AT&T continues restructuring and cost-reduction efforts

October 7, 2004

2 Min Read

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 also 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.

AT&T Corp.

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