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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2002
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
Commission file number 1-1105
AT&T CORP.
A New York I.R.S. Employer
Corporation No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone - Area Code 212-387-5400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No | |
At July 31, 2002, the following shares of stock were outstanding:
AT&T common stock - 3,845,513,811 shares
1
PART I - FINANCIAL INFORMATION
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenue $ 12,104 $ 13,265 $ 24,088 $ 26,738
-------- -------- -------- --------
Operating Expenses
Costs of services and products (excluding depreciation of
$1,437, $1,181, $2,774 and $2,368 included below) 3,339 3,410 6,629 6,982
Access and other connection 2,763 3,105 5,571 6,256
Selling, general and administrative 2,644 2,749 5,190 5,465
Depreciation and amortization 1,959 2,350 3,854 4,762
Net restructuring and other charges -- 287 56 1,095
Goodwill and franchise impairment charges 16,479 -- 16,479 --
-------- -------- -------- --------
Total operating expenses 27,184 11,901 37,779 24,560
-------- -------- -------- --------
Operating (loss) income (15,080) 1,364 (13,691) 2,178
Other (expense), net (829) (308) (991) (1,091)
Interest (expense) (716) (761) (1,483) (1,640)
-------- -------- -------- --------
(Loss) income from continuing operations before income
taxes, minority interest and dividends on subsidiary
preferred stock and net (losses) related to equity
investments (16,625) 295 (16,165) (553)
Benefit for income taxes 4,631 436 4,365 218
Minority interest and dividends on subsidiary preferred
stock (31) 198 (88) 838
Net (losses) related to other equity investments (724) (980) (1,021) (1,037)
Equity (losses) from Liberty Media Group -- (2,125) -- (2,822)
-------- -------- -------- --------
(Loss) from continuing operations (12,749) (2,176) (12,909) (3,356)
(Loss) income from discontinued operations (net of income
taxes of $44, $(119), $44 and $(158)) (88) 218 (88) 150
-------- -------- -------- --------
(Loss) before extraordinary gain and cumulative effect of
accounting changes (12,837) (1,958) (12,997) (3,206)
Extraordinary gain (net of income taxes of $(5) and $(30)) 7 -- 48 --
Cumulative effect of accounting changes (net of income
taxes of $530 and $(578)) -- -- (856) 904
-------- -------- -------- --------
Net (loss) (12,830) (1,958) (13,805) (2,302)
Dividend requirements of preferred stock, net -- (236) -- (417)
Premium on exchange of AT&T Wireless tracking stock -- (80) -- (80)
-------- -------- -------- --------
(Loss) attributable to common shareowners $(12,830) $ (2,274) $(13,805) $ (2,799)
======== ======== ======== ========
AT&T Common Stock Group - per basic and diluted share:
(Loss) from continuing operations $ (3.49) $ (0.10) $ (3.59) $ (0.28)
(Loss) income from discontinued operations (0.03) 0.05 (0.03) 0.03
Extraordinary gain -- -- 0.01 --
Cumulative effect of accounting changes -- -- (0.23) 0.10
-------- -------- -------- --------
(Loss) $ (3.52) $ (0.05) $ (3.84) $ (0.15)
======== ======== ======== ========
Dividends declared $ 0.0375 $ 0.0375 $ 0.075 $ 0.075
AT&T Wireless Group - per basic and diluted share:
Income from discontinued operations $ -- $ 0.08 $ -- $ 0.08
======== ======== ======== ========
Liberty Media Group - per basic and diluted share:
(Loss) before cumulative effect of accounting change $ -- $ (0.82) $ -- $ (1.09)
Cumulative effect of accounting change -- -- -- 0.21
-------- -------- -------- --------
(Loss) $ -- $ (0.82) $ -- $ (0.88)
======== ======== ======== ========
The notes are an integral part of the consolidated financial statements.
2
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS)
(UNAUDITED)
AT AT
JUNE 30, DECEMBER 31,
2002 2001
---- ----
ASSETS
Cash and cash equivalents $ 5,606 $ 10,592
Accounts receivable, less allowances of $832 and $827 7,191 7,736
Other receivables 374 1,645
Investments 414 668
Deferred income taxes 1,981 1,230
Other current assets 978 657
--------- ---------
TOTAL CURRENT ASSETS 16,544 22,528
--------- ---------
Property, plant and equipment, net of accumulated depreciation of
$35,165 and $32,046 41,460 41,322
Goodwill, net of accumulated amortization of $1,307 in 2001 20,526 24,675
Franchise costs, net of accumulated amortization of $2,501 in 2001 29,083 42,819
Other purchased intangible assets, net of accumulated amortization
of $782 and $647 2,064 2,222
Investments and related advances 18,676 23,818
Prepaid pension costs 3,466 3,337
Other assets 6,076 4,561
--------- ---------
TOTAL ASSETS $ 137,895 $ 165,282
========= =========
LIABILITIES
Accounts payable $ 4,330 $ 4,744
Payroll and benefit-related liabilities 1,551 2,084
Debt maturing within one year 5,889 12,958
AT&T Canada obligation 3,664 --
Other current liabilities 4,779 5,641
--------- ---------
TOTAL CURRENT LIABILITIES 20,213 25,427
--------- ---------
Long-term debt 37,271 40,527
Long-term benefit-related liabilities 3,632 3,594
Deferred income taxes 23,911 28,160
Other long-term liabilities and deferred credits 3,991 7,614
--------- ---------
TOTAL LIABILITIES 89,018 105,322
--------- ---------
Minority Interest 1,397 3,560
Company-Obligated Convertible Quarterly Income Preferred
Securities of Subsidiary Trust Holding Solely Subordinated Debt
Securities of AT&T 4,725 4,720
SHAREOWNERS' EQUITY
Common Stock:
AT&T Common Stock, $1 par value, authorized 6,000,000,000 shares;
issued and outstanding 3,845,223,065 shares (net of 858,521,242
treasury shares) at June 30, 2002 and 3,542,405,744 shares (net
of 851,746,431 treasury shares) at December 31, 2001 3,845 3,542
Additional paid-in capital 56,312 51,964
Accumulated (deficit) (17,288) (3,484)
Accumulated other comprehensive (loss) (114) (342)
--------- ---------
TOTAL SHAREOWNERS' EQUITY 42,755 51,680
--------- ---------
TOTAL LIABILITIES AND SHAREOWNERS' EQUITY $ 137,895 $ 165,282
========= =========
The notes are an integral part of the consolidated financial statements.
3
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(DOLLARS IN MILLIONS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
2002 2001
---- ----
AT&T Common Shares
Balance at beginning of year $ 3,542 $ 3,760
Shares issued, net:
Under employee plans 20 7
For acquisitions -- 44
Settlement of put option -- 155
Exchange of AT&T Wireless tracking stock -- (372)
For funding AT&T Canada obligation 230 --
Redemption of TCI Pacific preferred stock 52 --
Other* 1 (62)
-------- ---------
Balance at end of period 3,845 3,532
-------- ---------
AT&T Wireless Group Common Stock
Balance at beginning of year -- 362
Shares issued:
Under employee plans -- 2
Exchange of AT&T Wireless tracking stock -- 438
-------- ---------
Balance at end of period -- 802
-------- ---------
Liberty Media Group Class A Common Stock
Balance at beginning of year -- 2,364
Shares issued, net -- 14
-------- ---------
Balance at end of period -- 2,378
-------- ---------
Liberty Media Group Class B Common Stock
Balance at beginning of year -- 206
Shares issued, net -- 6
-------- ---------
Balance at end of period -- 212
-------- ---------
Additional Paid-In Capital
Balance at beginning of year 51,964 90,496
Shares issued, net:
Under employee plans 249 164
For acquisitions -- 827
For funding AT&T Canada obligation 2,301 --
Redemption of TCI Pacific preferred stock 2,045 --
Other* 21 (1,044)
Gain on issuance of common stock by affiliates -- 18
Exchange of AT&T Wireless tracking stock -- 14
Settlement of put option -- 3,237
Beneficial conversion value of preferred stock -- 295
Dividends declared - AT&T Common Stock Group (278) --
Other 10 6
-------- ---------
Balance at end of period 56,312 94,013
-------- ---------
(Accumulated Deficit)/Retained Earnings
Balance at beginning of year (3,484) 7,408
Net (loss) (13,805) (2,302)
Dividends declared - AT&T Common Stock Group -- (275)
Dividends accrued - preferred stock -- (417)
Premium on exchange of AT&T Wireless tracking stock -- (80)
Treasury shares issued at less than cost 1 (9)
-------- ---------
Balance at end of period (17,288) 4,325
-------- ---------
(CONTINUED)
4
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (CONT'D)
(DOLLARS IN MILLIONS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
2002 2001
---- ----
Accumulated Comprehensive (Loss)
Balance at beginning of year (342) (1,398)
Other comprehensive income 228 2,118
-------- ---------
Balance at end of period (114) 720
-------- ---------
Total Shareowners' Equity $ 42,755 $ 105,982
======== =========
Summary of Total Comprehensive (Loss):
Net (loss) $(13,805) $ (2,302)
Net foreign currency translation adjustment (net of income
taxes of $(31) and $143)(1) 49 (247)
Net revaluation of securities and derivative instruments:
Unrealized gains (losses) (net of income taxes of $425 and
$(1,189))(1) (688) 1,782
Recognition of previously unrealized losses (gains) (net of
income taxes of $(538) and $(361))(2) 867 583
-------- ---------
Comprehensive (Loss) $(13,577) $ (184)
======== =========
* Other activity in 2001 represents AT&T stock received in exchange for
entities owning certain cable systems.
AT&T accounts for treasury stock as retired stock. We have 100 million
authorized shares of preferred stock at $1 par value.
(1) In the first six months of 2001, total comprehensive (loss) included LMG's
foreign currency translation adjustments totaling $(151), net of
applicable income taxes and unrealized gains (losses) on
available-for-sale securities totaling $2,056, net of applicable income
taxes.
(2) See note (d) for a summary of the "Recognition of previously unrealized
losses (gains)".
The notes are an integral part of the consolidated financial statements.
5
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
2002 2001
---- ----
OPERATING ACTIVITIES
Net (loss) $(13,805) $(2,302)
Deduct: (Loss) income from discontinued operations (88) 150
-------- -------
(Loss) from continuing operations (13,717) (2,452)
Adjustments to reconcile (loss) from continuing operations to net cash
provided by operating activities of continuing operations:
Goodwill and franchise impairment charges 16,479 --
Depreciation and amortization 3,854 4,762
Net equity losses from Liberty Media Group -- 2,822
Net losses related to other equity investments 1,653 1,639
Cost method investment impairment charges 1,416 195
Cumulative effect of accounting changes - net of income taxes 856 (904)
Provision for uncollectible receivables 614 531
Net restructuring and other charges 15 1,009
Deferred income taxes (4,610) (932)
Net revaluation of certain financial instruments (231) 913
Net gains on sales of businesses and investments (13) (577)
Minority interest and dividends on subsidiary preferred stock (49) (953)
Extraordinary gain - net of income taxes (48) --
Put option mark-to-market charge -- 838
Decrease in receivables 159 196
Decrease in accounts payable (425) (763)
Net change in other operating assets and liabilities (1,125) (1,576)
Other adjustments, net 86 (39)
-------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES OF CONTINUING OPERATIONS 4,914 4,709
-------- -------
INVESTING ACTIVITIES
Capital expenditures and other additions (3,412) (4,666)
Investment contributions and purchases (20) (367)
Investment distributions and sales 21 1,560
Proceeds from sale or disposal of property, plant and equipment 254 14
Net dispositions of businesses, net of cash disposed 14 3,120
Increase in restricted cash (413) --
Other investing activities, net (143) (98)
-------- -------
NET CASH (USED IN) INVESTING ACTIVITIES OF CONTINUING OPERATIONS (3,699) (437)
-------- -------
FINANCING ACTIVITIES
Decrease in short-term borrowings, net (6,029) (8,466)
Retirement of long-term debt (2,468) (814)
Dividends paid on common stock (267) (284)
Dividends paid on preferred securities (107) (106)
Proceeds from long-term debt issuances 106 195
Issuance of AT&T common shares 2,593 88
Net (acquisition) issuance of treasury shares (28) 19
Issuance of convertible preferred securities and warrants -- 9,811
Issuance of AT&T Wireless Group common shares -- 54
Other financing activities, net (1) (37)
-------- -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS (6,201) 460
-------- -------
Net cash provided by discontinued operations -- 4,921
Net (decrease) increase in cash and cash equivalents (4,986) 9,653
Cash and cash equivalents at beginning of year 10,592 64
-------- -------
Cash and cash equivalents at end of period $ 5,606 $ 9,717
======== =======
The notes are an integral part of the consolidated financial statements.
6
AT&T CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
a) BASIS OF PRESENTATION
The consolidated financial statements have been prepared by AT&T
Corp. (AT&T) pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC) and, in the opinion of management, include all
adjustments necessary for a fair statement of the consolidated results of
operations, financial position and cash flows for each period presented.
The consolidated results for interim periods are not necessarily
indicative of results for the full year. These financial results should be
read in conjunction with AT&T's Form 10-K/A for the year ended December
31, 2001 and AT&T's Form 10-Q for the quarter ended March 31, 2002. We
have reclassified certain prior period amounts to conform to our current
presentation.
b) RESTRUCTURING OF AT&T
On October 25, 2000, AT&T announced a restructuring plan designed to
fully separate or issue separately tracked stocks intended to reflect the
financial performance and economic value of each of AT&T's four major
operating units.
On July 10, 2002, AT&T and Comcast Corporation (Comcast) shareowners
approved the proposed merger between AT&T Broadband and Comcast. The
merger still remains subject to certain regulatory reviews and approvals
and certain other conditions and is expected to close by the end of 2002.
Under the terms of the agreement, AT&T will spin-off AT&T Broadband and
simultaneously AT&T Broadband and Comcast will merge into subsidiaries of
a new company to be called AT&T Comcast Corporation (AT&T Comcast). AT&T
shareowners will receive approximately 0.32 of a share of AT&T Comcast for
each share of AT&T they own, based on calculations using June 30, 2002
share prices. AT&T shareowners will own an approximate 55% economic stake
and have an approximate 61% voting interest in the new company. The
spin-off of AT&T Broadband could result in the recognition of a loss for
the difference between the fair value of the Comcast shares to be received
by AT&T shareholders in the merger and the net book value of AT&T
Broadband. At June 30, 2002, the book value of AT&T Broadband approximated
the fair value of the Comcast shares to be received based on the June 30,
2002 Comcast stock trading price of $24.20 per share (see Note g). If the
Comcast stock price decreases below $24.20 per share, AT&T will need to
record a charge to adjust the AT&T Broadband book value to the fair value
of the Comcast shares.
On July 10, 2002, AT&T shareholders also approved the creation of a
separate tracking stock intended to reflect the financial performance and
economic value of its AT&T Consumer Services business. AT&T has not yet
determined the timing, if any, of the distribution. A decision on a
distribution will depend on market conditions and other factors. In
addition, AT&T shareowners approved a one-for-five reverse stock split.
The purpose of the reverse stock split is to seek to adjust the trading
price of AT&T common stock upward following completion of the various
transactions to effect AT&T's restructuring plan.
These restructuring activities are complicated and involve a
substantial number of steps and transactions, including obtaining various
approvals, such as Internal Revenue Service (IRS) rulings. AT&T
anticipates, however, that the transactions associated with AT&T's
restructuring plan will be tax-free to U.S. shareowners. Future financial
conditions, superior alternatives or other factors may arise or occur that
make it inadvisable to proceed with part or all of AT&T's restructuring
plans. Any or all of the elements of AT&T's restructuring plan may not
occur as we currently expect or in the time-frames that we currently
contemplate, or at all. Alternative forms of restructuring, including
sales of interests in these businesses, would reduce what is available for
distribution to AT&T shareowners in the restructuring.
On July 9, 2001, AT&T completed the split-off of AT&T Wireless as a
separate, independently traded company. On August 10, 2001, AT&T completed
the split-off of Liberty Media Corporation as an independent, publicly
traded company.
7
c) SIGNIFICANT ACCOUNTING POLICIES
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 142, "GOODWILL AND
OTHER INTANGIBLE ASSETS"
Effective January 1, 2002, AT&T adopted SFAS No. 142, "Goodwill and
Other Intangible Assets." SFAS No. 142 requires that goodwill and
indefinite-lived intangible assets no longer be amortized, but instead be
tested for impairment at least annually. Intangible assets that have
finite useful lives will continue to be amortized over their useful lives.
In addition, the amortization period for intangible assets with finite
lives will no longer be limited to 40 years. We have determined that our
franchise costs are indefinite-lived assets, as defined in SFAS No. 142,
and therefore are not subject to amortization beginning in 2002. In
accordance with SFAS No. 142, goodwill was tested for impairment by
comparing the fair value of our reporting units to their carrying values.
As of January 1, 2002, the fair value of the reporting units' goodwill
exceeded their carrying value, and therefore no impairment loss was
recognized upon adoption. Franchise costs were tested for impairment as of
January 1, 2002, by comparing the fair value to the carrying value (at the
market level). An impairment loss of $0.9 billion, net of taxes of $0.5
billion, or $0.23 per basic and diluted share was recorded relating to our
AT&T Broadband segment in the first quarter of 2002 and is included in
"Cumulative effect of accounting changes" in the Consolidated Statement of
Operations. (See Note g for discussion of interim testing of goodwill and
franchise costs.)
The following tables present the impact of SFAS No. 142 on net
(loss) income and (loss) earnings per share had the standard been in
effect on January 1, 2001.
AT&T COMMON STOCK AT&T WIRELESS LIBERTY MEDIA
GROUP GROUP GROUP
----- ----- -----
FOR THE THREE MONTHS ENDED JUNE 30, 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
NET (LOSS) INCOME:
Reported (loss) from continuing operations
before extraordinary gain $(12,749) $ (51) $ -- $ -- $ -- $(2,125)
Dividend requirements of preferred stock -- (236) -- -- -- --
Premium on exchange of AT&T Wireless
tracking stock -- (80) -- -- -- --
-------- ----- -------- -------- -------- -------
Reported (loss) form continuing operations
available to common shareowners (12,749) (367) -- -- -- (2,125)
Add back amortization, net of tax:
Goodwill* -- 194 -- -- -- 148
Equity method excess basis -- 47 -- -- -- 107
Franchise costs -- 192 -- -- -- 2
-------- ----- -------- -------- -------- -------
Adjusted (loss) income from continuing
operations before extraordinary gain
available to common shareowners $(12,749) $ 66 $ -- $ -- $ -- $(1,868)
Reported (loss) income from discontinued
operations (88) 176 -- 42 -- --
Add back discontinued operations
amortization, net of tax -- 75 -- 21 -- --
Extraordinary gain 7 -- -- -- -- --
-------- ----- -------- -------- -------- -------
ADJUSTED NET (LOSS) INCOME AVAILABLE TO
COMMON SHAREOWNERS $(12,830) $ 317 $ -- $ 63 $ -- $(1,868)
======== ===== ======== ======== ======== =======
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE:
Reported basic and diluted (loss)
per share from continuing operations
before extraordinary gain $ (3.49) $(0.10) $ -- $ -- $ -- $ (0.82)
Add back amortization, net of tax:
Goodwill* -- 0.06 -- -- -- 0.06
Equity method excess basis -- 0.01 -- -- -- 0.04
Franchise costs -- 0.05 -- -- -- --
-------- ----- -------- -------- -------- -------
Adjusted basic and diluted (loss) earnings
per share from continuing operations
before extraordinary gain $ (3.49) $0.02 $ -- $ -- $ -- $ (0.72)
Reported (loss) income from discontinued
operations (0.03) 0.05 -- (0.08) -- --
Add back discontinued operations
amortization, net of tax -- 0.02 -- 0.04 -- --
Extraordinary gain -- -- -- -- -- --
-------- ----- -------- -------- -------- -------
ADJUSTED BASIC AND DILUTED (LOSS) EARNINGS
PER SHARE $ (3.52) $0.09 $ -- $ (0.04) $ -- $ (0.72)
======== ===== ======== ======== ======== =======
* Goodwill amortization is net of the Excite@Home minority interest impact
on goodwill.
8
AT&T COMMON STOCK AT&T WIRELESS LIBERTY MEDIA
GROUP GROUP GROUP
----- ----- -----
FOR THE SIX MONTHS ENDED JUNE 30, 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
NET (LOSS) INCOME:
Reported (loss) from continuing operations
before extraordinary gain and cumulative
effect of accounting changes $(12,909) $ (534) $ -- $ -- $ -- $(2,822)
Dividend requirements of preferred stock -- (417) -- -- -- --
Premium on exchange of AT&T Wireless
tracking stock -- (80) -- -- -- --
-------- ------- -------- -------- -------- -------
Reported (loss) form continuing operations
available to common shareowners (12,909) (1,031) -- -- -- (2,822)
Add back amortization, net of tax:
Goodwill* -- 405 -- -- -- 300
Equity method excess basis -- 97 -- -- -- 322
Franchise costs -- 391 -- -- -- 3
-------- ------- -------- -------- -------- -------
Adjusted (loss) from continuing operations
before extraordinary gain and
cumulative effect of accounting changes $(12,909) $ (138) $ -- $ -- $ -- $(2,197)
Reported (loss) income from discontinued
operations (88) 115 -- 35 -- --
Add back discontinued operations
amortization, net of tax -- 152 -- 36 -- --
Extraordinary gain 48 -- -- -- -- --
Cumulative effect of accounting changes (856) 359 -- -- -- 545
-------- ------- -------- -------- -------- -------
ADJUSTED NET (LOSS) INCOME $(13,805) $ 488 $ -- $ 71 $ -- $(1,652)
======== ======= ======== ======== ======== =======
BASIC AND DILUTED (LOSS) EARNINGS PER SHARE:
Reported basic and diluted (loss) per share
from continuing operations before
extraordinary gain and cumulative effect
of accounting changes $ (3.59) $ (0.28) $ -- $ -- $ -- $ (1.09)
Add back amortization, net of tax:
Goodwill* -- 0.12 -- -- -- 0.12
Equity method excess basis -- 0.02 -- -- -- 0.12
Franchise costs -- 0.10 -- -- -- --
-------- ------- -------- -------- -------- -------
Adjusted basic and diluted (loss) per share
from continuing operations before
extraordinary gain and cumulative effect
of accounting changes $ (3.59) $ (0.04) $ -- $ -- $ -- $ (0.85)
Reported (loss) earnings from discontinued
operations (0.03) 0.03 -- 0.08 -- --
Add back discontinued operations
amortization, net of tax -- 0.04 -- 0.08 -- --
Extraordinary gain 0.01 -- -- -- -- --
Cumulative effect of accounting changes (0.23) 0.10 -- -- -- 0.21
-------- ------- -------- -------- -------- -------
ADJUSTED BASIC AND DILUTED (LOSS) EARNINGS
PER SHARE $ (3.84) $ 0.13 $ -- $ 0.16 $ -- $ (0.64)
======== ======= ======== ======== ======== =======
* Goodwill amortization is net of the Excite@Home minority interest impact
on goodwill.
At June 30, 2002, goodwill declined $4.1 billion from December 31,
2001 primarily as a result of impairment losses recorded related to AT&T
Broadband in the second quarter of 2002 (see Note g). Goodwill at June 30,
2002, by reportable segment is as follows:
CARRYING AMOUNT
---------------
AT&T Broadband $15,180
AT&T Business Services 5,275
AT&T Consumer Services 71
-------
Total goodwill $20,526
=======
Identifiable intangible assets at June 30, 2002 are comprised of:
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
------ ------------
Non-amortizable intangible assets:
Franchise costs $29,083 $ --
Amortizable other purchased
intangible assets:
Customer lists and relationships 2,735 720
Other 111 62
------- ----
Total identifiable intangible assets $31,929 $782
======= ====
The amortization expense associated with other purchased intangible
assets for the three and six months ended June 30, 2002 was $69 and $136,
respectively. Amortization expense for other purchased intangible assets
is estimated to be approximately $270 for each of the years ended December
31, 2002 and 2003, $250 for the year ended December 31, 2004 and $240 for
each of the years ended December 31, 2005 and 2006.
9
The following table presents the impact of SFAS No. 142 on net
(loss) income and (loss) earnings per share had the standard been in
effect for the three years ended December 31, 2001. AT&T Wireless Group
tracking stock was issued in April 2000, therefore data for this group is
not applicable for 1999.
($ in millions, except per share amounts) AT&T Common Stock AT&T Wireless Liberty Media
Group Group Group
-------------------------- -------------- ---------------------------
FOR THE YEAR ENDED DECEMBER 31, 2001 2000 1999 2001 2000 2001 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
NET (LOSS) INCOME:
Reported (loss) income from continuing
operations before cumulative effect of
accounting change $(4,131) $2,645 $5,883 $ -- $ -- $(2,711) $1,488 $(2,022)
Dividend requirements of preferred stock (652) -- -- -- -- -- -- --
Premium on exchange of AT&T Wireless
tracking stock (80) -- -- -- -- -- -- --
------- ------ ------ ----- ----- ------- ------ -------
Reported (loss) income from continuing
operations available to common
shareowners (4,863) 2,645 5,883 -- -- (2,711) 1,488 (2,022)
Add back amortization, net of tax:
Goodwill* 766 687 135 -- -- 350 568 424
Equity method excess basis 128 337 294 -- -- 346 654 285
Franchise costs 754 645 445 -- -- 4 8 5
------- ------ ------ ----- ----- ------- ------ -------
Adjusted (loss) income from continuing
operations before cumulative effect
of accounting change available to
common shareowners $(3,215) $4,314 $6,757 $ -- $ -- $(2,011) $2,718 $(1,308)
------- ------ ------ ----- ----- ------- ------ -------
Reported income (loss) from discontinued
Operations 115 460 (433) 35 76 -- -- --
Add back discontinued operations
Amortization, net of tax 152 222 204 36 27 -- -- --
Gain on disposition of discontinued
Operations 13,503 -- -- -- -- -- -- --
Cumulative effect of accounting change 359 -- -- -- -- 545 -- --
------- ------ ------ ----- ----- ------- ------ -------
ADJUSTED NET INCOME (LOSS) $10,914 4,996 $6,528 $ 71 $ 103 $(1,466) $2,718 $(1,308)
======= ====== ====== ===== ===== ======= ====== =======
BASIC (LOSS) EARNINGS PER SHARE:
Reported basic (loss) earnings per share
from continuing operations before
cumulative effect of accounting change $ (1.33) $ 0.76 $ 1.91 $ -- $ -- $ (1.05) $ 0.58 $ (0.80)
Add back amortization, net of tax:
Goodwill* 0.21 0.20 0.04 -- -- 0.14 0.22 0.17
Equity method excess basis 0.03 0.10 0.10 -- -- 0.13 0.25 0.11
Franchise costs 0.21 0.18 0.14 -- -- -- 0.01 --
------- ------ ------ ----- ----- ------- ------ -------
Adjusted basic (loss) earnings per share
from continuing operations before
cumulative effect of accounting change $ (0.88) $ 1.24 $ 2.19 $ -- $ -- $ (0.78) $ 1.06 $ (0.52)
Reported earnings (loss) per share from
discontinued operations 0.03 0.13 (0.14) 0.08 0.21 -- -- --
Add back discontinued operations
amortization, net of tax 0.04 0.06 0.07 0.08 0.08 -- -- --
Gain on disposition of discontinued
operations 3.70 -- -- -- -- -- -- --
Cumulative effect of accounting change 0.10 -- -- -- -- 0.21 -- --
------- ------ ------ ----- ----- ------- ------ -------
ADJUSTED BASIC EARNINGS (LOSS)
PER SHARE $ 2.99 $ 1.43 $ 2.12 $0.16 $0.29 $ (0.57) $ 1.06 $ (0.52)
======= ====== ====== ===== ===== ======= ====== =======
10
AT&T Common Stock AT&T Wireless Liberty Media
($ in millions, except per share amounts) Group Group Group
----------------- ------------- -------------
FOR THE YEAR ENDED DECEMBER 31, 2001 2000 1999 2001 2000 2001 2000 1999
---- ---- ---- ---- ---- ---- ---- ----
DILUTED (LOSS) EARNINGS PER SHARE:
Reported diluted (loss) earnings per share
from continuing operations before
cumulative effect of accounting change $ (1.33) $ 0.75 $ 1.87 $ -- $ -- $ (1.05) $ 0.58 $ (0.80)
Add back amortization, net of tax:
Goodwill* 0.21 0.19 0.04 -- -- 0.14 0.22 0.17
Equity method excess basis 0.03 0.10 0.10 -- -- 0.13 0.25 0.11
Franchise costs 0.21 0.18 0.14 -- -- -- 0.01 --
------- ------ ------ ----- ----- ------- ------ -------
Adjusted diluted (loss) earnings per share
from continuing operations before
cumulative effect of accounting change $ (0.88) $ 1.22 $ 2.15 $ -- $ -- $ (0.78) $ 1.06 $ (0.52)
Reported earnings (loss) per share from
discontinued operations 0.03 0.13 (0.13) 0.08 0.21 -- -- --
Add back discontinued operations
amortization, net of tax 0.04 0.06 0.07 0.08 0.08 -- -- --
Gain on disposition of discontinued
Operations 3.70 -- -- -- -- -- -- --
Cumulative effect of accounting change 0.10 -- -- -- -- 0.21 -- --
------- ------ ------ ----- ----- ------- ------ -------
ADJUSTED DILUTED EARNINGS (LOSS) PER SHARE $ 2.99 $ 1.41 $ 2.09 $0.16 $0.29 $ (0.57) $ 1.06 $ (0.52)
======= ====== ====== ===== ===== ======= ====== =======
* Goodwill amortization is net of the Excite@Home minority interest
impact on goodwill.
EITF ISSUE 01-9, "ACCOUNTING FOR CONSIDERATION GIVEN BY A VENDOR TO A
CUSTOMER"
The Emerging Issues Task Force (EITF) recently reached a consensus
on Issue 01-9, "Accounting for Consideration Given by a Vendor to a
Customer," that cash incentives given to customers should be characterized
as a reduction of revenue when recognized in the income statement, unless
an identifiable benefit is received in exchange. Prior to this consensus,
cash incentives to acquire customers were recorded as advertising and
promotion expense within selling, general and administrative expenses.
These cash incentives are now recorded as a reduction of revenue and prior
periods have been reclassified to conform with this presentation. Total
AT&T revenue and AT&T Consumer Services revenue for the quarters ended
March 31, 2002, December 31, 2001, September 30, 2001, June 30, 2001 and
March 31, 2001 was reduced by $39, $45, $52, $61, and $78, respectively.
Net income was not affected by this reclassification.
SFAS NO. 144,"ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED
ASSETS"
On January 1, 2002, AT&T adopted SFAS No. 144,"Accounting for the
Impairment or Disposal of Long-Lived Assets," which supersedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." SFAS No. 144 applies to all
long-lived assets, including discontinued operations, and consequently
amends Accounting Principles Board (APB) Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." SFAS No. 144 also amends Accounting Research Bulletin No.
51, "Consolidated Financial Statements" to eliminate the exception to
consolidation for a subsidiary for which control is likely to be
temporary. The adoption had no impact on AT&T's results of operations,
financial position or cash flows.
For a detailed discussion of significant accounting polices, refer
to AT&T's Form 10-K/A for the year ended December 31, 2001.
d) SUMMARY OF RECOGNITION OF PREVIOUSLY UNREALIZED LOSSES (GAINS) IN OTHER
COMPREHENSIVE INCOME
AT&T has investment holdings classified as "available-for-sale"
under the scope of SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." These securities are carried at fair value
with any unrealized gains or losses, net of income taxes, included within
"Accumulated other comprehensive (loss)" as a component of shareowners'
equity. Under SFAS No. 115, when the "available-for-sale" securities are
sold or when we believe a decline in the investment value is
other-than-temporary, the previously unrealized gains or losses are
recognized in earnings in "Other (expense), net"
11
in the Consolidated Statement of Operations. In addition, upon the
adoption of SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," in January 2001, we reclassified certain securities
to "trading," resulting in the recognition in earnings of previously
unrealized losses. Following is a summary of the previously unrealized
losses (gains) that were recognized in the Consolidated Statements of
Operations for the six months ended June 30, 2002 and 2001.
RECOGNITION OF PREVIOUSLY UNREALIZED LOSSES (GAINS)
2002 2001
-------------------------------------------------
FOR THE SIX MONTHS ENDED JUNE 30, PRETAX AFTER-TAX PRETAX AFTER-TAX
------ --------- ------ ---------
AT&T GROUP:
Other expense, net:
Reclassification of securities to "trading"
in conjunction with the adoption of SFAS No. 133 $ -- $ -- $ 1,154 $ 713
Sale of various securities -- -- (239) (148)
Other-than-temporary investment impairments 1,405 867 -- --
LIBERTY MEDIA GROUP:
Equity earnings (losses) from Liberty Media Group:
Sales of various securities -- -- 173 105
Cumulative effect of accounting change -- -- (144) (87)
------ ---- ------- -----
Total recognition of previously unrealized losses $1,405 $867 $ 944 $ 583
====== ==== ======= =====
e) DISCONTINUED OPERATIONS
Discontinued operations for the three and six months ended June 30,
2002 reflects an estimated loss on the settlement of a litigation
associated with the business of Lucent Technologies Inc., which was
spun-off from AT&T in 1996. Sparks, et al. v. AT&T and Lucent Technologies
Inc. et al., is a class action lawsuit filed in 1996 in Illinois state
court. As a result of recent negotiations, a settlement proposal was
submitted to and accepted by the court on August 9, 2002. In accordance
with the separation and distribution agreement between AT&T and Lucent,
AT&T recorded its proportionate share of the settlement and estimated
legal costs, which totaled $132 pretax ($88 after-tax, or $0.03 per
share). (See Note l for a complete discussion of this matter.)
Pursuant to APB Opinion No. 30, the consolidated financial
statements of AT&T reflect the disposition of AT&T Wireless, which was
split-off from AT&T on July 9, 2001, as discontinued operations.
Accordingly, the revenue, costs and expenses, and cash flows of AT&T
Wireless through June 30, 2001, the effective split-off date for
accounting purposes, have been excluded from the respective captions in
the 2001 Consolidated Statements of Operations and Consolidated Statements
of Cash Flows and have been reported as "Income from discontinued
operations," net of applicable income taxes; and as "Net cash provided by
discontinued operations." Revenue from discontinued operations was $3,380
and $6,592 for the three and six months ended June 30, 2001, respectively.
Interest expense of $70 and $153 for the three and six months ended June
30, 2001, respectively, was allocated to discontinued operations based on
the debt of AT&T that was attributable to AT&T Wireless.
f) CONCERT AND AT&T CANADA
On April 1, 2002, Concert, our joint venture with British
Telecommunications plc (BT) was officially unwound and the venture's
assets and customer accounts were distributed back to the parent
companies. Under the partnership termination agreement, each of the
partners generally reclaimed the customer contracts and assets that were
initially contributed to the joint venture, including international
transport facilities and gateway assets. In addition, AT&T assumed certain
other assets that BT originally contributed to the joint venture.
At June 30, 2002, AT&T had a 31% equity ownership in AT&T Canada.
Under the terms of the 1999 merger agreement, AT&T has the right to
trigger, at any time, the purchase by AT&T or another entity the remaining
equity of AT&T Canada for the Back-end Price which is the greater of the
floor price and the fair market value. The floor price accretes at 4% each
quarter, commencing on June 30, 2000. In the third and fourth quarters of
2001, AT&T recorded charges reflecting the difference between the
underlying value of AT&T Canada shares and the price AT&T has committed to
pay for them, including the 4% accretion of the floor price. At December
31, 2001, this liability of $3.0 billion was included in "Other long-term
liabilities and deferred credits" in the Consolidated
12
Balance Sheet. In the second quarter and first half of 2002, AT&T recorded
after-tax charges of $0.1 billion ($0.2 billion pretax) and after-tax
charges of $0.3 billion ($0.5 billion pretax), respectively, reflecting
further deterioration in the underlying value of AT&T Canada as well as
the accretion of the floor price. The charges are included in "Net
(losses) related to other equity investments" in the Consolidated
Statement of Operations and the related liability of $3.7 billion within
"AT&T Canada obligation" in the Consolidated Balance Sheet. The liability
at June 30, 2002, also reflects foreign currency translation losses due to
fluctuations in the Canadian dollar of $0.2 billion pretax. AT&T has a
hedge related to this obligation and at June 30, 2002, had realized and
unrealized gains of $0.2 billion pretax relating to this hedge.
On June 25, 2002, AT&T provided notice triggering the requirement to
purchase in cash the outstanding shares of AT&T Canada from the public.
Under the terms of the 1999 merger agreement, the June 25 notification
effectively ceases further accretion on the publicly held shares. AT&T has
arranged for Tricap Investments Corporation, a wholly owned subsidiary of
Brascan Financial Corporation, to purchase an approximate 63% equity
interest in AT&T Canada and CIBC Capital Partners to acquire an
approximate 6% equity interest in AT&T Canada. AT&T has agreed to pay the
purchase price for the AT&T Canada shares on behalf of Tricap and CIBC
Capital Partners The purchase of AT&T Canada shares is expected to occur
in the fourth quarter of this year, subject to the terms and conditions of
the 1999 agreement, including obtaining the required regulatory approval.
AT&T will fund the purchase price of the AT&T Canada shares partly with
the net proceeds of approximately $2.5 billion received from the sale of
230 million shares of AT&T common stock on June 11, 2002. The remaining
portion of the obligation will be financed through short-term sources.
Tricap and CIBC Partners will make a nominal payment to AT&T upon
completion of the transaction. After the transaction closes, AT&T will
continue to hold a 31% ownership interest.
g) IMPAIRMENT CHARGES
Goodwill and Franchise Impairment Charges
SFAS No. 142 requires that intangible assets not subject to
amortization and goodwill shall be tested for impairment annually, or more
frequently if events or changes in circumstances indicate that the asset
might be impaired. The impairment test shall consist of a comparison of
the fair value of the intangible asset/goodwill with its carrying amount.
In the second quarter of 2002, we noted significant changes in the
general business climate as evidenced by the severe downward movement in
the U.S. stock market (including the decline in values of publicly traded
cable industry stocks). At June 30, 2002, five of our cable competitors as
a group experienced an average decline in total market capitalization of
over 20% since January 1, 2002. We have also witnessed corporate
bankruptcies. We believe these factors coupled with the pending merger of
AT&T Broadband and Comcast (which was approved by both companies'
shareholders on July 10, 2000) created a "trigger event" for our AT&T
Broadband segment, which necessitated the testing of goodwill and
franchise costs for impairment as of the end of the second quarter.
We assessed our impairment on the same principles employed during
the initial adoption of SFAS No. 142. Such testing resulted in the
recognition of a $12.3 billion franchise cost impairment charge and a $4.2
billion goodwill impairment charge (aggregating to $11.8 billion
after-tax) recorded in "Goodwill and franchise impairment charges" in the
Consolidated Statement of Operations.
Investment Impairment Charges
In accordance with SFAS No. 115 and APB Opinion No. 18 "The Equity
Method of Accounting for Investments in Common Stock," we evaluated our
portfolio of investments as of June 30, 2002 for potential impairments.
SFAS No. 115 and APB Opinion No. 18 both require the recognition in
earnings of declines in value of cost and equity method securities which
are "other than temporary."
Given the significant decline in stock prices in the last six
months, the length of time these investments have been below market and
industry specific issues, we believe that certain investments would not
recover our cost basis in the foreseeable future. Accordingly, we believe
the declines in value are "other than temporary" and, as a result, AT&T
recorded total investment impairments of $2.2 billion pretax ($1.3 billion
after-
13
tax). The following is a breakout of the investment impairment charges
recorded in the second quarter by type of investment.
Cost Method Investments
In the second quarter of 2002, we recorded investment impairment
charges on cost method investments of $1.2 billion pretax ($0.7 billion
after tax), within "Other (expense), net" in the Consolidated Statement of
Operations. These charges relate to securities that are classified as
"available-for-sale" and were marked-to-market through "Other
comprehensive income" as a component of shareowners' equity. These charges
primarily consisted of impairments on our investments in Cablevision
Systems Corporation ($0.6 billion pretax, $0.4 billion after-tax), Comcast
($0.3 billion pretax, $0.2 billion after-tax) and Microsoft Corporation
($0.2 billion pretax, $0.1 billion after-tax). In the first half of 2002,
we recorded impairment charges on cost method investments of $1.4 billion
on a pretax basis.
Our investment in Cablevision stock is monetized by debt which is
indexed to the value of Cablevision shares. The debt contains an embedded
derivative which is designated as a cash-flow hedge under the provisions
of SFAS No. 133 and is marked-to-market through "Other comprehensive
income." At the time we recognized the other than temporary decline in the
value of the Cablevision stock as an expense, as permitted by SFAS No.
133, we also recognized, in earnings, the unrealized gain on the embedded
derivative that was previously recorded in "Other comprehensive income,"
resulting in the $0.6 billion pretax impairment discussed above.
Equity Method Investments
In the second quarter of 2002, we recorded investment impairment
charges on equity method investments of $1.0 billion pretax ($0.6 billion
after-tax) within "Net (losses) related to other equity investments" in
the Consolidated Statement of Operations. These charges consisted of
impairments of our cable partnerships, primarily Texas Cable Partners, LP
($0.4 billion pretax, $0.2 billion after-tax), Insight Midwest LP ($0.2
billion pretax, $0.1 billion after-tax), Kansas City Cable Partners ($0.2
billion pretax, $0.1 billion after-tax), Parnassos Communications, LP
($0.1 billion pretax and after-tax) and Century-TCI California
Communications, LP ($0.1 billion pretax and after-tax). Parnassos
Communications, LP and Century-TCI California Communications, LP represent
the only partnership investments we have with Adelphia Communications
Corporation. Adelphia Communications Corporation and subsidiaries
(including Parnassos Communications, LP and Century-TCI California
Communications, LP) filed for Chapter 11 bankruptcy on June 25, 2002.
h) NET RESTRUCTURING AND OTHER CHARGES
In the second quarter of 2002, AT&T recorded $23 of restructuring
and other charges for facility closing costs in connection with buildings
that have been vacated as a result of previously announced employee exit
plans. These charges were entirely offset by the reversal of $23 of excess
vintage facility closing restructuring reserves that are no longer
necessary. These reserves became unnecessary due to recent changes in
certain commercial real estate markets enabling AT&T to relieve itself of
certain contractual obligations for which the reserves were originally
established.
Net restructuring and other charges for the six months ended June
30, 2002, totaled $56 which represents the restructuring and exit costs
associated with AT&T Broadband's efforts to reorganize and streamline
certain centralized and field functions.
The $56 is comprised of headcount reductions of $42 associated with
employee separation costs resulting from this exit plan, $50 in connection
with facility closings and $4 for other charges. These charges were
partially offset by the reversal of $40, $23 related to excess vintage
facility closing restructuring reserves and $17 related to the business
restructuring plan from the second quarter of 2001, primarily due to the
redeployment of certain employees to different functions within AT&T
Broadband. Approximately 900 employees will be involuntarily separated in
conjunction with this exit plan, approximately 75% of which are management
and 25% are non-management. Approximately 75% of the employees affected by
this exit plan have left their positions as of June 30, 2002, with the
remaining reductions occurring throughout the remainder of 2002. More than
$32 of termination benefits were paid to employees during the first half
of 2002 related to this exit plan.
14
The following table displays the activity and balances of the
restructuring reserve account from January 1, 2002 to June 30, 2002:
TYPE OF COST
EMPLOYEE FACILITY
SEPARATIONS CLOSINGS OTHER TOTAL
----------- -------- ----- -----
Balance at January 1, 2002 $ 508 $ 316 $ 19 $ 843
Additions 42 50 4 96
Deductions (269) (62) (9) (340)
----- ----- ---- -----
Balance at June 30, 2002 $ 281 $ 304 $ 14 $ 599
===== ===== ==== =====
Deductions reflect cash payments of $291, of which $243 represents
cash termination benefits funded primarily through cash from operations.
Deductions also reflect reversals of $40, $23 related to excess vintage
facility closing restructuring reserves and $17 personnel-related. In
addition, deductions include $9 primarily due to the issuance of common
stock to satisfy restricted stock obligations that vested upon separation,
primarily to executives.
During the second quarter of 2001, AT&T recorded $287 of net
restructuring and other charges, which included $56 of asset impairment
charges related to Excite@Home including the write-off of property, plant
and equipment, and $231 for restructuring and exits costs which consisted
of $88 of severance costs, $136 related to facility closings and $7
primarily related to termination of contractual obligations.
The severance costs for approximately 4,500 employees primarily
resulted from synergies created by the MediaOne merger. Approximately 27%
of the affected employees were management employees and 73% were
non-management employees. This business restructuring plan was
substantially completed by March 31, 2002.
Net restructuring and other charges for the six months ended June
30, 2001, totaled $1,095. The charge included $795 of asset impairment
charges related to At Home Corporation (Excite@Home), $300 for
restructuring and exits costs, which consisted of $147 for severance
costs, $142 for facilities closing and $11 primarily related to the
termination of contractual obligations. The severance costs, for
approximately 6,900 employees, primarily resulted from synergies created
by the MediaOne merger. Approximately 21% of the affected employees were
management employees and 79% were non-management employees. These business
restructuring plans were substantially completed by March 31, 2002.
The asset impairment charges included $656 recorded by Excite@Home
associated with the write-down of goodwill and other intangible assets,
warrants granted in connection with distributing the @Home service and
fixed assets. These charges were due to continued deterioration in the
business climate of, and reduced levels of venture capital funding
activity for, Internet advertising and other Internet-related companies,
continued significant declines in the market values of Excite@Home's
competitors in the Internet advertising industry, and changes in their
operating and cash flow forecasts for the remainder of 2001. These charges
were also impacted by Excite@Home's decision to sell or shut down
narrowband operations. In addition, AT&T recorded a related goodwill
impairment charge of $139 associated with its acquisition goodwill of
Excite@Home. Since we consolidated, but only owned approximately 23% of
Excite@Home, a portion of the charges recorded by Excite@Home was not
included as a reduction to AT&T's net income, but rather was eliminated in
our Consolidated Statement of Operations as a component of "Minority
interest and dividends on subsidiary preferred stock."
Of the approximately 10,300 employees impacted by the exit plan
announced in the fourth quarter of 2001, nearly 64% have left their
positions as of June 30, 2002, with the remaining reductions to occur
throughout the remainder of 2002. Nearly $171 of termination benefits were
paid to employees during the first half of 2002.
i) EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE
(Loss) earnings attributable to the different classes of AT&T common
stock are as follows:
AT&T COMMON STOCK AT&T WIRELESS LIBERTY MEDIA
GROUP GROUP GROUP
----- ----- -----
FOR THE THREE MONTHS ENDED JUNE 30, 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
(Loss) from continuing operations $(12,749) $ (51) $ -- $-- $ -- $(2,125)
Dividend requirements of preferred stock -- (236) -- -- -- --
Premium on exchange of AT&T Wireless
tracking stock -- (80) -- -- -- --
-------- ------- ----- --- ----- -------
(Loss) from continuing operations
attributable to common shareowners (12,749) (367) -- -- -- (2,125)
(Loss) income from discontinued operations (88) 176 -- 42 -- --
Extraordinary gain 7 -- -- -- -- --
-------- ------- ----- --- ----- -------
Net (loss) income attributable to common
Shareowners $(12,830) $ (191) $ -- $42 $ -- $(2,125)
======== ======= ===== === ===== =======
FOR THE SIX MONTHS ENDED JUNE 30, 2002 2001 2002 2001 2002 2001
---- ---- ---- ---- ---- ----
(Loss) from continuing operations $(12,909) $ (534) $ -- $-- $ -- $(2,822)
Dividend requirements of preferred stock -- (417) -- -- -- --
Premium on exchange of AT&T Wireless
Tracking stock -- (80) -- -- -- --
-------- ------- ----- --- ----- -------
(Loss) from continuing operations
attributable to common shareowners (12,909) (1,031) -- -- -- (2,822)
(Loss) income from discontinued
operations (88) 115 -- 35 -- --
Extraordinary gain 48 -- -- -- -- --
Cumulative effect of accounting changes (856) 359 -- -- -- 545
-------- ------- ----- --- ----- -------
Net (loss) income attributable to common
shareowners $(13,805) $ (557) $ -- $35 $ -- $(2,277)
======== ======= ===== === ===== =======
15
Basic loss per share for AT&T Common Stock Group was computed by
dividing AT&T Common Stock Group loss by the weighted-average number of
shares outstanding of 3,649 million and 3,694 million, for the three
months ended June 30, 2002 and 2001, respectively, and 3,598 million and
3,749 million for the six months ended June 30, 2002 and 2001,
respectively.
Since AT&T recorded a loss from continuing operations for the three
and six months ended June 30, 2002 and 2001, respectively, the diluted
loss per share is the same as basic loss per share, as any potentially
dilutive securities would be antidilutive to continuing operations. At
June 30, 2002, potentially dilutive securities outstanding included shares
issuable for stock options and convertible quarterly income preferred
securities.
Basic and diluted earnings per share from discontinued operations
for AT&T Wireless Group for the three and six months ended June 30, 2001,
were computed by dividing income attributable to AT&T Wireless Group by
the weighted-average number of shares outstanding of AT&T Wireless Group
of 513 million and 438 million, respectively. AT&T Wireless was split-off
from AT&T in July 2001.
Basic and diluted loss per share for LMG was computed by dividing
the loss attributable to LMG by the weighted-average number of shares
outstanding of LMG of 2,588 million and 2,581 million for the three and
six months ended June 30, 2001, respectively. LMG was split-off from AT&T
in August 2001.
j) EQUITY TRANSACTIONS
Pursuant to the AT&T Broadband and Comcast merger agreement, AT&T
was required to redeem the outstanding TCI Pacific Communications, Inc.
Class A Senior Cumulative Exchangeable Preferred Stock for AT&T common
stock. Each share of TCI Pacific preferred stock was exchangeable at the
option of the holder for 8.365 shares of AT&T common stock. As of June 30,
2002, all outstanding (approximately 6.2 million) shares of TCI Pacific
preferred stock with a carrying value of $2.1 billion had either been
exchanged or redeemed for approximately 51.8 million shares of AT&T common
stock. No gain or loss was recorded on the exchange/redemption of the TCI
Pacific preferred stock.
In the second quarter of 2002, AT&T issued 13.9 million shares of
AT&T common stock to certain current and former senior managers in
settlement of their deferred compensation accounts. Pursuant to AT&T's
deferred compensation plan, senior managers may defer short- and long-term
incentive compensation awards. The issuance of these shares resulted in an
increase to total shareowners' equity of $186.4 million.
In June of 2002, AT&T completed a public equity offering of 230
million shares of AT&T common stock at a price of $11.25 per share for net
proceeds of $2.5 billion. AT&T anticipates, and under the Comcast merger
agreement is limited to, using the proceeds from the offering to satisfy a
portion of its obligation to AT&T Canada common shareholders.
On January 22, 2001, NTT DoCoMo invested approximately $9.8 billion
for 812,512 shares of a new class of AT&T preferred stock with a par value
of $1 per share. On July
16
9, 2001, in conjunction with the split-off of AT&T Wireless Group, these
preferred shares were converted into AT&T Wireless common stock. In the
second quarter and first half of 2001, we recorded dividend requirements
on this preferred stock of $0.2 billion and $0.4 billion, respectively.
The preferred stock dividend represented interest in connection with the
DoCoMo preferred stock as well as accretion of the beneficial conversion
feature associated with this preferred stock. The beneficial conversion
feature was recorded upon the issuance of the preferred stock and
represented the excess of the fair value of the preferred shares issued
over the proceeds received.
k) DEBT OBLIGATIONS
During 2001, AT&T initiated a 364-day accounts receivable
securitization program providing for up to $2.7 billion of funding,
limited by monthly eligible receivables. Under the program, certain of
AT&T Business Services' and AT&T Consumer Services' accounts receivable
can be sold on a discounted, revolving basis, to a special purpose,
wholly-owned subsidiary of AT&T, which assigns interests in such
receivables to unrelated third-party financing entities. AT&T has renewed
both its AT&T Business Services and AT&T Consumer Services customer
accounts receivable securitization facilities. The terms of these
facilities have been extended to June (AT&T Business Services) and July
(AT&T Consumer Services) of 2003. Together the programs, as renewed,
provide up to $2.0 billion of available financing, limited by the eligible
receivables balance, which varies from month to month. The securitization
proceeds were recorded as a borrowing and included in "Debt maturing
within one year" in the Consolidated Balance Sheets. At June 30, 2002 and
December 31, 2001, such short-term notes totaled $0.2 billion and $2.3
billion, respectively.
During the first half of 2002, AT&T called $1.5 billion of TCI
Communications Financing I, II and IV, MediaOne Financing Trust A and B
and MediaOne Finance II preferred securities for early redemption. This
redemption resulted in a gain on early extinguishment of debt recorded as
an extraordinary gain of $7 million, net of taxes ($12 million pretax) and
$48 million, net of taxes ($78 million pretax) for the three and six-month
periods ending June 30, 2002, respectively. The gain represents the
difference between the carrying value of the debt and the cash paid to
extinguish the debt.
In June 2002, AT&T registered $7.0 billion of the private placement
notes sold in November 2001 and commenced a tender of the private notes
for registered notes. The note exchange was completed on August 2, 2002.
The terms of the registered notes are identical to the private notes.
As of June 30, 2002, AT&T has approximately $0.8 billion in private
debt outstanding that is partially collateralized with restricted cash of
approximately $0.4 billion. The restricted cash is recorded in "Other
Assets" in the Consolidated Balance Sheet.
l) COMMITMENTS AND CONTINGENCIES
In the normal course of business we are subject to proceedings,
lawsuits and other claims, including proceedings under laws and
regulations related to environmental and other matters. Such matters are
subject to many uncertainties, and outcomes are not predictable with
assurance. However, management makes its best estimate of the outcome of
these matters based on all available facts and records loss contingencies
as appropriate. Consequently, we are unable to ascertain the ultimate
aggregate amount of monetary liability or financial impact with respect to
these matters at June 30, 2002. These matters could affect the operating
results of any one quarter when resolved in future periods. However, we
believe that after final disposition, any monetary liability or financial
impact to us beyond that provided for at June 30, 2002 would not be
material to our annual consolidated financial statements.
Sprint PCS, a wireless carrier, sued AT&T for access charges for
AT&T long distance calls terminated on Sprint PCS' network and for
toll-free calls that Sprint PCS customers originated and which were
terminated on AT&T's network. AT&T refused to pay Sprint PCS based on
longstanding industry practice that wireless carrier-long distance carrier
interconnection is on a bill and keep basis and that wireless carriers
charged their customers for calls they received. On July 3, 2002, the FCC
ruled that wireless carriers such as Sprint PCS are not prohibited from
charging AT&T access charges, but that AT&T was not required to pay such
charges absent a contractual obligation to do so. The FCC
17
further held that the question whether the parties entered into a contract
concerning an access payment obligation is not a matter of federal
communications law but rather should to be determined by the court that
had referred the issue to the FCC. Because there was no express contract
between AT&T and Sprint PCS, the court will need to determine whether an
implied-in-fact contract can be inferred in light of the parties' conduct
and their tacit understanding. Petitions of Sprint PCS and AT&T Corp. for
Declaratory Ruling Regarding CMRS Access Charges, WT Docket No. 01-316,
Declaratory Ruling, FCC 02-203, rel. July 3, 2002. The FCC remanded the
matter to the federal district court, Sprint Spectrum, L.P. v. AT&T
Communications, Inc., Civil Action No. 00-0973-CV-W-5 (W.D. Mo.). AT&T has
petitioned for review of the FCC's ruling in the U.S. Court of Appeals for
the District of Columbia Circuit, AT&T Corp. v. FCC et al., No. 02-1240
(D.C. Cir. filed Aug. 1, 2002), and has requested a continuance of the
stay from the federal district court in Missouri pending appellate review.
An adverse decision in the present litigation may result in additional
wireless carriers seeking similar compensation from AT&T. AT&T believes
the case is without merit and intends to defend it vigorously, but cannot
predict the outcome of any such proceedings.
Sparks, et al. v. AT&T and Lucent Technologies Inc. et al., is a
class action lawsuit filed in 1996 in Illinois state court under the name
of Crain v. Lucent Technologies. The complaint seeks damages on behalf of
present and former customers based on a claim that the AT&T Consumer
Products business (which became part of Lucent in 1996) and Lucent had
defrauded and misled customers who leased telephones, resulting in
payments in excess of the cost to purchase the telephones. Similar
consumer class actions pending in various state courts have been stayed
pending the outcome of the Sparks case and, in July 2001, the Illinois
court certified a nationwide class of plaintiffs. Lucent filed pretrial
motions for, among other things, decertification of the class and summary
judgment in Lucent's favor. On July 29, 2002, the judge denied Lucent's
motions, and set trial to begin on August 5, 2002.
As a result of recent negotiations, a settlement proposal was
submitted to and accepted by the court on August 9, 2002. AT&T and Lucent
deny they have defrauded or misled their customers, but have decided to
settle this matter to avoid the uncertainty of litigation and the
diversion of resources and personnel that the continuation of pursuing
this matter would require. The separation and distribution agreement
between AT&T and Lucent governs how the cost of these settlements are
shared by each party. In accordance with the separation and distribution
agreement, AT&T recorded its proportionate share of the settlement and
estimated legal costs, which totaled $132 pretax ($88 after-tax).
Depending upon the number of claims submitted and accepted, the actual
cost of the settlement to AT&T may be less than stated amounts, but it is
not possible to estimate the amount at this time.
On March 13, 2002, AT&T Broadband informed CSG Systems, Inc. that
it was considering the initiation of an arbitration against CSG relating
to a Master Subscriber Management System Agreement that the two companies
entered into in 1997. Pursuant to the Master Agreement, CSG provides
billing support to AT&T Broadband. On May 10, 2002, AT&T Broadband filed a
demand for arbitration against CSG before the American Arbitration
Association. On May 31, 2002, CSG answered AT&T Broadband's arbitration
demand and asserted various counterclaims. On June 21, 2002, CSG filed a
lawsuit against Comcast Corporation in federal court located in Denver,
Colorado asserting claims related to the Master Agreement and the pending
arbitration. In the event that this process results in the termination of
the Master Agreement, AT&T Broadband may incur significant costs in
connection with its replacement of these customer care and billing
services and may experience temporary disruptions to its operations.
m) RELATED PARTY TRANSACTIONS
AT&T had various related party transactions with Concert until the
joint venture was officially unwound on April 1, 2002.
Included in "Revenue" in the Consolidated Statements of Operations
for the first half of 2002 was $0.3 billion, and for the three and six
months ended June 30, 2001 was $0.3 billion and $0.6 billion,
respectively, for services provided to Concert.
Included in "Access and other connection expense" in the
Consolidated Statements of Operations are charges from Concert
representing costs incurred on our behalf to connect calls made to foreign
countries (international settlements) and costs paid by AT&T to Concert
for distributing Concert products. Such charges totaled $0.5 billion for
the six months ended June 30, 2002 and $0.5 billion and $1.1 billion,
respectively for the three and six months ended June 30, 2001.
Included in "Accounts receivable" in the Consolidated Balance Sheet
at December 31, 2001 was $0.4 billion related to telecommunications
transactions with Concert. Included in "Accounts payable" in the
Consolidated Balance Sheet at December 31, 2001 was $0.2 billion related
to transactions with Concert.
Included in "Other receivables" in the Consolidated Balance Sheet at
December 31, 2001 was $0.8 billion related to administrative transactions
performed on behalf of Concert. Included in "Other current liabilities" in
the Consolidated Balance Sheet at December 31, 2001 was $0.9 billion
related to administrative transactions performed by Concert on our behalf.
During 2001, we had various related party transactions with LMG.
Included in "Costs of services and products" in the Consolidated Statement
of Operations were programming
18
expenses related to services from LMG while owned by AT&T of $91 and $172,
respectively, for the three and six-month periods ended June 30, 2001.
n) SEGMENT REPORTING
AT&T's results are segmented according to the way we manage our
business: AT&T Business Services, AT&T Consumer Services and AT&T
Broadband.
Our existing segments reflect certain managerial changes that were
implemented during 2002. The changes primarily include the following:
revenue previously recorded by the AT&T Business Services segment as
"Internal Revenue" for services provided to certain other AT&T units and
then eliminated within the Corporate & Other group, is now recorded as a
contra-expense by AT&T Business Services; the results of certain units
previously included in the Corporate & Other group were transferred to the
AT&T Business Services segment and the financial impacts of SFAS No. 133
that were previously recorded in the Corporate & Other group were
transferred to the appropriate segments. In addition, AT&T Consumer
Services and total AT&T revenue was reclassified in accordance with EITF
issue 01-9, "Accounting for Consideration Given by a Vendor to a
Customer," which requires cash incentives given to customers previously
recorded as advertising and promotion expense now to be recorded as a
reduction of revenue when recognized in the income statement, unless an
identifiable benefit is received in exchange (see note c). All prior
periods have been restated to reflect these changes.
Reflecting the dynamics of our business, we continuously review our
management model and structure which may result in additional adjustments
to our operating segments in the future.
FOR THE THREE MONTHS FOR THE SIX MONTHS
REVENUE ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
AT&T Business Services external revenue $ 6,650 $ 6,853 $ 13,095 $ 13,790
AT&T Business Services internal revenue 92 158 175 317
-------- -------- -------- --------
Total AT&T Business Services revenue 6,742 7,011 13,270 14,107
AT&T Consumer Services external revenue 2,911 3,724 5,997 7,653
AT&T Broadband external revenue 2,524 2,560 4,960 5,021
AT&T Broadband internal revenue 2 5 5 9
-------- -------- -------- --------
Total AT&T Broadband revenue 2,526 2,565 4,965 5,030
-------- -------- -------- --------
Total reportable segments 12,179 13,300 24,232 26,790
Corporate and Other (a) (75) (35) (144) (52)
-------- -------- -------- --------
Total revenue $ 12,104 $ 13,265 $ 24,088 $ 26,738
======== ======== ======== ========
(a) Includes revenue related to Excite@Home of $134 and $278 for the
three and six months ended June 30, 2001.
RECONCILIATION OF EARNINGS BEFORE INTEREST AND TAXES (EBIT) TO INCOME
BEFORE INCOME TAXES
FOR THE THREE MONTHS FOR THE SIX MONTHS
REVENUE ENDED JUNE 30, ENDED JUNE 30,
2002 2001 2002 2001
---- ---- ---- ----
AT&T Business Services $ 691 $ 1,399 $ 1,143 $ 2,405
AT&T Consumer Services 802 1,217 1,634 2,535
AT&T Broadband (18,460) (819) (18,885) (2,361)
-------- -------- -------- --------
Total reportable segments (16,967) 1,797 (16,108) 2,579
Corporate and Other (a) (170) (2,057) (365) (2,380)
Deduct:
Pretax minority interest and dividends on
subsidiary preferred stock (56) 192 (138) 751
Pretax (losses) related to other equity
investments (1,172) (1,508) (1,653) (1,639)
Interest (expense) (716) (761) (1,483) (1,640)
-------- -------- -------- --------
Income (loss) from continuing operations before
income taxes, minority interest and dividends on
subsidiary preferred stock and net (losses)
related to equity investments $(16,625) $ 295 $(16,165) $ (553)
======== ======== ======== ========
(a) Includes $(85) and $(420) related to Excite@Home for the three and
six months ended June 30, 2001, respectively.
19
ASSETS
AT JUNE 30, AT DECEMBER 31,
2002 2001
---- ----
AT&T Business Services $ 39,150 $ 40,316
AT&T Consumer Services 1,877 2,141
AT&T Broadband 81,816 103,060
-------- --------
Total reportable segments 122,843 145,517
Corporate and Other:
Other segments 1,126 1,145
Prepaid pension costs 3,465 3,329
Deferred income taxes 1,769 960
Other corporate assets (a) 8,692 14,331
-------- --------
Total assets $137,895 $165,282
======== ========
(a) 2002 and 2001 amounts include cash of $5.3 billion and $10.4
billion, respectively.
o) GUARANTEE OF PREFERRED SECURITIES
Prior to AT&T's acquisition of TCI and MediaOne, TCI and MediaOne
issued mandatorily redeemable preferred securities through subsidiary
trusts that held subordinated debt securities of TCI and MediaOne.
In the first half of 2002, AT&T called mandatorily redeemable
preferred securities issued by TCI Communications Financing I, II and IV,
MediaOne Financing A and B, and MediaOne Finance II for early redemption.
As of June 30, 2002, AT&T provides a full and unconditional guarantee on
outstanding securities issued by MediaOne Finance III. At June 30, 2002,
$504 of MediaOne Finance III securities were outstanding.
AT&T CORP.
CONSOLIDATING CONDENSED BALANCE SHEET
AS OF JUNE 30, 2002
(DOLLARS IN MILLIONS)
GUARANTOR GUARANTOR MEDIA-ONE ELIMINATION AND
AT&T SUBSIDIARY FINANCE NON-GUARANTOR CONSOLIDATION CONSOLIDATED
PARENT MEDIAONE TCI III SUBSIDIARIES ADJUSTMENTS AT&T CORP.
--------- ---------- --- --------- ------------- --------------- ------------
ASSETS
Cash and cash equivalents... $5,323 $ 4 $ 279 $ 5,606
Receivables................. 20,148 46,078 (58,661) 7,565
Investments................. 414 414
Other current assets........ 1,070 1,548 110 527 585 (881) 2,959
TOTAL CURRENT ASSETS........ 26,541 1,548 114 527 47,356 (59,542) 16,544
Property, plant &
equipment, net..... 9,375 150 31,935 41,460
Franchise costs, net........ 19 29,064 29,083
Goodwill, net............... 70 2,526 17,930 20,526
Investments and related
advances........... 115,835 33,202 9,936 40,353 (180,650) 18,676
Other assets................ 6,483 151 9,369 (4,397) 11,606
TOTAL ASSETS................ $158,304 $37,276 10,370 $527 $176,007 $(244,589) $137,895
LIABILITIES
Debt maturing within one
year............... $34,712 $379 $ 1,458 $6,605 $ (37,265) $ 5,889
Other current liabilities... 6,939 380 558 11 17,825 (11,389) 14,324
TOTAL CURRENT LIABILITIES... 41,651 759 2,016 11 24,430 (48,654) 20,213
Long-term debt.............. 23,596 2,164 11,109 504 14,099 (14,201) 37,271
Deferred income taxes....... 1,429 22,482 23,911
Other long-term liabilities
and deferred credits...... 6,421 11 136 2,148 (1,093) 7,623
TOTAL LIABILITIES........... 73,097 2,934 13,261 515 63,159 (63,948) 89,018
Minority Interest........... 1,397 1,397
Company-Obligated
Convertible Quarterly
Income Preferred
Securities of Subsidiary
Trust Holding Solely
Subordinated Debt
Securities of AT&T....... 4,725 4,725
SHAREOWNERS' EQUITY
AT&T Common Stock........... 3,845 3,845
Preferred stock issued to
subsidiaries....... 10,559 (10,559) --
Other shareowners' equity... 66,078 34,342 (2,891) 12 111,451 (170,082) 38,910
TOTAL SHAREOWNERS' EQUITY... 80,482 34,342 (2,891) 12 111,451 (180,641) 42,755
TOTAL LIABILITIES AND
SHAREOWNERS' EQUITY $158,304 $37,276 $10,370 $527 $176,007 $(244,589) $137,895
20
AT&T CORP.
CONSOLIDATING CONDENSED STATEMENTS OF OPERATION
FOR THE THREE MONTHS ENDED JUNE 30, 2002
(DOLLARS IN MILLIONS)
ELIMINATION
GUARANTOR GUARANTOR MEDIA-ONE AND
AT&T SUBSIDIARY FINANCE NON-GUARANTOR CONSOLIDATION CONSOLIDATED
PARENT MEDIAONE TCI III SUBSIDIARIES ADJUSTMENTS AT&T CORP.
--------- --------- --- --------- ------------- ------------- ------------
Revenue $4,059 $ -- $ 8,392 $(347) $12,104
Operating Expenses
Costs of services and
products............. 686 2,991 (338) 3,339
Access and other
connection........... 1,352 1,420 (9) 2,763
Selling, general and
administrative....... 694 (7) 162 1,795 2,644
Depreciation and
amortization......... 501 24 1,434 1,959
Net restructuring and
other charges........
Goodwill and franchise
cost impairment
charges 16,479 16,479
Total operating expenses 3,233 (7) 186 24,119 (347) 27,184
Operating income (loss). 826 7 (186) (15,727) -- (15,080)
Other income (expense),
net.................. 261 146 11 12 (147) (1,112) (829)
Interest (expense)...... (853) (90) (176) (12) (697) 1,112 (716)
Income (loss) from
continuing operations
before income taxes,
minority interest, and
dividends
on subsidiary preferred
stock, and net
(losses) earnings
related to other
equity investments... 234 63 (351) (16,571) (16,625)
(Provision) benefit for
income taxes......... (95) (24) 135 4,615 4,631
Minority interest and
dividends on
subsidiary preferred
stock................ (40) 9 (31)
Net (losses) earnings
related to other
equity investments... 224 (7,262) (5,633) (706) 12,653 (724)
Income (loss) from
continuing operations 323 (7,223) (5,849) (12,653) 12,653 (12,749)
(Loss) from
discontinued
operation (net of
income taxes)........ (88) (88)
(Loss) income before
extraordinary gain... 235 (7,223) (5,849) (12,653) 12,653 (12,837)
Extraordinary gain (net
of income taxes)..... 7 7
Net (loss) income....... 235 (7,223) (5,842) (12,653) 12,653 (12,830)
21
AT&T CORP.
CONSOLIDATING CONDENSED STATEMENTS OF OPERATION
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(DOLLARS IN MILLIONS)
GUARANTOR GUARANTOR MEDIA-ONE ELIMINATION AND
AT&T SUBSIDIARY FINANCE NON-GUARANTOR CONSOLIDATION CONSOLIDATED
PARENT MEDIAONE TCI III SUBSIDIARIES ADJUSTMENTS AT&T CORP.
---------- ---------- --- --------- ------------- ---------------- ------------
Revenue $ 8,022 $ -- $ 16,923 $ (857) $24,088
Operating Expenses
Costs of services
and products..... 1,337 6,129 (837) 6,629
Access and other
connection......... 2,745 2,846 (20) 5,571
Selling, general and
administrative..... 1,261 (9) 357 3,581 5,190
Depreciation and
amortization....... 961 44 2,849 3,854
Net restructuring and
other charges...... 56 56
Goodwill and
franchise cost
impairment charges 16,479 16,479
Total operating
expenses........... 6,304 (9) 401 31,940 (857) 37,779
Operating income
(loss)............. 1,718 9 (401) (15,017) (13,691)
Other income
(expense), net..... 388 349 22 23 (50) (1,723) (991)
Interest (expense).... (1,654) (114) (336) (23) (1,079) 1,723 (1,483)
Income (loss) from
continuing operations
before income taxes,
minority interest, and
dividends
on subsidiary preferred
stock, and net
(losses) earnings
related to other
equity investments. 452 244 (715) (16,146) (16,165)
(Provision) benefit
for income taxes... (169) (93) 274 4,353 4,365
Minority interest and
dividends on
subsidiary
preferred stock.... (80) (8) (88)
Net (losses)
earnings related
to other equity
investments........ 428 (8,113) (5,993) (990) 13,647 (1,021)
Income (loss) from
continuing
operations......... 631