NEW YORK, Oct. 23 (UPI) -- Here is a look at more of Tuesday's top business stories:
AT&T meets earnings expectations
NEW YORK, Oct. 23 (UPI) -- AT&T Tuesday reported third-quarter earnings of 4 cents a share from continuing operations, well below last year's net income of 35 cents a share but in line with analysts' expectations.
AT&T said the Sept. 11 disaster will impact its results in the fourth quarter and into 2002, but the telecommunications giant did not provide specific figures.
AT&T said its continuing operations reported a loss of 69 cents 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.
"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.
EBITDA refers to earnings before interest, taxes, depreciation and amortization.
"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," Armstrong said.
"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," he added.
AT&T said its 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. It said 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.
During the quarter, it said 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 Sept. 28 will result in a change to AT&T's future earnings reporting. Beginning in the fourth quarter, it said Excite@Home will be accounted for as a non-consolidated equity investment.
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.
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.
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.
Compaq posts wider third-quarter loss
HOUSTON, Oct. 23 (UPI) -- Compaq Computer Corp. Tuesday reported third-quarter loss from operations of $120 million, or 7 cents a share, a penny wider than analysts' loss estimate.
The personal computer maker said revenue for the third quarter was $7.5 billion, a year-over-year decrease of 33 percent.
"The third quarter was one of the most challenging ever for Compaq and for our industry," said Michael Capellas, chairman and chief executive officer.
Capellas said information technology (IT) "demand continued to weaken globally, which resulted in aggressive pricing, while the events of September created significant logistical challenges. We did, however, see positive momentum in our Global Services business, and our enterprise technology performed well given overall market conditions."
Capellas added, "We do not anticipate dramatic changes in corporate IT spending, particularly through the first half of 2002. As for the fourth quarter of 2001, we expect revenue to be in the range of $7.6 to $7.8 billion and a loss of about 3 cents per share."
The company said it continued to show progress in the execution of cost control and go-to-market initiatives.
It said inventory across the supply chain was reduced during the quarter by $600 million, operating expenses decreased sequentially by more than $100 million, and the company generated cash from operations for the sixth consecutive quarter.
The company said third quarter gross margin, as a percentage of revenue, was 19.9 percent, down 1.6 points sequentially and 4.1 points on a year-over-year basis, resulting from continued weak demand and aggressive pricing.
Compaq said third-quarter operating expenses were $1.6 billion, a decrease of $289 million from the same period last year, reflecting continued expense discipline and progress on restructuring activities.
The company said its operational results excluded net investment losses of $514 million ($379 million net of tax), primarily related to Compaq's investment in CMGI, Inc. Compaq acquired these assets in a non-cash exchange for a majority stake in AltaVista Co. in 1999. Including this amount, the company reported a net loss of $499 million, or 29 cents per diluted share.
In the same quarter last year, Compaq reported revenue of $11.2 billion and net income of $557 million, or 31 cents per diluted share.
Conf. Bd: Sept. 11 attacks hurt US economy
NEW YORK, Oct. 23 (UPI) -- The United States is in danger of falling into a recession as a result of the Sept. 11 terrorist attacks, according to a Conference Board analysis released Tuesday.
A report prepared for Conference Board members around the world projects gross domestic product growth of 1.1 percent this year and only 0.9 percent next year. Unemployment is expected to climb from 4.8 percent this year to 6 percent in 2002.
"While the economy is recovering from the psychological impact of the terrorist attacks, the business sector is still facing a very real liquidity clash between huge external borrowing requirements and less accommodating financial markets and lenders," said Gail D. Fosler, senior vice president and chief economist of The Conference Board, in the latest issue of StraightTalk.
"The terrorist attacks were a direct hit to corporate profits, exacerbating still further the pressure on working capital, the risk of lending, and the decline in the liquidity among traditional sources of funds, like insurance companies," Fosler added.
The report said real consumer spending will grow 2.8 percent in 2001, but only 1.3 percent in 2002, and the job outlook is deteriorating rapidly in all regions of the country.
More significantly, the report said, consumer expectations have fallen back to recession levels, which does not bode well for future consumer spending, even given the impact of the tax cuts.
It said real capital spending will decrease 3.7 percent in 2001 and 5.5 percent in 2002, and corporate profits will range from flat to sharply down.
Fosler noted that the Conference Board's Leading Economic Indicators outside the United States have generally been declining since the middle of last year, with new weakness emerging even among countries previously showing some strength.
Fosler said: "Recession is already likely underway in several countries, the most obvious being Japan. Given the normal lag time between an improvement in these indexes and an improvement in economic conditions abroad, we should expect economic conditions to deteriorate through most of next year. At this point, the biggest gap between perceived risk and economic reality lies in Europe, where The Conference Board's leading indexes are declining sharply."
The report said a business liquidity squeeze of truly historic proportions is occurring, prompted by the sharp drop in business profitability and is being worsened by a heightened sense of financial risk in a number of the important lending markets, such as commercial paper.
The report said that although the Federal Reserve Board's interest rate cuts have reduced the price of credit, they have not made credit substantially more available, and the sharp decline in equity values (over $5 trillion to date) undermines the asset base that supports the required financing.
The Conference Board analysis noted that corporate profits have been persistently weak, cash flow has declined in absolute dollar terms, and the financing gap -- the difference between cash flow and working capital requirements -- is at an all-time high, reaching almost $325 billion at the end of 2000.
As a consequence of the drop in credit quality, the analysis said, the commercial paper market essentially vanished -- a large ($150 billion) drawdown in commercial paper continues today, and bank lending has declined sharply.
The drop in equity values helped to undermine the asset base that sets the benchmark for available lending, the analysis said, adding that the result is a contraction in bank lending unprecedented in the past 30 years.
