AT&T Earns 4 Cents Per Share from Continuing Operations, Excluding Other Income On a Reported Basis, AT&T Earned $3.13 Per Share.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 23, 2001

AT&T today announced third-quarter results.

For the third quarter, AT&T earned $0.04 per diluted share from continuing operations, excluding other income and asset impairment charges, in line with the company's guidance of $0.02 to $0.05. This compares with $0.35 per diluted share from the year-ago quarter.

On the same basis, AT&T cash EPS from continuing operations was $0.16 for the quarter, also in line with the company's guidance of $0.14 to $0.17.

On a reported basis, AT&T earned $3.13 per diluted share in the third quarter, which includes a $13.5 billion after-tax gain, or $3.82 per share, on the split-off of AT&T Wireless. The gain represents the difference between the fair value of the Wireless tracking stock at the date of the split-off and AT&T's book value in AT&T Wireless.

AT&T's continuing operations reported a loss of $0.69 per diluted share, primarily as a result of previously announced third-quarter pre-tax charges of approximately $3.5 billion related to the dissolution of Concert, and $1.8 billion for obligations connected to AT&T's stake in AT&T Canada.

AT&T reported third-quarter revenue of approximately $13.1 billion. On a pro forma basis, which adjusts for the consolidation of Excite@Home and closed cable partnerships, revenue decreased 5.8 percent. Revenue, on a reported basis, declined 7.7 percent from the year-ago quarter.

The revenue decrease is primarily due to a continued decline in long distance voice services, compounded by a softening in the economy, which was partially offset by growth in AT&T Broadband and AT&T Business data/IP and local services.

"While we produced revenue growth and improved EBITDA in our Broadband unit, delivered solid cash flow and industry-leading margins in our Consumer unit and saw modest growth in key units of Business, every part of our company felt the impact of the slowing economy," said AT&T Chairman and CEO C. Michael Armstrong.

"Along with our competitors, we're seeing continued declines in our long distance voice business as well as an impact to our business data services. As a result, as I said earlier in the month, we've made and will continue to make adjustments to our business to navigate the changing economic and industry landscapes. For example, in 2002, we expect to reduce our capital expenditures in our Business and Consumer units by 20 percent or more, in line with overall industry trends.

"And we'll continue to manage costs, focus resources and reduce debt," Armstrong added.

AT&T's third quarter EBITDA, excluding other income and asset impairment charges, totaled $4.1 billion, which was slightly ahead of the company's guidance and reflected the continuation of cost control efforts.

The company said it continues to make progress in reducing its debt balance. Debt, net of cash and excluding monetizations was $38.5 billion at the end of the quarter, down $17.7 billion from year-end. The company's sale of Cablevision stock in October is expected to further reduce debt by about $1.3 billion.

AT&T BUSINESS UNIT HIGHLIGHTS:

AT&T Broadband third-quarter pro forma EBITDA margin, excluding other income, increased 8.1 percentage points over the year-ago quarter to 25.2 percent, due to revenue growth and cost controls efforts. The unit produced 69.6 percent more EBITDA, excluding other income, than the prior year quarter. Without restructuring charges, AT&T Broadband's pro forma EBITDA margin, excluding other income, increased 6.9 percentage points from the year-ago quarter.

The unit's pro forma revenue, which adjusts for closed cable acquisitions and dispositions, grew 15.2 percent year-over-year primarily due to increased revenue from broadband telephony, high-speed data and video. On a reported basis, revenue was $2.4 billion, a 1.1 percent decline compared with the year-ago quarter, primarily as a result of swapping or selling cable systems with more than 2 million net subscribers.

AT&T Broadband delivered positive growth in basic customers by adding about 43,000 net new subscribers during the quarter. In addition, AT&T Broadband added about 447,000 advanced new service revenue-generating units (RGUs), which includes broadband telephony, high-speed data and digital video customers. These additions contributed to the 76.5 percent growth in RGUs from the year-ago quarter.

At the end of the quarter, AT&T Broadband had 924,000 broadband telephony customers, approximately 1.4 million high-speed data customers and about 3.2 million digital video customers. AT&T Business reported third-quarter EBIT margin, excluding other income, of 14.6 percent, a 250 basis point decline sequentially, primarily the result of the continued impact of long distance voice pricing and volume pressures, as well as the ongoing shift from higher-margin long distance services to lower-margin growth services. On a year-over-year basis, EBIT margin, excluding other income, declined 870 basis points. AT&T Business EBIT and EBITDA, excluding other income, for the third quarter was approximately $1.0 billion and $2.0 billion, respectively. Reported EBIT and EBITDA for the third quarter of 2001, which reflect the charge the company incurred for the dissolution of Concert and an additional charge related to AT&T Canada, were losses of about $4.4 billion and $3.4 billion, respectively.

The unit's revenue was $6.9 billion, a decline of 4.7 percent compared to the year-ago quarter. The lower revenue resulted from a mid-teen rate decline in long distance voice services, partially offset by growth in data/IP and local voice.

AT&T's data/IP business revenue grew at a high single-digit rate year-over-year. The rate reflects deceleration from the second quarter primarily due to increased economic pressures, as well as reduced wholesale revenue growth resulting from overcapacity in the data market. On a combined basis, packet services grew more than 20 percent. Total IP services, which include IP connectivity, Virtual Private Network and hosting services, also continued to demonstrate strength by growing about 25 percent. Despite industry-wide oversupply and pricing pressure, hosting services grew more than 60 percent, reflecting customer preference for quality and reliability in light of recent events and continued economic weakness.

Local voice revenue grew at a high-teens rate compared with the year-ago quarter. Local access lines also increased approximately 30 percent from a year ago to more than 2.7 million total lines, reflecting more than 450,000 lines added this year.

AT&T Consumer third-quarter EBIT margin, excluding other income, was 33.4 percent, a decrease of 5.4 percentage points from the year-ago quarter. The unit's EBIT on the same basis declined 29.2 percent over the year-ago quarter. The EBIT and EBIT margin, excluding other income, declines reflect the impact of lower revenue, partially offset by the unit's efforts to manage costs. The company said AT&T Consumer continues to produce industry-leading margins.

AT&T Consumer reported revenue of $3.8 billion for the third quarter, a decline of 17.8 percent, over the year-ago quarter. The revenue decrease was primarily driven by volume reductions due to wireless and e-mail substitution and impacts of ongoing competition. In addition, AT&T Consumer continued to see a migration of customers to lower-priced optional calling plans and prepaid cards.

AT&T Consumer is moving ahead with its plans to offer high-speed Internet and communication services using the Digital Subscriber Line assets acquired from NorthPoint. This quarter, the unit's WorldNet Service was named best dial-up Internet service provider by J.D. Power and Associates.

Corporate and Other includes the consolidated results of Excite@Home, corporate staff functions and eliminations of internal sales. Corporate and Other EBIT, excluding other income and asset impairment charges, declined $41 million to a negative $43 million, compared with the year-ago quarter. The decline was primarily due to increased expenses largely driven by a lower pension credit in 2001, partially offset by Excite@Home.

During the quarter, Excite@Home recorded charges of nearly $400 million, which primarily consisted of asset impairment charges. AT&T noted that recent events surrounding the bankruptcy filing of Excite@Home on September 28, 2001 will result in a change to AT&T's future earnings reporting. While Excite@Home's results are consolidated in AT&T's third-quarter income statement, beginning in the fourth quarter, Excite@Home will be accounted for as a nonconsolidated equity investment.

3rd Quarter at a Glance                      3Q01 Vs 3Q00
AT&T Broadband Revenue                       $2.4B    15.2%(a)
AT&T Business Revenue                        $6.9B    (4.7%)

AT&T Consumer Revenue                        $3.8B    (17.8%)
EBITDA, excluding other income and asset     $4.1B    (22.9%)
impairment charges(b)
EBIT, excluding other income and asset       $1.8B    (40.6%)
impairment charges(b)
Capital expenditures                         $1.7B    (36.8%)


3rd Quarter Highlights
Total Revenue                                          $13.1B
EPS from Continuing Operations, excluding other        $0.04
income(b)
Reported EPS                                           $3.13
Reported EPS from Continuing Operations                ($0.69)

Cash EPS from Continuing Operations, excluding other   $0.16
income and asset impairment charges(b)
Total Assets                                           $160.0B
Net Debt(c)                                            $ 38.5B

(a) Pro forma revenue, which adjusts 2000 revenue for closed cable
    acquisitions and dispositions.

(b) Excludes other income (expense), equity earnings (losses).

(c) Debt, net of cash and monetizations.

FOURTH QUARTER 2001 AND 2002 OUTLOOK:

AT&T said that current trends the company is experiencing due to the state of the industry and economy, as well as the September 11th disaster and its resulting negative impact on key market sectors the company serves, will have an effect on its results in the fourth quarter of 2001 and into 2002.

The company does, however, remain committed to managing and reducing costs across all areas of its business to remain cost competitive. Accordingly, AT&T said it expects to take a fourth quarter restructuring charge principally associated with a series of cost-control initiatives being undertaken largely within AT&T Business, although the company is not yet prepared to quantify or detail the impact of this charge.

Apart from the effects of the fourth quarter restructuring charge, the company said its expects fourth quarter EPS from continuing operations, excluding other income, to be in the range of $0.03 to $0.06 cents. On the same basis, the company expects cash EPS for the fourth quarter to be in the range of $0.14 to $0.17.

AT&T said it expects fourth quarter revenue to reflect a slightly accelerated decline from its third quarter level, although the effects of a weakened economy could further impact the company's top-line performance. Additionally, AT&T expects EBITDA, excluding other income, to be in the range of $3.4 billion to $3.6 billion in the fourth quarter 2001.

The company said it expects 2001 capital expenditures to be in the range of $8.5-$9.0 billion, as previously indicated. And, as stated by the company's chairman earlier this quarter, the company expects to reduce capital expenditures within its core Business and Consumer units by 20 percent or more in 2002, compared to 2001 full-year levels. Capital expenditures within the Broadband segment are expected to be flat to slightly higher in 2002 versus the full-year 2001, depending upon customer demand.

Based on the success of ongoing cost initiatives, AT&T Consumer now expects 2001 EBIT margin, excluding other income, to perform slightly better than the favorable end of its previous guidance range of a 6 to 8 percentage point decline compared with the company's 2000 full-year margin. The company continues to expect full-year revenue to decline at a high-teens rate in 2001.

Given weakness driven by a softening economy and the negative trends emerging from the September 11th disaster, AT&T Business expects an increase in the rate of its fourth quarter 2001 revenue decline compared to the third quarter 2001 rate. However, the company is confident in its ability to manage costs to achieve 2001 full year EBIT margin, excluding other income, at the favorable end of its guidance range of 6 to 8 percentage point decline. In addition, the company also said it expects EBITDA margin, excluding other income, for the full year 2001 will be similar to the third quarter level.

AT&T Broadband remains committed to balancing financial and operational results in the face of a challenging economy that is affecting advertising sales and customer demand. As a result of economic conditions, compounded by the business disruption associated with Excite@Home's bankruptcy, the company is now expecting revenue to grow at a low- to mid-teens rate for the full year 2001 versus the prior year. AT&T Broadband remains committed to 3 percentage points of EBITDA margin improvement in 2001, including or excluding restructuring charges.

Preliminary 2002 Outlook

AT&T said that while it has not yet offered formal guidance for 2002, the company's business segment leaders have provided a preliminary view of trends that they believe will impact their operational performance in 2002.

AT&T Consumer said that based on industry-wide trends and other factors in the long distance business, it believes 2002 revenue could decline at a mid- to high-20-percent rate compared with 2001. The company also expects both EBIT and EBITDA margins, excluding other income, to reflect a low-double-digit percentage point decline compared to full year 2001 levels.

Given prevailing economic and industry factors, AT&T Business believes that fourth quarter revenue trends are likely to carry over into 2002, resulting in a modest increase in its 2002 revenue decline versus 2001 levels. The unit expects to hold EBITDA margin, excluding other income, to a minimal decline in 2002, compared with 2001, by largely offsetting top-line pressures through effective cost management.

AT&T Broadband expects revenue to increase at a low- to mid-teens rate or better in 2002, with the upside potential tied to the level of economic recovery.

DEFINITIONS:

AT&T Group does not include the results of Liberty Media Group, which was tracked as a separate class of stock through August 10, 2001, the split-off date.

Cash EPS, excluding other income, refers to earnings per share excluding other income, equity earnings (losses), and amortization of franchise costs, goodwill associated with acquisitions and other purchased intangibles.

EBIT refers to earnings before interest, taxes, and gains on the disposition of discontinued operations.

EBIT, excluding other income, refers to EBIT excluding other income and pre-tax equity earnings (losses). EBITDA refers to EBIT excluding depreciation and amortization and minority interest other than Excite@Home's minority interest.

EDITDA, excluding other income, refers to EBITDA excluding other income and pre-tax equity earnings (losses).

EPS, excluding other income, refers to earnings per share excluding other income, and equity earnings (losses).

Pro forma revenue is adjusted for the consolidation of Excite@Home and closed cable transactions.

The foregoing are "forward-looking statements" which are based on management's beliefs as well as on a number of assumptions concerning future events made by and information currently available to management. Readers are cautioned not to put undue reliance on such forward-looking statements, which are not a guarantee of performance and are subject to a number of uncertainties and other factors, many of which are outside AT&T's control, that could cause actual results to differ materially from such statements. These factors include the rate of decline of traditional long distance voice services, technology change and substitution, the actions of competitors in all segments in setting prices, conditions of excess capacity, and rates of implementation of regulatory changes that favor competitors and promote remonopolization. For a more detailed description of the factors that could cause actual results to differ from forecast, please see AT&T's filings with the Securities and Exchange Commission. AT&T disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

NOTE TO FINANCIAL MEDIA: AT&T executives will discuss the company's performance in a two-way conference call for financial analysts at 5:30 p.m. ET. Reporters are invited to listen to the call. U.S. callers should dial 800-230-1085 to access the call. Callers outside the U.S. should dial 612-288-0329.

In addition, Internet rebroadcasts of the call will be available on the AT&T Web site beginning later today. The Web site address is http://www.att.com/ir. An audio rebroadcast of the conference call will be available beginning at 10:00 p.m. ET on Tuesday, October 23rd until midnight on Wednesday, October 25th. To access the replay, please visit http://www.att.com/ir, or U.S. callers can dial 800-475-6701, access code 606595. Callers outside the U.S. should dial 320-365-3844, access code 606595.

Note: The Earnings Commentary will be available at http://www.att.com/ir.

AT&T Group
               Combined Statements of Income (Unaudited)



                         For the Three Months      For the Nine Months
Dollars in Millions       Ended September 30,     Ended September 30,
(except per share amounts) 2001         2000        2001         2000

Revenue                  $ 13,087     $ 14,176   $ 39,964     $ 41,623

Operating Expenses
Costs of services and
 products                   3,476        3,282     10,458        9,249
Access and other connection 3,033        3,147      9,289       10,180
Selling, general and
 administrative             2,540        2,461      8,144        7,366
Depreciation and other
 amortization               1,682        1,568      5,116        4,204
Amortization of goodwill,
 franchise costs and
 other purchased intangibles  592          787      1,920        1,433
Net restructuring and
 other charges                399           24      1,494          797

Total operating expenses   11,722       11,269     36,421       33,229

Operating income            1,365        2,907      3,543        8,394

Other (expense) income     (4,966)         365     (7,195)       1,358
Interest expense              786          896      2,426        2,000

(Loss) Income from continuing
 operations before income
 taxes, minority
 interest and net
 losses from equity
 investments               (4,387)       2,376     (6,078)       7,752
(Benefit) provision for
  income taxes             (2,092)         939     (2,746)       2,532
Minority interest income      177          103      1,015           11
Net losses from equity
 investments                   88          222        423          615
(Loss) income from
 continuing operations     (2,206)       1,318     (2,740)       4,616
(Loss) income from discontinued
 operation-net of tax           -           (2)       150          208
Gain on disposition of
 discontinued operation-net
 of tax                    13,503            -     13,503            -
Income before the cumulative
 effect of accounting
 change                    11,297        1,316     10,913        4,824
Cumulative effect of
 accounting change-
 net of tax                     -            -        359            -
Dividend requirements of
 preferred stock, net         235            -        652            -
Premium on Wireless Exchange
 offer                          -            -         80            -

Earnings available to
 common shareowners      $ 11,062      $ 1,316   $ 10,540     $  4,824

AT&T Common Stock Group:

Earnings                  $11,062      $ 1,319   $ 10,505       $4,805

Weighted-average shares
 (millions)                 3,534        3,752      3,677        3,397
Weighted-average shares and
 potential common
 shares (millions)(a)       3,534        3,842      3,677        3,471

(Loss) earnings from
 continuing operations per
 basic share              $ (0.69)      $ 0.35    $ (0.94)      $ 1.35
Earnings from discontinued
 operations per basic share     -            -       0.03         0.06
Gain on disposition of
 discontinued operation
 per basic share             3.82            -       3.67            -
Earnings from cumulative
 effect of accounting
 change per basic share         -            -       0.10            -

Earnings per basic share   $ 3.13       $ 0.35     $ 2.86       $ 1.41

(Loss) earnings from
 continuing operations
 per diluted share        $ (0.69)      $ 0.35    $ (0.94)      $ 1.34
Earnings from discontinued
 operations per diluted share   -            -       0.03         0.06
Gain on disposition of
 discontinued operation
 per diluted share           3.82            -       3.67            -
Earnings from cumulative
 effect accounting of change
 per diluted share              -            -       0.10            -

Earnings per diluted share $ 3.13       $ 0.35     $ 2.86       $ 1.40

Dividends declared
 per share               $ 0.0375     $ 0.0375   $ 0.1125       $ 0.66

AT&T Wireless Group:

(Loss) earnings           $  0.00         $ (3)     $  35       $   19
Weighted-average
 shares (millions)           0.00          360        438          360
Weighted-average shares and
 potential common
 shares (millions)(b)        0.00          360        797          360

(Loss) earnings per basic
 and diluted share         $ 0.00      $ (0.01)   $  0.08      $  0.05

      (a) Weighted-average shares assumes dilution from the potential
conversion of debt and equity securities and the potential exercise of
outstanding stock options and other performance awards.