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 29, 1999
AT&T CORP.
A New York Commission File I.R.S. Employer
Corporation No. 1-1105 No.13-4924710
32 Avenue of the Americas, New York, New York 10013-3412
Telephone Number (212) 387-5400
<PAGE>
Form 8-K AT&T Corp.
October 29, 1999
ITEM 5 OTHER EVENTS.
a) Pro forma financial information
AT&T is filing pro forma financial information included in Exhibit 99
as follows:
1. Unaudited pro forma condensed financial introductory paragraphs.
2. Unaudited pro forma condensed Balance Sheet at June 30, 1999.
3. Unaudited pro forma condensed Income Statement for the period ended
June 30, 1999.
4. Unaudited pro forma condensed Income Statement for the year December
31, 1998.
5. Notes to unaudited pro forma condensed financial information.
AT&T is filing pro forma financial information included in Exhibit 99.1
as follows:
1. Unaudited summary pro forma condensed financial results for the periods
ended June 30, 1998 and March 31, 1998.
b) Exhibits
Exhibit 99 AT&T Corp. unaudited pro forma condensed
financial results at June 30, 1999, for the
period ended June 30, 1999, and for the year
ended December 31, 1998.
Exhibit 99.1 AT&T Corp. unaudited summary pro forma condensed
financial results for the periods ended June
30, 1998 and March 31, 1998.
<PAGE>
Form 8-K AT&T Corp.
October 29, 1999
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.
/s/ N. S. Cyprus
-------------------------
By: N. S. Cyprus
Vice President and Controller
October 29, 1999
Exhibit 99
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma information set forth below for AT&T gives effect to the
MediaOne and TCI mergers as if they had been completed on January 1, 1998 for
income statement purposes, and as if the MediaOne merger had been completed on
June 30, 1999 for balance sheet purposes, subject to the assumptions and
adjustments in the accompanying notes to the pro forma information. TCI is
reflected in the June 30, 1999 balance sheet, therefore there is no pro forma
TCI impact on the balance sheet. As a result of the TCI merger, AT&T is
accounting for the Liberty Media Group under the equity method of accounting
because AT&T does not have a "controlling financial interest" for financial
accounting purposes in the Liberty Media Group.
The pro forma adjustments do not reflect any operating efficiencies and cost
savings that may be achieved with respect to the combined company. The pro forma
adjustments do not include any adjustments to historical sales for any future
price changes nor any adjustments to selling, marketing or any other expenses
for any future operating changes. Upon the closing of the MediaOne merger, AT&T
may incur certain integration related expenses not reflected in the pro forma
financial statements as a result of the elimination of duplicate facilities,
operational realignment and related workforce reductions. Such costs would
generally be recognized by AT&T as a liability assumed as of the merger date
resulting in additional goodwill in accordance with Emerging Issues Task Force
No. 95-3, Recognition of Liabilities in Connection with a Purchase Business
Combination ("EITF 95-3"). The assessment of integration related expenses is
ongoing. The following pro forma information is not necessarily indicative of
the financial position or operating results that would have occurred had the
MediaOne merger, and the TCI merger, been consummated on the dates, or at the
beginning of the periods, for which such transactions are being given effect.
The pro forma adjustments reflecting the consummation of the merger are based
upon the assumptions set forth in the notes hereto, including the exchange of
all of the outstanding shares of MediaOne Group for an aggregate of
approximately 613 million shares of AT&T common stock not including AT&T stock
options.
AT&T will account for the merger under the purchase method of accounting.
Accordingly, AT&T will establish a new basis for MediaOne Group's assets and
liabilities based upon the fair values thereof and the AT&T purchase price
including the costs of the merger. The purchase accounting adjustments made in
connection with the development of the pro forma combined financial statements
are preliminary and have been made solely for purposes of developing such pro
forma combined financial information. Such preliminary adjustments include the
allocation of consideration to certain investments of MediaOne Group identified
as "assets held for sale" by the AT&T Board based upon fair value as determined
by AT&T in conjunction with its financial advisors.
AT&T currently knows of no events other than those disclosed in these pro forma
notes that would require a material change to the preliminary purchase price
allocation. However, a final determination of required purchase accounting
adjustments will be made upon the completion of a study to be undertaken by AT&T
in conjunction with independent appraisers to determine the fair value of
certain of MediaOne Group's assets and liabilities, including intangible assets
and in-process research and development. Refer to note 3 for a discussion of the
sensitivity to earnings that may occur as a result of the final determination of
fair value. Assuming completion of the merger, the actual financial position and
results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein because of a variety of factors, including access to
additional information, changes in value not currently identified and changes in
operating results between the dates of the pro forma financial data and the date
on which the merger takes place.
<PAGE>
<TABLE>
AT&T
Unaudited Pro Forma Condensed Balance Sheet
AS OF June 30, 1999
(In millions)
<CAPTION>
MediaOne Pro Forma
Historical Group AT&T with
Historical MediaOne Pro Forma MediaOne
AT&T1 Group1 Adjustments Group
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents. .... $ 418 $ 1,032 $ (345)(3d) $ 1,105
20,429 (7)
(20,429)(3a)
Receivables--net................ 10,030 409 -- 10,439
Other current assets............ 2,498 690 -- 3,188
------- ------- ------- ---------
Total current assets....... 12,946 2,131 (345) 14,732
Property, plant and equipment
net........................... 34,994 4,501 -- 39,495
Licensing cost--net............. 8,315 -- -- 8,315
Franchise....................... 35,703 -- 21,437 (3n) 57,140
Goodwill........................ 6,975 11,371 24,344 (3o) 31,319
(11,371)(3f)
Investment in Liberty Media
Group and related receivables. 35,389 -- -- 35,389
Other investments............... 16,268 9,789 (2,380)(6) 36,772
13,095 (3h)
Other assets.................... 7,920 2,076 (582)(6) 7,864
(50)(5)
(1,500)(4)
Assets held for sale............ -- 643 2,962 (6) 16,127
12,522 (3i)
------- ------- ------- ---------
Total non-current assets... 145,564 28,380 58,477 232,421
Total assets.................... $ 158,510 $ 30,511 $ 58,132 $ 247,153
------- ------- ------- ---------
------- ------- ------- ---------
<PAGE>
LIABILITIES:
Accounts payable................ $ 5,738 $ 301 $ -- $ 6,039
Debt maturing within one year... 7,085 1,718 20,429 (7) 27,732
(1,500)(4)
Other current liabilities....... 8,754 884 -- 9,638
------- ------- ------- --------
Total current liabilities....... 21,577 2,903 18,929 43,409
Long-term debt.................. 22,152 6,245 88 (3j) 28,485
Deferred income taxes........... 24,311 6,954 15,007 (3m) 46,272
Other long-term liabilities and
deferred credits.............. 8,221 142 -- 8,363
------- ------- ------- --------
Total long-term liabilities..... 54,684 13,341 15,095 83,120
Total liabilities............... 76,261 16,244 34,024 126,529
Minority interest............... 2,407 1,107 110 (3l) 3,624
Company-obligated convertible
quarterly income preferred
securities of a subsidiary
trust holding solely
subordinated debt securities
of AT&T....................... 4,695 -- -- 4,695
Subsidiary-obligated mandatorily
redeemable preferred securities
of subsidiary trusts holding
solely subordinated debt
securities of subsidiaries.... 1,659 1,060 39 (3k) 2,758
Preferred stock subject to
mandatory redemption.......... -- 100 (50)(5) 50
(50)(3g)
50 (3c)
Preferred stock................. -- 929 (929)(3e) --
Common stock.................... 3,196 10,409 (10,409)(3e) 3,809
613 (3b)
Liberty Media Group Class A
tracking stock................ 1,157 -- -- 1,157
Liberty Media Group Class B
tracking stock................ 108 -- -- 108
Additional paid-in capital
AT&T common stock.............. 27,446 -- 35,396 (3b) 62,842
Liberty Media Group tracking
stock......................... 32,653 -- -- 32,653
Retained earnings
Common stock................... 7,594 371 (371)(3e) 7,594
Liberty Media Group tracking
stock......................... (601) -- -- (601)
Other........................... 1,935 291 (291)(3e) 1,935
------- -------- -------- --------
Total shareowners' equity.. 73,488 12,000 24,009 109,497
Total liabilities and shareowners'
equity........................ $ 158,510 $ 30,511 $ 58,132 $ 247,153
------- ------- -------- --------
------- ------- -------- --------
<FN>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
AT&T
Unaudited Pro Forma Condensed Statement of Income
Six months ended June 30, 1999
(In millions, except per share amounts)
<CAPTION>
Pro
Pro Forma Forma
Historical Liberty/ MediaOne AT&T
TCI Ventures Other TCI Pro Forma Historical Group Pro With TCI
Historical (Jan-Feb Group Pro Forma AT&T MediaOne Forma and
AT&T1 '99)1 Adjustment2 Adjustments10 with TCI Group1 Adjustments MediaOne
Group
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $29,787 $ 1,145 $ (204) $-- $30,728 $1,327 $-- $32,055
Operating Expenses:
Access and other interconncection. 7,400 -- -- -- 7,400 -- -- 7,400
Network and other communications
services........................ 6,646 543 (79) -- 7,110 534 -- 7,644
Depreciation and amortization..... 3,392 277 (22) 133 3,780 578 572 8 4,673
(257) 9
Selling, general and
administrative.................... 6,618 677 (260) -- 7,035 364 -- 7,399
Restructuring and other charges... 702 -- -- -- 702 -- -- 702
------- ------- ------ ------ ------- ------ ------ -------
Total operating expenses........ 24,758 1,497 (361) 133 26,027 1,476 315 27,818
Operating income (loss)........... 5,029 (352) 157 (133) 4,701 (149) (315) 4,237
Equity losses from Liberty Media
Group............................. (601) -- (68) (144) (813) -- -- (813)
Other income (expense)--Net....... 75 356 (321) (39) 71 867 (303) 8 2,360
225 6
1,500 4
Interest expense.................. 649 161 (25) 82 867 199 526 11 1,436
(7) 8
(149) 11a
Income (loss) from continuing
operations before income taxes.... 3,854 (157) (207) (398) 3,092 519 737 4,348
Provision (benefit) for income
taxes............................. 1,791 119 (207) (106) 1,597 806 (203) 12 2,200
------- ------- ------ ------ ------- ------ ------ -------
Income (loss) from continuing
operations........................ 2,063 (276) -- (292) 1,495 (287) 940 2,148
Diidend requirements on preferred
stocks............................ -- (4) -- -- (4) (28) 27 13 (5)
------- ------- ------ ------ ------- ------ ------ -------
Income (loss) from continuing
operations attributable to common
sharewoners.......................
$ 2,063 $ (280) $-- $ (292) $ 1,491 $ (315) $ 967 $ 2,143
======= ======= === ====== ======= ====== ====== =======
AT&T EPS Calculation:
Income from continuing operations
attributable to AT&T common
shareowners....................... $ 2,664 $ 2,304 $ 2,956
Weighted average shares
outstanding (basic)............... 2,970 3,153 3,766
Basic EPS......................... $ 0.90 $ 0.73 $ 0.78
Income from continuing operations
attributable to AT&T common
sharewoners....................... $ 2,681 $ 2,321 $ 2,973
Weighted average shares
outstanding (diluted)............. 3,043 3,258 3,881
Diluted EPS....................... $ 0.88 $ 0.71 $ 0.77
Liberty Media Group EPS 14
Basic............................. $ (0.48) $(0.65) $(0.65)
Diluted........................... $ (0.48) $(0.65) $(0.65)
<FN>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
</FN>
</TABLE>
<PAGE>
<TABLE>
AT&T
Unaudited Pro Forma Condensed Statement of Income
For the year ended December 31, 1998
(In millions, except per share amounts)
<CAPTION>
Pro Forma
Pro Forma AT&T
Liberty/ MediaOne with TCI
Ventures Other TCI Pro Forma Historical Group Pro and
Historical Historical Group Pro Forma AT&T MediaOne Forma MediaOne
AT&T1 TCI1 Adjustment2 Adjustments10 with TCI Group1 Adjustments Group
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues.......................... $53,223 $ 7,351 $(1,148) $-- $59,426 $ 2,882 $-- $62,308
Operating Expenses:
Access and other
interconncection.................. 15,328 -- -- -- 15,328 -- -- 15,328
Network and other communications
services.......................... 10,250 3,087 (495) -- 12,842 1,013 -- 13,855
Depreciation and
amortization...................... 4,629 1,735 (135) 791 7,020 1,182 1,145 8 8,822
Selling, general and (525)9
administrative.................... 13,015 2,583 (943) -- 14,655 926 -- 15,581
Restructuring and other charges... 2,514 5 (5) -- 2,514 -- -- 2,514
------- ------- ------- ---- ------- ------- ------ -------
Total operating expenses........ 45,736 7,410 (1,578) 791 52,359 3,121 620 56,100
Operating income (loss)........... 7,487 (59) 430 (791) 7,067 (239) (620) 6,208
Equity earnings (losses) from
Liberty Media Group............... -- -- 626 (922) (296) -- -- (296)
Other income (expense)--Net 1,247 4,658 (1,631) (234) 1,500 3,368 (606)8 4,603
(2,540) 341 6
Interest expense.................. 427 1,061 (103) 489 1,874 491 1,052 11 3,103
(15)8
(299)11a
Income (loss) from continuing
operations before income taxes.... 8,307 3,538 (472) (4,976) 6,397 2,638 (1,623) 7,412
Provision (benefit) for income (948)
taxes............................. 3,072 1,595 (472) (635) 2,612 1,208 (445)12 3,375
------- ------- ------- ------ ------- ------- ------ -------
Income (loss) from continuing
operations........................ 5,235 1,943 -- (3,393) 3,785 1,430 (1,178) 4,037
Dividend requirements on preferred
stocks............................ -- (24) -- 14 (10) (108) 5213 (66)
------- ------- ------- ------ ------- ------- ------ -------
Income (loss) from continuing
operations attributable to common
sharewoners....................... $ 5,235 $ 1,919 $-- $ (3,379) $ 3,775 $ 1,322 $(1,126) $ 3,971
======= ======= === ======== ======= ======= ======== ======
AT&T EPS Calculation:
Income from continuing operations
attributable to AT&T common
shareowners....................... $ 5,235 $ 4,071 $ 4,267
Weighted average shares
outstanding (basic)............... 2,676 3,146 3,759
Basic EPS......................... $ 1.96 $ 1.29 $ 1.14
Income from continuing operations
attributable to AT&T common
sharewoners....................... $ 5,235 $ 4,071 $ 4,267
Weighted average shares
outstanding (diluted)............. 2,700 3,251 3,874
Diluted EPS....................... $ 1.94 $ 1.25 $ 1.10
Liberty Media Group EPS 14
Basic............................. $(0.25) $(0.25)
Diluted........................... $(0.25) $(0.25)
<FN>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
</FN>
</TABLE>
<PAGE>
Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
1. These columns reflect the historical results of operations and financial
position of the respective companies. AT&T's historical balance sheet as of
June 30, 1999 gives effect to the TCI merger. Certain 1999 amounts for AT&T
have been reclassified to conform with current financial statement
presentation.
2. These columns reflect the deconsolidation to the equity method of
accounting of the historical results of operations for the interests
represented by the shares of Liberty Media Group tracking stock. AT&T
accounts for the Liberty Media Group under the equity method because it
does not possess a "controlling financial interest" for financial
accounting purposes in the Liberty Media Group.
3. This adjustment reflects the acquisition of MediaOne Group and the excess
consideration over net assets acquired (goodwill). Accordingly, the
historical shareowners' equity accounts of MediaOne Group have been
eliminated (entry 3e). For the purpose of these pro forma financial
statements, consideration has been calculated assuming a mixed cash and
stock election pursuant to the terms of the merger agreement of $30.85 in
cash and 0.95 of a share of AT&T common stock for each share of MediaOne
Group common stock outstanding at the pro forma balance sheet date. The
merger agreement specifies the aggregate number of shares of AT&T common
stock to be issued in exchange for shares of MediaOne Group common stock
and equivalents. The different election provisions are intended to satisfy
individual MediaOne Group shareholder and optionholder preferences to the
extent possible. Each election may be subject to proration depending upon
the consideration other shareholders and optionholders elect to receive in
the merger. Accordingly, under the terms of the merger, the impact of such
election provisions on the total consideration exchanged will not
materially differ from the mixed cash and stock election assumed in the pro
forma financial information. If the price of AT&T common stock is less than
$57.00 per share during a prescribed measurement period shortly prior to
the closing of the merger, an additional cash payment of up to $5.42 per
share of MediaOne Group common stock will be paid by AT&T for shares of
MediaOne Group common stock subject to the mixed cash and stock election.
In that event, a new measurement date for the purpose of valuing AT&T
common stock for accounting purposes would be established. The aggregate
purchase price consideration would change $613 million (not including the
additional cash payment) for each $1 per share change in the value of the
AT&T common stock based on the average price a few days before and after
the merger is consummated affecting net income by $15 million annually
based on a 40-year franchise/goodwill amortization period.
For the purpose of these pro forma financial statements, the MediaOne Group
Series D preferred stock is assumed to have been converted into MediaOne
Group common stock as of the pro forma balance sheet date and exchanged
pursuant to the mixed cash and stock election. Under the terms of the
merger agreement, MediaOne Group is required to call for the conversion of
the MediaOne Group Series D preferred stock. This occurred on October 25,
1999. The AT&T Series E preferred stock to be issued as consideration in
exchange for the MediaOne Group Series E preferred stock has been valued
based on the security's liquidation value which approximates fair value.
All outstanding and unvested options to purchase shares of MediaOne Group
common stock will vest upon completion of the merger and have been included
as consideration assuming a "standard option election" pursuant to the
terms of the merger agreement. Under the standard option election, each
MediaOne Group optionholder will receive cash and a converted option to
purchase AT&T common stock, the fair value of which was determined by using
the Black-Scholes option-pricing model.
<PAGE>
This adjustment reflects the acquisition of MediaOne Group and the excess
consideration over net assets acquired (goodwill) (in millions, except per
share amounts).
Shares of MediaOne Group common stock
outstanding at 6/30/99..................................... 606.2
Shares of MediaOne Group common stock to be
issued upon conversion of MediaOne Group
Series D preferred stock................................... 39.6
Shares of MediaOne Group common stock to be
exchanged for cash and AT&T common stock................... 645.8
Cash per share............................................... $ 30.85
Cash consideration for outstanding shares.................... $ 19,923
Cash consideration for 30 million outstanding
options (average cash payment per option of $16.87)........ 506
a. Total cash consideration........................................... $ 20,429
AT&T common stock exchange ratio per share......................... 0.95
Equivalent AT&T shares (par value $1).............................. 613.5
AT&T common stock share price based on the average closing
price a few days before and after the merger was agreed
to and announced................................................. $ 57.05
SUB-TOTAL.......................................................... $ 35,000
AT&T stock options resulting from the conversion of
MediaOne Group stock options in the merger....................... 28.9
Average fair value per option...................................... $ 34.91
SUB-TOTAL.......................................................... $ 1,009
b. AT&T common stock equity consideration............................. $ 36,009
c. Value of AT&T Series E preferred stock to be issued in
exchange for MediaOne Group Series E preferred stock
at liquidation value (994 thousand outstanding shares
at $50 per share)................................................ 50
d. Merger costs (estimate)............................................ 345
TOTAL CONSIDERATION.............................................. $ 56,833
e. Historical net book value of MediaOne Group........................ (12,000)
Pro Forma Adjustments relating to:
f. Existing MediaOne Group intangible assets.......................... 11,371
g. Exchange of MediaOne Group Series E preferred stock................ (50)
h. Investments... .................................................... (13,095)
i. Assets held for sale (see note 6)................ ................. (12,522)
j. Debt............................................................... 88
k. Subsidiary-Obligated Mandatorily redeemable preferred securities... 39
l. Minority interest in Centaur Funding Corporation................... 110
m. Deferred tax impacts............................................... 15,007
n. Franchise intangible............................................... (21,437)
o. Preliminary goodwill............................................... $ 24,344
Upon the closing of the merger, the total consideration will be allocated to the
specific identifiable tangible and intangible assets and liabilities of MediaOne
Group after the completion of third-party appraisals during the allocation
period specified by Statement of Financial Accounting Standards No. 38,
Accounting for Preacquisition Contingencies of Purchased Enterprises. A
preliminary allocation of the purchase price has been allocated to certain
identifiable tangible assets, the franchise intangible, and liabilities of
MediaOne Group, including deferred income tax impacts, based upon information
available to the management of AT&T at the date of the preparation of the
accompanying pro forma condensed financial statements. Such information includes
quoted market prices where available and estimates of fair values provided in
<PAGE>
conjunction with AT&T's financial advisors. See note 6 for a discussion on
"asset held for sale" accounting. The final purchase accounting allocation may
also include certain in-process research and development projects and intangible
assets such as customer relationships.
Consideration allocated to in-process research and development projects would be
recorded as a charge against net income in the period the merger occurs. Each $1
billion allocated to in-process research and development would have the effect
of increasing net income in subsequent periods by $25 million annually by
reducing franchise/goodwill amortization expense. A preliminary estimate of
in-process research and development will not be available until the completion
of an independent evaluation of each project, if any, in process as of the
merger date.
Assuming an estimated useful life of 10 years, each $1 billion of consideration
allocated to intangible assets other than franchise/goodwill would have the
effect of decreasing net income by $46 million annually ($0.01 per share).
Certain restructuring related costs may be recorded by AT&T as a liability upon
the closing of the merger in accordance with EITF 95-3 that would result in
additional goodwill to be amortized over 40 years.
4. As a result of the termination of the merger agreement between MediaOne
Group and Comcast, MediaOne Group paid Comcast a termination fee of $1.5
billion. The termination fee was loaned to MediaOne Group by AT&T and was
recorded on MediaOne Group's balance sheet as a note payable to AT&T. The
note bears interest at LIBOR plus 0.15% and matures on December 31, 2000.
The note is due on demand at any time following consummation of the merger.
For the purpose of the pro forma financial statements, the note payable to
AT&T has been eliminated in consolidation and the non-recurring charge has
been eliminated from the condensed statement of income for the six months
ended June 30, 1999.
5. Gives effect to the redemption of the MediaOne Group Series C preferred
stock. The MediaOne Group Series C preferred stock is redeemable, at the
option of the holder, into common shares of Financial Security Assurance
Ltd. ("FSA") or cash. MediaOne Group holds an investment in FSA common
shares and anticipates that the MediaOne Group Series C preferred
stockholders will elect FSA common shares upon redemption. The pro forma
balance sheet reflects the FSA common shares election. Under the terms of
the merger agreement, MediaOne Group is required to call for the redemption
of the MediaOne Group Series C preferred stock as promptly as it is
permitted to do so.
6. MediaOne Group and AT&T intend to divest over a period of time not expected
to exceed one year from the date of the closing of the merger (the "HOLDING
PERIOD") certain non-strategic MediaOne Group assets preliminarily valued
at $16,127 million. MediaOne Group currently accounts for the majority of
these assets as equity method investments. The carrying value of assets
intended to be sold have been reclassified to the balance sheet caption
"assets held for sale" ($2,380 million from "Other investments" and $582
million from "Other assets"). Such assets have been valued at their
expected disposition value using valuation methodologies prevalent in the
industry ($12,522 million represents the excess of fair value over carrying
value). For pro forma income statement purposes, interest expense incurred
on incremental borrowings during the holding period has been eliminated
from all periods presented. The amount of interest eliminated is based on
the ratio of the preliminary value allocated to the assets held for sale
over the total consideration to acquire MediaOne Group multiplied by total
<PAGE>
incremental interest expense. See Note 11. In addition, the equity earnings
(losses) reported on assets held for sale have been reflected in the value
assigned to assets held for sale and eliminated, net of tax, in all periods
reported.
7. Reflects additional borrowings equal to the cash consideration to be
exchanged in the merger. The incremental borrowings are assumed to be
short-term indebtedness as AT&T intends to repay the debt with the proceeds
from the sale of certain non-strategic MediaOne Group assets (see Note 6).
8. Represents the amortization of franchise and goodwill resulting from the
preliminary allocation of the excess of consideration over the net assets
of MediaOne Group. AT&T expects the amount of excess consideration
allocated to goodwill and franchise agreements upon completion of
third-party appraisals to be amortized over 40 years. The Chief
Accountant's office of the SEC has notified AT&T that as a result of
competitive, technological and regulatory forces, the SEC believes the
expiration of the intangible assets associated with the merger could occur
sooner than 40 years. The SEC believes a more reasonable amortization
period to be in the range of 20 to 25 years. AT&T has considered the views
of the SEC but continues to believe that consideration allocated to
franchise agreements and goodwill has an indeterminate life that is to be
amortized over the maximum period of 40 years under current generally
accepted accounting principles. The amortization period for goodwill and
franchise intangibles of 40 years is based by AT&T upon the expected useful
life of the franchise agreements and value related to the access to homes
passed that is integral to AT&T's strategy of providing fully-integrated
facilities-based residential communications services on a national basis.
The factors considered in determining the appropriate amortization period
included the expected life of the associated technology including hybrid
fiber optic cable, legal and regulatory considerations, experience with
renewing franchises and territories, future changes in technology,
anticipated market demand and competition. If the franchise intangible and
goodwill (including cable investments) were amortized over a period of 25
years, AT&T's net income would be reduced by $635 million annually or $0.16
per share. If the amortization period were 20 years, AT&T's net income
would be reduced by $1,040 million annually or $0.27 per share. An
allocation to customer relationships and other intangible assets with
shorter amortization periods will be made, although the amounts allocated
are not expected to be material. AT&T will evaluate the periods of
amortization continually to determine whether later events and
circumstances warrant revised estimates of useful lives. As discussed in
Note 3, amounts allocated to other assets such as intangible assets may be
amortized over shorter periods resulting in a lower net income. Any amount
allocated to goodwill will also be impacted by any in-process research and
development charge that may be recorded. An assessment of the useful lives
attributable to other assets is not complete. Consideration allocated to
MediaOne Group investments other than assets held for sale has been
amortized over the estimated period of benefit preliminarily estimated to
range from seven to 30 years. Interest expense accretion on MediaOne Group
debt and other mezzanine obligations has been recognized over the remaining
life of the debt. No amortization has been recorded on the consideration
allocated to the assets held for sale.
9. Gives effect to the elimination of MediaOne Group historical amortization
expense.
<PAGE>
10. Represents TCI merger purchase accounting adjustments. These adjustments
include the amortization of the excess of the purchase price over the net
assets acquired, incremental interest expense on additional borrowings, and
the elimination of certain non-recurring gains with respect to TCI's
investment in Teleport Communications Group Inc. ("TCG"). The TCI merger
closed on March 9, 1999.
11. Represent the recognition of incremental interest expense on the additional
borrowings incurred to fund the cash consideration to be exchanged in the
merger. See note 7. Interest expense was calculated using an interest rate
of 5.15% for the year ended December 31, 1998 and for the six months ended
June 30, 1999. The interest rate reflects the 90-day commercial paper rate
in effect as of July 30, 1999. An increase of 25 basis points in the
assumed interest rates would result in additional pre-tax interest expense
of $51 million annually ($37 million excluding interest attributable to
debt incurred to fund the assets held for sale). As discussed in note 6,
interest expense of $299 million for 1998 and $149 million for 1999 has not
been recognized as it is attributable to the incremental borrowings
incurred to fund the acquisition of the non-strategic assets that are held
for sale during the holding period (adjustment 11a).
12. Reflects the statutory tax effect of the pro forma adjustments.
13. Gives effect to the elimination of dividend requirements on MediaOne Group
Series C preferred stock and MediaOne Group Series D preferred stock
assumed to be redeemed or converted into MediaOne Group common stock at or
before the time of the merger.
14. Liberty Media Group tracking stock was split on a two-for-one basis,
payable on June 11, 1999. The Liberty Media Group earnings per share
amounts in these pro forma income statements are on a post-split basis.
<TABLE>
Exhibit 99.1
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Following is a summary of the unaudited pro forma results of AT&T as if the merger with TCI had closed effective January 1,
1998. Pro forma data may not be indicative of the results that would have been obtained had these events actually occurred at
the beginning of the periods presented, nor does it intend to be a projection of future results.
<CAPTION>
Six Months Ended Three Months Ended
June 30, 1998 March 31, 1998 1
<S> <C> <C>
Revenues $29,193 $14,440
Income from continuing operations 266 1,177
Income from continuing operations, available 1,271
to AT&T common shareowners 846
Income from continuing operations, available
to Liberty Media Group shareowners (580) (94)
Net Income 1,566 1,187
Income available to AT&T Group shareowners 2,146 1,281
Income available to Liberty Media Group
Shareowners (580) (94)
Weighted average AT&T common shares
(millions) 3,140 3,126
Weighted average AT&TT common shares and
potential common shares (millions) 3,245 3,234
Weighted average Liberty Media Group shares
(millions) 1,190 1,190
Basic earnings per AT&T common share:
Income from continuing operations $ 0.27 $ 0.41
Total income $ 0.68 $ 0.41
Diluted earnings per AT&T common share:
Income from continuing operations $ 0.26 $ 0.39
Total income $ 0.66 $ 0.40
Basic earnings per Liberty Media Group share $(0.49) $(0.08)
Diluted earnings per Liberty Media Group
Share $(0.49) $(0.08)
<FN>
1 Liberty Media Group tracking stock was split on a two-for-one basis, payable June 11, 1999. The amounts herein are presented
on a post-split basis.
</FN>
</TABLE>
