SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
Annual Report Pursuant to Section 15(d) of the Securities
Exchange Act of 1934
(Mark One)
(x) ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Fiscal Year Ended December 31, 2004
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _________ to _________
Commission File Number 1-1105
AT&T Corp.
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
AT&T LONG TERM SAVINGS PLAN FOR MANAGEMENT EMPLOYEES
B. Name and issuer of the securities held pursuant to the
plan and the address of its principal executive office:
AT&T CORP.
ONE AT&T WAY
BEDMINSTER, NJ 07921
AT&T Long Term Savings Plan for Management Employees
Financial Statements and Supplemental Schedule
December 31, 2004 and 2003
AT&T Long Term Savings Plan for Management Employees
Index
December 31, 2004 and 2003
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Page(s)
Report of Independent Registered Public Accounting Firm........................1
Financial Statements
Statements of Net Assets Available for Benefits................................2
Statement of Changes in Net Assets Available for Benefits......................3
Notes to Financial Statements................................................4-8
Supplemental Schedule
Schedule of Assets (Held at End of Year).......................................9
Report of Independent Registered Public Accounting Firm
To the Participants and Administrator of
AT&T Long Term Savings Plan for Management Employees
In our opinion, the accompanying statements of net assets available for benefits
and the related statement of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of AT&T Long Term Savings Plan for Management Employees (the "Plan") at December
31, 2004 and 2003, and the changes in net assets available for benefits for the
year ended December 31, 2004 in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental Schedule of Assets (Held
at End of Year) as of December 31, 2004 is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
June 22, 2005
AT&T Long Term Savings Plan for Management Employees
Statements of Net Assets Available for Benefits
December 31, 2004 and 2003
- --------------------------------------------------------------------------------
(thousands of dollars) 2004 2003
Assets
Investments, at fair value
Investment in Master Trust $ 7,135,697 $ 6,939,310
Participant loans receivable 79,700 84,017
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Total assets 7,215,397 7,023,327
------------ ------------
Liabilities
Total liabilities - -
------------ ------------
Net assets available for benefits $ 7,215,397 $ 7,023,327
------------ ------------
The accompanying notes are an integral part of these financial statements.
AT&T Long Term Savings Plan for Management Employees
Statement of Changes in Net Assets Available for Benefits
Year Ended December 31, 2004
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(thousands of dollars) Total
Net assets available for benefits, January 1, 2004 $ 7,023,327
------------------
Additions
Additions to net assets attributed to
Net income from investment in Master Trust 558,907
Interest on participant loans 3,633
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562,540
------------------
Contributions and transfers
Employee contributions 227,681
Employing company contributions, net 94,411
Transfers of participants' balances from other
plans, net 25,923
------------------
348,015
------------------
Total additions 910,555
------------------
Deductions
Distributions to participants (718,485)
------------------
Total deductions (718,485)
------------------
Net increase 192,070
------------------
Net assets available for benefits, December 31, 2004 $ 7,215,397
------------------
The accompanying notes are an integral part of these financial statements.
AT&T Long Term Savings Plan for Management Employees
Notes to Financial Statements
December 31, 2004
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1. Plan Description
The AT&T Long Term Savings Plan for Management Employees (the "Plan"
or "LTSPME") is a defined contribution plan established by AT&T Corp.
("AT&T") to provide a convenient way for management employees (i.e.,
employees whose pay is at monthly or annual fixed rates and whose
wages are not subject to automatic wage progression) of participating
AT&T Companies to save on a regular and long-term basis. Effective
January 1, 2004, the AT&T Savings Master Trust ("Master Trust") was
established as the successor trust to the Group Trust. Effective as of
the same date, State Street Bank and Trust Company was appointed as
successor trustee to Fidelity Management Trust Company for the AT&T
Savings Master Trust. The LTSPME participates in the Master Trust for
the investment of the pooled assets of various funds. Each
participating plan has an undivided interest in the Master Trust.
An eligible employee enters the Plan by authorizing a payroll
allotment to invest his/her contributions in one or more of the
twenty-six (26) different funds as set forth in the current Plan
documents.
The Comcast Stock Fund was liquidated between March 18, 2004 and May
20, 2004. The proceeds from the sales were transferred into the AT&T
Stable Value Fund. As of July 30, 2004, a participant who does not
have, or maintain, a balance in the Fidelity Low-Priced Stock Fund,
will not be able to invest in the Fidelity Low-Priced Stock Fund
through the Plan. Shares of the Legg Mason Value Trust Investment
option were converted from Financial Intermediary Class to
Institutional Class as of 4:00 p.m. Eastern Time on September 30,
2004. Effective July 1, 2004, the Janus Overseas Fund and the Janus
Worldwide Fund options in the Plan were closed to new contributions
and exchanges in. A liquidation of assets in these two Janus funds
began on October 8, 2004 and was completed on October 29, 2004. The
proceeds from the sales were transferred into the AT&T Stable Value
Fund in the Plan. Effective July 1, 2004, two new mutual fund
investment options became available under the Plan. The American Funds
Capital World Growth and Income Fund, Class R-5 and the Morgan Stanley
Institutional Fund - International Equity Portfolio, Class A Shares
are the two new mutual funds. On December 6, 2004, Fidelity
implemented an enterprise-wide policy to monitor and address excessive
short-term trading in Fidelity funds sold through retail or 401(k)
plans for which they keep the records. This policy establishes
standards for warning participants and suspending trading privileges,
if necessary, in accordance with prospectus rules. Fidelity has
offered to implement this policy for other mutual fund providers and
subsequently T. Rowe Price and Legg Mason agreed to have their funds
monitored by Fidelity.
Employee allotments of 2% to 16% of salary may be authorized. An
employee may designate allotments as pre-tax allotments, as after-tax
allotments or as a combination of pre-tax and after-tax allotments.
All participant contributions and earnings thereon are immediately
vested and not subject to forfeiture. Pre-tax contributions may be
made up to the Internal Revenue Service limit of $13,000 in 2004. When
an employee contributes to the Plan, the employing company (AT&T or
any AT&T subsidiary participating in the Plan) will contribute an
amount equal to 66-2/3% of the first six percent (6%) of the
employee's salary contributed. Employing company contributions are
made in accordance with the participants' elected investment
direction. A participant becomes 100 percent vested in the employing
company contributions after three years of service.
Employees who are age 50 or older on or before December 31st may be
eligible to make pre-tax contributions beyond the Internal Revenue
Service pre-tax limit. The 2004 catch-up contribution limit set by the
Internal Revenue Service is $3,000. No company matching contribution
is made on catch-up contributions.
Loans are available to all participants in an amount not less than
$1,000, up to a maximum of 50% of the participant's vested account
balance or $50,000 minus the participant's highest outstanding loan
balance in the last twelve (12) months. Upon default, participants are
considered to have received a distribution and are subject to income
taxes on the distributed amount. Loan transactions are treated as a
transfer to (from) the investment funds from (to) the Participant Loan
Account. The term of the loan shall not exceed fifty-six (56) months.
The loans are collateralized by the balance in the participant's
account and bear interest at the prime rate on the last business day
of the month preceding the month in which the loan was initiated.
Interest rates are fixed for the term of the loan. Interest rates on
participant loans outstanding at December 31, 2004 range from 4.0% to
9.5%. Principal and interest are paid through payroll deductions or
participant-initiated payments.
When a participant terminates employment, a single distribution will
be made of all vested amounts in the participant's account if the
amount to be distributed is $5,000 or less. However, if the amount to
be distributed exceeds $5,000, and the participant does not request
the distribution, the participant's account shall remain in the Plan
and may be withdrawn or distributed at the participant's request, or
as minimum required distributions beginning when the participant
attains 70-1/2, or upon the participant's death, whichever is earlier.
Participant forfeitures in 2004 were $720,467. The total forfeited
non-vested accounts as of December 31, 2004 is $4,328,635. Forfeitures
will be used to reduce future employer contributions and
administrative expenses. During 2004, employer contributions were
reduced by $29,255 from forfeited non-vested accounts.
For a complete description of the Plan, participants should refer to
the Plan Prospectus and Plan Summary Plan Description ("SPD"). The
Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
2. Accounting Policies
Basis of Accounting
The financial statements of the Plan are prepared under the accrual
method of accounting.
Payments of Benefits
Benefits are recorded when paid.
Valuation of Investments
Income and assets of the Master Trust are allocated based on
participant balances. The net asset value of the Master Trust is
calculated by the Trustee. The Trustee determines the value of the
underlying assets in the investment manager portfolios, taking into
account the market values supplied by a generally accepted pricing or
quotation service or quotations furnished by one or more reputable
sources, such as securities brokers, dealers or investment bankers,
mutual fund administrators, values of comparable property, appraisals
or other relevant information. Investments in AT&T common shares and
other securities listed on national stock exchanges are carried at
fair value determined on the basis of the last published sales price
per share on the last business day of the year. Securities traded in
over-the-counter markets and government obligations are carried at
fair value based on the last bid prices or closing prices on December
31, as listed in published sources if available or, if not available,
from other sources considered reliable. Contracts with insurance
companies and financial institutions, which are fully benefit
responsive, are carried at contract value (representing contributions
made under the contracts plus accumulated interest at the contract
rates). All other investments are carried at the fair value at the
close of business on December 31. Participant loans receivable are
valued at cost which approximates fair value. Participant loans are
assets of the Plan and are not part of the Master Trust.
Purchases and Sales of Investments
Purchases and sales of securities are recorded on the trade date.
Investment Income
Dividend income is recorded on the ex-dividend date. Interest income
is accrued as earned.
Net Appreciation (Depreciation) in the Fair Value of Investments
The Plan presents in the statement of changes in net assets available
for benefits the net appreciation (depreciation) in the fair value of
investments, which consists of the realized gains (losses) and the
change for the year in unrealized appreciation (depreciation) on those
investments.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities, and changes therein, and disclosure of contingent assets
and liabilities. Actual results could differ from those estimates.
Risks and Uncertainties
Investments held by the Master Trust and Plan are exposed to various
risks such as interest rate, market, and credit risks. Due to the
level of risk associated with certain investments, it is at least
reasonably possible that changes in the values of investments could
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in the
statement of net assets available for benefits.
3. Tax Status
The Internal Revenue Service ("IRS") has determined and informed AT&T
by a letter dated March 28, 2005, that the Plan, restated effective
January 1, 2001 with amendments through February 28, 2002, and related
trust are qualified in accordance with applicable sections of the
Internal Revenue Code ("IRC"). The Plan has been amended since
February 28, 2002. However, the Plan Administrator believes that the
Plan is qualified and is currently being operated in compliance with
the applicable requirements of the IRC.
4. Concentrations of Investment Risk
At December 31, 2004, Plan participants' accounts that are invested in
the Company stock option is exposed to market risk in the event of a
significant decline in the value of AT&T Corp. stock.
5. Plan Termination
Although it has not expressed any intent to do so, AT&T has the right
under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
Plan termination, the Plan provides that the net assets are to be
distributed to participating employees in amounts equal to their
respective interest in such assets.
6. Plan Expenses
In general, fees paid for Plan administration, including recordkeeping
(except for such services as are attributable to the participant loan
program), are paid from the trust, unless those expenses are paid by
the Company or participant(s). Fees for trustee services are paid out
of trust assets. Expenses attributable to the management and
investment of each of the investment options shall be charged against
respective options.
7. Master Trust Investments
The Trust Investments presented as of December 31, 2004 are those held
by State Street Bank and Trust Company, as Trustee, in the AT&T
Savings Master Trust. The investments presented as of December 31,
2003 are those held by Fidelity Management Trust Company, as Trustee,
in the Group Trust.
Type of Master Trust Investments December 31
- --------------------------------------------------------------------------------
(thousands of dollars) 2004 2003
Government Securities $ - $ 16,572
Short-term securities 40,201 10,189
Corporate bonds 1,205 6,127
Common stocks 1,009,660 1,567,644
Mutual funds 3,072,840 2,795,255
Commingled funds 1,381,388 1,294,002
Investment contracts
Guaranteed Investment Contracts 276,552 344,575
Synthetic Investment Contracts
Government Securities 348,836 625,298
Short-term securities 64,152 251,905
Corporate bonds 2,428,782 1,687,291
Derivatives 17 186
Other (44,387) (173,684)
Wrapper (62,410) (83,151)
Cash 5,650 2,862
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Total Master Trust Investments $8,522,486 $8,345,070
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December 31,
------------------
Allocation of Master Trust Investments 2004 2003
AT&T Long Term Savings Plan for Management Employees 83.73% 83.15%
AT&T Long Term Savings and Security Plan 15.80 16.54
AT&T Retirement Savings and Profit Sharing Plan 0.39 0.22
AT&T of Puerto Rico, Inc. Long Term Savings Plan for
Management Employees 0.07 0.08
AT&T of Puerto Rico, Inc. Long Term Savings and
Security Plan 0.01 0.01
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100.00% 100.00%
------- -------
Net appreciation in fair value of Master Trust investments December 31, 2004
Corporate bonds $ 240
Common stocks 10,919
Mutual funds 252,157
Commingled funds 147,355
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Total net appreciation in fair value of Master Trust investments $410,671
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Investment income
Interest $123,603
Dividends 109,440
--------
$233,043
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8. Litigation
AT&T is involved in a class action lawsuit brought by former employees
on behalf of the LTSPME employees. The complaint alleges that the
Company and various members of the AT&T Board of Directors breached
their fiduciary duties to the Plan and the participants by permitting
the Plan to purchase and hold shares of the AT&T Stock Fund, and
misrepresented and failed to disclose material facts to the Plan and
participants in connections with the management of the Plan assets.
The parties have reached an agreement in principle and the settlement
amount, if approved, will not be material to the Plan or the Company.
9. Related Party Transactions and Party-in-Interest
The Plan invests in common shares of AT&T Corp. stock, which qualifies
as a related party transaction. At December 31, 2004, the total of
these investments amounted to $220,795,948 or approximately 3% of the
Master Trust. At December 31, 2003, the total amounted to $256,799,741
or approximately 3% of the Group Trust.
10. Subsequent Events
On January 31, 2005, SBC Communications and AT&T announced an
agreement for SBC to acquire AT&T. Employees enrolled in the AT&T
Savings Plans can continue to make contributions, choose investment
direction and receive company matching contributions until the merger
closes. Any decision on benefit plans after the close will be made by
SBC, subject to any constraints provided by the merger agreement.
Under the merger agreement, SBC has agreed that employees, for a
period of time after the merger, will have compensation and benefit
plans and programs that are no less favorable in the aggregate than
they have at AT&T. This commitment will continue to the end of the
plan year (December 31) following the first anniversary of the
closing.
In March 2005, the automatic distribution threshold changed to $1,000
from $5,000.
AT&T Long Term Savings Plan for Management Employees
Schedule of Assets (Held at End of Year)
December 31, 2004
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(thousands of dollars)
Name of Issuer and Title of Issue Cost Value
Participant Loans Receivable (4.0% - 9.5%) $ 79,700 $ 79,700
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Investment in Master Trust $7,135,697
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Savings Plan Committee has duly caused this annual report to be signed by the
undersigned thereunto duly authorized.
AT&T LONG TERM SAVINGS PLAN
FOR MANAGEMENT EMPLOYEES
By Savings Plan Committee
/s/ Brian Byrnes
______________________________
Brian Byrnes
Secretary of the Savings Plan Committee
Date: June 27, 2005
Exhibit Index
Exhibit No.
23 Consent of PricewaterhouseCoopers LLP