AT&T Announces 4Q Earnings

BEDMINSTER, N.J. -- AT&T (NYSE: T) today reported its fourth-quarter and full-year 2004 results. The company reported net income of $625 million, or earnings per diluted share of $0.78, for the fourth quarter of 2004. The company's current quarter net income included an after-tax depreciation benefit from its third-quarter 2004 asset impairment charges of $337 million, or $0.42 per diluted share. The company's current-quarter net income compares to net income of $340 million, or earnings per diluted share of $0.43, in the fourth quarter of 2003.

"AT&T's results reflect the solid progress we've made in transforming this company for the long-term, and the considerable momentum we've established entering 2005," said AT&T Chairman and Chief Executive Officer David W. Dorman. "While the pricing environment in our industry remains challenging, we're encouraged by the strengthening of AT&T's competitive position in the enterprise market in recent quarters."

AT&T reported fourth-quarter 2004 consolidated revenue of $7.3 billion, which included $5.5 billion from AT&T Business and $1.8 billion from AT&T Consumer. Consolidated revenue declined 10.2 percent versus the fourth quarter of 2003, primarily due to continued declines in long-distance (LD) voice and data revenue, partially offset by an increase in bundled services revenue and solid growth in key services in the enterprise market, such as Internet Protocol & Enhanced services (IP&E-services). AT&T's fourth-quarter 2004 consolidated operating income was $1.2 billion, resulting in a consolidated operating margin of 16.0 percent.

The company reported consolidated EBITDA, excluding net restructuring and other charges, of $1.8 billion in the fourth quarter of 2004 for a margin of 25.2 percent. This compares to consolidated EBITDA of $2.0 billion and a margin of 24.2 percent in the prior-year fourth quarter, on the same basis. The company reported that success in cutting costs, including savings from ongoing headcount reduction efforts and strategic reductions in marketing expenses, contributed to strong margins for the quarter.

Full-Year 2004 Results

For the full year, AT&T reported a net loss of $6.1 billion, or loss per diluted share of $7.68. The company's net loss included significant non-cash asset impairment charges, as well as net restructuring and other charges, the majority of which were taken during the third quarter. This compares to net income of $1.9 billion, or earnings per diluted share of $2.36 in 2003.

Excluding the asset impairment and net restructuring and other charges taken during 2004, and their associated tax benefits, adjusted net income for the year was $1.8 billion, or adjusted earnings per diluted share of $2.25. In addition, due to the asset impairment, the company received an after-tax benefit from lower depreciation of $669 million, or $0.85 per diluted share. A reconciliation of reported earnings per diluted share to adjusted earnings per diluted share is provided in the appendices on page 12 of this document.

AT&T reported full-year 2004 consolidated revenue of $30.5 billion, which included $22.6 billion from AT&T Business and $7.9 billion from AT&T Consumer. This represents a consolidated revenue decline of 11.6 percent versus 2003, primarily due to continued declines in LD voice and data revenue, partially offset by an increase in bundled services revenue and growth in key services in the enterprise market, such as IP&E-services.

AT&T's 2004 consolidated operating loss was $9.5 billion, including $12.8 billion in asset impairment and net restructuring and other charges taken in 2004, as well as a depreciation benefit of $1.1 billion due to the asset impairment charges taken in the third quarter of 2004. The company reported full-year consolidated EBITDA, excluding asset impairment and net restructuring and other charges, of $7.0 billion and a margin of 22.9 percent. This compares to consolidated EBITDA of $8.7 billion and a margin of 25.3 percent in 2003, on the same basis.

2005 OUTLOOK

AT&T also announced its full-year 2005 expectations: