UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
..X.. QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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 New York I.R.S. Employer
Corporation No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone - Area Code 212-387-5400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ..X No ...
At July 31, 2000, the following shares of stock were outstanding:
AT&T common stock - 3,756,102,185 shares AT&T Wireless Group common
stock - 360,000,000 shares Liberty Media Group Class A common stock -
2,373,148,192 shares Liberty Media Group Class B common stock -
206,234,452 shares
<PAGE>
AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
2000 1999 2000 1999
Revenue $16,221 $15,752 $32,122 $29,869
Operating Expenses
Access and other connection 3,617 3,668 7,205 7,400
Costs of services and products 4,116 3,835 8,031 6,728
Selling, general and administrative 3,110 3,461 6,399 6,618
Depreciation and other amortization 1,697 1,546 3,263 2,850
Amortization of goodwill, franchise
costs and other purchased intangibles 414 358 782 542
Net restructuring and other charges - (29) 773 702
Total operating expenses 12,954 12,839 26,453 24,840
Operating income 3,267 2,913 5,669 5,029
Equity earnings (losses) from Liberty
Media Group 267 (543) 1,209 (601)
Other income (expense) 119 (40) 415 121
Interest expense 623 493 1,212 695
Income before income taxes 3,030 1,837 6,081 3,854
Provision for income taxes 996 792 1,364 1,791
Net income $ 2,034 $ 1,045 $ 4,717 $ 2,063
AT&T Common Stock Group:
Earnings per share:
Basic $ 0.54 $ 0.50 $ 1.08 $ 0.90
Diluted $ 0.53 $ 0.49 $ 1.07 $ 0.88
Dividends declared $ 0.22 $ 0.22 $ 0.44 $ 0.44
AT&T Wireless Group:
Earnings per share:
Basic and diluted $ 0.06 $ - $ 0.06 $ -
Liberty Media Group:
Earnings (loss) per share:
Basic and diluted $ 0.10 $ (0.21) $ 0.47 $ (0.24)
See Notes to Consolidated Financial Statements
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Share Amounts)
(Unaudited)
June 30, December 31,
2000 1999
ASSETS
Cash and cash equivalents $ 426 $ 1,024
Receivables, less allowances of $1,335 and $1,281 11,988 10,453
Deferred income taxes 1,351 1,287
Other current assets 1,118 1,120
TOTAL CURRENT ASSETS 14,883 13,884
Property, plant and equipment, net of accumulated
depreciation of $29,801 and $30,057 46,557 39,618
Franchise costs, net of accumulated amortization
of $1,104 and $697 51,467 32,693
Licensing costs, net of accumulated amortization
of $1,614 and $1,491 9,994 8,548
Goodwill, net of accumulated amortization of
$507 and $363 23,417 7,445
Investment in Liberty Media Group and related
receivables, net 39,295 38,460
Other investments and related advances 48,032 19,366
Prepaid pension costs 2,785 2,464
Other assets 7,134 6,928
TOTAL ASSETS $243,564 $169,406
(CONTINUED)
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Millions Except Share Amounts)
(Unaudited)
June 30, December 31,
2000 1999
LIABILITIES
Accounts payable $ 6,815 $ 6,771
Payroll and benefit-related liabilities 2,360 2,651
Debt maturing within one year 25,735 12,633
Dividends payable 826 703
Other current liabilities 6,928 5,449
TOTAL CURRENT LIABILITIES 42,664 28,207
Long-term debt 31,986 23,217
Long-term benefit-related liabilities 3,979 3,964
Deferred income taxes 41,655 24,199
Other long-term liabilities and deferred credits 4,839 3,801
TOTAL LIABILITIES 125,123 83,388
Minority Interest 3,573 2,391
Company-Obligated Convertible Quarterly Income
Preferred Securities of Subsidiary Trust Holding
Solely Subordinated Debt Securities of AT&T 4,705 4,700
SHAREOWNERS' EQUITY Common Stock:
AT&T Common Stock, $1 par value, authorized
6,000,000,000 shares; issued and outstanding
3,755,183,978 shares (net of 297,622,645
treasury shares) at June 30, 2000, and
3,196,436,757 shares (net of 287,866,419
treasury shares) at December 31, 1999 3,755 3,196
AT&T Wireless Group Common Stock, $1 par value,
authorized 6,000,000,000 shares; issued and
outstanding 360,000,000 shares at June 30, 2000 360 -
Liberty Media Group Class A Common Stock,
$1 par value, authorized 4,000,000,000 shares;
issued and outstanding 2,374,272,992 shares
(net of 47,103,908 treasury shares) at June 30, 2000,
and 2,313,557,460 shares at December 31, 1999 2,374 2,314
Liberty Media Group Class B Common Stock,
$1 par value, authorized 400,000,000 shares;
issued and outstanding 206,234,452 shares
(net of 10,607,776 treasury shares) at June 30, 2000,
and 216,842,228 shares at December 31, 1999 206 217
Additional paid-in capital 90,031 59,526
Guaranteed ESOP obligation - (17)
Retained earnings 8,549 6,712
Accumulated other comprehensive income 4,888 6,979
TOTAL SHAREOWNERS' EQUITY 110,163 78,927
TOTAL LIABILITIES & SHAREOWNERS' EQUITY $243,564 $169,406
See Notes to Consolidated Financial Statements
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Millions Except Share Amounts)
(Unaudited)
For the Six
Months Ended
June 30,
2000 1999
AT&T Common Shares
Balance at beginning of year $ 3,196 $ 2,630
Shares issued (acquired), net:
Under employee plans (1) 1
For acquisitions 610 565
Other* (50) -
Balance at end of period 3,755 3,196
AT&T Wireless Group Common Stock
Balance at beginning of year - -
Shares issued 360 -
Balance at end of period 360 -
Liberty Media Group Class A Common Stock
Balance at beginning of year 2,314 -
Shares issued, net:
For acquisitions 60 2,280
Other - 33
Balance at end of period 2,374 2,313
Liberty Media Group Class B Common Stock
Balance at beginning of year 217 -
Shares issued (acquired), net:
For acquisitions - 220
Other (11) (3)
Balance at end of period 206 217
Additional Paid-In Capital
Balance at beginning of year 59,526 15,195
Shares issued (acquired), net:
Under employee plans (24) 36
For acquisitions 23,014 42,374
Other* (2,620) 324
Proceeds in excess of par value from
issuance of AT&T Wireless common stock 9,926 -
Common stock warrants issued - 306
Gain on issuance of common stock
by affiliates 103 510
Other 106 89
Balance at end of period 90,031 58,834
Guaranteed ESOP Obligation
Balance at beginning of year (17) (44)
Amortization 17 13
Balance at end of period - (31)
Retained Earnings
Balance at beginning of year 6,712 7,800
Net income 4,717 2,063
Dividends declared (1,519) (1,401)
Treasury shares issued at less than cost (1,361) (1,469)
Balance at end of period 8,549 6,993
(CONTINUED)
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (CONTINUED)
(Dollars in Millions Except Share Amounts)
(Unaudited)
For the Six
Months Ended
June 30,
2000 1999
Accumulated Other Comprehensive Income
Balance at beginning of year 6,979 (59)
Other comprehensive income (2,091) 2,025
Balance at end of period 4,888 1,966
Total Shareowners' Equity $110,163 $73,488
Summary of Total Comprehensive Income:
Net income $ 4,717 $ 2,063
Net foreign currency translation
adjustment (net of taxes of $100 and $(23)) 141 (43)
Net revaluation of investments (net of
taxes of $(676) and $1,351) (2,232) 2,068
Total Comprehensive Income $ 2,626 $ 4,088
* Activity in 2000 represents AT&T stock received from Cox Communications, Inc.,
in exchange for an entity owning certain cable systems and other assets.
Other comprehensive income in the first half of 2000 included Liberty Media
Group's foreign currency translation adjustments totaling $(118), net of
applicable taxes, and revaluation of Liberty Media Group's available-for-sale
securities totaling $36, net of applicable taxes, partially offset by the
recognition of previously unrecognized available for sale securities of $1,479,
net of applicable taxes.
Other comprehensive income in 1999 included Liberty Media Group's foreign
currency translation adjustments totaling $(43), net of applicable taxes, and
revaluation of Liberty Media Group's available-for-sale securities totaling
$2,012, net of applicable taxes.
AT&T accounts for treasury stock as retired stock, and as of June 30, 2000,
had 298 million treasury shares of which 225 million shares were owned by AT&T
Broadband subsidiaries and 70 million shares related to the purchase of AT&T
shares previously owned by Liberty Media Group.
We have 100 million authorized shares of preferred stock at $1 par value. No
preferred stock is currently issued or outstanding.
See Notes to Consolidated Financial Statements
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Six
Months Ended
June 30,
2000 1999
Operating Activities
Net income $ 4,717 $ 2,063
Adjustments to reconcile net income to net
cash provided by operating activities:
Gains on sales of businesses and
investments (849) (371)
Net restructuring and other charges 648 778
Depreciation and amortization 4,045 3,392
Provision for uncollectibles 625 733
Net equity (earnings) losses from Liberty
Media Group (1,209) 601
Net losses from other equity investments 601 397
Increase in accounts receivable (1,854) (1,462)
Decrease in accounts payable (70) (488)
Net change in other operating assets
and liabilities (969) (1,761)
Other adjustments (385) (527)
Net cash provided by operating activities 5,300 3,355
Investing Activities
Capital expenditures and other additions (7,069) (5,129)
Proceeds from sale or disposal of
property, plant and equipment 543 162
(Increase) decrease in other receivables (977) 6
Net (acquisitions) dispositions of licenses (105) 5
Equity investment distributions and sales 711 439
Equity investment contributions and
purchases (1,096) (6,054)
Acquisitions of businesses including
cash acquired (18,846) (5,763)
Other investing activities, net (28) (56)
Net cash used in investing activities (26,867) (16,390)
Financing Activities
Proceeds from long-term debt issuances 739 7,948
Retirements of long-term debt (1,061) (1,643)
Issuance of convertible securities - 4,694
Issuance of AT&T Wireless Group common stock 10,286 -
Net acquisition of treasury shares (539) (4,320)
Dividends paid on common stock (1,396) (1,306)
Increase in short-term borrowings, net 13,087 4,506
Other financing activities, net (147) 414
Net cash provided by financing activities 20,969 10,293
Net decrease in cash and cash equivalents (598) (2,742)
Cash and cash equivalents at beginning of year 1,024 3,160
Cash and cash equivalents at end of period $ 426 $ 418
See Notes to Consolidated Financial Statements
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(a) BASIS OF PRESENTATION
The consolidated financial statements have been prepared by AT&T
Corp. (AT&T) pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) and, in the opinion of
management, include all adjustments necessary for a fair statement
of the consolidated results of operations, financial position and
cash flows for each period presented. The consolidated results for
interim periods are not necessarily indicative of results for the
full year. These financial results should be read in conjunction
with AT&T's Form 10-K for the year ended December 31, 1999, filed
on March 27, 2000, which include the financial statements of
Liberty Media Group for the year ended December 31, 1999, AT&T's
Form 10-Q for the quarter ended March 31, 2000, (which includes
the financial results of Liberty Media Group for this period,
attached as an exhibit thereto) and the financial statements of
Liberty Media Group and AT&T Wireless Group for the quarter and
year-to-date periods ended June 30, 2000, included as Exhibits
99.1 and 99.2, respectively, to this AT&T quarterly report on Form
10-Q.
During the second quarter, AT&T created a new class of stock when
it completed an initial public offering of 360 million shares of
AT&T Wireless Group tracking stock at a price of $29.50 per share.
This stock is designed to track the performance of AT&T's wireless
services business and represented a 15.6% interest in that
business. AT&T retained the remaining 84.4% interest in AT&T
Wireless Group. In addition to AT&T Wireless Group tracking stock,
AT&T has two other classes of stock, Liberty Media Group (LMG)
tracking stock and AT&T common stock. Liberty Media Group tracking
stock is intended to reflect the performance of Liberty Media
Group. AT&T common stock is intended to reflect the performance of
all other businesses of AT&T, referred to as AT&T Common Stock
Group, including AT&T's retained interest in AT&T Wireless Group.
The earnings attributable to AT&T Wireless Group represent 15.6%
of the earnings from April 27, 2000, the date of the initial
public offering, through June 30, 2000. The remaining earnings of
AT&T's wireless services business are included in the earnings
attributable to AT&T Common Stock Group. Similarly, the earnings
or losses related to LMG are excluded from earnings available to
AT&T Common Stock Group.
The Board of Directors of Liberty Media Group declared a
two-for-one stock split of Liberty Media Group tracking stock,
paid on June 9, 2000. At the AT&T Corp. annual meeting on May 24,
2000, shareowners approved an amendment to increase the number of
authorized shares of Class A Liberty Media Stock from 2.5 billion
to 4 billion, and to increase the number of Class B Liberty Media
Stock from 250 million to 400 million. All references to number of
shares and per share information for Liberty Media Group in the
consolidated financial statements have been adjusted to reflect
the stock split on a retroactive basis.
<PAGE>
AT&T Form 10-Q - Part I
We have reclassified certain prior period amounts to conform with
our current presentation.
(b) MERGERS
MERGER WITH MEDIAONE GROUP, INC. (MEDIAONE)
On June 15, 2000, AT&T completed a merger with MediaOne in a cash
and stock transaction valued at approximately $56 billion. In the
aggregate, each share of MediaOne stock received 0.95 of a share
of AT&T common stock and $36.27 per share in cash, consisting of
$30.85 per share as stipulated in the merger agreement and $5.42
per share based on AT&T's stock price preceding the merger being
below a predetermined amount. AT&T issued approximately 606
million shares of common stock, of which approximately 60 million
were treasury shares. The total shares had an aggregate market
value of approximately $21 billion. In addition, the cash payments
totaled approximately $24 billion and AT&T assumed debt and other
obligations of approximately $11 billion.
The merger was accounted for under the purchase method of
accounting, accordingly the results of MediaOne have been included
in the financial results of AT&T since the date of acquisition.
The operating results of MediaOne, which are part of our Broadband
segment, have been included in the accompanying consolidated
financial statements at their preliminary fair value at June 15,
2000. Approximately $19 billion of the purchase price of $56
billion was attributed to agreements with local franchise
authorities that allow access to homes in our broadband service
areas ("franchise costs") and is being amortized on a
straight-line basis over 40 years. Also included in the $56
billion purchase price was approximately $28 billion related to
nonconsolidated investments, including investments in Time Warner
Entertainment and Vodaphone Group, plc, approximately $6 billion
related to property, plant and equipment, approximately $10
billion attributable to MediaOne debt, and approximately $1
billion of minority interest in Centaur Funding. The purchase
resulted in preliminary goodwill of $16 billion, which is being
amortized on a straight-line basis over 40 years. We may make
refinements to the allocation of the purchase price in future
periods as the related fair value appraisals of certain assets and
liabilities are finalized.
<PAGE>
AT&T Form 10-Q - Part I
MERGER WITH TELE-COMMUNICATIONS, INC. (TCI)
In March 1999, AT&T completed a merger with TCI, renamed AT&T
Broadband (Broadband), in an all-stock transaction valued at
approximately $52 billion. The merger was accounted for under the
purchase method of accounting and, accordingly, the results of
Broadband have been included with the financial results of AT&T
since the acquisition.
In connection with the closing, AT&T issued a separate tracking
stock designed to reflect the economic performance of Liberty
Media Group (LMG), TCI's former programming and technology
investment business.
AT&T does not have a controlling financial interest for financial
accounting purposes in LMG; therefore, our investment in LMG is
accounted for under the equity method in the accompanying
consolidated financial statements. The amounts attributable to LMG
are reflected as separate line items "Equity earnings (losses)
from Liberty Media Group" and "Investment in Liberty Media Group
and related receivables, net," in the accompanying consolidated
financial statements.
PRO FORMA RESULTS
Following is a summary of the pro forma results of AT&T as if the
mergers with MediaOne and TCI had closed effective January 1,
1999:
(Unaudited)
Shares in millions
For the Six Months Ended June 30, 2000 1999
Revenue $33,447 $32,137
Net income 5,543 1,892
Weighted-average AT&T common shares 3,774 3,759
Weighted-average AT&T common shares
and potential common shares 3,849 3,868
Weighted-average AT&T Wireless Group shares 360 -
Weighted-average Liberty Media Group Shares 2,570 2,500
AT&T Common Stock Group earnings per common
share:
Basic $ 1.14 $ 0.72
Diluted $ 1.12 $ 0.71
AT&T Wireless Group earnings per common share:
Basic and diluted $ 0.06 $ -
Liberty Media Group earnings (loss) per
common share:
Basic and diluted $ 0.47 $ (0.33)
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.
<PAGE>
AT&T Form 10-Q - Part I
(c) NET RESTRUCTURING AND OTHER CHARGES
During the second quarter of 1999, we recorded restructuring and
other charges that netted to a pretax benefit of $29. The benefit
included a $68 net gain primarily related to the exit of certain
joint ventures that would have competed with Concert, our joint
venture with British Telecommunications plc (BT). Also included
was an $11 gain from the settlement of pension obligations from
AT&T's voluntary retirement incentive program. Partially
offsetting these gains was a $50 pretax charge related to a
contribution agreement entered into by Broadband to satisfy
certain liabilities of Phoenixstar, Inc. (formerly PrimeStar,
Inc.).
Net restructuring and other charges for the six months ended June
30, 2000, totaled $773. The charge included restructuring and exit
costs of $682 relating to actions across several of our business
units. These actions were primarily driven by the company's
continuing efforts to streamline operations and reduce costs by $2
billion by the end of the year. Also recorded in the six months
ended June 30, 2000, was a $91 charge related to the mandated
disposition of AT&T Communications (U.K.) Ltd., which would have
competed directly with Concert.
The charge included cash termination benefits of $458 associated
with the involuntary separation of about 6,200 employees.
Approximately one-half of the individuals were management
employees and one-half were nonmanagement employees. Over 35% of
the affected employees have left their positions as of June 30,
2000, and the remaining employees will leave the company in the
second half of the year.
We also recorded $62 of network lease and other contract
termination costs associated with penalties incurred as part of
notifying vendors of the termination of these contracts during the
first quarter of 2000.
The following table displays the activity and balances of the
restructuring reserve account from January 1, 2000, to June 30,
2000:
Jan. 1, June 30,
2000 2000
Type of Cost Balance Additions Deductions Balance
Employee
separations $150 $458 $(258) $350
Facility closings 239 - (35) 204
Other 21 62 (17) 66
Total $410 $520 $(310) $620
Deductions reflect cash payments of $253 related to employee
separations and noncash utilization of $57. The cash outlay was
primarily funded through cash from operations. Noncash utilization
included deferred severance primarily related to executives.
<PAGE>
AT&T Form 10-Q - Part I
Also included in restructuring and exit costs for the six months
ended June 30, 2000, was $144 of benefit curtailment costs
associated with employee separations as part of these exit plans.
We also recorded an asset impairment charge of $18 related to the
write-down of unrecoverable assets in certain businesses in which
the carrying value is no longer supported by future cash flows.
As a result of our merger with MediaOne and as part of our
objective to benefit from the synergies created by the merger, we
will record further charges for exit and separation plans in the
second half of the year.
Net restructuring and other charges for the six months ended June
30, 1999, totaled $702. The charge included a pretax in-process
research and development charge of $594 related to the TCI
acquisition, a $128 pretax net charge primarily related to the
exit of certain joint ventures that would have competed directly
with Concert and a $50 pretax charge related to the Phoenixstar
agreement noted above. These charges were partially offset by a
$70 pretax gain related to the settlement of pension obligations
for former employees who accepted AT&T's voluntary retirement
incentive program offer.
(d) EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE
Earnings (losses) attributable to the different classes of AT&T
common stocks is as follows:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
2000 1999 2000 1999
AT&T Common Stock Group $1,745 $1,588 $3,486 $2,664
AT&T Wireless Group 22 - 22 -
Liberty Media Group 267 (543) 1,209 (601)
Net income $2,034 $1,045 $4,717 $2,063
Basic earnings per share (EPS) for AT&T Common Stock Group for the
three and six-month periods ended June 30, 2000 and 1999, were
computed by dividing earnings attributable to AT&T Common Stock
Group shareowners by the weighted-average number of AT&T common
shares outstanding during the period.
Diluted EPS for AT&T Common Stock Group was computed by dividing
earnings attributable to AT&T Common Stock Group shareowners,
adjusted for the conversion of securities, by the weighted-average
number of AT&T common shares and dilutive potential common shares
outstanding during the period, assuming conversion of the
potential common shares at the beginning of the periods presented.
Shares issuable upon conversion of preferred stock of
subsidiaries,
<PAGE>
AT&T Form 10-Q - Part I
convertible debt securities of a subsidiary, stock options and
other performance awards have been included in the diluted
calculation of weighted-average shares to the extent that the
assumed issuance of such shares would have been dilutive, as
illustrated below. The convertible quarterly income preferred
securities were antidilutive and were excluded from the
computation of diluted EPS. The dividends on these securities have
an after-tax impact to quarterly earnings of approximately $40.
Assuming the conversion of these securities, the dividends would
no longer be included as a reduction to net income and the
securities would convert into 66.667 million shares of AT&T common
stock.
A reconciliation of the income and share components for diluted
EPS calculations with respect to AT&T Common Stock Group is as
follows:
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
2000 1999 2000 1999
AT&T Common Stock Group:
Income available $1,745 $1,588 $3,486 $2,664
Income impact of assumed
conversion of preferred
stock of subsidiary 8 10 16 10
Income available adjusted
for conversion of
securities $1,753 $1,598 $3,502 $2,674
Shares in millions
Weighted-average common
shares 3,253 3,189 3,219 2,970
Stock options 21 38 26 40
Preferred stock of subsidiary 40 40 40 25
Convertible debt securities
of subsidiary - - - 3
Weighted-average common shares
and potential common shares 3,314 3,267 3,285 3,038
Basic EPS for AT&T Wireless Group for the period from the date of
the initial public offering through June 30, 2000, was computed by
dividing the income attributable to AT&T Wireless Group
shareowners by the weighted-average number of shares outstanding
of AT&T Wireless Group of 360 million. Potentially dilutive
securities consisted of approximately 70 million stock options,
which were antidilutive at June 30, 2000.
Basic EPS for LMG was computed by dividing the earnings (loss)
attributable to LMG shareowners by the weighted-average number of
shares outstanding of LMG of 2,576 million and 2,528 million, for
the three months ended June 30, 2000 and 1999, respectively, and
2,570 million and 2,500 million for the six months ended June 30,
2000 and from the date of acquisition through June 30, 1999,
respectively.
<PAGE>
AT&T Form 10-Q - Part I
Potentially dilutive securities, including fixed and nonvested
performance awards and stock options, have not been factored into
the dilutive calculations because past history has indicated that
these contracts are generally settled in cash. There were 95
million and 108 million of these potentially dilutive securities
outstanding at June 30, 2000 and 1999, respectively. The diluted
earnings per share calculation for the second quarter of 2000 does
include approximately one million warrants outstanding at June 30,
2000, which were assumed in a recent acquisition. Since LMG had a
loss in the quarter and year-to-date periods of 1999, the impact
of any potential shares would have been antidilutive.
(e) RELATED PARTY TRANSACTIONS
AT&T has various related party transactions with Concert as a
result of the closure of the global venture in early January.
Included in revenue in the three and six-month periods ended June
30, 2000, are $284 and $550, respectively, for services provided
to Concert.
Included in access and other connection expenses for the three and
six-month periods ended June 30, 2000, are charges from Concert
representing costs incurred on our behalf to connect calls made to
foreign countries (international settlements) and costs paid by
AT&T to Concert for distributing Concert products totaling $581
and $1,160, respectively.
During the first quarter of 2000, AT&T loaned $1.0 billion to
Concert which is included within investments and related advances
in the accompanying consolidated balance sheets. Interest income
of $17 and $30 was recognized for the three and six-month periods
ended June 30, 2000, respectively.
Included in accounts receivable and accounts payable at June 30,
2000, are $1,064 and $1,138, respectively, related to transactions
with Concert.
(f) LONG-TERM DEBT
EXCHANGEABLE NOTES
During 1999 and 1998, MediaOne issued debt (the Exchangeable
Notes) which is mandatorily redeemable at MediaOne's option into
(i) Vodafone American Depository Receipts (ADRs) held by MediaOne,
(ii) the cash equivalent, or (iii) a combination of cash and
Vodafone ADRs. The maturity value of the Exchangeable Notes varies
based upon the fair market value of a Vodafone ADR.
<PAGE>
AT&T Form 10-Q - Part I
Following is a summary of the Exchangeable Notes outstanding by
year of issue:
Year of Issue
EXCHANGEABLE NOTES 1999 1998
Proceeds $1,129 $1,686
Interest Rate 7.0% 6.25%
Maturity Date Nov. 15, 2002 Aug. 15, 2001
Carrying Value $2,664 $1,085
The redemption formula for the 1999 Exchangeable Notes is as
follows:
(a) If the fair market value of a Vodafone ADR is greater than
or equal to $51.2563, each 1999 Exchangeable Note is
equivalent to 0.8475 of a Vodafone ADR;
(b) If the fair market value of a Vodafone ADR is less than or
equal to $43.4375, each 1999 Exchangeable Note is
equivalent to one Vodafone ADR; or
(c) If the fair market value of a Vodafone ADR is less than
$51.2563 but greater than $43.4375 per share, each 1999
Exchangeable Note is equivalent to a fraction of a
Vodafone ADR equal to (i) $43.4375 divided by (ii) the
fair market value of one Vodafone ADR.
The number of Vodafone ADRs to be exchanged at maturity for each
1998 Exchangeable Note will be based upon a redemption value of
$9.00 in cash plus 2 1/2 times the fair market value of a Vodafone
ADR (the Maturity Price), as follows:
(a) If the Maturity Price is greater than or equal to $71.75
per share, each 1998 Exchangeable Note is equivalent to
0.8101 of the Maturity Price;
(b) If the Maturity Price is less than or equal to $58.125 per
share, each 1998 Exchangeable Note is equivalent to the
Maturity Price; or
(c) If the Maturity Price is less than $71.75 per share but
greater than $58.125 per share, each 1998 Exchangeable
Note is equivalent to $58.125.
<PAGE>
AT&T Form 10-Q - Part I
The Exchangeable Notes are being accounted for as indexed debt
instruments since the maturity value of the Exchangeable Notes is
dependent upon the fair market value of the underlying Vodafone
ADRs. For the 1999 debt issuance, the market risk of a decline in
value of Vodafone ADRs below $43.4375 per share on 26.0 million of
the 148.3 million Vodafone ADRs held by MediaOne has been
eliminated. In addition, MediaOne has limited the market gains it
may earn to 15.25% of the fair market value in excess of $51.2563
per share on 26.0 million Vodafone ADRs. For the 1998 debt
issuance, the market risk of a decline in value of Vodafone ADRs
below $19.65 per share on 72.5 million of the 148.3 million
Vodafone ADRs held by MediaOne has been eliminated. In addition,
MediaOne has limited the market gains it may earn to approximately
19% of the fair market value in excess of $25.10 per share on 72.5
million Vodafone ADRs.
Since the Vodafone ADRs are a cost method investment being
accounted for as "available-for-sale" securities under Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," changes in the
maturity value of the Exchangeable Notes are being recorded as
unrealized gains or losses, net of tax, within other comprehensive
income as a component of shareowners' equity.
The Exchangeable Notes are unsecured obligations of MediaOne,
ranking equally in right of payment with all other unsecured and
unsubordinated obligations of MediaOne.
FLOATING RATE DEBT
Two subsidiaries of MediaOne, MediaOne SPC IV and MediaOne SPC VI,
entered into a series of purchased and written options on Vodafone
ADRs contributed to them by MediaOne and issued floating rate
debt. The carrying value of debt outstanding at June 30, 2000, was
$1,739, which pays interest at three-month London Inter-Bank
Offering Rate (LIBOR) plus 0.5%. This debt matures in equal
quarterly installments beginning in 2003 and ending in 2005. The
assets of MediaOne SPC IV, which are primarily 29.1 million
Vodafone ADRs, are only available to pay the creditors of MediaOne
SPC IV. Likewise, the assets of MediaOne SPC VI, which are
primarily 18.0 million Vodafone ADRs, are only available to pay
the creditors of MediaOne SPC VI.
<PAGE>
AT&T Form 10-Q - Part I
SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUSTS HOLDING SOLELY SUBORDINATED DEBT SECURITIES
OF AN AT&T SUBSIDIARY
Certain subsidiary trusts of MediaOne (the MediaOne Trusts) had
preferred securities outstanding at June 30, 2000, as follows:
Interest Maturity Carrying
Subsidiary Trust Rate Date Amount
MediaOne Financing I 7.96% 2025 $ 30
MediaOne Financing II 8.25% 2036 28
MediaOne Finance I 9.30% 2025 267
MediaOne Finance II 9.50% 2036 215
MediaOne Finance III 9.04% 2038 503
Total $1,043
The MediaOne Trusts exist for the exclusive purpose of issuing the
Trust Preferred Securities and investing the proceeds thereof into
Subordinated Deferrable Interest Notes (the Subordinated Debt
Securities) of MediaOne Group Funding, Inc, a wholly-owned
subsidiary of MediaOne. The Subordinated Debt Securities have the
same interest rate and maturity date as the Trust Preferred
Securities to which they relate. The Subordinated Debt Securities
are fully and unconditionally guaranteed by MediaOne. All of the
Subordinated Debt Securities are redeemable by MediaOne Group
Funding, Inc. or MediaOne at a redemption price of $25.00 per
security, plus accrued and unpaid interest. Upon redemption of the
Subordinated Debt Securities, the Trust Preferred Securities will
be mandatorily redeemable, at a price of $25.00 per share, plus
accrued and unpaid distributions. The 9.30% and 7.96% Subordinated
Debt Securities are redeemable after September 11, 2000. The 9.50%
and 8.25% Subordinated Debt Securities are redeemable after
October 29, 2001. The 9.04% Subordinated Debt Securities are
redeemable after October 28, 2003. The Trust Preferred Securities
are recorded within long-term debt in the accompanying
consolidated balance sheets.
(g) FINANCIAL INSTRUMENTS
COLLARS
Two subsidiaries of MediaOne, MediaOne SPC IV and MediaOne SPC VI,
entered into a series of purchased and written options
(collectively the collars) on Vodafone ADRs contributed to them by
MediaOne and issued floating rate debt. The collars have been
designated and are effective as a hedge of the market risk
associated with the investment in Vodafone ADRs. The collars are
therefore carried at intrinsic value, with unrealized gains or
losses, net of tax, being recorded within other comprehensive
income as a component of shareowners' equity, together with any
change in the fair value of the Vodafone ADRs.
<PAGE>
AT&T Form 10-Q - Part I
At the expiration of the MediaOne SPC IV collar, we will receive
cash if the market value of a Vodafone ADR is less than
approximately $34.00 per share, effectively eliminating downside
risk on the stock below $34.00 per share. Conversely, if the
market value of a Vodafone ADR is greater than approximately
$49.00 per share, we will be required to pay cash, which will be
offset by the corresponding increase in the value of the Vodafone
ADR. This collar expires quarterly beginning in 2003 and ending in
2005.
At the expiration of the MediaOne SPC VI collar, we will receive
cash if the market value of a Vodafone ADR is less than
approximately $40.00 per share, effectively eliminating downside
risk on the stock below $40.00 per share. Conversely, if the
market value of a Vodafone ADR is greater than approximately
$58.00 per share, we will be required to pay cash, which will be
offset by the corresponding increase in the value of the Vodafone
ADR. This collar expires quarterly beginning in 2003 and ending in
2005.
INTEREST RATE SWAPS
In connection with the floating rate debt issued by MediaOne SPC
IV and VI, interest rate swaps were entered into to swap the
floating rate debt to fixed rate debt. The interest rate swaps
have the same maturities as the debt and mature in equal quarterly
installments beginning in 2003 and ending in 2005. MediaOne
prepaid the fixed interest payments pursuant to the swap
agreements; the costs of which were deferred and are amortized as
adjustments to the interest expense over the term of the debt. As
a result of the swaps and related amortization, MediaOne expects
to have a fixed effective interest rate of 5.91% on the MediaOne
SPC IV debt and 6.02% on the MediaOne SPC VI debt. The unamortized
prepaid interest rate swap balance was approximately $475 as of
June 30, 2000.
LETTERS OF CREDIT
At June 30, 2000, we had letters of credit of $685. The increase
from December 31, 1999, was primarily related to letters of credit
to support subsidiary debt as well as letters of credit MediaOne
had entered into prior to the merger.
<PAGE>
AT&T Form 10-Q - Part I
(h) MINORITY INTEREST IN CENTAUR FUNDING CORPORATION
Centaur Funding Corporation (Centaur), a subsidiary of MediaOne,
issued three series of preferred shares prior to AT&T's
acquisition of MediaOne. Centaur was created for the principal
purpose of raising capital through the issuance of preferred
shares and investing those proceeds into notes issued by MediaOne
SPC II, a subsidiary of MediaOne. Principal and interest payments
from the notes are expected to be Centaur's principal source of
funds to make dividend and redemption payments on the preferred
shares. In addition, the dividend and certain redemption payments
on the preferred shares will be determined by reference to the
dividend and redemption activity of the preferred stock of
AirTouch Communications, Inc. (ATI Shares) held by MediaOne SPC
II. Payments on the preferred shares are neither guaranteed nor
secured by MediaOne or AT&T. The assets of MediaOne SPC II, which
includes the ATI shares, are only available to pay the creditors
of MediaOne SPC II.
These securities remained outstanding at June 30, 2000, as
follows:
Dividend Rate Maturity Date Carrying Amount
Series A Variable None $ 100
Series B 9.08% 4/21/2020 926
Series C None 4/21/2020 110
Total $1,136
The Auction Market Preference Shares, Series A, have a liquidation
value of $250 thousand per share and dividends are payable
quarterly when declared by Centaur's Board of Directors out of
funds legally available.
The 9.08% Cumulative Preference Shares, Series B, have a
liquidation value of $1 thousand per share and dividends are
payable quarterly in arrears when declared by Centaur's Board of
Directors out of funds legally available. In addition, dividends
may be declared and paid only to the extent that dividends have
been declared and paid on the ATI shares.
The Preference Shares, Series C, have a liquidation value of $1
thousand per share at maturity. The value of the Series C will be
accreted to reach its liquidation value upon maturity. The
preferred shares issued by Centaur are recorded within Minority
Interest in the accompanying consolidated balance sheets.
<PAGE>
AT&T Form 10-Q - Part I
(i) GUARANTEE OF PREFERRED SECURITIES
TCI Securities:
Prior to the consummation of the TCI merger, TCI issued
mandatorily redeemable preferred securities through subsidiary
trusts that held subordinated debt securities of TCI. AT&T
provides a full and unconditional guarantee on the outstanding
securities issued by TCI Communications Financing I, II and IV. At
June 30, 2000, $1,247 of the guaranteed redeemable preferred
securities remained outstanding. Following is a summary of the
results of TCI which have been included in the financial results
of AT&T for each corresponding period. The summarized financial
information includes transactions with AT&T that were eliminated
in consolidation.
For the Six For the Four
Months Ended Months Ended
June 30, 2000 June 30, 1999
Revenue $ 3,100 $ 1,985
Operating loss 22 785
Net income (loss) 527 (1,770)
As of As of
June 30, December 31,
2000 1999
Current assets $ 546 $ 468
Noncurrent assets 91,096 93,798
Current liabilities 2,399 2,814
Noncurrent liabilities 38,645 37,853
Minority interests 2,170 2,175
MediaOne Securities:
Prior to the consummation of the MediaOne merger, MediaOne issued
mandatorily redeemable exchangeable notes and mandatorily
redeemable preferred securities through subsidiary trusts that
held subordinated debt securities of MediaOne. Subsequent to June
30, 2000, AT&T provided a full and unconditional guarantee on
these outstanding securities issued by MediaOne. At June 30, 2000,
$4,792 of the
<PAGE>
AT&T Form 10-Q - Part I
guaranteed securities remained outstanding. Following is a summary
of the results of MediaOne which have been included in the
financial results of AT&T since the date of acquisition on June
15, 2000. The summarized financial information includes
transactions with AT&T that were eliminated in consolidation.
For the 15
Days Ended
June 30, 2000
Revenue $ 126
Operating loss (43)
Net loss (35)
As of
June 30,
2000
Current assets $ 5,840
Noncurrent assets 68,802
Current liabilities 980
Noncurrent liabilities 27,539
Minority interest 1,156
(j) SEGMENT REPORTING
AT&T's results are segmented according to the way we manage our
business: Business Services, Consumer Services, Wireless Services
and Broadband. Our existing segments reflect certain managerial
changes since the publication of our 1999 annual results. All
prior period results have been restated to reflect these changes.
In addition, 2000 results reflect the acquisition of MediaOne,
included in the Broadband segment, from the June 15, 2000, date of
acquisition and the impact of assets and businesses contributed to
Concert, which were included in 1999 results.
Reflecting the dynamics of our business, we continuously review
our management model and structure, which may result in additional
adjustments to our operating segments in the future.
<PAGE>
AT&T Form 10-Q - Part I
REVENUE
Three Six
Months Ended Months Ended
June 30, June 30,
2000 1999 2000 1999
Business services external
revenue $ 6,965 $ 6,571 $13,923 $12,856
Business services internal
revenue 182 193 360 356
Total business services
revenue 7,147 6,764 14,283 13,212
Consumer services external
revenue 4,984 5,479 10,043 10,949
Wireless services external
revenue 2,477 1,878 4,675 3,440
Broadband external revenue 1,717 1,480 3,274 1,984
Total reportable segments
revenue 16,325 15,601 32,275 29,585
Corporate and Other
revenue (a) (104) 151 (153) 284
Total revenue $16,221 $15,752 $32,122 $29,869
(a) Included in Corporate and Other is revenue from international
operations and ventures, other corporate operations and the
elimination of internal revenue.
RECONCILIATION OF EARNINGS BEFORE INTEREST AND TAXES (EBIT) TO
INCOME BEFORE INCOME TAXES
Three Six
Months Ended Months Ended
June 30, June 30,
2000 1999 2000 1999
Business services $1,612 $1,435 $3,137 $3,027
Consumer services 1,852 1,842 3,571 3,693
Wireless services 335 125 446 74
Broadband (542) (526) (553) (1,187)
Total reportable
segments' EBIT 3,257 2,876 6,601 5,607
Corporate and Other EBIT 129 (3) (517) (457)
Liberty Media Group equity
earnings (losses) 267 (543) 1,209 (601)
Interest expense 623 493 1,212 695
Total income before
income taxes $3,030 $1,837 $ 6,081 $3,854
<PAGE>
AT&T Form 10-Q - Part I
ASSETS
At June 30, At Dec. 31,
2000 1999
Business services $ 32,569 $ 32,010
Consumer services 5,301 6,279
Wireless services 28,782 23,312
Broadband 123,091 56,536
Total reportable segments 189,743 118,137
Corporate and Other:
Other segments 5,708 3,386
Prepaid pension costs 2,785 2,464
Deferred taxes 1,142 899
Other corporate assets 4,891 6,060
Investment in Liberty Media Group
and related receivables, net 39,295 38,460
Total assets $243,564 $169,406
(k) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. Gains and losses resulting from changes
in the fair values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies
for hedge accounting. The effective date for this standard was
delayed via the issuance of SFAS No. 137. The effective date for
SFAS No. 133 is now for fiscal years beginning after June 15,
2000, though earlier adoption is encouraged and retroactive
application is prohibited. For AT&T, this means that the standard
must be adopted no later than January 1, 2001.
In June 2000, the FASB issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" as
an amendment to SFAS No. 133. This statement provides
clarification with regard to certain implementation issues under
SFAS No. 133 on specific types of hedges. We are currently
assessing the impact of SFAS Nos. 133 and 138 on AT&T, including
an assessment of the impact resulting from our merger with
MediaOne.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 (SAB No. 101), "Revenue
Recognition in Financial Statements." The SEC delayed the date by
which registrants must apply the accounting and disclosures
described in SAB No. 101 until the fourth quarter of 2000. We are
currently assessing the impact of SAB No. 101 on our results of
operations.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
AT&T Corporation (AT&T) is among the world's communications leaders, providing
voice, data and video telecommunications services to large and small businesses,
consumers and government agencies. We provide domestic and international long
distance, regional, local and wireless communications services, cable television
and Internet communications services. We also provide directory and calling-card
services to support our communications business.
On June 15, 2000, AT&T completed a merger with MediaOne Group, Inc. (MediaOne)
in a cash and stock transaction valued at approximately $56 billion. In the
aggregate, each share of MediaOne received 0.95 of a share of AT&T common stock
and $36.27 per share in cash, consisting of $30.85 per share as stipulated in
the merger agreement and $5.42 per share based on AT&T's stock price preceding
the merger being below a predetermined amount. AT&T issued approximately 606
million shares of AT&T common stock, of which approximately 60 million were
treasury shares. The merger with MediaOne was accounted for under the purchase
method of accounting, accordingly the operating results of MediaOne have been
included in the accompanying consolidated financial statements since the date of
acquisition. The results of MediaOne are included within the Broadband segment.
Periods prior to the merger were not restated to include the results of
MediaOne.
On April 27, 2000, AT&T completed an initial public offering of 360 million
shares of AT&T Wireless Group tracking stock. This stock is designed to track
the economic performance of AT&T's wireless services business and represented a
15.6% interest in that business. AT&T retained the remaining 84.4% interest in
AT&T Wireless Group. In connection with our first quarter 1999 merger with
Tele-Communications, Inc., (TCI) renamed AT&T Broadband (Broadband), we issued a
separate tracking stock to reflect the economic performance of Liberty Media
Group (LMG), Broadband's former programming and technology investment
businesses. All other businesses of AT&T comprise AT&T Common Stock Group,
including AT&T's retained interest in AT&T Wireless Group, the economic
performance of which is represented by AT&T common stock.
The consolidated results of AT&T include AT&T Wireless Group in its entirety on
a fully consolidated basis. We do not have a controlling financial interest in
Liberty Media Group for financial accounting purposes; therefore, our ownership
in LMG is reflected as an investment accounted for under the equity method in
the AT&T consolidated financial statements.
<PAGE>
AT&T Form 10-Q - Part I
Earnings attributable to AT&T Wireless Group represent 15.6% of the earnings
from April 27, 2000, the date of the initial public offering, through June 30,
2000. The remaining earnings of AT&T's wireless services business are included
in the earnings attributable to AT&T Common Stock Group. Similarly, the earnings
or losses related to LMG are excluded from the earnings available to AT&T Common
Stock Group.
Ownership of shares of AT&T common stock, AT&T Wireless Group tracking stock or
Liberty Media Group tracking stock does not represent a direct legal interest in
the assets and liabilities of any of these groups, but an ownership of AT&T in
total. Each of these shares represents an interest in the economic performance
of each of these groups.
On January 5, 2000, AT&T and British Telecommunications, plc (BT) announced
financial closure of Concert, their global communications joint venture. Concert
began operations as a leading global telecommunications company, serving
multinational business customers, international carriers and Internet service
providers worldwide, providing them with voice, data and Internet services. AT&T
contributed all of its international gateway-to-gateway assets and the economic
value of approximately 270 multinational customers. In addition, we contributed
our international settlement business (revenue and expenses) to Concert. Results
for 2000 reflect the impact of these contributions.
The discussion and analysis that follows provides information management
believes is relevant to an assessment and understanding of AT&T's consolidated
results of operations and cash flows for the three and six-month periods ended
June 30, 2000 and 1999, and financial condition as of June 30, 2000 and December
31, 1999.
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements herein constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements concerning future operating
performance, AT&T's share of new and existing markets, AT&T's short- and
long-term revenue and earnings growth rates, and general industry growth rates
and AT&T's performance relative thereto. These forward-looking statements rely
on a number of assumptions concerning future events, including the adoption and
implementation of balanced and effective rules and regulations by the Federal
Communications Commission (FCC) and the state public regulatory agencies, and
AT&T's ability to achieve a significant market penetration in new markets. These
forward-looking statements 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. 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.
<PAGE>
AT&T Form 10-Q - Part I
CONSOLIDATED RESULTS OF OPERATIONS
REVENUE
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Business Services $ 7,147 $ 6,764 $14,283 $13,212
Consumer Services 4,984 5,479 10,043 10,949
Wireless Services 2,477 1,878 4,675 3,440
Broadband 1,717 1,480 3,274 1,984
Corporate and Other (104) 151 (153) 284
Total revenue $16,221 $15,752 $32,122 $29,869
Revenue increased 3.0% in the second quarter of 2000, compared with the second
quarter of 1999. Revenue for the quarter was negatively impacted by the
formation of Concert, our global venture with BT, and positively impacted by the
acquisition of MediaOne. Revenue increased 7.5% in the first half of 2000,
compared with the first half of 1999. Revenue for the six months was positively
impacted by the acquisitions of TCI, the IBM Global Network (renamed AT&T Global
Network Services, or AGNS) and MediaOne, and was negatively impacted by the
formation of Concert. Normalized revenue, which adjusts for the acquisitions of
MediaOne, TCI, adjusted for all closed cable partnerships, and AGNS, various
divestments of international businesses, and the impact of businesses
contributed to Concert, increased 4.5% in the second quarter of 2000, and 5.2%
for the six months ended June 30, 2000, compared with the respective periods in
1999. These increases were led by Wireless Services, Business Services, and
Broadband, partially offset by declines in Consumer Services.
Effective July 1, 2000, the Federal Communications Commission (FCC) eliminated
the per-line charges AT&T pays for residential and single-line business
customers. Since AT&T bills its customers for these charges, the elimination of
the charge will negatively impact revenue in the second half of 2000, primarily
in the Consumer Services business.
OPERATING EXPENSES
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Access and other connection $3,617 $3,668 $7,205 $7,400
Access and other connection expenses decreased 1.4% and decreased 2.6% for the
three and six-month periods ended June 30, 2000, respectively. Included within
access and other connection expenses are costs paid to foreign telephone
companies to connect calls made to foreign countries (international
settlements). As result of the commencement of operations of Concert, all of our
international settlements are incurred by Concert. In addition, all of our
foreign billed revenue is now earned by Concert. The amount charged by Concert
in 2000 is lower than interconnection expense incurred in 1999, since AT&T
recorded these transactions within revenue and expense, as applicable. Concert
bills us a net expense comprised of international settlement (interconnection)
expense and foreign billed revenue. Partially offsetting the decline were costs
incurred related to Concert products that AT&T now sells to its customers.
<PAGE>
AT&T Form 10-Q - Part I
Also partially offsetting the decrease were higher access and other connection
expenses associated with connecting domestic calls on the facilities of other
service providers. These costs rose primarily due to increased per-line charges
(Primary Interexchange Carrier Charges), Universal Service Fund contributions
and local connectivity charges as well as volume increases, partially offset by
mandated reductions in per-minute access costs, more efficient network usage and
the sale of ACC International.
Effective July 1, 2000, per-line charges AT&T pays for residential and
single-line business customers were eliminated by the FCC. Accordingly, access
and other connection charges will decrease in the second half of 2000.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Costs of services and products $4,116 $3,835 $8,031 $6,728
Costs of services and products increased 7.3% in the second quarter of 2000,
compared with the second quarter of 1999, and was impacted by our acquisition of
MediaOne and the formation of Concert in 2000, as well as our 1999 acquisition
of AGNS. Excluding these items, costs of services and products increased
slightly due to higher costs associated with our growing wireless subscriber
base and wireless network as well as increased costs to support growth in
outsourcing contracts. Also contributing to the increase were higher Broadband
programming costs principally due to rate increases. These increases were
partially offset by continued cost control initiatives.
Costs of services and products increased 19.4% in the first half of 2000,
compared with the first half of 1999, largely due to our acquisitions of TCI,
MediaOne, and AGNS, partially offset by the impact of Concert. Excluding these
items, costs of services and products increased slightly due to higher costs
associated with our growing wireless subscriber base and wireless network and
increased costs to support growth in outsourcing contracts. These increases were
partially offset by cost control initiatives and a lower provision for
uncollectible receivables in Consumer and Business Services.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Selling, general and administrative $3,110 $3,461 $6,399 $6,618
Selling, general and administrative (SG&A) expenses decreased 10.1% in the
second quarter of 2000, compared with the second quarter of 1999. Increases to
second quarter 2000 SG&A expenses as a result of the MediaOne and AGNS
acquisitions were essentially offset by the impact of the formation of Concert.
The decrease was primarily the result of cost control initiatives such as
headcount reductions, and a larger pension credit in 2000, primarily driven by a
higher pension trust asset base resulting from increased investment returns.
These decreases were partially offset by an increase in expenses associated with
our growing wireless subscriber base.
<PAGE>
AT&T Form 10-Q - Part I
SG&A expenses decreased 3.3% for the six months ended June 30, 2000, compared
with the same period of 1999. Excluding the impacts of the TCI, AGNS, and Media
One acquisitions as well as the formation of Concert, SG&A expenses decreased
approximately 6%, compared with the first six months of 1999. This decrease was
primarily the result of cost control initiatives, including headcount
reductions, and a larger pension credit in 2000, primarily driven by a higher
pension trust asset base resulting from increased investment returns. These
decreases were partially offset by an increase in expenses associated with our
growing wireless subscriber base and our other growth businesses.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Depreciation and other amortization $1,697 $1,546 $3,263 $2,850
Depreciation and other amortization expenses increased 9.8% in the second
quarter of 2000, compared with the second quarter of 1999. Increases to second
quarter 2000 depreciation and other amortization expenses as a result of the
MediaOne and AGNS acquisitions were essentially offset by the impact of the
formation of Concert. For the first six months of 2000, depreciation and other
amortization expenses increased 14.5% compared with the first six months of
1999. Excluding the impact of the TCI, AGNS and MediaOne acquisitions as well as
the formation of Concert, depreciation and other amortization expenses increased
approximately 10% for the six months ended June 30, 2000. These quarter and
year-to-date increases were due to the increased asset base resulting from the
continued infrastructure investment. Capital expenditures were $3.6 billion for
the quarter ended June 30, 2000, bringing year-to-date capital expenditures to
$6.5 billion. We continue to focus the vast majority of our capital spending on
our growth businesses of wireless, broadband, data/IP and local voice.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Amortization of goodwill, franchise
costs and other purchased
intangibles $414 $358 $782 $542
Amortization of goodwill, franchise costs, and other purchased intangibles
increased 15.6% in the second quarter of 2000, compared with the second quarter
of 1999. The increase was largely attributable to the acquisitions of AGNS in
1999 and MediaOne on June 15, 2000. In the first six months of 2000,
amortization of goodwill, franchise costs and other purchased intangibles
increased 44.2% compared with the first six months of 1999, largely attributable
to the acquisitions of TCI and AGNS in 1999 and MediaOne in 2000.
AT&T also has amortization of goodwill associated with nonconsolidated
investments recorded as a reduction of other income. This totaled $113 million
and $152 million in the second quarters of 2000 and 1999, respectively, and
totaled $233 million and $192 million for the first half of 2000 and 1999,
respectively.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Net restructuring and other charges $ - $(29) $773 $702
<PAGE>
AT&T Form 10-Q - Part I
During the second quarter of 2000, no restructuring and other charges were
recorded. For the second quarter of 1999, such charges netted to a pretax
benefit of $29 million. The benefit included a $68 million pretax net gain
primarily related to the exit of certain joint ventures that would have competed
directly with Concert. Also included was an $11 million pretax gain from the
settlement of pension obligations from AT&T's voluntary retirement incentive
program offer. Partially offsetting these gains was a $50 million pretax charge
related to a contribution agreement entered into by Broadband to satisfy certain
liabilities of Phoenixstar, Inc. (formerly Primestar, Inc.).
Net restructuring and other charges for the six months ended June 30, 2000,
totaled $773 million, which had an approximate $0.14 impact on earnings per
diluted share. The charge included restructuring and exit costs of $682 million
relating to actions across many of our business units and includes severance
costs associated with about 6,200 employees. These actions were primarily driven
by the company's continuing efforts to streamline operations and reduce costs by
$2 billion by the end of the year. Also recorded in the six months ended June
30, 2000, was a $91 million charge related to the mandated disposition of AT&T
Communications (U.K.) Ltd. (Comms U.K.), which would have competed directly with
Concert.
In the first half of 2000, we also recorded $62 million of network lease and
other contract termination costs associated with penalties incurred as part of
notifying vendors of the termination of these contracts. Additionally,
restructuring and exit costs included $144 million of benefit curtailment costs
associated with employee separations as part of these exit plans. We also
recorded an $18 million asset impairment charge related to the write-down of
unrecoverable assets in certain businesses in which the carrying value is no
longer supported by future cash flows.
As a result of our merger with MediaOne and as part of our objective to benefit
from the synergies created by this merger, we will record further charges for
exit and separation plans in the second half of the year.
Net restructuring and other charges for the six months ended June 30, 1999,
totaled $702 million, which had an approximate $0.22 impact on earnings per
diluted share. The charge included a pretax in-process research and development
charge of $594 million related to the TCI acquisition, a $128 million pretax net
charge primarily related to the exit of certain joint ventures that would have
competed directly with Concert and a $50 million pretax charge related to the
Phoenixstar agreement noted above. These charges were partially offset by a $70
million pretax gain related to the settlement of pension obligations for former
employees who accepted AT&T's voluntary retirement incentive program offer.
The $594 million in-process research and development charge reflected the
estimated fair value of research and development projects at TCI, as of the date
of the acquisition, which had not yet reached technological feasibility or that
had no alternative future use. Although there are technological issues to
overcome to successfully complete the acquired in process research and
development, we believe we are on track for successful completion. The projects
identified related to efforts to offer voice over Internet Protocol (IP),
product-integration efforts for advanced set-top devices, cost-savings efforts
for cable telephony implementation and in-process research and development
related to At Home Corporation (Excite@Home). We expect to test IP telephony
equipment for field deployment, begin field trials related to our product
integration efforts for set-top devices, and test and deploy devices related to
our telephony cost reductions by the end of 2000.
<PAGE>
AT&T Form 10-Q - Part I
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Operating Income $3,267 $2,913 $5,669 $5,029
Operating income increased 12.1% in the second quarter of 2000, and increased
12.7% for the first half of 2000, primarily due to operational efficiencies
within Business Services and Wireless Services as well as corporate staff
functions, and a higher pension credit in 2000. The year-to-date increase was
partially offset by the acquisition of TCI. Operating income margin (operating
income as a percent of revenue) was 20.1% for the second quarter and 17.6% for
the first half of the year compared with 18.5% and 16.8% in the comparable 1999
periods.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Other income (expense) $119 $(40) $415 $121
Other income (expense) increased $159 million in the second quarter of 2000,
compared with the second quarter of 1999. The increase was primarily
attributable to higher interest income, greater gains on sales of businesses and
investments, and equity earnings from Concert. These increases were partially
offset by greater distributions on quarterly trust preferred securities, which
were issued in June of 1999.
Other income (expense) increased $294 million for the first half of 2000,
compared with the first half of 1999. The increase was primarily attributable to
greater gains on sales of businesses and investments, higher interest income and
equity earnings from Concert. These increases were partially offset by higher
losses on other equity investments, including Excite@Home partially as a result
of the inclusion of a full six months of results in 2000, and greater
distributions on quarterly trust preferred securities which were issued in June
of 1999.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Earnings before interest and
taxes (EBIT), excluding LMG $3,386 $2,873 $6,084 $5,150
EBIT, excluding LMG, increased 17.8% for the second quarter and increased 18.1%
for the first half of 2000. The EBIT growth was impacted by gains on sales of
businesses and investments, our investments in Excite@Home and Cablevision
Systems Corp. (Cablevision) and net restructuring and other charges. Excluding
these items, EBIT increased 21.2% and 18.5% for the second quarter and
year-to-date periods, respectively. The improvement was primarily due to
operational efficiencies which resulted in higher operating income, and
increased other income.
<PAGE>
AT&T Form 10-Q - Part I
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Equity earnings (losses) from
Liberty Media Group $267 $(543) $1,209 $(601)
Equity earnings from Liberty Media Group were $267 million in the second quarter
of 2000, compared with losses of $543 million in the year-ago quarter. The
increase was primarily due to a gain associated with the acquisition of Flextech
p.l.c. (Flextech) by Telewest Communications plc (Telewest) reflecting the
difference between the carrying value of LMG's interest in Flextech and the fair
value of the Telewest securities received in the merger. Equity earnings from
LMG for the six months ended June 30, 2000, were $1,209 million compared with
losses of $601 million in 1999. In addition to the gain associated with the
Flextech acquisition, the increase in earnings for the six months ended June 30,
2000, was also impacted by a gain associated with the acquisition of General
Instrument Corporation (General Instrument) by Motorola, Inc. (Motorola)
reflecting the difference between the carrying value of LMG's interest in
General Instrument and the fair value of the Motorola securities received in the
merger.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Interest expense $623 $493 $1,212 $695
Interest expense increased 25.8% in the second quarter of 2000 compared with the
second quarter of 1999. The increase was primarily due to a higher average debt
balance as a result of our June 15, 2000, acquisition of MediaOne and due to the
issuance of $3 billion in notes in July 1999 and another $3 billion in March
2000.
Interest expense increased 74.2% for the six months ended June 30, 2000,
compared with the six months ended June 30, 1999. The increase was primarily due
to a higher average debt balance as a result of our March 1999 acquisition of
TCI and our June 2000 acquisition of MediaOne.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
Dollars in Millions
Provision for income taxes $996 $792 $1,364 $1,791
The provision for income taxes increased $204 million in the second quarter of
2000, compared with the second quarter of 1999. The effective tax rate,
excluding Liberty Media Group, for the quarter was 36.1%, up from 33.3% in the
second quarter of 1999. During the second quarter of 1999, a change in the net
operating loss utilization tax rules resulted in a $75 million reduction in the
income tax provision. Excluding the benefit of this change, the effective tax
rate in the second quarter of 1999 was 36.4%.
<PAGE>
AT&T Form 10-Q - Part I
The provision for income taxes for the six months ended June 30, 2000, decreased
$427 million compared with the same period in 1999. The effective tax rate,
excluding Liberty Media Group, for the six months ended June 30, 2000, was
28.0%, down from 40.2% for the first six months of 1999. In 2000 the effective
tax rate was impacted by the exchange with Cox Communications, Inc. (Cox) of an
entity owning certain cable systems and other assets for AT&T stock (Cox
transaction), which was tax-free, and the benefit of the write-off of the
related deferred tax liability. During 1999, AT&T recorded an in-process
research and development charge which was not tax deductible. Excluding the
impacts of the Cox transaction, the in-process research and development charge,
and the change in the net operating loss utilization tax rules, the effective
income tax rate was 36.9% for both six-month periods ended June 30, 2000 and
1999.
Three Months Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
AT&T Common Stock Group earnings
per AT&T common share:
Basic $0.54 $ 0.50 $1.08 $ 0.90
Diluted $0.53 $ 0.49 $1.07 $ 0.88
AT&T Wireless Group earnings per
AT&T common share:
Basic and diluted $0.06 - $0.06 $ -
Liberty Media Group earnings (loss)
per share:
Basic and diluted $0.10 $(0.21) $0.47 $(0.24)
As reported, diluted EPS attributable to AT&T Common Stock Group grew 8.2% to
$0.53 in the second quarter 2000, compared with the second quarter 1999. The
increase was primarily due to improved operating income in the second quarter
2000, as a result of margin improvements, and higher other income. The increases
were partially offset by the second quarter 1999 benefit of a change in the net
operating loss utilization tax rules.
As reported, diluted EPS attributable to AT&T Common Stock Group grew 21.6% to
$1.07 in the six months ended June 30, 2000, compared with the six months ended
June 30, 1999. The increase was primarily due to improved operating income, a
lower provision for taxes and higher other income. These improvements were
partially offset by higher average shares outstanding in 2000 reflecting the
impact of shares issued for the TCI and MediaOne acquisitions.
Included in EPS for the second quarter are the following items:
..Losses of $0.05 in the second quarter of 2000 and $0.04 in the second quarter
of 1999 reflecting the earnings impact of our investments in Excite@Home and
Cablevision.
..Net gains on sales and other of $0.01 in the second quarter of 2000 and $0.02
in the second quarter of 1999;
..A $0.02 benefit in the second quarter of 1999 from changes in tax rules with
respect to the utilization of acquired net operating losses.
<PAGE>
AT&T Form 10-Q - Part I
Included in EPS for the first half of 2000 and 1999 are the following items:
..Net restructuring and other charges of $0.14 in the first half of 2000 and
$0.22 in the first half of 1999;
..Losses of $0.12 in the first half of 2000 and $0.06 in the first half of 1999
reflecting the earnings impact of our investments in Excite@Home and
Cablevision;
..Net gains on sales and other of $0.23 in the first half of 2000 and $0.05 in
the first half of 1999.
..A $0.02 benefit in the second quarter of 1999 from changes in tax rules with
respect to the utilization of acquired net operating losses.
The total impact of the these items was a decrease to diluted EPS of $0.04 and
$0.03 for the second quarter and first half of 2000, respectively. These items
had no impact to diluted EPS for the second quarter of 1999 and decreased
diluted EPS by $0.21 for the first half of 1999. We quantify the impact on our
results of our investments in Excite@Home and Cablevision since these businesses
have financial information publicly available and their results can be reviewed
independently of AT&T's results.
EPS excluding these items was $0.57 per diluted share in the second quarter of
2000, an increase of 16.4%, or $0.08, over the comparable prior year quarter.
EPS excluding these items was $1.10 per diluted share for the six months ended
June 30, 2000, compared with $1.09 for the same period in 1999.
EPS for Liberty Media Group was $0.10 per share for the three months ended June
30, 2000, compared with a loss of $0.21 per share for the three months ended
June 30, 1999. The increase in EPS for the second quarter of 2000, is primarily
due to a gain associated with the acquisition of Flextech by Telewest reflecting
the difference between the carrying value of LMG's interest in Flextech and the
fair value of the Telewest securities received in the merger. EPS for Liberty
Media Group was $0.47 per share for the first half of 2000, compared with a loss
of $0.24 per share in 1999. The first half of 2000 results include six months of
Liberty Media Group results compared with four months in 1999, reflecting the
March 1999 acquisition of TCI by AT&T. In addition to the gain associated with
the Flextech acquisition, the increase in EPS for the six months ended June 30,
2000, was also impacted by a gain associated with the acquisition of General
Instrument Corporation (General Instrument) by Motorola, Inc. (Motorola)
reflecting the difference between the carrying value of LMG's interest in
General Instrument and the fair value of the Motorola securities received in the
merger.
SEGMENT RESULTS
In support of the services we provide, we segment our results by the business
units that support our primary lines of business: Business Services, Consumer
Services, Wireless Services and Broadband. A fifth category, Corporate and
Other, includes corporate staff functions, the elimination of inter-segment
business as well as the results of international operations and ventures.
Although not a segment, we also discuss the results of LMG.
The discussion of segment results includes revenue; earnings, including other
income, before interest and taxes (EBIT); earnings, including other income,
before interest, taxes, depreciation and amortization, and minority interest
(EBITDA); total assets; and capital additions. The discussion of EBITDA for
Wireless Services and Broadband is modified to exclude other income. Total
assets for each segment include all assets, except intercompany receivables.
Prepaid pension assets and corporate-owned or leased real estate are generally
<PAGE>
AT&T Form 10-Q - Part I
held at the corporate level and therefore are included in the Corporate and
Other group. Shared network assets are allocated to the segments and reallocated
each January, based on two years of volumes. Capital additions for each segment
include capital expenditures for property, plant and equipment, acquisitions of
licenses, additions to nonconsolidated investments, increases in franchise costs
and additions to internal-use software.
EBIT is the primary measure used by AT&T's chief operating decision makers to
measure AT&T's operating results and to measure segment profitability and
performance. AT&T calculates EBIT as operating income plus other income. In
addition, management also uses EBITDA as a measure of segment profitability and
performance, and is defined as EBIT plus depreciation and amortization and
minority interest. Interest and taxes are not factored into the profitability
measure used by the chief operating decision makers; therefore, trends for these
items are discussed on a consolidated basis. Management believes EBIT is
meaningful to investors because it is used by AT&T's chief operating decision
makers and provides a measure of return on total capitalization. We believe
EBITDA is meaningful to investors as a measure of each segment's liquidity and
is utilized by our chief operating decision makers. In addition, we believe that
both EBIT and EBITDA allow investors a means to evaluate the financial results
of each segment in relation to AT&T. Our calculation of EBIT and EBITDA may or
may not be consistent with the calculation of these measures by other public
companies. EBIT and EBITDA should not be viewed by investors as an alternative
to generally accepted accounting principles (GAAP) measures of income as a
measure of performance or to cash flows from operating, investing and financing
activities as a measure of liquidity. In addition, EBITDA does not take into
account changes in certain assets and liabilities that can affect cash flow.
Our existing segments reflect certain managerial changes since the publication
of our 1999 annual results. All prior period results have been restated to
reflect these changes.
To provide comparability, we normalize revenue to reflect the impact of certain
1999 and 2000 transactions. For example, when we normalize for Concert, we
remove the revenue associated with businesses/customers contributed to Concert
from 1999 results. The acquisitions of TCI, AGNS, MediaOne and certain
international divestments are normalized as if those acquisitions/dispositions
occurred January 1, 1999. Finally, certain 2000 Broadband cable swaps are
normalized in 1999 results as if those swaps happened on the corresponding date
in 1999.
BUSINESS SERVICES
Our Business Services segment offers a variety of global communications services
including long distance, local and data and Internet Protocol (IP) networking to
small and medium-sized businesses, large domestic and multinational businesses
and government agencies. Business Services is also a provider of voice, data and
IP transport to service resellers (wholesale services). Also included in this
segment is AT&T Solutions, which is composed of the Solutions outsourcing and
network management business unit and the internal AT&T Information Technology
Services unit.
<PAGE>
AT&T Form 10-Q - Part I
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
Dollars in Millions 2000 1999 2000 1999
External revenue $ 6,965 $6,571 $13,923 $12,856
Internal revenue 182 193 360 356
Total revenue 7,147 6,764 14,283 13,212
EBIT 1,612 1,435 3,137 3,027
EBITDA 2,546 2,269 4,930 4,601
OTHER ITEMS
Capital additions $ 1,392 $1,669 $2,652 $2,581
At June 30, At December 31,
2000 1999
Total assets $32,569 $32,010
REVENUE
Business Services revenue increased $383 million, or 5.7%, in the second quarter
of 2000, and increased $1,071 million, or 8.1%, for the first six months of
2000, compared with the prior year. Normalized for the 1999 acquisition of AGNS
and the impact of Concert, revenue increased 4.0% and 5.0% for the quarter and
year-to-date periods, respectively. The increases for both the quarter and
year-to-date periods were driven primarily by growth in data/IP and outsourcing
services, partially offset by a decline in voice services.
Normalized data/IP services revenue grew at a mid-teens rate for both the
quarter and year-to-date periods led by continued growth in frame relay, IP and
high-speed private line services. IP services, which include AT&T WorldNet
services and Virtual Private Network Services (VPN), grew approximately 50% for
both the three and six-month periods ended June 30, 2000, as compared with the
same periods in 1999. On a combined basis, packet services (frame relay, ATM
(Asynchronous Transfer Mode) and IP) grew nearly 50% for the quarter and nearly
45% for the first half of 2000, compared with the same periods in 1999.
AT&T Solutions outsourcing revenue, normalized for the acquisition of AGNS, grew
23.2% in the second quarter of 2000, and grew 23.9% for the first six months of
2000, compared with the same periods in the prior year. These increases were
primarily due to growth from new contract signings and add-on business from
existing clients. During the quarter, AT&T Solutions signed four new outsourcing
deals with an aggregate contract value of approximately $600 million over the
life of the contract.
Voice revenue, normalized for the impact of Concert and the AGNS acquisition,
was down slightly for both the quarter and year-to-date periods, as pricing
declines outpaced increases in volumes, which grew at a low-teens rate for the
quarter and a mid-teens rate for the year. Business services revenue continues
to shift to higher growth products such as data/IP and outsourcing, resulting in
a decline in long distance voice revenue as a percent of total revenue. Revenue
associated with 800 business, for example, is shifting from voice to IP as the
e-business industry expands.
As a component of voice revenue, local revenue grew approximately 20% and 25%
for the quarter and year-to-date periods, respectively. Revenue growth was
negatively impacted, in both the quarter and year-to-date periods, by the
settlement of public utility commission rulings. AT&T's integrated business
<PAGE>
AT&T Form 10-Q - Part I
local operations added 300 thousand access lines in the second quarter bringing
total access lines in service as of June 30, 2000, to almost 2.0 million. During
the quarter, we refined the way we count access lines to more accurately reflect
the total number of lines carrying local AT&T Digital Link traffic through 4ESS
switches. On-net buildings totaled 5,913 at June 30, 2000, a 4.7% increase over
June 30, 1999.
EBIT/EBITDA
EBIT increased $177 million, or 12.4%, in the second quarter of 2000, and
increased $110 million, or 3.6%, in the first half of 2000, compared with the
same prior year periods. EBITDA increased $277 million, or 12.2%, in the second
quarter of 2000, and increased $329 million, or 7.2%, in the first half of 2000,
compared with the same prior year periods. Excluding a first quarter 2000
restructuring charge of $93 million, EBIT increased 6.7% and EBITDA increased
9.2% in the first half of 2000, compared with the same periods of 1999. The
quarterly and year-to-date increases were primarily due to revenue growth
combined with continued cost reductions, partially offset by the impact of the
customers contributed to Concert. The earnings impact of our equity interest in
Concert is reported within Corporate and Other.
OTHER ITEMS
Capital additions decreased $277 million, or 16.6%, to $1,392 million in the
second quarter of 2000 compared with the second quarter of 1999. The decrease
was primarily driven by reduced capital expenditures on plant, property, and
equipment associated with long distance voice services. However, for the first
half of 2000, capital additions increased $71 million, or 2.7%, to $2,652
million compared with the first half of 1999. The increase was primarily driven
by additions to plant, property and equipment for our local network and AGNS.
Total assets increased $559 million, or 1.7%, to $32,569 million at June 30,
2000, compared with December 31, 1999. The increase was primarily driven by an
increase in accounts receivable due to higher revenue in our outsourcing
business and timing of cash receipts. In addition, increases in internal use
software contributed to the increase in assets. These increases were partially
offset by a decrease in plant, property, and equipment as a result of the
contribution of assets to Concert combined with depreciation for the period,
offset in part by capital expenditures.
CONSUMER SERVICES
Our Consumer Services segment provides a variety of any-distance communications
services including long distance, local toll (intrastate calls outside the
immediate local area) and Internet access to residential customers. In addition,
Consumer Services provides transaction services such as prepaid calling-card and
operator-handled calling services. Local phone service is also provided in
certain areas.
<PAGE>
AT&T Form 10-Q - Part I
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
Dollars in Millions 2000 1999 2000 1999
Revenue $4,984 $5,479 $10,043 $10,949
EBIT 1,852 1,842 3,571 3,693
EBITDA 1,987 2,029 3,857 4,073
OTHER ITEMS
Capital additions $ 74 $ 120 $ 128 $ 208
At June 30, At December 31,
2000 1999
Total assets $5,301 $ 6,279
REVENUE
Consumer Services revenue decreased 9.0% in the second quarter of 2000, and
declined 8.3% for the first half of 2000, compared with the same periods in
1999. Normalized for the impact of Concert, revenue decreased 7.2% in the second
quarter and declined 6.4% for the first half of the year as long distance
calling volumes continued to decline at a high single-digit rate during these
periods. These results reflect the ongoing competitive nature of the consumer
long distance industry, which has resulted in pricing pressures and a loss of
market share. Also negatively impacting revenue was product substitution and
market migration away from direct dial wireline and calling card services to the
rapidly growing wireless services. We expect competition to continue to
negatively impact Consumer Services revenue. Also, revenue growth for Consumer
Services will be negatively impacted by the elimination of per-line charges that
AT&T pays for residential customers since AT&T bills these charges to its
customers.
EBIT/EBITDA
EBIT was up 0.5% and EBITDA was down 2.0% in the second quarter of 2000,
compared with the same period of 1999. For the first half of the year, EBIT
decreased 3.3% and EBITDA decreased 5.3%, compared with the same period in 1999.
EBIT and EBITDA continue to be negatively impacted by the decline in revenue,
however reflecting our cost control initiatives, EBIT and EBITA margins continue
to improve. The EBIT margin was 37.1% and the EBITDA margin was 39.9% in the
second quarter of 2000, compared with an EBIT margin of 33.6% and an EBITDA
margin of 37.0% for the same period in 1999. EBIT and EBITDA include a $96
million restructuring charge for the first half of 2000, and include a $153
million gain on the sale of Language Line Services in the first half of 1999.
Excluding these items, the EBIT and EBITDA margins improved to 36.5% and 39.4%,
respectively, for the first half of 2000, compared with 32.3% and 35.8%,
respectively, for the same period in 1999, due primarily to our cost control
initiatives.
OTHER ITEMS
Capital additions declined $46 million, or 38.4%, to $74 million in the second
quarter of 2000, compared with the second quarter of 1999. For the first half of
2000, capital additions decreased $80 million, or 38.3%, compared with the first
half of 1999. These decreases were primarily attributable to lower capital
expenditures associated with our consumer long distance business and
internal-use software.
<PAGE>
AT&T Form 10-Q - Part I
Total assets decreased $978 million, or 15.6%, to $5,301 million at June 30,
2000, compared with December 31, 1999, primarily due to a decrease in property,
plant and equipment as a result of the contribution of certain assets to
Concert, coupled with depreciation expense during the period. In addition,
accounts receivable declined as a result of lower revenue.
WIRELESS SERVICES
Our Wireless Services segment offers wireless voice and data services and
products to customers in our 850 megahertz (cellular) and 1900 megahertz
(Personal Communications Services, or PCS) markets. Wireless Services also
includes certain interests in partnerships and affiliates that provide wireless
services in the United States and internationally, aviation communications
services, and fixed wireless. Fixed wireless provides high-speed Internet access
and any-distance voice services using wireless technology to residential and
small business customers.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
Dollars in Millions 2000 1999 2000 1999
Revenue $ 2,477 $1,878 $ 4,675 $3,440
EBIT 335 125 446 74
EBITDA excluding other income 508 321 909 505
OTHER ITEMS
Capital additions $ 1,364 $ 670 $ 2,754 $ 860
At June 30, At December 31,
2000 1999
Total assets $28,782 $23,312
REVENUE
Wireless Services revenue increased $599 million, or 31.9%, to $2,477 million in
the second quarter of 2000, compared with the first quarter of 1999, including
growth in services revenue of 32.7% to $2,240 million. Revenue increased $1,235
million, or 35.9%, to $4,675 million in the first half of 2000, compared with
the first half of 1999, including growth in services revenue of 38.3% to $4,232
million. Total revenue grew 29.4% for the quarter and 31.1% for the first half
of the year, adjusted to exclude Vanguard Cellular Systems, Inc., for months
prior to May 2000 to correlate results with 1999, due to the May 1999
acquisition of Vanguard. The growth reflects the continued successful execution
of AT&T's wireless strategy of targeting and retaining specific customer
segments, expanding the national wireless footprint, focusing on digital
service, and offering simple rate plans. This has resulted in an increase in
consolidated subscribers and an increase in average monthly revenue per user
(ARPU). Equipment revenue grew 25.2% to $237 million in the second quarter of
2000, and grew 16.6% to $443 million for the first half of 2000, compared with
the respective prior year periods.
AT&T continues to experience strong growth in wireless subscribers. Consolidated
subscribers grew to 11.7 million at June 30, 2000, representing an increase of
33.8% over the prior year quarter, including approximately 1.2 million
subscribers associated with the completed acquisitions of our remaining interest
in CMT Partners (which owned wireless properties in the San Francisco Bay area)
<PAGE>
AT&T Form 10-Q - Part I
and Wireless One Network, L.P. (which owned wireless properties in northwest and
southwest Florida). Net consolidated wireless subscriber additions in the second
quarter totaled 532,000, a 14.2% increase over the prior year quarter. Total
subscribers, including partnership markets in which AT&T does not own a
controlling interest, were nearly 14 million at the end of the second quarter, a
22.3% increase over the prior year quarter. This includes approximately 450,000
subscribers associated with the acquisition of American Cellular in February
2000. AT&T's average monthly churn rate in the second quarter of 2000, was 2.7%
compared with 2.3% in the second quarter of 1999, and 2.9% in the first quarter
of 2000. AT&T's average monthly churn in the first half of 2000 was 2.8%
compared with 2.5% in the first half of 1999.
EBIT/EBITDA EXCLUDING OTHER INCOME
EBIT increased $210 million, or 166.2%, to $335 million in the second quarter of
2000, and increased $372 million to $446 million in the first half of the year,
compared with the same prior year periods. The increases were impacted by a
second quarter 2000 gain of $95 million on the sale of Celumovil and a second
quarter 1999 gain of $88 million on the sale of WOOD-TV. Excluding these gains,
EBIT improved $203 million to $240 million for the quarter and improved $365
million to $351 million for the first half of the year. The improvement for both
periods was primarily the result of revenue growth and expense leveraging,
primarily off-network roaming expenses, as well as higher other income due to
interest income on the initial public offering proceeds attributed to Wireless
Group. The reduction in off-network expenses reflects continued efforts to
migrate more minutes onto AT&T's wireless network, as well as reductions in
intercarrier roaming rates. These were partially offset by increased customer
acquisition and customer care costs, as well as higher information technology
costs associated with growth in the subscriber base.
EBITDA, excluding other income, increased $187 million, or 58.5%, to $508
million in the second quarter of 2000, and increased $404 million, or 80.1%, to
$909 million for the first six months of the year, compared with the same prior
year periods. The improvement for both periods was primarily driven by higher
revenue and an improving cost structure.
OTHER ITEMS
In the second quarter of 2000, capital additions increased $694 million to
$1,364 million compared with the same quarter of 1999. For the first six months
of 2000, capital additions increased $1,894 million to $2,754 million compared
with the first six months of 1999. These increases were primarily driven by
capital expenditure on capacity upgrades and improvements to network quality.
Also contributing to the increase in capital additions was our investment in
American Cellular in the first quarter of 2000.
Total assets increased $5,470 million, or 23.5%, to $28,782 million at June 30,
2000, compared with December 31, 1999. The increase was primarily due to the
acquisition of our remaining interest in CMT Partners and our acquisition of
Wireless One Network, L.P., which resulted in increases to licensing costs,
goodwill, property, plant and equipment and other assets. In addition, the
increase in property, plant and equipment was also the result of capital
expenditures in support of the continued expansion and build out of our wireless
network, partially offset by depreciation expense for the period.
BROADBAND
Our Broadband segment offers a variety of services through our cable broadband
network, including traditional analog video and new services such as digital
video service, high-speed data service and telephony service.
<PAGE>
AT&T Form 10-Q - Part I
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
Dollars in Millions 2000 1999 2000 1999
Revenue $ 1,717 $1,480 $ 3,274 $ 1,984
EBIT (542) (526) (553) (1,187)
EBITDA excluding other income 389 266 739 (126)
OTHER ITEMS
Capital additions $ 986 $ 838 $ 2,330 $ 1,148
At June 30, At December 31,
2000 1999
Total assets $123,091 $56,536
The results for Broadband include MediaOne since June 15, 2000. Therefore, the
three months and six months ended June 30, 2000, include 2 weeks of operations
for MediaOne, while the comparable periods for 1999 do not include any results
of MediaOne. In addition, the first half of 2000 includes a full six months of
TCI results, while the first half of 1999 includes only four months of TCI
results reflecting the March 1999 acquisition.
REVENUE
Broadband's revenue increased $237 million, or 15.9%, for the second quarter of
2000, and increased $1,290 million, or 65.0%, for the six months ended June 30,
2000, compared with the same periods of last year. The increase in revenue was
primarily due to the inclusion of MediaOne results since the date of
acquisition, a basic cable rate increase, higher revenue from new services
(digital video, high-speed data and telephony) and higher advertising revenue.
These increases were partially offset by the impact of net dispositions of cable
properties. In addition, revenue for the six months ended June 30, 2000, was
impacted by the acquisition of TCI in March of 1999. Revenue, normalized for the
MediaOne acquisition and adjusted for the net disposition of cable properties,
increased 10.5% in the second quarter of 2000 compared with the second quarter
of 1999. Revenue for the first half of 2000, on this same basis and normalized
for the TCI acquisition, increased 9.4% compared with the same prior year
period.
Broadband ended the second quarter of 2000 with 16.1 million basic cable
customers, passing approximately 27.9 million homes, more than 2.2 million
digital-video customers, approximately 689,000 high-speed data customers, and
provided telephony service to nearly 224,000 customers.
EBIT/EBITDA EXCLUDING OTHER INCOME
EBIT was a deficit of $542 million for the quarter ended June 30, 2000, compared
with a deficit of $526 million in 1999. Excluding the impact of our ownership
interest in Cablevision and Excite@Home in both periods, certain gains in 2000,
and restructuring and other charges in 1999, EBIT for the second quarter of
2000, was a deficit of $194 million, a 16.5% improvement over the same period of
1999. This increase was due to higher revenue, lower stock appreciation rights
expense and increased gains on sales of businesses and investments, partially
offset by higher expenses associated with high-speed data and telephony services
as well as increased programming and depreciation expenses. In addition, EBIT
was negatively impacted by MediaOne. EBIT for the six months ended June 30,
2000, was a deficit of $553 million compared with a deficit of $1,187 million in
1999. Excluding the impact of our ownership interest in Cablevision and
<PAGE>
AT&T Form 10-Q - Part I
Excite@Home in both periods, certain gains in 2000 and restructuring and other
charges in 2000 and 1999, EBIT was a deficit of $273 million for the first half
of 2000, compared with a deficit of $224 million for the first half 1999. The
decrease was due to higher expenses associated with high-speed data and
telephony services as well as increased programming and depreciation expenses.
Offsetting these decreases to EBIT was higher revenue and increased gains on
sales of businesses and investments.
EBITDA, excluding other income, for the second quarter was $389 million, an
increase of 46.6% compared with the second quarter of 1999. EBITDA, excluding
other income, for the six months ended June 30, 2000, was $739 million compared
with a deficit of $126 million for the same period of 1999. Excluding the 2000
and 1999 restructuring and other charges, EBITDA, excluding other income,
increased 23.4% in the second quarter of 2000, and increased 45.1% in the first
half of 2000. These increases are due to higher revenue and the impact of the
MediaOne acquisition, partially offset by higher expenses associated with
high-speed data and telephony services as well as increased programming costs.
In addition, EBITDA, excluding other income, was favorably impacted in the
second quarter and first half of 2000 by lower stock appreciation rights expense
and by the inclusion of a full six months of TCI, respectively.
OTHER ITEMS
Capital additions were $986 million in the second quarter of 2000, and $2,330
million for the six months ended June 30, 2000, comprised primarily of capital
expenditures directed towards the launch of new services as well as spending on
the upgrade of cable plants. Capital additions also included contributions to
various nonconsolidated investments. The significant increase in capital
additions in the first half of 2000, compared with 1999, reflects the timing of
the TCI acquisition in March of 1999.
Total assets were $123,091 million at June 30, 2000, compared with $56,536
million at December 31, 1999. The increase is due to the MediaOne acquisition,
partially offset by decreased investments and franchise costs as a result of the
exchange of certain cable systems and other assets with Cox for AT&T stock, and
the disposition of our investment in Lenfest.
CORPORATE AND OTHER
This group reflects corporate staff functions and elimination of transactions
between segments as well as the results of international operations and
ventures.
For the Three For the Six
Months Ended Months Ended
June 30, June 30,
Dollars in Millions 2000 1999 2000 1999
Revenue $ (104) $ 151 $ (153) $ 284
EBIT 129 (3) (517) (457)
EBITDA 248 99 (247) (266)
OTHER ITEMS
Capital additions $ 87 $ 131 $ 192 $ 466
At June 30, At December 31,
2000 1999
Total assets $14,526 $12,809
<PAGE>
AT&T Form 10-Q - Part I
REVENUE
Revenue for Corporate and Other primarily includes the elimination of
inter-segment revenue of negative $185 million (a decrease of $11 million
compared with second quarter of 1999) and revenue from our international
operations and ventures of $70 million (a decline of $264 million compared with
the second quarter of 1999). The international operations and ventures revenue
decrease was largely due to the revenue impact of businesses contributed to
Concert and due to lower revenue associated with the divestment of certain
international businesses. Corporate and Other revenue, normalized for the
divestments of international businesses and for the impact of Concert, increased
7.4% in the second quarter of 2000, compared with the second quarter of 1999.
For the first half of 2000, revenue for Corporate and Other primarily included
the elimination of inter-segment revenue of negative $363 million (a decrease of
$2 million compared with the first half of 1999) and revenue from our
international operations and ventures of $184 million (a decline of $440 million
compared with the first half of 1999). The international operations and ventures
revenue decrease was largely due to the impact of businesses contributed to
Concert and due to lower revenue associated with the divestment of certain
international businesses. Corporate and Other revenue, normalized for the
divestments of international businesses and for the impact of Concert, increased
13.1% in the first half of 2000, compared with the first half of 1999.
EBIT/EBITDA
EBIT for Corporate and Other increased $132 million to $129 million in the
second quarter of 2000, compared with the second quarter of 1999. EBITDA for
Corporate and Other increased $149 million to $248 million in the second quarter
of 2000 compared with the second quarter of 1999. The increases were primarily
due to a larger pension credit in 2000 primarily driven by a higher pension
trust asset base resulting from increased investment returns, higher interest
income in 2000 and $31 million of earnings from our equity interest in Concert.
These increases were partially offset by the second quarter 1999 net
restructuring and other charge benefits. In addition, EBIT was negatively
impacted by increased distributions on trust preferred securities.
EBIT for Corporate and Other declined $60 million to a deficit of $517 million
for the six months ended June 30, 2000, compared with the six months ended June
30, 1999. EBITDA for Corporate and Other improved $19 million to a deficit of
$247 million for the six months ended June 30, 2000, compared with the six
months ended June 30, 1999. Excluding net restructuring charges in 2000 and
1999, EBIT increased $450 million to $51 million and EBITDA increased $529
million to $321 million. The improvement was primarily due to a larger pension
credit in 2000 primarily driven by a higher pension trust asset base resulting
from increased investment returns, higher interest income in 2000, earnings of
$66 million from our equity interest in Concert, cost control initiatives and
gains in 2000 on the sale of miscellaneous investments. These improvements were
partially offset by distributions on trust preferred securities.
OTHER ITEMS
Capital additions for corporate and other declined $44 million, or 33.4%, to $87
million, in the second quarter of 2000, compared with the same quarter of 1999.
For the first six months of 2000, capital additions declined $274 million, or
58.8%, to $192 million compared with the first six months of 1999. This decline
reflects decreased investment in international nonconsolidated subsidiaries
primarily as a result of the disposition of certain non-strategic investments
during 1999.
<PAGE>
AT&T Form 10-Q - Part I
Total assets increased $1,717 million during the first half of 2000, to $14,526
million primarily due to our investment in Concert, including the assets
contributed by Business Services and Consumer Services.
LIBERTY MEDIA GROUP RESULTS
Liberty Media Group (LMG) produces, acquires and distributes entertainment,
educational and informational programming services through all available formats
and media. LMG is also engaged in electronic retailing services, direct
marketing services, advertising sales relating to programming services,
infomercials and transaction processing. Equity earnings (losses) from Liberty
Media Group were $267 million for the three months ended June 30, 2000, and were
$(543) million in the comparable 1999 period. Equity earnings (losses) from LMG
were $1,209 million for the first half of 2000, compared with $(601) million for
the period from the date of acquisition through June 30, 1999. These increases
are primarily due to gains associated with the acquisition of companies that LMG
has an investment in. The gains represent the difference between the carrying
value of LMG's interest in the acquired company and the fair value of securities
received in the merger. In particular, Flextech was acquired by Telewest in the
second quarter of 2000 and General Instruments was acquired by Motorola in the
first quarter of 2000.
LIQUIDITY
For the Six
Months Ended
June 30,
Dollars in Millions 2000 1999
CASH FLOWS:
Provided by operating activities $ 5,300 $ 3,355
Used in investing activities (26,867) (16,390)
Provided by financing activities 20,969 10,293
EBITDA $ 10,505 $ 8,748
Net cash provided by operating activities increased $1,945 million for the first
six months ended June 30, 2000, compared with the prior year period. The
increase was primarily driven by a decrease in cash tax payments resulting from
the first quarter 1999 tax payment on the gain on the 1998 sale of Universal
Card Services Inc. and an increase in operational earnings excluding
depreciation and amortization, partially offset by higher accounts receivable.
Net cash used by investing activities for the first half of 2000 increased by
$10,477 million compared with the first half of 1999. The increase was primarily
driven by the increased acquisitions in 2000, particularly MediaOne and CMT
Partners, and increased capital expenditures in 2000 primarily attributable to
growth in Wireless and Broadband, partially offset by the contribution of $5.5
billion of cash to LMG in 1999.
During the first half of 2000, net cash provided by financing activities
increased by $10,676 million compared with the first half of 1999. The increase
was primarily due to higher proceeds from issuance of short-term debt, the
proceeds from the initial public offering of AT&T Wireless Group shares and a
decrease in the purchase of treasury stock. These increases were partially
offset by lower proceeds from the issuance of long-term debt and the issuance of
redeemable securities in 1999. At June 30, 2000, we had $25.7 billion in
short-term notes outstanding, the majority of which was commercial paper and
debt with an original maturity of one year or less. We expect to finance the
repayment of this short-term debt through a combination of other short-term
borrowings and our long-term borrowing capacity.
<PAGE>
AT&T Form 10-Q - Part I
Earnings, including other income, before interest, taxes, depreciation and
amortization, and minority interest (EBITDA) is a measure of our ability to
generate cash flow and should be considered in addition to, but not as a
substitute for, other measures of financial performance reported in accordance
with generally accepted accounting principles. EBITDA was $10,505 million for
the first half of the year, an increase of 20.1% over the first half of last
year. The EBITDA growth was impacted by gains on sales of businesses and
investments, our investments in Excite@Home and Cablevision and net
restructuring and other charges. Excluding these items, EBITDA increased $1,920
million, or 20.6%, over the first half of last year to $11,243 million. The
improvement was primarily due to operational efficiencies which resulted in
higher operating income, and increased other income.
EURO CONVERSION
On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
currency (Euro). The transition period is anticipated to extend between January
1, 1999, and July 1, 2002. We have assessed the impact of the conversion on
information-technology systems, currency exchange rate risk, derivatives and
other financial instruments, continuity of material contracts as well as income
tax and accounting issues. We do not expect the conversion during the transition
period to have a material impact on our consolidated financial statements.
FINANCIAL CONDITION
Total assets increased $74,158 million, or 43.8%, to $243,564 million at June
30, 2000, compared with December 31, 1999, primarily due to the impact of the
MediaOne acquisition. Other significant activity included AT&T's investment in
Concert, consisting of $1.7 billion of property, plant and equipment and a loan
of $1.0 billion; increased accounts receivable attributable to transactions with
Concert; and an increase in licenses resulting from wireless acquisitions.
Total liabilities increased $41,735 million, or 50.0%, to $125,123 million at
June 30, 2000, compared with December 31, 1999, primarily due to the impact of
the MediaOne acquisition. In addition, $7.7 billion of commercial paper and $5.5
billion of one-year notes were issued in the first half of the year.
Total shareowners' equity increased $31,236 million, or 39.6%, to $110,163
million at June 30, 2000, compared with December 31, 1999. The increase was
primarily driven by the issuance of AT&T common stock for the MediaOne
acquisition as well the issuance of the AT&T Wireless Group tracking stock which
generated $10.3 billion in net proceeds.
The ratio of total debt to total capital, excluding LMG, (debt divided by total
debt and equity of AT&T, excluding LMG) was 43.3% at June 30, 2000, compared
with 44.3% at December 31, 1999. The equity portion of this calculation includes
the convertible quarterly trust preferred securities. The improvement was
primarily driven by a higher equity base associated with the MediaOne merger and
the AT&T Wireless Group initial public offering, largely offset by an increase
in borrowings primarily associated with the MediaOne merger as well as the
issuance of commercial paper and notes during the first half of 2000. Included
in debt is approximately $5.5 billion of notes, which are exchangeable into or
collateralized by Vodafone ADRs we own. Excluding this debt, the ratio of debt
to total capital at June 30, 2000, was 40.8%.
RISK MANAGEMENT
We are exposed to market risk from changes in interest, foreign exchange rates,
and equity prices. On a limited basis we use certain derivative financial
<PAGE>
AT&T Form 10-Q - Part I
instruments, including interest rate swaps, options, forwards and other
derivative contracts to manage these risks. We do not use financial instruments
for trading or speculative purposes. All financial instruments are used in
accordance with board-approved policies.
Assuming a 10% downward shift in interest rates at June 30, 2000, the fair value
of unhedged debt would have increased by approximately $1.1 billion.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The effective date for this standard was delayed
via the issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for
fiscal years beginning after June 15, 2000, though earlier adoption is
encouraged and retroactive application is prohibited. For AT&T, this means that
the standard must be adopted no later than January 1, 2001.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" as an amendment to SFAS No. 133.
This statement provides clarification with regard to certain implementation
issues under SFAS No. 133 on specific types of hedges. We are currently
assessing the impact of SFAS Nos. 133 and 138 on AT&T, including an assessment
of the impact resulting from our merger with MediaOne.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB No. 101), "Revenue Recognition in Financial Statements."
The SEC delayed the date by which registrants must apply the accounting and
disclosures described in SAB No. 101 until the fourth quarter of 2000. We are
currently assessing the impact of SAB No. 101 on our results of operations.
<PAGE>
AT&T Form 10-Q - Part II
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders.
(a) The annual meeting of the shareholders of the registrant was held on
May 24, 2000.
(b) Election of Directors*
Votes
(Millions)
Nominee For Withheld
C. Michael Armstrong 2,643 31
Kenneth T. Derr 2,643 31
M. Kathryn Eickhoff 2,643 31
Walter Y. Elisha 2,642 32
George M. C. Fisher 2,643 31
Donald V. Fites 2,641 32
Amos B. Hostetter 2,644 30
Ralph S. Larsen 2,644 30
John C. Malone 2,643 31
Donald F. McHenry 2,642 32
Michael I. Sovern 2,641 32
Sanford I. Weill 2,642 32
John D. Zeglis 2,643 31
(c) Holders of common shares voted at this meeting on the following
matters, which were set forth in the registrant's proxy statement dated
March 27, 2000.
(i) Ratification of Auditors
For Against Abstain
Ratification of the firm 2,651 9 13
of PricewaterhouseCoopers (99.65%) (.35%)
as the independent auditors
to audit the registrant's
financial statements for
the year 2000.(*)
(ii) Directors Proposals that the Shareholders approve an increase in the
number of authorized common shares.(**)
For Against Abstain
AT&T and Liberty Media Combined 2,465 188 20
(74.42%) (5.68%) (.61%)
Liberty Media as a separate class 139 3 .09
(83.71%) (1.96%) (.05%)
*Percentages are based on the total common shares voted. Approval of this
proposal required a majority of the common shares voted.
**Percentages are based on total number of outstanding common shares.
Approval of this proposal required a majority of (i) the outstanding common
shares of AT&T Common Stock and Liberty Media Group Class A and Class B
Tracking Stock voting on a combined basis as well as (ii) the outstanding
shares of Liberty Media Group Class A and Class B Tracking Stock voting together
as a single class.
<PAGE>
AT&T Form 10-Q - Part II
(iii) Shareholder Proposals
Broker
For Against Abstain Non-Votes
That the Company adopt 115 1,921 105 534
a position of political (5.63%) (94.37%)
non-partisanship.(*)
That the Company discontinue 153 1,943 45 534
all bonuses and severance (7.29%) (92.71%)
contracts. (*)
That the Company create 63 1,971 106 534
a Stockholder Matching (3.09%) (96.91%)
Gift Program.(*)
That the Company freeze 155 1,918 67 534
executive pay during (7.47%) (92.53%)
periods of significant
downsizing.(*)
That the Company prepare 111 1,960 69 534
a report outlining financial (5.36%) (94.64%)
benefits received from
government sources.(*)
That the Company provide 58 2,003 79 534
each Director with a (2.80%) (97.20%)
resident analyst.(*)
That the Company develop 172 1,900 68 534
employee satisfaction (8.32%) (91.68%)
standards that determine
executive compensation.(*)
*Percentages are based on the total common shares voted.
Approval of this proposal required a majority of the common shares voted.
<PAGE>
AT&T Form 10-Q - Part II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
99.1 Liberty Media Group financial results for the three and
six-month periods ended June 30, 2000 and 1999
99.2 AT&T Wireless Group financial results and Management's
Discussion and Analysis for the three and six-month
periods ended June 30, 2000 and 1999
99.3 AT&T Wireless Group combined statements of operations and
combined balance sheets for the three-month periods
ended March 30, 2000 and 1999
(b) Reports on Form 8-K
Form 8-K dated April 24, 2000 was filed pursuant to Item 5 (Other
Events) and Item 7 (Financial Statements and Exhibits) on
April 24, 2000. Form 8-K dated May 2, 2000 was filed pursuant to
Item 5 and Item 7 on May 5, 2000. Form 8-K dated June 15, 2000
was filed pursuant to Item 5 and Item 7 on June 15, 2000.
<PAGE>
AT&T Form 10-Q - Part II
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
(Principal Accounting Officer)
Date: August 14, 2000
<PAGE>
AT&T Form 10-Q
Exhibit Index
Exhibit
Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
99.1 Liberty Media Group financial results for the three
and six-month periods ended June 30, 2000 and 1999
99.2 AT&T Wireless Group financial results and
Management's Discussion and Analysis for the three
and six-month periods ended June 30, 2000 and 1999
99.3 AT&T Wireless Group combined statements of
operations and combined balance sheets for the three
month periods ended March 30, 2000 and 1999
