Exhibit 99.1
[AT&T LOGO OMITTED]
News Release
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AT&T CONTINUES RESTRUCTURING AND COST REDUCTION EFFORTS
o Non-cash asset impairment charge of $11.4 billion
o Continued workforce reductions, resulting in 3Q04 charge of $1.1 billion
o Year end net debt to be under $7.0 billion
FOR RELEASE THURSDAY, OCTOBER 7, 2004
BEDMINSTER, N.J. -- AT&T (NYSE: T) today announced a series of
restructuring actions as the company continues its transformation in the rapidly
changing communications industry.
The company said that the previously announced review of its assets will
result in an asset impairment charge in the third quarter of 2004. The asset
impairment results 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. As a result, AT&T will take a non-cash charge of approximately $11.4
billion in the third quarter of 2004 to recognize the asset impairment. This
action will reduce AT&T's depreciation expense by approximately $1.0 billion in
the second half of 2004.
AT&T also said that as a result of its decision to stop marketing
traditional residential services, as well as corporate transformation
initiatives, it will significantly exceed its previously estimated
workforce-reduction target of 8 percent in 2004. The company now expects to
reduce total headcount by more than 20 percent in 2004. Approximately three
quarters of the employees affected in 2004 have already been notified or
departed earlier this year. As a result of ongoing workforce reductions, the
company will record a restructuring charge in the third quarter of approximately
$1.1 billion.
"In response to recent regulatory developments and a highly competitive
market, we have made some tough decisions to reduce our workforce and cut
costs," said AT&T Chairman and CEO Dave Dorman. "Ongoing investments in our
network and systems around the world have allowed us to significantly improve
customer-service metrics while driving industry-leading productivity."
AT&T's acceleration of workforce reductions and other cost cutting
initiatives are having a positive impact on profitability across the business.
The company is beginning to benefit from lower marketing expense as it scales
back its traditional consumer operation. As a result, the company said it
anticipates a significant improvement in consumer operating margin, excluding
restructuring charges, in the third quarter of 2004 when compared with the
second quarter of 2004.
Despite industry pricing pressure and its ongoing transformation, AT&T
expects to continue to generate significant cash flow in line with its
previously established targets for 2004. AT&T is on course to finish the year
with net debt of under $7.0 billion, a reduction of almost 50 percent over the
past two years. Citing strong cash flow generation, the company said it sees
ample flexibility to invest in the business, maintain a strong balance sheet and
continue to return value to its shareholders. AT&T's dividend represented about
a quarter of the company's free cash flow during the first half of 2004. The
company said it is presently evaluating further uses of surplus cash flow as it
nears the completion of its 2004 debt-buyback program.
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About AT&T
AT&T (www.att.com) For more than 125 years, AT&T (NYSE "T") has been known for
unparalleled quality and reliability in communications. Backed by the research
and development capabilities of AT&T Labs, the company is a global leader in
local, long distance, Internet and transaction-based voice and data services.
AT&T 'Safe Harbor'
The foregoing contains "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. For a more detailed
description of the factors that could cause such a difference, 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. This
information is presented solely to provide additional information to further
understand the results of AT&T.
Non-GAAP Reconciliations
Net Debt
AT&T now expects its net debt balance to be under $7 billion by year-end.
Expected net debt consists of estimated total debt of approximately $10.5
billion, net of estimated cash (including restricted cash) and estimated foreign
exchange fluctuations of more than $3.5 billion. The components of net debt may
fluctuate as AT&T continuously evaluates debt-and cash-management strategies;
however these shifts should not have a significant impact on net debt.
EBITDA, less capital expenditures
For the Year
Ended
Dec. 31, 2004
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(dollars in billions; all numbers
are approximate)
EBITDA, less capital expenditures $ 4.5
Add capital expenditures 1.8
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EBITDA, less restructuring charges 6.3
Less other cash expenses (a) (1.4)-(1.3)
Changes in working capital and other assets
and liabilities (0.2)-(0.1)
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Projected cash provided by operating activities $ 4.7-4.9
(a) Other cash expenses primarily include taxes, interest expense and business
restructuring charge payments.
EBITDA (earnings before interest, taxes, depreciation and amortization) is
calculated as operating income less depreciation and amortization. AT&T uses
EBITDA, less capital expenditures (excluding asset impairments and net
restructuring and other charges) as a supplementary method for determining and
forecasting cash flow generation. Our definition of EBITDA, less capital
expenditures does not take into consideration cash generated or used in other
investing and financing activities, but rather is designed to reflect cash
available for these activities.
Free cash flow is defined as cash flow provided by operating activities less
cash used for capital expenditures and other additions.
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AT&T is providing information on net debt, EBITDA, less capital expenditures,
and free-cash flow because these measures are commonly used by the investment
community for evaluation purposes. Net debt, EBITDA, less capital expenditures,
and free cash flow should be considered in addition to, but not in lieu of,
other measures of liquidity and cash flows reported in accordance with generally
accepted accounting principles. Additionally, they may not be comparable to
similarly captioned measures reported by other companies.