UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 7, 2004
AT&T CORP.
(Exact Name of Registrant as Specified in Charter)
New York
(State or Other Jurisdiction of Incorporation)
1-1105 13-4924710
(Commission File Number) (IRS Employer Identification No.)
One AT&T Way, Bedminster, New Jersey 07921
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (908) 221-2000
Not Applicable
(Former Name or Former Address, If Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (See General Instruction A.2. below):
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under Exchange Act (17 CFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act (17 CFR 240.13e-4(c))
ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On October 7, 2004, AT&T Corp. ("AT&T") issued a press release announcing asset
impairment and restructuring charges. A copy of the press release is attached as
Exhibit 99.1. The information contained in this Item 2.02 and Exhibit 99.1 shall
not be deemed "filed" for purposes of Section 18 of the Securities Act of 1934,
nor shall it be deemed incorporated by reference in any filing under the
Securities Act of 1933, except as shall be expressly set forth by specific
reference in such filing.
ITEM 2.05. COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES.
See item 8.01 the contents of which are incorporated herein by reference.
ITEM 2.06. MATERIAL IMPAIRMENTS.
In July 2004, AT&T announced a strategic change in our business focus away from
traditional consumer services and towards business markets and emerging
technologies. As a result of this strategic change, we performed an evaluation
of our long-lived assets including property, plant and equipment (PP&E) and
internal use software (IUS), as this strategic change created a "triggering
event" necessitating such a review. In assessing impairments we follow the
provisions of Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." We operate an
integrated telecommunications network; therefore we performed our testing of the
asset group at the entity level, as this is the lowest level for which
identifiable cash flows are available.
In performing the test, we determined that the total of the expected future
undiscounted cash flows directly related to the existing service potential of
the asset group was less than the carrying value of the asset group; therefore
an impairment charge was required. The amount of the impairment charge
represented the difference between the fair value of the asset group and its
associated carrying value. We calculated the fair value of our asset group with
the assistance of an independent third party valuation specialist using
discounted cash flows. The discounted cash flows calculation was made utilizing
various assumptions and estimates regarding future revenue and expenses, cash
flows and discount rates. Per SFAS No. 144, the forecasts were developed without
contemplation of investments in new products. We determined that a $11.4 billion
impairment charge to PP&E and IUS was necessary on October 7, 2004. The
impairment charge resulted from sustained pricing pressure and the evolution of
services toward newer technologies in the business market as well as changes in
the regulatory environment, which led to a shift away from traditional consumer
services. The charge was non-cash and will not result in future cash
expenditures.
The strategic change in business focus also created a "triggering event" for a
review of our goodwill. We follow the provisions of SFAS No. 142, "Goodwill and
Other Intangible Assets" for determining and measuring impairments. SFAS No. 142
indicates that if other types of assets (in addition to goodwill) of a reporting
unit are being tested for impairment at the same time as goodwill, then those
assets are to be tested for impairment prior to performing the goodwill
impairment testing. Accordingly, the PP&E and IUS impairment charge noted above
reduced the carrying value of the reporting units when performing the impairment
test for goodwill.
The goodwill impairment test requires us to estimate the fair value of our
overall business enterprise down to the reporting unit level. We estimate fair
value using both a discounted cash flows model, as well as an approach using
market comparables, both of which are weighted equally to determine fair value.
Under the discounted cash flows method, we utilize estimated long-term revenue
and cash flows forecasts, as well as assumptions of terminal value, together
with an applicable discount rate to determine fair value. Under the market
approach, fair value was determined by comparing our reporting units to similar
businesses (or guideline companies). We then compared the carrying value of our
reporting units to their fair value. Since the fair value of the reporting units
exceeded their carrying amounts, no goodwill impairment charge was recorded.
ITEM 8.01. OTHER EVENTS.
On October 7, 2004, AT&T announced that during the third quarter of 2004 we will
record net restructuring and other charges of $1.1 billion, primarily consisting
of employee separation costs related to both AT&T Business Services and AT&T
Consumer Services, including $0.3 billion of benefit plan curtailment costs.
This activity resulted from the continued integration and automation of various
functions within network operations and the strategic change we announced in
July 2004. These exit plans will impact approximately 11,200 employees (the
majority of which were involuntary terminations). Approximately 60% of the
employees impacted by this exit plan are managers. We anticipate that
approximately two-thirds of the employees associated with these exit plans will
be notified or will leave their positions by the end of 2004.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.
(C) EXHIBITS
EXHBIT 99.1 - Press release dated October 7, 2004
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AT&T Corp.
By: /s/ C. R. Reidy
----------------------------
Christopher R. Reidy
Vice President - Controller
October 7, 2004
Exhibit Index
Exhibit No. Description
99.1 Press release dated October 7, 2004