<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: January 6, 2000
AT&T CORP.
A New York Commission File I.R.S. Employer
Corporation No. 1-1105 No.13-4924710
32 Avenue of the Americas, New York, New York 10013-3412
Telephone Number (212) 387-5400
<PAGE> 2
Form 8-K AT&T Corp.
January 6, 2000
ITEM 5 OTHER EVENTS.
a) Pro forma financial information
AT&T is filing pro forma financial information included in Exhibit 99 as
follows:
1. Unaudited pro forma condensed financial introductory paragraphs.
2. Unaudited pro forma condensed Balance Sheet at September 30, 1999.
3. Unaudited pro forma condensed Income Statement for the period ended
September 30, 1999.
4. Unaudited pro forma condensed Income Statement for the year December
31, 1998.
5. Notes to unaudited pro forma condensed financial information.
b) See Exhibit 99.1 to this form 8-K.
c) Exhibits
Exhibit 99 AT&T Corp. unaudited pro forma condensed financial
results at September 30, 1999, for the period ended
September 30, 1999, and for the year ended
December 31, 1998.
Exhibit 99.1 AT&T Corp. Press Release issued January 5, 2000.
<PAGE> 3
Form 8-K AT&T Corp.
January 6, 2000
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
January 6, 2000
<PAGE> 1
Exhibit 99
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
The unaudited pro forma information set forth below for AT&T gives effect to the
MediaOne Group, Inc. (MediaOne) and Tele-Communications Inc. (TCI) mergers as if
they had been completed on January 1, 1998 for income statement purposes, and as
if the MediaOne merger had been completed on September 30, 1999 for balance
sheet purposes, subject to the assumptions and adjustments in the accompanying
notes to the pro forma information. TCI is reflected in the September 30, 1999
balance sheet, therefore there is no pro forma TCI impact on the balance sheet.
As a result of the TCI merger, AT&T is accounting for the Liberty Media Group
under the equity method of accounting because AT&T does not have a "controlling
financial interest" for financial accounting purposes in the Liberty Media
Group.
The pro forma adjustments do not reflect any operating efficiencies and cost
savings that may be achieved with respect to the combined company. The pro forma
adjustments do not include any adjustments to historical sales for any future
price changes nor any adjustments to selling, marketing or any other expenses
for any future operating changes. Upon the closing of the MediaOne merger, AT&T
may incur certain integration related expenses not reflected in the pro forma
financial statements as a result of the elimination of duplicate facilities,
operational realignment and related workforce reductions. Such costs would
generally be recognized by AT&T as a liability assumed as of the merger date
resulting in additional goodwill in accordance with Emerging Issues Task Force
No. 95-3, Recognition of Liabilities in Connection with a Purchase Business
Combination ("EITF 95-3"). The assessment of integration related expenses is
ongoing. The following pro forma information is not necessarily indicative of
the financial position or operating results that would have occurred had the
MediaOne merger, and the TCI merger, been consummated on the dates, or at the
beginning of the periods, for which such transactions are being given effect.
The pro forma adjustments reflecting the consummation of the merger are based
upon the assumptions set forth in the notes hereto, including the exchange of
all of the outstanding shares of MediaOne Group for an aggregate of
approximately 614 million shares of AT&T common stock not including AT&T stock
options.
AT&T will account for the merger under the purchase method of accounting.
Accordingly, AT&T will establish a new basis for MediaOne Group's assets and
liabilities based upon the fair values thereof and the AT&T purchase price
including the costs of the merger. The purchase accounting adjustments made in
connection with the development of the pro forma combined financial statements
are preliminary and have been made solely for purposes of developing such pro
forma combined financial information. Such preliminary adjustments include the
allocation of consideration to certain investments of MediaOne Group identified
as "assets held for sale" by the AT&T Board based upon fair value as determined
by AT&T in conjunction with its financial advisors.
AT&T currently knows of no events other than those disclosed in these pro forma
notes that would require a material change to the preliminary purchase price
allocation. However, a final determination of required purchase accounting
adjustments will be made upon the completion of a study to be undertaken by AT&T
in conjunction with independent appraisers to determine the fair value of
certain of MediaOne Group's assets and liabilities, including intangible assets
and in-process research and development. Refer to note 3 for a discussion of the
sensitivity to earnings that may occur as a result of the final determination of
fair value. Assuming completion of the merger, the actual financial position and
results of operations will differ, perhaps significantly, from the pro forma
amounts reflected herein because of a variety of factors, including access to
additional information, changes in value not currently identified and changes in
operating results between the dates of the pro forma financial data and the date
on which the merger takes place.
<PAGE> 2
AT&T
Unaudited Pro Forma Condensed Balance Sheet
As of September 30, 1999
(In millions)
<TABLE>
<CAPTION>
MediaOne Pro Forma
Historical Group AT&T with
Historical MediaOne Pro Forma MediaOne
AT&T(1) Group(1) Adjustments Group
----- ------ ----------- -----
ASSETS:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $ -- $ 1,122 $ (345)(3d) $ 777
20,427 (6)
(20,427)(3a)
Receivables--net......................... 10,629 411 -- 11,040
Other current assets..................... 2,411 840 -- 3,251
---------- -------- -------- ---------
Total current assets............... 13,040 2,373 (345) 15,068
Property, plant and equipment net........ 36,475 4,790 -- 41,265
Franchise--net........................... 32,122 -- 21,002 (3n) 53,124
Licensing cost--net...................... 8,353 -- -- 8,353
Goodwill--net............................ 7,214 11,684 24,477 (3o) 31,691
(11,684)(3f)
Investment in Liberty Media Group and
related receivables..................... 35,519 -- -- 35,519
Other investments........................ 20,211 11,007 (2,016)(5) 42,394
13,192 (3h)
Other assets............................. 8,872 2,105 (952)(5) 8,525
(1,500)(4)
Assets held for sale..................... -- 465 2,968 (5) 15,556
12,123 (3i)
---------- -------- -------- ---------
Total non-current assets........... 148,766 30,051 57,610 236,427
Total assets................................ $ 161,806 $ 32,424 $ 57,265 $ 251,495
---------- -------- -------- ---------
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C> <C> <C>
LIABILITIES:
Accounts payable ........................................ $ 5,915 $ 325 $ -- $ 6,240
Debt maturing within one year ........................... 8,856 1,529 20,427 (6) 29,312
(1,500)(4)
Other current liabilities ............................... 8,744 911 -- 9,655
--------- --------- -------- ---------
Total current liabilities ............................... 23,515 2,765 18,927 45,207
Long-term debt .......................................... 22,073 7,441 4 (3j) 29,518
Deferred income taxes ................................... 24,708 7,311 14,830 (3m) 46,849
Other long-term liabilities and deferred
credits ................................................. 8,000 144 -- 8,144
--------- --------- -------- ---------
Total long-term liabilities ............................. 54,781 14,896 14,834 84,511
Total liabilities ....................................... 78,296 17,661 33,761 129,718
Minority interest ....................................... 2,401 1,110 51 (3l) 3,562
Company-obligated convertible quarterly
income preferred securities of a
subsidiary trust holding solely
subordinated debt securities of AT&T ................... 4,697 -- -- 4,697
Subsidiary-obligated mandatorily redeemable
preferred securities of subsidiary trusts
holding solely subordinated debt securities
of subsidiaries ........................................ 1,649 1,060 (11)(3k) 2,698
Preferred stock subject to mandatory
redemption ............................................. -- 50 (50)(3g) 50
50 (3c)
Preferred stock ......................................... -- 930 (930)(3e) --
Common stock ............................................ 3,196 10,465 (10,465)(3e) 3,810
614(3b)
Liberty Media Group Class A tracking
stock .................................................. 1,157 -- -- 1,157
Liberty Media Group Class B tracking
stock .................................................. 108 -- -- 108
Additional paid-in capital
AT&T common stock ...................................... 27,506 -- 35,393(3b) 62,899
Liberty Media Group tracking stock ..................... 32,663 -- -- 32,663
Retained earnings
Common stock ........................................... 8,409 478 (478)(3e) 8,409
Liberty Media Group tracking stock ..................... (818) -- -- (818)
Other ................................................... 2,542 670 (670)(3e) 2,542
--------- --------- -------- ---------
Total shareowners' equity ...................... 74,763 12,543 23,464 110,770
Total liabilities and shareowners' equity ............... $ 161,806 $ 32,424 $ 57,265 $ 251,495
========= ========= ======== =========
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
<PAGE> 4
AT&T
Unaudited Pro Forma Condensed Statement of Income
For the Nine months ended September 30, 1999
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Liberty/
TCI Ventures Other TCI Pro Forma Historical
Historical (Jan-Feb Group Pro Forma AT&T MediaOne
AT&T(1) '99)(1) Adjustment(2) Adjustments(9) With TCI Group(1)
----- ----- ------------ -------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
REVENUES ........................... $ 46,057 $ 1,145 $ (204) $ -- $ 46,998 $ 2,002
OPERATING EXPENSES:
Access and other
interconncection ................... 11,054 -- -- -- 11,054 --
Network and other costs of
services ........................... 10,515 543 (79) -- 10,979 804
Depreciation and
amortization ....................... 5,308 277 (22) 130 5,693 884
Selling, general and
administrative ..................... 10,060 677 (260) -- 10,477 549
Restructuring and other
charges ............................ 702 -- -- -- 702 --
-------- ------- ------- -------- -------- --------
Total operating expenses ......... 37,639 1,497 (361) 130 38,905 2,237
OPERATING INCOME (LOSS) ............ 8,418 (352) 157 (130) 8,093 (235)
Equity losses from Liberty Media
Group .............................. (818) -- (68) (155) (1,041) --
Other income (expense) Net ......... (334) 356 (321) (46) (345) 1,342
Interest expense ................... 1,108 161 (25) 82 1,326 313
Income (loss) from continuing
operations before income
taxes .............................. 6,158 (157) (207) (413) 5,381 794
Provision (benefit) for income
taxes .............................. 2,679 119 (207) (113) 2,478 933
------- -------- ------- -------- -------- ------
Income (loss) from continuing
operations ......................... 3,479 (276) -- (300) 2,903 (139)
Dividend requirements on
preferred stocks ................... -- (4) -- -- (4) (70)
-------- -------- ------- -------- -------- -----
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO COMMON
SHAREOWNERS......................... $ 3,479 $ (280) $ -- $ (300) $ 2,899 (209)
======== ======== ======= ======== ======== ======
AT&T EPS CALCULATION:
Income from continuing operations
attributable to AT&T common
shareowners......................... $ 4,297 $ 3,940
Weighted average shares
outstanding (basic)................. 3,045 3,177
Basic EPS........................... $ 1.41 $ 1.24
Income from continuing operations
attributable to AT&T common
shareowners......................... $ 4,362 $ 4,005
Weighted average shares
outstanding (diluted)............... 3,140 3,288
Diluted EPS......................... $ 1.39 $ 1.22
Liberty Media Group EPS
Basic and Diluted................... $ (0.65) $ (0.82)
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
AT&T
MediaOne With TCI
Group Pro and
Forma MediaOne
Adjustments Group
----------- -----
<S> <C> <C>
REVENUES ........................... $ -- $ 49,000
OPERATING EXPENSES:
Access and other
interconncection ................... -- 11,054
Network and costs of
services ........................... -- 11,783
Depreciation and
amortization ....................... 853 (7) 7,046
(384)(8)
Selling, general and
administrative ..................... -- 11,026
Restructuring and other
charges ............................ -- 702
-------- -------
Total operating expenses ......... 469 41,611
OPERATING INCOME (LOSS) ............ (469) 7,389
Equity losses from Liberty Media
Group .............................. -- (1,041)
Other income (expense) Net ......... (508) (7) 2,356
367 (5)
1,500 (4)
Interest expense ................... 898 (10) 2,291
(246)(10a)
Income (loss) from continuing
operations before income
taxes .............................. 238 6,413
Provision (benefit) for income
taxes .............................. (349)(11) 3,062
------- ------
Income (loss) from continuing
operations ......................... 587 3,351
Dividend requirements on
preferred stocks ................... 40(12) (34)
------- ------
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO COMMON
SHAREOWNERS......................... $ 627 $ 3,317
======== ========
AT&T EPS CALCULATION:
Income from continuing operations
attributable to AT&T common
shareowners......................... $ 4,358
Weighted average shares
outstanding (basic)................. 3,791
Basic EPS........................... $ 1.15
Income from continuing operations
attributable to AT&T common
shareowners......... $ 4,423
Weighted average shares
outstanding (diluted)............... 3,911
Diluted EPS......................... $ 1.13
Liberty Media Group EPS
Basic and Diluted................... $ (0.82)
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
<PAGE> 5
AT&T
Unaudited Pro Forma Condensed Statement of Income
For the year ended December 31, 1998
(In millions, except per share amounts)
<TABLE>
<CAPTION>
Pro Forma
Liberty/
Ventures Other TCI Pro Forma Historical
Historical Historical Group Pro Forma AT&T MediaOne
AT&T(1) TCI(1) Adjustment(2) Adjustments(9) with TCI Group(1)
------- ------ ------------- -------------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
REVENUES ............................. $ 53,223 $ 7,351 $ (1,148) $ -- $ 59,426 $ 2,882
OPERATING EXPENSES: ..................
Access and other
interconnection ..................... 15,328 -- -- -- 15,328 --
Network and other costs of
services ............................. 10,250 3,087 (495) -- 12,842 1,013
Depreciation and
amortization ......................... 4,629 1,735 (135) 782 7,011 1,182
Selling, general and
administrative ....................... 13,015 2,583 (943) -- 14,655 926
Restructuring and other
charges .............................. 2,514 5 (5) -- 2,514 --
Total operating expenses ........... 45,736 7,410 (1,578) 782 52,350 3,121
OPERATING INCOME (LOSS) .............. 7,487 (59) 430 (782) 7,076 (239)
Equity earnings (losses) from
Liberty Media Group .................. -- -- 626 (922) (296) --
Other income (expense) -- Net ........ 1,247 4,658 (1,631) (279) 1,455 3,368
(2,540)
Interest expense ..................... 427 1,061 (103) 489 1,874 491
Income (loss) from continuing
operations before income
taxes ................................ 8,307 3,538 (472) (5,012) 6,361 2,638
Provision (benefit) for income
taxes ................................ 3,072 1,595 (472) (948) 2,569 1,208
(678)
Income (loss) from continuing
operations ........................... 5,235 1,943 -- (3,386) 3,792 1,430
Dividend requirements on preferred
stocks ............................... -- (24) -- 14 (10) (108)
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO COMMON
SHAREOWNERS .......................... $ 5,235 $ 1,919 $ -- $ (3,372) $ 3,782 $ 1,322
AT&T EPS CALCULATION:
Income from continuing operations
attributable to AT&T common
shareowners .......................... $ 5,235 $ 4,078
Weighted average shares
outstanding (basic) .................. 2,676 3,146
Basic EPS ............................ $ 1.96 $ 1.30
Income from continuing operations
attributable to AT&T common
shareowners .......................... $ 5,235 $ 4,078
Weighted average shares
outstanding (diluted) ................ 2,700 3,251
Diluted EPS .......................... $ 1.94 $ 1.25
Liberty Media Group EPS
Basic and Diluted .................... $ (0.25)
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
AT&T
MediaOne with TCI
Group Pro and
Forma MediaOne
Adjustments Group
----------- -----
<S> <C> <C>
REVENUES ............................. $ -- $ 62,308
OPERATING EXPENSES: ..................
Access and other
interconnection ..................... -- 15,328
Network and other costs of
services ............................. -- 13,855
Depreciation and
amortization ......................... 1,137 (7) 8,805
(525)(8)
Selling, general and
administrative ....................... -- 15,581
Restructuring and other
charges .............................. -- 2,514
Total operating expenses ........... 612 56,083
OPERATING INCOME (LOSS) .............. (612) 6,225
Equity earnings (losses) from
Liberty Media Group .................. -- (296)
Other income (expense) -- Net ........ (677)(7) 4,512
366 (5)
Interest expense ..................... 1,197(10) 3,233
(1)(7)
(328)(10a)
Income (loss) from continuing
operations before income
taxes ................................ (1,791) 7,208
Provision (benefit) for income
taxes ................................ (508)(11) 3,269
Income (loss) from continuing
operations ........................... (1,283) 3,939
Dividend requirements on preferred
stocks ............................... 52(12) (66)
INCOME (LOSS) FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO COMMON
SHAREOWNERS .......................... $ (1,231) $ 3,873
AT&T EPS CALCULATION:
Income from continuing operations
attributable to AT&T common
shareowners .......................... $ 4,169
Weighted average shares
outstanding (basic) .................. 3,760
Basic EPS ............................ $ 1.11
Income from continuing operations
attributable to AT&T common
shareowners .......................... $ 4,169
Weighted average shares
outstanding (diluted) ................ 3,874
Diluted EPS .......................... $ 1.08
Liberty Media Group EPS
Basic and Diluted .................... $ (0.25)
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
<PAGE> 6
Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
1. These columns reflect the historical results of operations and
financial position of the respective companies. AT&T's historical
balance sheet as of September 30, 1999 gives effect to the TCI merger.
Certain 1999 amounts for AT&T have been reclassified to conform with
current financial statement presentation.
2. These columns reflect the deconsolidation to the equity method of
accounting of the historical results of operations for the interests
represented by the shares of Liberty Media Group tracking stock. AT&T
accounts for the Liberty Media Group under the equity method because it
does not possess a "controlling financial interest" for financial
accounting purposes in the Liberty Media Group.
3. This adjustment reflects the acquisition of MediaOne Group and the
excess consideration over net assets acquired (goodwill). Accordingly,
the historical shareowners' equity accounts of MediaOne Group have been
eliminated (entry 3e). For the purpose of these pro forma financial
statements, consideration has been calculated assuming a mixed cash and
stock election pursuant to the terms of the merger agreement of $30.85
in cash and 0.95 of a share of AT&T common stock for each share of
MediaOne Group common stock outstanding at the pro forma balance sheet
date. The merger agreement specifies the aggregate number of shares of
AT&T common stock to be issued in exchange for shares of MediaOne Group
common stock and equivalents. The different election provisions are
intended to satisfy individual MediaOne Group shareholder and
optionholder preferences to the extent possible. Each election may be
subject to proration depending upon the consideration other
shareholders and optionholders elect to receive in the merger.
Accordingly, under the terms of the merger, the impact of such election
provisions on the total consideration exchanged will not materially
differ from the mixed cash and stock election assumed in the pro forma
financial information. If the price of AT&T common stock is less than
$57.00 per share during a prescribed measurement period shortly prior
to the closing of the merger, an additional cash payment of up to $5.42
per share of MediaOne Group common stock will be paid by AT&T for
shares of MediaOne Group common stock subject to the mixed cash and
stock election. In that event, a new measurement date for the purpose
of valuing AT&T common stock for accounting purposes would be
established. The aggregate purchase price consideration would change
$614 million (not including the additional cash payment) for each $1
per share change in the value of the AT&T common stock based on the
average price a few days before and after the merger is consummated
affecting net income by $15 million annually based on a 40-year
franchise/goodwill amortization period.
For the purpose of these pro forma financial statements, the MediaOne
Group Series D preferred stock is assumed to have been converted into
MediaOne Group common stock as of the pro forma balance sheet date and
exchanged pursuant to the mixed cash and stock election. Under the
terms of the merger agreement, MediaOne Group is required to call for
the conversion of the MediaOne Group Series D preferred stock. This
occurred on October 25, 1999. The AT&T Series E preferred stock to be
issued as consideration in exchange for the MediaOne Group Series E
preferred stock has been valued based on the security's liquidation
value which approximates fair value. All outstanding and unvested
options to purchase shares of MediaOne Group common stock will vest
upon completion of the merger and have been included as consideration
assuming a "standard option election" pursuant to the terms of the
merger agreement. Under the standard option election, each MediaOne
Group optionholder will receive cash and a converted option to purchase
AT&T common stock, the fair value of which was determined by using the
Black-Scholes option-pricing model.
<PAGE> 7
<TABLE>
<S> <C>
This adjustment reflects the acquisition of MediaOne Group and the excess
consideration over net assets acquired (goodwill) (in millions, except per
share amounts).
Shares of MediaOne Group common stock outstanding at 9/30/99............. 606.9
Shares of MediaOne Group common stock to be issued upon conversion of
MediaOne Group Series D preferred stock.................................. 39.6
Shares of MediaOne Group common stock to be exchanged for cash and AT&T
common stock. ........................................................... 646.5
Cash per share........................................................... $ 30.85
Cash consideration for outstanding shares............................... $ 19,944
Cash consideration for 29.6 million outstanding options (average cash
payment per option of $16.32)............................................ 483
a. Total cash consideration....................................................... $ 20,427
AT&T common stock exchange ratio per share..................................... 0.95
Equivalent AT&T shares (par value $1).......................................... 614.2
AT&T common stock share price based on the average closing price a few days
before and after the merger was agreed to and announced........................ $ 57.05
SUB-TOTAL.................................................................. $ 35,040
AT&T stock options resulting from the conversion of MediaOne Group stock
options in the merger.......................................................... 28.1
Average fair value per option.................................................. $ 34.41
SUB-TOTAL...................................................................... $ 967
b. AT&T common stock equity consideration......................................... $ 36,007
c. Value of AT&T Series E preferred stock to be issued in exchange for MediaOne
Group Series E preferred stock at liquidation value (994 thousand outstanding
shares at $50 per share)... ................................................. 50
d. Merger costs (estimate)........................................................ 345
TOTAL CONSIDERATION.......................................................... $ 56,829
e. Historical net book value of MediaOne Group.................................... (12,543)
Pro Forma Adjustments relating to:
f. Existing MediaOne Group intangible assets...................................... 11,684
g. Exchange of MediaOne Group Series E preferred stock............................ (50)
h. Investments... ................................................................ (13,192)
i. Assets held for sale (see note 5)................ ............................. (12,123)
j. Debt........................................................................... 4
k. Subsidiary-Obligated Mandatorily redeemable preferred securities............... (11)
l. Minority interest in Centaur Funding Corporation............................... 51
m. Deferred tax impacts........................................................... 14,830
n. Franchise intangible........................................................... (21,002)
o. Preliminary goodwill........................................................... $ 24,477
</TABLE>
Upon the closing of the merger, the total consideration will be allocated to the
specific identifiable tangible and intangible assets and liabilities of MediaOne
Group after the completion of third-party appraisals during the allocation
period specified by Statement of Financial Accounting Standards No. 38,
Accounting for Preacquisition Contingencies of Purchased Enterprises. A
preliminary allocation of the purchase price has been allocated to certain
identifiable tangible assets, the franchise intangible, and liabilities of
MediaOne Group, including deferred income tax impacts, based upon information
available to the management of AT&T at the date of the preparation of the
accompanying pro forma condensed financial statements. Such information includes
quoted market prices where available and estimates of fair values provided in
conjunction with AT&T's financial advisors. See note 5 for a discussion on
"assets held for sale" accounting. The final purchase accounting allocation may
also include certain in-process research and development projects and intangible
assets such as customer relationships.
<PAGE> 8
Consideration allocated to in-process research and development projects would be
recorded as a charge against net income in the period the merger occurs. Each $1
billion allocated to in-process research and development would have the effect
of increasing net income in subsequent periods by $25 million annually by
reducing franchise/goodwill amortization expense. A preliminary estimate of
in-process research and development will not be available until the completion
of an independent evaluation of each project, if any, in process as of the
merger date.
Assuming an estimated useful life of 10 years, each $1 billion of consideration
allocated to intangible assets other than franchise/goodwill would have the
effect of decreasing net income by $46 million annually ($0.01 per share).
Certain restructuring related costs may be recorded by AT&T as a liability upon
the closing of the merger in accordance with EITF 95-3 that would result in
additional goodwill to be amortized over 40 years.
4. As a result of the termination of the merger agreement between MediaOne
Group and Comcast, MediaOne Group paid Comcast a termination fee of
$1.5 billion. The termination fee was loaned to MediaOne Group by AT&T
and was recorded on MediaOne Group's balance sheet as a note payable to
AT&T. The note bears interest at LIBOR plus 0.15% and matures on
December 31, 2000. The note is due on demand at any time following
consummation of the merger. For the purpose of the pro forma financial
statements, the note payable to AT&T has been eliminated in
consolidation and the non-recurring charge has been eliminated from the
condensed statement of income for the nine months ended September 30,
1999.
5. MediaOne Group and AT&T intend to divest over a period of time not
expected to exceed one year from the date of the closing of the merger
(the "HOLDING PERIOD") certain non-strategic MediaOne Group assets
preliminarily valued at $15,556 million. MediaOne Group currently
accounts for the majority of these assets as equity method investments.
The carrying value of assets intended to be sold have been reclassified
to the balance sheet caption "assets held for sale" ($2,016 million
from "Other investments" and $952 million from "Other assets"). Such
assets have been valued at their expected disposition value using
valuation methodologies prevalent in the industry ($12,123 million
represents the excess of fair value over carrying value). For pro forma
income statement purposes, interest expense incurred on incremental
borrowings during the holding period has been eliminated from all
periods presented. The amount of interest eliminated is based on the
ratio of the preliminary value allocated to the assets held for sale
over the total consideration to acquire MediaOne Group multiplied by
total incremental interest expense. See Note 10. In addition, the
equity earnings (losses) reported on assets held for sale have been
reflected in the value assigned to assets held for sale and eliminated,
net of tax, in all periods reported.
6. Reflects additional borrowings equal to the cash consideration to be
exchanged in the merger. The incremental borrowings are assumed to be
short-term indebtedness as AT&T intends to repay the debt with the
proceeds from the sale of certain non-strategic MediaOne Group assets
(see Note 5).
7. Represents the amortization of franchise and goodwill resulting from
the preliminary allocation of the excess of consideration over the net
assets of MediaOne Group. AT&T expects the amount of excess
consideration allocated to goodwill and franchise agreements upon
completion of third-party appraisals to be amortized over 40 years. The
Chief Accountant's office of the SEC has notified AT&T that as a result
of competitive, technological and regulatory forces, the SEC believes
the expiration of the intangible assets associated with the merger
could occur sooner than 40 years. The SEC believes a more reasonable
amortization period to be in the range of 20 to 25 years. AT&T has
considered the views of the SEC but continues to believe that
<PAGE> 9
consideration allocated to franchise agreements and goodwill has an
indeterminate life that is to be amortized over the maximum period of
40 years under current generally accepted accounting principles. The
amortization period for goodwill and franchise intangibles of 40 years
is based by AT&T upon the expected useful life of the franchise
agreements and value related to the access to homes passed that is
integral to AT&T's strategy of providing fully-integrated
facilities-based residential communications services on a national
basis. The factors considered in determining the appropriate
amortization period included the expected life of the associated
technology including hybrid fiber optic cable, legal and regulatory
considerations, experience with renewing franchises and territories,
future changes in technology, anticipated market demand and
competition. If the franchise intangible and goodwill (including cable
investments) were amortized over a period of 25 years, AT&T's net
income would be reduced by $607 million annually or $0.16 per share. If
the amortization period were 20 years, AT&T's net income would be
reduced by $1,049 million annually or $0.27 per share. An allocation to
customer relationships and other intangible assets with shorter
amortization periods will be made, although the amounts allocated are
not expected to be material. AT&T will evaluate the periods of
amortization continually to determine whether later events and
circumstances warrant revised estimates of useful lives. As discussed
in Note 3, amounts allocated to other assets such as intangible assets
may be amortized over shorter periods resulting in a lower net income.
Any amount allocated to goodwill will also be impacted by any
in-process research and development charge that may be recorded. An
assessment of the useful lives attributable to other assets is not
complete. Consideration allocated to MediaOne Group investments other
than assets held for sale has been amortized over the estimated period
of benefit preliminarily estimated to range from seven to 30 years.
Interest expense accretion on MediaOne Group debt and other mezzanine
obligations has been recognized over the remaining life of the debt. No
amortization has been recorded on the consideration allocated to the
assets held for sale.
8. Gives effect to the elimination of MediaOne Group historical
amortization expense.
9. Represents TCI merger purchase accounting adjustments. These
adjustments include the amortization of the excess of the purchase
price over the net assets acquired, incremental interest expense on
additional borrowings, and the elimination of certain non-recurring
gains with respect to TCI's investment in Teleport Communications Group
Inc. ("TCG"). The TCI merger closed on March 9, 1999.
10. Represents the recognition of incremental interest expense on the
additional borrowings incurred to fund the cash consideration to be
exchanged in the merger. See note 6. Interest expense was calculated
using an interest rate of 5.86% for the year ended December 31, 1998
and for the nine months ended September 30, 1999. The interest rate
reflects the 90-day commercial paper rate in effect as of November 30,
1999. An increase of 25 basis points in the assumed interest rates
would result in additional pre-tax interest expense of $51 million
annually ($37 million excluding interest attributable to debt incurred
to fund the assets held for sale). As discussed in note 5, interest
expense of $328 million for 1998 and $246 million for 1999 has not been
recognized as it is attributable to the incremental borrowings incurred
to fund the acquisition of the non-strategic assets that are held for
sale during the holding period (adjustment 10a).
11. Reflects the statutory tax effect of the pro forma adjustments.
12. Gives effect to the elimination of dividend requirements on MediaOne
Group Series C preferred stock, which were effectively redeemed in the
third quarter of 1999 and MediaOne Group Series D preferred stock
assumed to be redeemed or converted into MediaOne Group common stock at
or before the time of the merger.
<PAGE> 1
Exhibit 99.1
AT&T AND BT ANNOUNCE FINANCIAL CLOSURE OF CONCERT JOINT
VENTURE
NEW COMPANY BEGINS 2000 AS LEADING GLOBAL SERVICES PROVIDER
FOR RELEASE: WEDNESDAY, JANUARY 5, 2000
NEW YORK - AT&T and BT today announced financial closure of Concert,
their global communications joint venture. Concert begins operations in 2000 as
the leading global telecommunications company serving multi-national business
customers, international carriers and Internet service providers worldwide.
Through Concert, AT&T and BT are aggressively executing a strategy to
take advantage of a fast-growing global communications market that is now worth
more than $100 billion.
Concert provides customers with communications services of an
unprecedented scale, scope and quality with the industry's broadest portfolio of
voice, data and Internet services. It has a direct sales force serving
approximately 270 multinational customers (MNCs). Through its network of global
distributors, it also serves an additional 29,000 customers worldwide. Concert's
frame relay network reaches every major city in the United States and the United
Kingdom, and extends to an additional 170 cities in 47 countries. Its global
public network directly reaches 237 countries more than any other existing
network.
In addition to using AT&T and BT's extensive networks in the US and UK,
Concert has built a new state of the art high speed Internet Protocol (IP)
backbone network that spans 21 cities in 17 countries. This IP backbone supports
a wide range of industry-leading Internet access, Internet backbone and IP
Virtual Private Network (VPN) services. Work is now underway to integrate the
Concert network with the IP backbone network that AT&T announced a year ago it
would acquire from IBM. When this integration is completed, as expected, within
the next 18 months, the Concert IP backbone network will extend to more than 60
cities worldwide. The combined network will support web hosting, application
services and other e-business solutions.
Concert's IP network is interconnected with the parents' extensive
domestic IP backbone networks which distribute Concert services in the critical
US and UK markets. The parents' domestic backbones will reach 450 points of
presence by March 2000.
Sir Peter Bonfield, BT's Chief Executive , said: "This is a new company
for the new millennium addressing the massive growth in e-business in the
internet enabled global economy. Concert hits the ground running. David Dorman
was appointed CEO last spring and has built a formidable management team which
takes over full control today."
C. Michael Armstrong, AT&T Chairman and Chief Executive Officer said:
"Today's announcement is again evidence of AT&T's commitment to execute our
growth strategy, and our continuing strong partnership with BT. Concert is
positioned to provide the best services to customers and significant value to
our shareholders. I've no doubt the global venture will deliver on its promise."
<PAGE> 2
David Dorman, Concert Chief Executive Officer said: "We've heard what
our customers want - global communications made simple. Concert is the only
company with the means to deliver truly global services to customers by offering
them reach, connectivity, flexibility and seamlessness in network services,
applications and customer support. We have a great market opportunity ahead of
us and fully intend to take advantage of it."
Both AT&T's and BT's extensive in-country investments provide Concert
with in-depth customer reach through affiliated distribution and local
connectivity in key markets around the world. AT&T and BT collectively have
direct investments in companies in 30 countries. Since announcing the creation
of this joint venture in July 1998, AT&T and BT have jointly invested in Japan
Telecom, and Rogers Cantel in Canada and BT has taken a stake in AT&T Canada.
The two companies also formed "Advance," a strategic mobility alliance, whose
services will be available through Concert.
Concert will provide an unparalleled portfolio of managed services to
its customers, including IP, managed data and voice, transit and hubbing, and a
full range of services to selected MNCs. In total, these activities are expected
to generate revenues of more than $5 billion in the year 2000, growing in excess
of 15 percent per annum, the key driver being managed data and IP revenue.
In addition, Concert will deliver traffic for the parents'
International Direct Dial (IDD) voice businesses, generating revenues of
approximately $2 billion this year. This revenue reflects the cost to the
parents of carrying these IDD calls. As Concert drives efficiency improvements,
the unit cost of delivery and therefore, these revenues, will decline,
benefiting the parents.
In aggregate, in 2000 Concert is expected to generate revenues of more
than $7 billion, EBITDA in excess of $1 billion and EBIT of around $700 million.
Capital expenditure is expected to be around $1.5 billion in year 2000
as the venture aggressively deploys its facilities-based IP network. Concert has
fixed assets of approximately $3 billion.
For AT&T and BT, Concert is expected to lead to neutral to modest
earnings accretion this year and enhance both companies' long term growth.
CONCERT'S "NEW" BUSINESSES
Concert combines the trans-border assets and operations of AT&T and BT,
including their international networks, all their international traffic, and
their international products for business customers. Concert, AT&T, BT and their
family of joint ventures will operate to a common architecture, determined by
Concert to ensure provision of seamless service to customers. Operating from
multiple locations globally, Concert has about 6,000 employees and three
profitable businesses:
GLOBAL MARKETS: Working through a global network of distributors,
Concert offers facilities based communications solutions for multinational
companies and other business customers and institutions worldwide. AT&T, BT and
other distributors around the world sell Concert services including private
line, frame relay, global software defined networks and value added IP services.
The business includes the activities of BT's wholly-owned subsidiary, previously
known as Concert. This year, Global Markets is expected to generate over 30
percent of Concert's total revenue.
GLOBAL ACCOUNTS: This business serves all of the communications needs
of most of the top multinational customers from the financial, petroleum and
information technology sectors. It has its own
<PAGE> 3
dedicated sales and service team of 2,000 people. This year, Global Accounts is
expected to generate around 35 percent of Concert's total revenue.
INTERNATIONAL CARRIER SERVICES: This business sells services, based on
Concert's extensive networks, to fixed and wireless carriers and Internet
service providers worldwide, including AT&T and BT. This year, AT&T and BT's
combined international voice traffic is expected to be approximately 25 billion
minutes, unmatched by any other operator. The business is establishing itself as
the industry's pre-eminent carriers' carrier, providing wholesale transborder
services to telecommunications companies and to Internet service providers
worldwide. This year, International Carrier Services is expected to generate
over 40 percent of Concert's total revenue.
The foregoing are "forward-looking statements" which are based on management's
beliefs, as well as on a number of assumptions concerning future events made by
and information currently available to management. Readers are cautioned not to
put undue reliance on such forward-looking statements, which are not a guarantee
of performance and are subject to a number of uncertainties and other factors,
many of which are outside the parents' and the venture's control, that could
cause actual results to differ materially from such statements. For a more
detailed description of the factors that could cause such a difference, please
see AT&T's filings with the Securities and Exchange Commission. AT&T disclaims
any intention or obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
Note: The revenue percentages shown for Concert's three businesses
include internal revenues arising from trading within Concert. As a result, the
sum of the percentages exceeds 100 percent.
