<TABLE>
Exhibit 99.1
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Balance Sheets
(unaudited)
<CAPTION> June 30, December 31,
2000 1999
---------------- -----------------
amounts in millions
<S> <C> <C>
Assets
------
Current assets:
Cash and cash equivalents $ 1,271 1,714
Cash collateral under securities lending agreement (note 6) 423 --
Short-term investments 369 378
Trade and other receivables, net 243 134
Prepaid expenses and committed program rights 517 406
Deferred income tax assets 595 750
Other current assets 15 5
---------------- -----------------
Total current assets 3,433 3,387
---------------- -----------------
Investments in affiliates, accounted for under the equity method, and
related receivables (note 3) 17,943 15,922
Investments in available-for-sale securities and others (notes 4, 5
and 6) 29,567 28,601
Property and equipment, at cost 783 162
Less accumulated depreciation 84 19
---------------- -----------------
699 143
---------------- -----------------
Intangible assets:
Excess cost over acquired net assets (note 5) 10,953 9,973
Franchise costs 269 273
---------------- -----------------
11,222 10,246
Less accumulated amortization 735 454
---------------- -----------------
10,487 9,792
---------------- -----------------
Other assets, at cost, net of accumulated amortization 897 839
---------------- -----------------
Total assets $ 63,026 58,684
================ =================
</TABLE>
(continued)
<PAGE>
<TABLE>
Combined Balance Sheets
(unaudited)
<CAPTION> June 30, December 31,
2000 1999
---------------- ----------------
amounts in millions
<S> <C> <C>
Liabilities and Combined Equity
-------------------------------
Current liabilities:
Accounts payable $ 81 44
Accrued liabilities 355 201
Accrued stock compensation 1,978 2,405
Program rights payable 179 166
Current portion of debt 203 554
---------------- ----------------
Total current liabilities 2,796 3,370
---------------- ----------------
Long-term debt (note 6) 6,340 2,723
Deferred income tax liabilities 14,242 14,107
Other liabilities 32 23
---------------- ----------------
Total liabilities 23,410 20,223
---------------- ----------------
Minority interests in equity of attributed subsidiaries 266 1
Obligation to redeem AT&T Liberty Media Group tracking stock (note 7) 55 --
Combined equity (note 7):
Combined equity 34,212 31,876
Accumulated other comprehensive earnings, net of taxes 4,996 6,557
---------------- ----------------
39,208 38,433
Due to related parties 87 27
---------------- ----------------
Total combined equity 39,295 38,460
---------------- ----------------
Commitments and contingencies (note 8)
Total liabilities and combined equity $ 63,026 58,684
================ ================
<FN>
See accompanying notes to combined financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Combined Statements of Operations and Comprehensive Earnings
(unaudited)
<CAPTION> Three months Three months
ended ended
June 30, 2000 June 30, 1999
---------------- ----------------
<S> <C> <C>
Revenue $ 382 221
Operating costs and expenses:
Operating, selling, general and administrative 295 184
Stock compensation (216) 496
Depreciation and amortization 236 177
---------------- ----------------
315 857
---------------- ----------------
Operating income (loss) 67 (636)
Other income (expense):
Interest expense (100) (33)
Adjustment to interest expense for contingent portion of
exchangeable debentures (note 6) 200 --
Dividend and interest income 85 82
Share of losses of affiliates, net (note 3) (412) (279)
Minority interests in losses of attributed subsidiaries 36 12
Gain (loss) on dispositions, net (note 3) 611 (2)
Other, net 2 (4)
---------------- ----------------
422 (224)
---------------- ----------------
Earnings (loss) before income taxes 489 (860)
Income tax benefit (expense) (222) 317
---------------- ----------------
Net earnings (loss) $ 267 (543)
---------------- ----------------
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments (87) (55)
Unrealized holding gains (losses) arising during the period, net
of reclassification adjustments (3,224) 1,118
---------------- ----------------
Other comprehensive earnings (loss) (3,311) 1,063
---------------- ----------------
Comprehensive earnings (loss) $ (3,044) 520
================ ================
<FN>
See accompanying notes to combined financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
Combined Statements of Operations and Comprehensive Earnings
(unaudited)
<CAPTION> New Liberty Old Liberty
----------------------------------------------- ---------------------
(note 1) (note 1)
Six months Four months Two months
ended ended ended
June 30, 2000 June 30, 1999 February 28, 1999
---------------------- ---------------------- ---------------------
amounts in millions
<S> <C> <C> <C>
Revenue $ 617 292 282
Operating costs and expenses:
Operating, selling, general and administrative 469 240 227
Stock compensation (239) 455 183
Depreciation and amortization 403 230 47
---------------- ---------------- ---------------
633 925 457
---------------- ---------------- ---------------
Operating income (loss) (16) (633) (175)
Other income (expense):
Interest expense (175) (46) (28)
Adjustment to interest expense for contingent portion of
exchangeable debentures (note 6) (164) -- --
Dividend and interest income 165 106 12
Share of losses of affiliates, net (note 3) (794) (359) (66)
Minority interests in losses of attributed subsidiaries 28 12 4
Gain (loss) on dispositions, net (notes 3, 4 and 5) 3,055 (2) 14
Gains on issuance of equity by affiliates and
subsidiaries (note 3) -- -- 389
Other, net 7 (4) --
---------------- ---------------- ---------------
2,122 (293) 325
---------------- ---------------- ---------------
Earnings (loss) before income taxes 2,106 (926) 150
Income tax (expense) benefit (897) 325 (209)
---------------- ---------------- ---------------
Net earnings (loss) $ 1,209 (601) (59)
---------------- ---------------- ---------------
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments (118) (43) (15)
Unrealized holding gains (losses) arising during the
period, net of reclassification adjustments (1,443) 2,012 971
---------------- ---------------- ---------------
Other comprehensive earnings (loss) (1,561) 1,969 956
---------------- ---------------- ---------------
Comprehensive earnings (loss) $ (352) 1,368 897
================ ================ ===============
<FN>
See accompanying notes to combined financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statement of Equity
Six months ended June 30, 2000
(unaudited)
<CAPTION> Accumulated
other Due to
comprehensive (from) Total
Combined earnings, related combined
equity net of taxes parties equity
------------- --------------- ------------- ----------
amounts in millions
<S> <C> <C> <C> <C>
Balance at January 1, 2000 $ 31,876 6,557 27 38,460
Net earnings 1,209 -- -- 1,209
Issuance of AT&T Liberty Media Group tracking stock for
acquisitions (note 5) 1,024 -- -- 1,024
Issuances of common stock by attributed subsidiaries and
affiliates, net of taxes 167 -- -- 167
Purchase of AT&T Liberty Media Group tracking stock (9) -- -- (9)
Premium received in connection with put obligation, net 4 -- -- 4
Reclassification of redemption amount of AT&T Liberty
Media Group tracking stock subject to put obligation (55) -- -- (55)
Utilization of net operating losses of Liberty Media Group
by AT&T (4) -- -- (4)
Foreign currency translation adjustments -- (118) -- (118)
Recognition of previously unrealized gains on
available-for-sale securities, net -- (1,479) -- (1,479)
Unrealized gains on available-for-sale securities -- 36 -- 36
Other transfers from related parties, net -- -- 60 60
------------- --------------- ------------- ----------
Balance at June 30, 2000 $ 34,212 4,996 87 39,295
============= =============== =========== ==========
<FN>
See accompanying notes to combined financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Combined Statements of Cash Flows
(unaudited)
<CAPTION> New Liberty Old Liberty
----------------------------------------------- ------------------------
(note 1) (note 1)
Six months Four months Two months
ended ended ended
June 30, 2000 June 30, 1999 February 28, 1999
---------------------- ---------------------- ------------------------
amounts in millions
(see note 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $ 1,209 (601) (59)
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 403 230 47
Stock compensation (239) 455 183
Payments of stock compensation (283) (27) (126)
Share of losses of affiliates, net 794 359 66
Deferred income tax expense (benefit) 930 (314) 205
Intergroup tax allocation (34) (14) --
Cash payment from AT&T pursuant to tax sharing agreement 123 45 --
Minority interests in losses of attributed subsidiaries (28) (12) (4)
Loss (gain) on disposition of assets, net (3,055) 2 (14)
Gains on issuance of equity by affiliates and
subsidiaries -- -- (389)
Noncash interest 169 -- --
Other noncash charges -- -- 9
Changes in operating assets and liabilities, net of
the effect of acquisitions and dispositions:
Change in receivables 24 (12) (19)
Change in prepaid expenses and committed
program rights (102) (7) (10)
Change in payables and accruals 88 67 4
----------------- ----------------- -------------------
Net cash provided (used) by operating
activities (1) 171 (107)
----------------- ----------------- -------------------
Cash flows from investing activities:
Cash paid for acquisitions (546) (1) --
Capital expended for property and equipment (82) (16) (21)
Investments in and loans to affiliates and others (2,336) (434) (45)
Purchases of marketable securities (735) (6,172) (132)
Sales and maturities of marketable securities 1,326 2,759 34
Cash proceeds from dispositions 87 2 43
Cash balances of deconsolidated subsidiaries -- -- (53)
Other, net 8 (12) (9)
----------------- ----------------- -------------------
Net cash used by investing activities (2,278) (3,874) (183)
----------------- ----------------- -------------------
</TABLE>
(continued)
<PAGE>
<TABLE>
Combined Statements of Cash Flows, continued
(unaudited)
<CAPTION> New Liberty Old Liberty
----------------------------------------------- ---------------------
(note 1) (note 1)
Six months Four months Two months
ended ended ended
June 30, 2000 June 30, 1999 February 28, 1999
---------------------- ---------------------- ---------------------
amounts in millions
(see note 2)
<S> <C> <C> <C>
Cash flows from financing activities:
Borrowings of debt 3,022 495 156
Repayments of debt (1,123) (463) (148)
Premium received on put contracts, net 4 -- --
Purchase of AT&T Liberty Media Group tracking stock (9) -- --
Cash transfers (to) from related parties (59) (160) 132
Repurchase of stock of subsidiaries -- -- (45)
Other, net 1 16 (1)
---------------- ----------------- ----------------
Net cash provided (used) by financing
activities 1,836 (112) 94
---------------- ----------------- ----------------
Net decrease in cash and cash
equivalents (443) (3,815) (196)
Cash and cash equivalents at beginning
of period 1,714 5,319 407
---------------- ----------------- ----------------
Cash and cash equivalents at end of
period $ 1,271 1,504 211
================ ================= ================
<FN>
See accompanying notes to combined financial statements.
</FN>
</TABLE>
<PAGE>
"LIBERTY MEDIA GROUP"
(a combination of certain assets, as defined in note 1)
Notes to Combined Financial Statements
June 30, 2000
(unaudited)
(1) Basis of Presentation
The accompanying combined financial statements include the accounts of
the subsidiaries and assets of AT&T Corp. ("AT&T") that are attributed
to Liberty Media Group, as defined below. On March 9, 1999, AT&T
acquired Tele-Communications, Inc. ("TCI"), the former owner of the
assets attributed to Liberty Media Group, in a merger transaction (the
"AT&T Merger"). The AT&T Merger has been accounted for using the
purchase method. Accordingly, Liberty Media Group's assets and
liabilities have been recorded at their respective fair market values
therefor, creating a new cost basis. For financial reporting purposes
the AT&T Merger and related restructuring transactions are deemed to
have occurred on March 1, 1999. Accordingly, for periods prior to March
1, 1999 the assets and liabilities attributed to Liberty Media Group
and the related combined financial statements are sometimes referred to
herein as "Old Liberty", and for periods subsequent to February 28,
1999 the assets and liabilities attributed to Liberty Media Group and
the related combined financial statements are sometimes referred to
herein as "New Liberty". The "Company" and "Liberty Media Group" refer
to both New Liberty and Old Liberty.
At June 30, 2000, Liberty Media Group consisted principally of the
following:
o AT&T's assets and businesses which provide programming services
including production, acquisition and distribution through all
available formats and media of branded entertainment, educational
and informational programming and software, including multimedia
products;
o AT&T's assets and businesses engaged in electronic retailing,
direct marketing, advertising sales relating to programming
services, infomercials and transaction processing;
o certain of AT&T's interests in technology and Internet businesses;
o certain of AT&T's assets and businesses engaged in international
cable, telephony and programming businesses; and,
o AT&T's holdings in a class of tracking stock of Sprint Corporation
(the "Sprint PCS Group Stock").
All significant intercompany accounts and transactions have been
eliminated. The combined financial statements of Liberty Media Group
are presented for purposes of additional analysis of the consolidated
financial statements of AT&T and should be read in conjunction with
such consolidated financial statements.
The accompanying interim combined financial statements are unaudited
but, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for any interim
period are not necessarily indicative of results for the full year.
These combined financial statements should be read in conjunction with
the combined financial statements and notes thereto included as an
exhibit to AT&T's Report on Form 10-K for the year ended December 31,
1999.
(continued)
<PAGE>
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Effective June 9, 2000, AT&T issued stock dividends to holders of AT&T
Liberty Media Group tracking stock (the "Liberty Dividend"). The
Liberty Dividend consisted of one share of AT&T Liberty Media Group
tracking stock for every one share of AT&T Liberty Media Group tracking
stock owned. The Liberty Dividend has been treated as a stock split,
and accordingly, all share amounts have been restated to reflect the
Liberty Dividend.
Certain prior period amounts have been reclassified for comparability
with the 2000 presentation.
(2) Supplemental Disclosures to Combined Statements of Cash Flows
Cash paid for interest was $121 million for the six months ended June
30, 2000, $58 million for the four month period ended June 30, 1999 and
$32 million for the two month period ended February 28, 1999. Cash paid
for income taxes for the six months ended June 30, 2000, the four
months ended June 30, 1999 and the two months ended February 28, 1999
was not material.
<TABLE>
<CAPTION> New Liberty Old Liberty
--------------------------- -------------
(note 1) (note 1)
Six months Four months Two months
ended ended ended
June 30, June 30, February 28,
2000 1999 1999
---------- ----------- ------------
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions (note 5):
Fair value of assets acquired $ 3,415 3 --
Net liabilities assumed (1,119) (2) --
Deferred tax liability recorded (347) -- --
Minority interests in equity of
acquired attributed subsidiaries (379) -- --
AT&T Liberty Media Group tracking
stock issued (1,024) -- --
---------- ----------- ------------
Cash paid for acquisitions
$ 546 1 --
========== =========== ============
</TABLE>
(continued)
<PAGE>
The following table reflects the change in cash and cash equivalents
resulting from the AT&T Merger and related restructuring transactions
(amounts in millions):
Cash and cash equivalents prior to the AT&T Merger $ 211
Cash received in restructuring transactions, net
of cash balances transferred 5,284
Cash paid to TCI Group for certain warrants (note 4) (176)
-------------
Cash and cash equivalents subsequent to the AT&T Merger $ 5,319
Liberty Media Group ceased to include TV Guide, Inc. ("TV Guide") in
its combined financial results and began to account for TV Guide using
the equity method of accounting, effective March 1, 1999 (see note 3).
The effect of changing the method of accounting for Liberty Media
Group's ownership interest in TV Guide from the consolidation method to
the equity method is summarized below (amounts in millions):
Assets (other than cash and cash equivalents)
reclassified to investments in affiliates $ (200)
Liabilities reclassified to investments in affiliates 190
Minority interests in equity of attributed subsidiaries
reclassified to investments in affiliates 63
-------------
Decrease in cash and cash equivalents $ 53
=============
(3) Investments in Affiliates Accounted for under the Equity Method
---------------------------------------------------------------
Liberty Media Group has various investments accounted for under the
equity method. The following table includes Liberty Media Group's
carrying amount of the more significant investments in affiliates:
<TABLE>
<CAPTION> June 30, 2000 December 31, 1999
---------------------- -----------------------
amounts in millions
<S> <C> <C>
USA Networks, Inc. ( "USAI ") and related
investments $ 2,848 2,699
Telewest Communications plc ( "Telewest ") 3,048 1,996
Discovery Communications, Inc. ("Discovery") 3,313 3,441
TV Guide 1,708 1,732
QVC Inc. ( "QVC ") 2,510 2,515
Teligent, Inc. ( "Teligent") 1,202 --
Flextech p.l.c. ("Flextech") -- 727
UnitedGlobalCom, Inc. ("UnitedGlobalCom") 445 505
Various foreign equity investments (other than
Telewest and Flextech) 1,536 1,463
Other 1,333 844
------------------- --------------------
$ 17,943 15,922
=================== ====================
</TABLE>
(continued)
<PAGE>
The following table reflects Liberty Media Group's share of earnings
(losses) of affiliates:
<TABLE>
<CAPTION> New Liberty Old Liberty
------------------------------------------ -----------------
(note 1) (note 1)
Six months Four months Two months
ended ended ended
June 30, June 30, February 28,
2000 1999 1999
-------------------- ------------------- -----------------
amounts in millions
<S> <C> <C> <C>
USAI and related investments $ (16) (9) 10
Telewest (168) (97) (38)
Discovery (128) (76) (8)
TV Guide (25) (11) --
QVC (5) (9) 13
Teligent (152) -- --
Flextech (18) (13) (5)
UnitedGlobalCom (88) -- --
Other foreign investments (130) (56) (22)
Other (64) (88) (16)
-------------------- ------------------- -----------------
$ (794) (359) (66)
==================== =================== =================
</TABLE>
Summarized unaudited combined financial information for affiliates is
as follows:
<TABLE>
<CAPTION> New Liberty Old Liberty
------------------------------------------ -----------------
(note 1) (note 1)
Six months Four months Two months
ended ended ended
June 30, June 30, February 28,
2000 1999 1999
--------------------- ------------------- -----------------
amounts in millions
<S> <C> <C> <C>
Revenue $ 7,896 4,060 2,341
Operating expenses (7,296) (3,451) (1,894)
Depreciation and amortization (1,545) (520) (353)
--------------------- ------------------- -----------------
Operating income (loss) (945) 89 94
Interest expense (1,167) (323) (281)
Other, net 125 (244) (127)
--------------------- ------------------- -----------------
Net loss $ (1,987) (478) (314)
===================== =================== =================
</TABLE>
(continued)
<PAGE>
USAI owns and operates businesses in network and television production,
television broadcasting, electronic retailing, ticketing operations,
and internet services. At June 30, 2000, Liberty Media Group directly
and indirectly held 74.4 million shares of USAI's common stock. Liberty
Media Group also held shares directly in certain subsidiaries of USAI
which are exchangeable into 79.0 million shares of USAI common stock.
Liberty Media Group's direct ownership of USAI is currently restricted
by Federal Communications Commission ("FCC") regulations. The exchange
of these shares can be accomplished only if there is a change to
existing regulations or if Liberty Media Group obtains permission from
the FCC. If the exchange of subsidiary stock into USAI common stock was
completed at June 30, 2000, Liberty Media Group would own 153.4 million
shares or approximately 21% (on a fully-diluted basis) of USAI common
stock. USAI's common stock reported a closing price of $21-5/8 per
share on June 30, 2000.
Telewest currently operates and constructs cable television and
telephone systems in the UK. Flextech develops and sells a variety of
television programming in the UK. In April 2000, Telewest acquired
Flextech. As a result, each share of Flextech was exchanged for 3.78
new Telewest shares. Prior to the acquisition, Liberty Media Group
owned an approximate 37% equity interest in Flextech and a 22% equity
interest in Telewest. As a result of the acquisition, Liberty Media
Group owns an approximate 24.6% equity interest in Telewest. Liberty
Media Group recognized a $649 million gain (excluding related tax
expense of $227 million) on the acquisition during the second quarter
of 2000 based on the difference between the carrying value of Liberty
Media Group's interest in Flextech and the fair value of the Telewest
shares received. At June 30, 2000, Liberty Media Group indirectly owned
724 million of the issued and outstanding Telewest ordinary shares.
Telewest's ordinary shares reported a closing price of $3.46 per share
on June 30, 2000.
Teligent is a full-service, facilities based communications company in
which Liberty Media Group acquired an approximate 40% equity interest
in its January 14, 2000 acquisition of The Associated Group, Inc. (the
"Associated Group") (see note 5). At June 30, 2000, Liberty Media Group
held 21 million shares of Teligent Class A common stock. Teligent's
Class A common stock reported a closing price of $23-5/8 per share on
June 30, 2000.
(continued)
<PAGE>
On March 1, 1999, United Video Satellite Group, Inc. ("UVSG") and The
News Corporation Limited ("News Corp.") completed a transaction whereby
UVSG acquired News Corp.'s TV Guide properties, creating a broader
platform for offering television guide services to consumers and
advertisers, and UVSG was renamed TV Guide. News Corp. received total
consideration of $1.9 billion including $800 million in cash, 45
million shares of TV Guide's Class A common stock and 75 million shares
of TV Guide's Class B common stock valued at an average of $9.325 per
share. In addition, News Corp. purchased approximately 13 million
additional shares of TV Guide's Class A common stock for $129 million
in order to equalize its ownership with that of Liberty Media Group. As
a result of these transactions, and another transaction completed on
the same date, News Corp, Liberty Media Group and TV Guide's public
stockholders own on an economic basis approximately 44%, 44% and 12%,
respectively, of TV Guide. Following such transactions, News Corp. and
Liberty Media Group each have approximately 49% of the voting power of
TV Guide's outstanding stock. In connection with the increase in TV
Guide's equity, net of dilution of Liberty Media Group's ownership
interest in TV Guide, Liberty Media Group recognized a gain of $372
million (before deducting deferred income taxes of $147 million).
The Class A common stock of TV Guide is publicly traded. At June 30,
2000, Liberty Media Group held 58 million shares of TV Guide Class A
common stock and 75 million shares of TV Guide Class B common stock.
The TV Guide Class B common stock is convertible, one-for-one, into TV
Guide Class A common stock. TV Guide's Class A common stock reported a
closing price of $34.25 per share on June 30, 2000.
UnitedGlobalCom is the largest global broadband communications provider
of video, voice and data services with operations in over 20 countries
throughout the world. At June 30, 2000, Liberty Media Group owned an
approximate 11% economic ownership interest representing an approximate
37% voting interest in UnitedGlobalCom. UnitedGlobalCom's Class A
common stock reported a closing price of $46.75 per share on June 30,
2000. Liberty Media Group owns 9.9 million shares of UnitedGlobalCom
Class B common stock, which stock is convertible, on a one-for-one
basis, into UnitedGlobalCom Class A common stock.
The $13 billion aggregate excess of Liberty Media Group's aggregate
carrying amount in its affiliates over Liberty Media Group's
proportionate share of its affiliates' net assets is being amortized
over an estimated useful life of 20 years.
(continued)
<PAGE>
(4) Investments in Available-for-sale Securities and Others
-------------------------------------------------------
Investments in available-for-sale securities and others are summarized
as follows:
<TABLE>
<CAPTION> June 30, December 31,
2000 1999
-------------- ----------------
amounts in millions
<S> <C> <C>
Sprint Corporation ("Sprint") $ 11,575 10,186
Time Warner, Inc. ("Time Warner") 8,564 8,202
News Corp. 2,804 2,403
Motorola, Inc. ("Motorola") 2,059 3,430
Other available-for-sale securities 3,806 3,773
Other investments, at cost, and related receivables 1,128 985
-------------- ----------------
29,936 28,979
Less short-term investments 369 378
-------------- ----------------
$ 29,567 28,601
============== ================
</TABLE>
On January 5, 2000, Motorola completed the acquisition of General
Instrument Corporation ("General Instrument") through a merger of
General Instrument with a wholly owned subsidiary of Motorola. In the
merger, each outstanding share of General Instrument common stock was
converted into the right to receive 1.725 shares (as adjusted for a
subsequent stock split) of Motorola common stock. In connection with
the merger Liberty Media Group received 54 million shares (as adjusted
for a subsequent stock split) and warrants to purchase 37 million
shares (as adjusted for a subsequent stock split) of Motorola common
stock in exchange for its holdings in General Instrument. Liberty Media
Group recognized a $2.2 billion gain (excluding related tax expense of
$883 million) on such transaction during the first quarter of 2000
based on the difference between the carrying value of Liberty Media
Group's interest in General Instrument and the fair value of the
Motorola securities received.
Liberty Media Group's right to exercise warrants to purchase 18.4
million shares (as adjusted for a subsequent stock split) of Motorola
common stock is subject to AT&T satisfying the terms of a purchase
commitment in 2000. AT&T has agreed to pay Liberty Media Group $4.78
(as adjusted for a subsequent stock split) for each warrant that does
not vest as a result of the purchase commitment not being met.
Investments in available-for-sale securities are summarized as follows:
<TABLE>
<CAPTION> June 30, December 31,
2000 1999
--------------- ------------------
amounts in millions
<S> <C> <C>
Equity securities:
Fair value $ 25,834 24,472
Gross unrealized holding gains 10,730 11,457
Gross unrealized holding losses (2,388) (646)
Debt securities:
Fair value 1,410 1,995
Gross unrealized holding gains 35 --
Gross unrealized holding losses (51) (22)
</TABLE>
(continued)
<PAGE>
Management of Liberty Media Group estimates the market value,
calculated using a variety of approaches including multiple of cash
flow, per subscriber value, a value of comparable public or private
businesses or publicly quoted market prices, of all of Liberty Media
Group's investments in available-for-sale securities and others
aggregated $30.9 billion and $29.2 billion at June 30, 2000 and
December 31, 1999, respectively. No independent appraisals were
conducted for those assets.
(5) Acquisitions
On January 14, 2000, Liberty Media Group completed its acquisition of
Associated Group pursuant to a merger agreement among AT&T, Liberty
Media Group and Associated Group. Under the merger agreement, each
share of Associated Group's Class A common stock and Class B common
stock was converted into 0.49634 shares of AT&T common stock and
2.41422 shares of AT&T Class A Liberty Media Group tracking stock.
Prior to the merger, Associated Group's primary assets were (1)
approximately 19.7 million shares of AT&T common stock, (2)
approximately 46.8 million shares of AT&T Class A Liberty Media Group
tracking stock, (3) approximately 10.6 million shares of AT&T Class B
Liberty Media Group tracking stock, (4) approximately 21.4 million
shares of common stock, representing approximately a 40% interest, of
Teligent, and (5) all of the outstanding shares of common stock of
TruePosition, Inc., which provides location services for wireless
carriers and users designed to determine the location of any wireless
transmitter, including cellular and PCS telephones. Immediately
following the completion of the merger, all of the assets and
businesses of Associated Group were transferred to Liberty Media Group.
All of the shares of AT&T common stock, AT&T Class A Liberty Media
Group tracking stock and AT&T Class B Liberty Media Group tracking
stock previously held by Associated Group were retired by AT&T.
The acquisition of Associated Group was accounted for as a purchase and
the $17 million excess of the fair value of the net assets acquired
over the purchase price is being amortized over ten years. As a result
of the issuance of AT&T Liberty Media Group tracking stock, net of the
shares of AT&T Liberty Media Group tracking stock acquired in this
transaction, Liberty Media Group recorded a $778 million increase to
combined equity.
On March 16, 2000, Liberty Media Group purchased shares of preferred
stock in TCI Satellite Entertainment, Inc. ("TSAT") in exchange for
Liberty Media Group's economic interest in approximately 5 million
shares of Sprint PCS Group Stock, valued at $300 million. Liberty Media
Group received 150,000 shares of TSAT Series A 12% Cumulative Preferred
Stock and 150,000 shares of TSAT Series B 8% Cumulative Convertible
Voting Preferred Stock. The Series A preferred stock does not have
voting rights, while the Series B preferred stock gives Liberty Media
Group approximately 85% of the voting power of TSAT. In connection with
this transaction, Liberty Media Group realized a $211 million gain
(before related tax expense of $84 million) during the first quarter of
2000 based on the difference between the cost basis and fair value of
the economic interest in the Sprint PCS Group Stock exchanged.
(continued)
<PAGE>
On March 28, 2000, Liberty Media Group announced that it had completed
its cash tender offer for the outstanding common stock of Ascent
Entertainment Group, Inc. ("Ascent") at a price of $15.25 per share.
Approximately 85% of the outstanding shares of common stock of Ascent
were tendered in the offer and Liberty Media Group paid approximately
$385 million. On June 8, 2000, Liberty Media Group completed its
acquisition of 100% of Ascent for an additional $67 million. Such
transaction was accounted for as a purchase and the $283 million excess
of the purchase price over the fair value of the net assets acquired is
being amortized over 20 years.
On April 10, 2000, Liberty Media Group acquired all of the outstanding
common stock of Four Media Company ("Four Media") in exchange for
approximately $123 million, 6.4 million shares of AT&T Class A Liberty
Media Group tracking stock and a warrant to purchase approximately
700,000 shares of AT&T Class A Liberty Media Group tracking stock at an
exercise price of $23 per share. The acquisition was accounted for as a
purchase. In connection with this acquisition, Liberty Media Group
recorded a $145 million increase to combined equity and the $307
million excess of the purchase price over the fair value of the net
assets acquired is being amortized over 20 years. Four Media provides
technical and creative services to owners, producers and distributors
of television programming, feature films and other entertainment
products both domestically and internationally.
On June 9, 2000, Liberty Media Group acquired a controlling interest in
The Todd-AO Corporation ("Todd-AO"), consisting of approximately 6.5
million shares of Class B Common Stock of Todd-AO, representing 60% of
the equity and approximately 94% of the voting power of Todd-AO
outstanding immediately prior to the closing, in exchange for
approximately 5.4 million shares of AT&T Class A Liberty Media Group
tracking stock. The acquisition was accounted for as a purchase. In
connection with this acquisition, Liberty Media Group recorded a $101
million increase to combined equity and the $94 million excess of the
purchase price over the fair value of the net assets acquired is being
amortized over 20 years. Todd-AO provides sound, video and ancillary
post production and distribution services to the motion picture and
television industries in the United States and Europe.
Immediately following the closing of such transaction, Liberty Media
Group contributed to Todd-AO 100% of the capital stock of Four Media,
in exchange for approximately 16.6 million shares of the Class B Common
Stock of Todd-AO increasing Liberty Media Group's ownership interest in
Todd-AO to approximately 84% of the equity and approximately 98% of the
voting power of Todd-AO outstanding immediately following the closing.
Following Liberty Media Group's acquisition of Todd-AO, and the
contribution by Liberty Media Group to Todd-AO of Liberty Media Group's
ownership in Four Media, Todd-AO changed its name to Liberty Livewire
Corporation.
(continued)
<PAGE>
(6) Long-Term Debt
Debt is summarized as follows:
<TABLE>
<CAPTION> June 30, December 31,
2000 1999
---------------- -----------------
amounts in millions
<S> <C> <C>
Parent company debt:
Senior notes $ 741 741
Senior debentures (a) 1,486 494
Senior exchangeable debentures (b) 1,996 1,022
Securities lending agreement (c) 1,026 --
Bank credit facilities -- 390
---------------- -----------------
5,249 2,647
Debt of subsidiaries:
Bank credit facilities 924 573
Senior notes 170 --
Other debt, at varying rates 200 57
---------------- -----------------
1,294 630
---------------- -----------------
Total debt 6,543 3,277
Less current maturities 203 554
---------------- -----------------
Total long-term debt $ 6,340 2,723
================ =================
<FN>
(a) On February 2, 2000, Liberty Media Group received net cash
proceeds of approximately $983 million from the issuance of
8-1/4% Senior Debentures due 2030. The senior debentures have
an aggregate principal amount of $1 billion. Interest on the
senior debentures is payable on February 1 and August 1 of
each year.
(b) On February 10, 2000, Liberty Media Group received net cash
proceeds of $735 million from the issuance of $750 million
principal amount of 3-3/4% Senior Exchangeable Debentures due
2030. On March 8, 2000, Liberty Media Group received net cash
proceeds of $59 million from the issuance of an additional $60
million principal amount of 3-3/4% Senior Exchangeable
Debentures due 2030. Each debenture has a $1,000 face amount
and is exchangeable at the holder's option for the value of
16.7764 shares of Sprint PCS Group Stock. This amount will be
paid only in cash until the later of February 15, 2002 and the
date the direct and indirect ownership level of Sprint PCS
Group Stock owned by Liberty Media Group falls below a
designated level, after which, at Liberty Media Group's
election, Liberty Media Group may pay the amount in cash,
Sprint PCS Group Stock or a combination thereof. Interest on
these exchangeable debentures is payable on February 15 and
August 15 of each year. The carrying amount of the
exchangeable debentures in excess of the principal amount (the
"Contingent Portion) is based on the fair value of the
underlying Sprint PCS Group Stock. The increase or decrease in
the Contingent Portion is recorded as an adjustment to
interest expense in the combined statement of operations and
comprehensive earnings.
(continued)
<PAGE>
(c) On January 7, 2000, a trust, which holds Liberty Media Group's
investment in Sprint, entered into agreements to loan 18
million shares of Sprint PCS Group Stock to a third party, as
Agent. The obligation to return those shares is secured by
cash collateral equal to 100% of the market value of that
stock. During the period of the loan, which is terminable by
either party at any time, the cash collateral is to be
marked-to-market daily. The trust, for the benefit of Liberty
Media Group, has the use of 80% of the cash collateral plus
any interest earned thereon during the term of the loan, and
is required to pay a rebate fee equal to the Federal funds
rate less 30 basis points to the borrower of the loaned
shares. The cash collateral of $423 million at June 30, 2000
included $205 million of restricted cash. At June 30, 2000,
Liberty Media Group had utilized $603 million of the cash
collateral under the securities lending agreement.
</FN>
</TABLE>
At June 30, 2000, Liberty Media Group had approximately $236 million in
unused lines of credit under its bank credit facilities. The bank
credit facilities of Liberty Media Group generally contain restrictive
covenants which require, among other things, the maintenance of certain
financial ratios, and include limitations on indebtedness, liens,
encumbrances, acquisitions, dispositions, guarantees and dividends.
Liberty Media Group was in compliance with its debt covenants at June
30, 2000. Additionally, Liberty Media Group pays fees ranging from .15%
to .375% per annum on the average unborrowed portions of the total
amounts available for borrowings under bank credit facilities.
Based on quoted market prices, the fair value of Liberty Media Group's
debt at June 30, 2000 is as follows (amounts in millions):
Senior notes of parent company $ 720
Senior debentures of parent company 1,392
Senior exchangeable debentures of
parent company 2,134
Senior notes of attributed subsidiary 183
Liberty Media Group believes that the carrying amount of the remainder
of its debt approximated its fair value at June 30, 2000.
(7) Combined Equity
AT&T Liberty Media Group Tracking Stock
In conjunction with a stock repurchase program or similar transaction,
the issuer may elect to sell put options on it own common stock.
Proceeds from any sales of puts with respect to AT&T Liberty Media
Group tracking stock is reflected as an increase to combined equity,
and an amount equal to the maximum redemption amount under unexpired
put options with respect to such tracking stock is reflected as an
"Obligation to redeem AT&T Liberty Media Group tracking stock" in the
accompanying combined balance sheets.
During the six months ended June 30, 2000, pursuant to a stock
repurchase program, 400,000 shares of AT&T Liberty Media Group tracking
stock were purchased at an aggregate cost of $9 million. Such amount is
reflected as a decrease to combined equity in the accompanying combined
financial statements.
(continued)
<PAGE>
Stock Issuances of Subsidiary
During the six months ended June 30, 2000, Liberty Digital, Inc.
("Liberty Digital") issued approximately 4.2 million shares of common
stock in connection with certain acquisitions and the exercise of
certain employee stock options. In connection with the increase in
Liberty Digital's equity, net of the dilution of Liberty Media Group's
interest in Liberty Digital, that resulted from such stock issuances,
Liberty Media Group recorded a $169 million increase to combined
equity.
Transactions with Officers and Directors
Prior to the AT&T Merger, a limited liability company owned by Dr. John
C. Malone (Chairman of the Board of Liberty Media Corporation)
acquired, from certain attributed subsidiaries of Liberty Media Group,
for $17 million, working cattle ranches located in Wyoming. No gain or
loss was recognized on such acquisition. The purchase price was paid by
such limited liability company in the form of a 12-month note in the
amount of $17 million having an interest rate of 7%. Such note was paid
in March 2000.
In connection with the AT&T Merger, Liberty Media Group paid two of its
directors and one other individual, all three of whom were directors of
TCI, an aggregate of $12 million for services rendered in connection
with the AT&T Merger. Such amount is included in operating, selling,
general and administrative expenses for the two months ended February
28, 1999 in the accompanying combined statements of operations and
comprehensive earnings.
Transactions with AT&T
Certain AT&T corporate general and administrative costs are charged to
Liberty Media Group based on the cost of services provided. Management
believes this allocation method is reasonable. During the six months
ended June 30, 2000, the four months ended June 30, 1999 and the two
months ended February 28, 1999 Liberty Media Group was charged less
than $1 million, less than $1 million and $2 million, respectively, in
corporate general and administrative costs by AT&T. These costs are
included in operating, selling, general and administrative expenses in
the accompanying combined statements of operations and comprehensive
earnings.
Certain subsidiaries attributed to Liberty Media Group produce and/or
distribute programming and other services to cable distribution
operators (including AT&T) and others. Charges to AT&T are based upon
customary rates charged to others. Amounts included in revenue for
services provided to AT&T were $111 million, $71 million and $43
million for the six months ended June 30, 2000, the four months ending
June 30, 1999 and the two month period ending February 28, 1999,
respectively.
Subsidiaries of Liberty Media Group lease satellite transponder
facilities from a subsidiary of AT&T. Charges for such arrangements and
other related operating expenses for the six months ended June 30, 2000
and the four months ended June 30, 1999 aggregated $9 million and $10
million, respectively, and are included in operating expenses in the
accompanying combined statements of operations and comprehensive
earnings.
(continued)
<PAGE>
Liberty Media Group makes marketing support payments to AT&T. Charges
by AT&T for such arrangements were $1 million for the six months ended
June 30, 2000 and less than $1 million for each of the four months
ended June 30, 1999 and the two months ended February 28, 1999.
A certain subsidiary attributed to Liberty Media Group purchases
programming services from AT&T. The charges, which approximate AT&T's
cost and are based on the aggregate number of subscribers served by the
subsidiary, aggregated $4 million, $2 million and $1 million during the
six months ended June 30, 2000, the four months ended June 30, 1999 and
the two months ended February 28, 1999, respectively, and are included
in operating expenses in the accompanying combined statements of
operations and comprehensive earnings.
During the quarter ended June 30, 2000, a subsidiary of Liberty Media
Group entered into an agreement for AT&T to provide dedicated hosting
services to the subsidiary. As of June 30, 2000, no amounts have been
paid to AT&T for such services.
Due to Related Parties
The amounts included in "Due to related parties" represent a
non-interest bearing intercompany account which includes income tax
allocations that are to be settled at some future date. All other
amounts included in the intercompany account are to be settled within
thirty days following notification.
(8) Commitments and Contingencies
Starz Encore Group LLC ("Starz Encore Group") provides premium
programming distributed by cable, direct satellite, TVRO and other
distributors throughout the United States. Starz Encore Group is
obligated to pay fees for the rights to exhibit certain films that are
released by various producers through 2017 (the "Film Licensing
Obligations"). Based on customer levels at June 30, 2000, these
agreements require minimum payments aggregating approximately $1.2
billion. The aggregate amount of the Film Licensing Obligations under
these license agreements is not currently estimable because such amount
is dependent upon the number of qualifying films released theatrically
by certain motion picture studios as well as the domestic theatrical
exhibition receipts upon the release of such qualifying films.
Nevertheless, required aggregate payments under the Film Licensing
Obligations could prove to be significant.
Liberty Media Group has guaranteed various loans, notes payable,
letters of credit and other obligations (the "Guaranteed Obligations")
of certain affiliates. At June 30, 2000, the Guaranteed Obligations
aggregated approximately $774 million. Currently, Liberty Media Group
is not certain of the likelihood of being required to perform under
such guarantees.
(continued)
<PAGE>
Pursuant to a final judgment (the "Final Judgment") agreed to by
Liberty Media Corporation, AT&T and the United States Department of
Justice (the "DOJ") on December 31, 1998, Liberty Media Group
transferred all of its beneficially owned securities (the "Sprint
Securities") of Sprint to a trustee (the "Trustee") prior to the AT&T
Merger. The Final Judgment, which was entered by the United States
District Court for the District of Columbia on August 23, 1999,
requires the Trustee, on or before May 23, 2002, to dispose of a
portion of the Sprint Securities sufficient to cause Liberty Media
Group to beneficially own no more than 10% of the outstanding Series 1
PCS Stock of Sprint on a fully diluted basis on such date. On or before
May 23, 2004, the Trustee must divest the remainder of the Sprint
Securities beneficially owned by Liberty Media Group.
The Final Judgment requires that the Trustee vote the Sprint Securities
beneficially owned by Liberty Media Group in the same proportion as
other holders of Sprint's PCS Group Stock so long as such securities
are held by the trust. The Final Judgment also prohibits the
acquisition by Liberty Media Group of additional Sprint Securities,
with certain exceptions, without the prior written consent of the DOJ.
Liberty Media Group leases business offices, has entered into pole
rental and transponder lease agreements and uses certain equipment
under lease arrangements.
Liberty Media Group has contingent liabilities related to legal
proceedings and other matters arising in the ordinary course of
business. Although it is reasonably possible Liberty Media Group may
incur losses upon conclusion of such matters, an estimate of any loss
or range of loss cannot be made. In the opinion of management, it is
expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying
combined financial statements.
