2,627 $ 4,353 Accounts receivable, less allowances of $589 and $579 3,516 4,036 Deferred income taxes 1,098 715 Other current assets 1,278 744 --------------------------------------- Total Current Assets 8,519 9,848 Property, plant and equipment, net of accumulated depreciation of $1,155 and $34,300 11,654 24,376 Goodwill 4,778 4,801 Other purchased intangible assets, net of accumulated amortization of $396 and $320 394 499 Prepaid pension costs 3,939 3,861 Other assets 2,707 4,603 --------------------------------------- TOTAL ASSETS $ 31,991 $ 47,988 ======================================= LIABILITIES Accounts payable and accrued expenses $ 2,586 $ 3,256 Compensation and benefit-related liabilities 2,215 1,783 Debt maturing within one year 1,582 1,343 Other current liabilities 2,246 2,501 --------------------------------------- Total Current Liabilities 8,629 8,883 Long-term debt 8,881 13,066 Long-term compensation and benefit-related liabilities 3,947 3,528 Deferred income taxes 1,138 5,395 Other long-term liabilities and deferred credits 2,929 3,160 --------------------------------------- Total Liabilities 25,524 34,032 --------------------------------------- SHAREOWNERS' EQUITY Common Stock, $1 par value, authorized 2,500,000,000 shares; issued and outstanding 795,590,783 shares (net of 171,983,367 treasury shares) at September 30, 2004 and 791,911,022 shares (net of 172,179,303 treasury shares) at December 31, 2003 796 792 Additional paid-in capital 27,287 27,722 Accumulated deficit (21,414) (14,707) Accumulated other comprehensive (loss) income (202) 149 --------------------------------------- Total Shareowners' Equity 6,467 13,956 --------------------------------------- TOTAL LIABILITIES & SHAREOWNERS' EQUITY $ 31,991 $ 47,988 =======================================

AT&T Corp. Consolidated Statements of Cash Flows (Unaudited) Dollar in millions Nine Months Ended September 30, 2004 2003 Operating Activities Net (loss) income $ (6,703) $ 1,525 Deduct: Loss from discontinued operations - net of income taxes - (13) Cumulative effect of accounting change - net of income taxes - 15 ---------------------------- (Loss) income before cumulative effect of accounting change (6,703) 1,523 Adjustments to reconcile income before cumulative effect of accounting change to net cash provided by operating activities: Net gains on sales of businesses and investments (16) (51) Loss on early extinguishment of debt 301 85 Asset impairment, net restructuring and other charges 12,662 87 Depreciation and amortization 3,128 3,607 Provision for uncollectible receivables 371 588 Deferred income taxes (4,451) 1,105 Net pretax losses related to equity investments (4) (28) Decrease in receivables 178 231 (Decrease) in accounts payable and accrued expenses (488) (428) Net change in other operating assets and liabilities (839) 443 Other adjustments, net (128) (49) ---------------------------- Net Cash Provided by Operating Activities of Continuing Operations 4,011 7,113 ---------------------------- Investing Activities Capital expenditures and other additions (1,459) (2,413) Proceeds from sale or disposal of property, plant and equipment 58 134 Investment distributions and sales 37 120 Net dispositions (acquisitions) of businesses, net of cash disposed/acquired 8 (158) Decrease (increase) in restricted cash 7 (22) Other investing activities, net 9 (50) ---------------------------- Net Cash (Used in) Investing Activities of Continuing Operations (1,340) (2,389) ---------------------------- Financing Activities Retirement of long-term debt, including redemption premiums (3,711) (4,576) (Decrease) in short-term borrowings, net (511) (1,263) Issuance of AT&T common shares 45 92 Dividends paid on common stock (565) (442) Other financing activities, net 345 202 ---------------------------- Net Cash (Used in) Financing Activities of Continuing Operations (4,397) (5,987) ---------------------------- Net (decrease) in cash and cash equivalents (1,726) (1,263) Cash and cash equivalents at beginning of year 4,353 8,014 ---------------------------- Cash and Cash Equivalents at End of Period $ 2,627 $ 6,751 ============================

AT&T Corp. Reconciliation of Non-GAAP Measures AT&T is providing information on net debt, EBITDA and related margins, EBITDA less capital expenditures and free cash flows because these measures are commonly used by the investment community for evaluation purposes. AT&T is providing information on adjusted operating income and related margins due to the magnitude of the asset impairment and net restructuring and other charges taken during the quarter and the distortion they have on reported results and trends. Net debt, adjusted operating income, EBITDA, EBITDA less capital expenditures and free cash flows should be considered in addition to, but not in lieu of, other measures of liquidity, profitability and cash flows reported in accordance with generally accepted accounting principles. Additionally, they may not be comparable to similarly captioned measures reported by other companies.

Net (Loss) Income and Earnings Per Share For the three months ended For the three months ended For the three months ended (dollars in millions, except per September 30, 2003 June 30, 2004 September 30, 2003 share amounts) Net (loss) income EPS Net income EPS Net income EPS Reported (loss) earnings ($7,115) ($8.95) $108 $0.14 $418 $0.53 Adjustments: Add: Net restructuring and other charges 668 0.84 33 0.04 40 0.05 Asset impairment charges 7,040 8.86 - - - - ------------ ------------- ------------ ------------- ----------- ------------ Subtotal - adjusted earnings $593 $0.75 $141 $0.18 $458 $0.58 ------------ ------------- ------------ ------------- ----------- ------------ Less: Depreciation benefit (331) (0.42) - - - - ------------ ------------- ------------ ------------- ----------- ------------ Adjusted earnings, excluding depreciation benefit $262 $0.33 $141 $0.18 $458 $0.58 ============ ============= ============ ============= =========== ============

Operating Income (dollars in millions) For the three months ended September 30, 2004 AT&T Business AT&T Consumer Corp. and Other Consolidated Reported operating (loss) income and margin ($11,095) (196.5%) $281 14.2% ($461) NMF ($11,275) (147.6%) Adjustments: Add: Net restructuring and other charges 529 129 422 1,080 Asset impairment charges 11,330 59 - 11,389 -------- --------- -------- --------- Subtotal - adjusted operating income (loss) and margin $764 13.5% $469 23.7% ($39) NMF $1,194 15.6% -------- --------- -------- --------- Less: Depreciation benefit, including impact of transport agreeement (1) (499) (38) - (537) -------- --------- -------- --------- Adjusted operating income (loss) and margin excluding depreciation benefit $265 4.7% $431 21.8% ($39) NMF $657 8.6% ======== ========= ======== ========= (1) As a result of the third-quarter 2004 asset impairment charge, third-quarter depreciation and amortization expense for AT&T Business and AT&T Consumer decreased by $527 million and $10 million, respectively. In addition, as a result of the transport service arrangement between AT&T Business and AT&T Consumer, network-related charges from AT&T Business (recorded as contra-expense) to AT&T Consumer were reduced by $28 million for the third quarter as a result of the lower depreciation and amortization expense recorded by AT&T Business. This resulted in a reduction in AT&T Business' operating income and an increase in AT&T Consumer's operating income.

AT&T Corp. Reconciliation of Non-GAAP Measures, continued

EBITDA, Excluding Asset Impairment and Net Restructuring and Other Charges, to Net Income (dollars in millions) For the three months ended: September 30, June 30, September 30, 2004 2004 2003 EBITDA margin (1) 24.1% 21.4% 24.5% EBITDA (1) $1,841 $1,633 $2,117 Depreciation and amortization (647) (1,231) (1,224) Net restructuring and other charges (1,080) (54) (64) Asset impairment charges (11,389) - - ------------------ ------------------ ----------------- Subtotal operating (loss) income ($11,275) $348 $829 ------------------ ------------------ ----------------- Other (expense) income, net (34) 36 (7) Interest (expense) (192) (191) (289) Benefit (provision) for income taxes 4,384 (87) (72) Minority interest income - 1 - Net (losses) income related to equity investments 2 1 (3) ------------------ ------------------ ----------------- Net (loss) income from continuing operations ($7,115) $108 $458 ------------------ ------------------ ----------------- Net (loss) from discontinued operations - - (13) Cumulative effect of accounting change - - (27) ------------------ ------------------ ----------------- Net (loss) income ($7,115) $108 $418 ================== ================== ================= (1) Excluding asset impairment and net restructuring and other charges

AT&T Business EBITDA, Excluding Asset Impairment and Net Restructuring and Other Charges, to Operating (Loss) Income

(dollars in millions) For the three months ended: September 30, 2004 September 30, 2003 EBITDA and margin (1) $1,374 24.3% $1,628 25.8% Impact of transport agreement 28 - EBITDA and margin (1) excluding impact of transport agreement (2) $1,402 24.8% $1,628 25.8% Depreciation and amortization (610) (1,162) Net restructuring and other charges (529) (53) Asset impairment charges, net of impact of transport agreement (2) (11,358) - ----------- ----------- Operating (loss) income and margin ($11,095) (196.5%) $413 6.6% ----------- ----------- (1) Excluding asset impairment and net restructuring and other charges. (2) As a result of the third-quarter 2004 asset impairment charge, third-quarter depreciation and amortization expense for AT&T Business and AT&T Consumer decreased by $527 million and $10 million, respectively. In addition, as a result of the transport service arrangement between AT&T Business and AT&T Consumer, network-related charges from AT&T Business (recorded as contra-expense) to AT&T Consumer were reduced by $28 million for the third quarter as a result of the lower depreciation and amortization expense recorded by AT&T Business. This resulted in a reduction in AT&T Business' operating income and an increase in AT&T Consumer's operating income.

AT&T Corp. Reconciliation of Non-GAAP Measures, continued

EBITDA, Excluding Asset Impairment and Net Restructuring and Other Charges, Less Capital Expenditures to Cash Provided by Operating Activities: For the three months For the nine months (dollars in millions) ended ended For the year ended September 30, 2004 September 30, 2004 December 31, 2004 (dollars in billions) (all projected numbers are approximate) EBITDA (1) less capital expenditures $1,435 $3,847 $4.8 Add capital expenditures 406 1,371 1.8 --------------------- --------------------- ---------------------- EBITDA (1) $1,841 $5,218 $6.6 ---------------------- Other cash (expenses) receipts (2) (112) (483) (1.3) - (1.2) Changes in working capital and other operating assets & liabilities (181) (724) (0.4) - (0.3) --------------------- --------------------- ---------------------- Cash provided by operating activities $1,548 $4,011 4.9 - 5.0 ===================== ===================== ====================== (1) Excluding asset impairment and net restructuring and other charges (2) Other cash expenses primarily include taxes, interest expense and net restructuring and other charge payments.

Net Debt Net debt is defined as total debt, less cash, restricted cash and net foreign debt fluctuations:

(dollars in millions) September 30, 2004 Total debt $10,463 Less: Cash 2,627 Restricted cash 494 Foreign debt fluctuations 360 ------------------------ Net debt $6,982 ========================

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 888-428-4473 to access the call. Callers outside the U.S. should dial + 1-651-291-0561. In addition, Internet rebroadcasts of the call will be available on the AT&T web site beginning later today. The web site address is www.att.com/ir. An audio rebroadcast of the conference call will also be available beginning at 12:40PM on Thursday, October 21 through 11:59PM on Tuesday, October 26. To access the audio rebroadcast, U.S. callers can dial 800-475-6701, access code 696624. Callers outside the U.S. should dial +1-320-365-3844, access code 696624. The foregoing contains "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. These risk factors include the impact of increasing competition, continued capacity oversupply, regulatory uncertainty and the effects of technological substitution, among other risks. For a more detailed description of the factors that could cause such a difference, please see AT&T's10-K, 10-Q, 8-K and other 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. # # #