UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
..X.. QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
..... TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to _____________
Commission file number 1-1105
AT&T CORP.
A New York I.R.S. Employer
Corporation No. 13-4924710
32 Avenue of the Americas, New York, New York 10013-2412
Telephone - Area Code 212-387-5400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ..X No ...
At October 31, 2000, the following shares of stock were outstanding:
AT&T common stock - 3,753,409,021 shares AT&T Wireless Group common
stock - 360,971,000 shares Liberty Media Group Class A common stock -
2,369,760,656 shares Liberty Media Group Class B common stock -
206,221,288 shares
<PAGE>
AT&T Form 10-Q - Part I
PART I - FINANCIAL INFORMATION
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2000 1999 2000 1999
Revenue $16,975 $16,333 $49,097 $46,202
Operating Expenses
Access and other connection 3,255 3,654 10,460 11,054
Costs of services and products 4,547 3,932 12,578 10,660
Selling, general and administrative 3,397 3,442 9,796 10,060
Depreciation and other amortization 1,919 1,558 5,182 4,408
Amortization of goodwill, franchise
costs and other purchased intangibles 879 358 1,661 900
Net restructuring and other charges 24 - 797 702
Total operating expenses 14,021 12,944 40,474 37,784
Operating income 2,954 3,389 8,623 8,418
Equity earnings (losses) from Liberty
Media Group 1,756 (217) 2,965 (818)
Other income (expense) 71 (375) 486 (254)
Interest expense 946 493 2,158 1,188
Income before income taxes 3,835 2,304 9,916 6,158
Provision for income taxes 763 888 2,127 2,679
Net income $ 3,072 $ 1,416 $ 7,789 $ 3,479
AT&T Common Stock Group:
Earnings per share:
Basic $ 0.35 $ 0.51 $ 1.41 $ 1.41
Diluted $ 0.35 $ 0.50 $ 1.40 $ 1.39
Dividends declared $ 0.22 $ 0.22 $ 0.66 $ 0.66
AT&T Wireless Group:
(Loss) earnings per share:
Basic and diluted $ (0.01) $ - $ 0.05 $ -
Liberty Media Group:
Earnings (loss) per share:
Basic and diluted $ 0.68 $ (0.09) $ 1.15 $ (0.33)
See Notes to Consolidated Financial Statements
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Share Amounts)
(Unaudited)
September 30, December 31,
2000 1999
ASSETS
Cash and cash equivalents $ 316 $ 1,024
Receivables, less allowances of $1,341 and $1,281 11,686 10,453
Deferred income taxes 1,386 1,287
Other current assets 2,064 1,120
TOTAL CURRENT ASSETS 15,452 13,884
Property, plant and equipment, net of accumulated
depreciation of $31,453 and $30,057 48,165 39,618
Franchise costs, net of accumulated amortization
of $1,413 and $697 48,452 32,693
Licensing costs, net of accumulated amortization
of $1,685 and $1,491 10,457 8,548
Goodwill, net of accumulated amortization of
$3,535 and $363 33,407 7,445
Investment in Liberty Media Group and related
receivables, net 39,229 38,460
Other investments and related advances 46,429 19,366
Prepaid pension costs 2,978 2,464
Other assets 7,783 6,928
TOTAL ASSETS $252,352 $169,406
(CONTINUED)
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Dollars in Millions Except Share Amounts)
(Unaudited)
September 30, December 31,
2000 1999
LIABILITIES
Accounts payable $ 5,344 $ 6,771
Payroll and benefit-related liabilities 2,362 2,651
Debt maturing within one year 32,342 12,633
Dividends payable 826 703
Other current liabilities 10,470 5,449
TOTAL CURRENT LIABILITIES 51,344 28,207
Long-term debt 29,443 23,217
Long-term benefit-related liabilities 3,923 3,964
Deferred income taxes 39,141 24,199
Other long-term liabilities and deferred credits 4,639 3,801
TOTAL LIABILITIES 128,490 83,388
Minority Interest 9,046 2,391
Company-Obligated Convertible Quarterly Income
Preferred Securities of Subsidiary Trust Holding
Solely Subordinated Debt Securities of AT&T 4,708 4,700
SHAREOWNERS' EQUITY
Common Stock:
AT&T Common Stock, $1 par value, authorized
6,000,000,000 shares; issued and outstanding
3,753,642,726 shares (net of 297,563,162 treasury
shares) at September 30, 2000, and 3,196,436,757
shares (net of 287,866,419 treasury shares) at
December 31, 1999 3,754 3,196
AT&T Wireless Group Common Stock, $1 par value,
authorized 6,000,000,000 shares; issued and
outstanding 360,648,000 shares at September 30, 2000 361 -
Liberty Media Group Class A Common Stock, $1 par
value, authorized 4,000,000,000 shares; issued
and outstanding 2,369,760,656 shares (net of
51,729,408 treasury shares) at September 30, 2000,
and 2,313,557,460 shares at December 31, 1999 2,370 2,314
Liberty Media Group Class B Common Stock, $1 par
value, authorized 400,000,000 shares; issued
and outstanding 206,221,288 shares (net of
10,607,776 treasury shares) at September 30, 2000,
and 216,842,228 shares at December 31, 1999 206 217
Additional paid-in capital 90,344 59,526
Guaranteed ESOP obligation - (17)
Retained earnings 10,724 6,712
Accumulated other comprehensive income 2,349 6,979
TOTAL SHAREOWNERS' EQUITY 110,108 78,927
TOTAL LIABILITIES & SHAREOWNERS' EQUITY $252,352 $169,406
See Notes to Consolidated Financial Statements
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY
(Dollars in Millions Except Share Amounts)
(Unaudited)
For the Nine
Months Ended
September 30,
2000 1999
AT&T Common Shares
Balance at beginning of year $ 3,196 $ 2,630
Shares issued (acquired), net:
Under employee plans - 1
For acquisitions 607 565
Other* (49) -
Balance at end of period 3,754 3,196
AT&T Wireless Group Common Stock
Balance at beginning of year - -
Shares issued (acquired), net:
For initial public offering 360 -
Under employee plans 1
Balance at end of period 361 -
Liberty Media Group Class A Common Stock
Balance at beginning of year 2,314 -
Shares issued (acquired), net:
For acquisitions 61 2,280
Other (5) 33
Balance at end of period 2,370 2,313
Liberty Media Group Class B Common Stock
Balance at beginning of year 217 -
Shares issued (acquired), net:
For acquisitions - 220
Other (11) (3)
Balance at end of period 206 217
Additional Paid-In Capital
Balance at beginning of year 59,526 15,195
Shares issued (acquired), net:
Under employee plans 15 37
For acquisitions 22,769 42,374
Other* (2,514) 324
Proceeds in excess of par value from
issuance of AT&T Wireless common stock 9,915 -
Common stock warrants issued - 306
Gain on issuance of common stock
by affiliates 480 534
Other 153 134
Balance at end of period 90,344 58,904
Guaranteed ESOP Obligation
Balance at beginning of year (17) (44)
Amortization 17 27
Balance at end of period - (17)
Retained Earnings
Balance at beginning of year 6,712 7,800
Net income 7,789 3,479
Dividends declared (2,344) (2,104)
Treasury shares issued at less
than cost (1,433) (1,584)
Balance at end of period 10,724 7,591
(CONTINUED)
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (CONTINUED)
(Dollars in Millions Except Share Amounts)
(Unaudited)
For the Nine
Months Ended
September 30,
2000 1999
Accumulated Other Comprehensive Income
Balance at beginning of year 6,979 (59)
Other comprehensive income (4,630) 2,618
Balance at end of period 2,349 2,559
Total Shareowners' Equity $110,108 $74,763
Summary of Total Comprehensive Income:
Net income $ 7,789 $ 3,479
Net foreign currency translation adjustment
(net of taxes of $(177) and $109) (305) 188
Net revaluation of securities (net of
taxes of $(2,730) and $1,586) (4,325) 2,430
Total Comprehensive Income $ 3,159 $ 6,097
* Activity in 2000 primarily represents AT&T stock received from Cox
Communications, Inc., in exchange for an entity owning certain cable systems and
other assets.
Other comprehensive income for the nine months ended September 30, 2000,
included Liberty Media Group's foreign currency translation adjustments totaling
$(193), net of applicable taxes, revaluation of Liberty Media Group's
available-for-sale securities totaling $(1,825), net of applicable taxes and the
recognition of previously unrecognized available for sale securities of
$(1,479), net of applicable taxes.
Other comprehensive income in 1999 included Liberty Media Group's foreign
currency translation adjustments totaling $88, net of applicable taxes, and
revaluation of Liberty Media Group's available-for-sale securities totaling
$2,320, net of applicable taxes.
AT&T accounts for treasury stock as retired stock, and as of September 30,
2000, had 298 million treasury shares of which 225 million shares were owned by
AT&T Broadband subsidiaries and 70 million shares related to the purchase of
AT&T shares previously owned by Liberty Media Group.
We have 100 million authorized shares of preferred stock at $1 par value. No
preferred stock is currently issued or outstanding.
See Notes to Consolidated Financial Statements
<PAGE> AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Millions)
(Unaudited)
For the Nine
Months Ended
September 30,
2000 1999
Operating Activities
Net income $ 7,789 $ 3,479
Adjustments to reconcile net income to net
cash provided by operating activities:
Gains on sales of businesses and
investments (1,051) (495)
Net restructuring and other charges 630 581
Depreciation and amortization 6,843 5,308
Provision for uncollectibles 985 1,077
Net equity (earnings) losses from Liberty
Media Group (2,965) 818
Net losses from other equity investments 970 846
Increase in accounts receivable (2,705) (2,529)
Decrease in accounts payable (248) (318)
Net change in other operating assets
and liabilities (1,025) (1,718)
Other adjustments (49) 1
Net cash provided by operating activities 9,174 7,050
Investing Activities
Capital expenditures and other additions (10,913) (8,770)
Proceeds from sale or disposal of
property, plant and equipment 547 192
(Increase) decrease in other receivables (981) 11
Net (acquisitions) dispositions of
licenses (218) 1
Equity investment distributions and sales 1,104 936
Equity investment contributions and
purchases (2,867) (6,878)
Net acquisitions of businesses including
cash acquired (19,791) (6,830)
Other investing activities, net (57) (15)
Net cash used in investing activities (33,176) (21,353)
Financing Activities
Proceeds from long-term debt issuances 739 8,396
Retirements of long-term debt (1,954) (2,134)
Issuance of convertible securities - 4,694
Dividends paid on convertible securities (147) (75)
Issuance of AT&T Wireless Group common stock 10,291 -
Redemption of subsidiary preferred stock (156) -
Net acquisition of treasury shares (588) (4,476)
Dividends paid on common stock (2,221) (2,009)
Increase in short-term borrowings, net 17,363 6,313
Other financing activities, net (33) 434
Net cash provided by financing activities 23,294 11,143
Net decrease in cash and cash equivalents (708) (3,160)
Cash and cash equivalents at beginning
of year 1,024 3,160
Cash and cash equivalents at end of period $ 316 $ -
See Notes to Consolidated Financial Statements
<PAGE>
AT&T Form 10-Q - Part I
AT&T CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Millions Except Per Share Amounts)
(Unaudited)
(a) BASIS OF PRESENTATION
The consolidated financial statements have been prepared by AT&T
Corp. (AT&T) pursuant to the rules and regulations of the
Securities and Exchange Commission (SEC) and, in the opinion of
management, include all adjustments necessary for a fair statement
of the consolidated results of operations, financial position and
cash flows for each period presented. The consolidated results for
interim periods are not necessarily indicative of results for the
full year. These financial results should be read in conjunction
with AT&T's Form 10-K for the year ended December 31, 1999, filed
on March 27, 2000, (which includes the financial statements of
Liberty Media Group for the year ended December 31, 1999), AT&T's
Form 10-Q for the quarter ended March 31, 2000, (which includes
the financial results of Liberty Media Group for this period,
attached as an exhibit thereto), AT&T's Form 10-Q for the quarter
ended June 30, 2000, (which includes the financial results of
Liberty Media Group and AT&T Wireless Group for quarter and
year-to-date periods ended June 30, 2000, attached as exhibits
thereto) and the financial statements of Liberty Media Group and
AT&T Wireless Group for the quarter and year-to-date periods ended
September 30, 2000, included as Exhibits 99.1 and 99.2,
respectively, to this AT&T quarterly report on Form 10-Q.
On April 27, 2000, AT&T created a new class of stock when we
completed an initial public offering of 360 million shares of AT&T
Wireless Group tracking stock at a price of $29.50 per share. This
stock is designed to track the economic performance of AT&T's
wireless services business and represented a 15.6% interest in
that business. AT&T retained the remaining 84.4% interest in AT&T
Wireless Group. In addition to AT&T Wireless Group tracking stock,
AT&T has two other classes of stock, Liberty Media Group (LMG)
tracking stock and AT&T common stock. Liberty Media Group tracking
stock is intended to reflect the performance of Liberty Media
Group. AT&T common stock is intended to reflect the performance of
all other businesses of AT&T, referred to as AT&T Common Stock
Group, including AT&T's retained interest in AT&T Wireless Group.
The earnings attributable to AT&T Wireless Group represent 15.6%
of the earnings for the third quarter and 15.6% of the earnings
from April 27, 2000, the date of the initial public offering,
through September 30, 2000, for the year-to-date period. The
remaining earnings of AT&T's wireless services business are
included in the earnings attributable to AT&T Common Stock Group.
Similarly, the earnings or losses related to LMG are excluded from
earnings available to AT&T Common Stock Group.
The board of directors of LMG declared a two-for-one stock split
of LMG tracking stock, paid on June 9, 2000. All references to
number of shares and per share information for LMG in the
consolidated financial statements have been adjusted to reflect
the stock split on a retroactive basis.
We have reclassified certain prior period amounts to conform to
our current presentation.
<PAGE>
AT&T Form 10-Q - Part I
(b) MERGERS
MERGER WITH MEDIAONE GROUP, INC. (MEDIAONE)
On June 15, 2000, AT&T completed a merger with MediaOne in a cash
and stock transaction valued at approximately $56 billion. For
each share of MediaOne stock, MediaOne shareholders received, in
the aggregate, 0.95 of a share of AT&T common stock and $36.27 per
share in cash, consisting of $30.85 per share as stipulated in the
merger agreement and $5.42 per share based on AT&T's stock price
preceding the merger, which was below a predetermined amount. AT&T
issued approximately 603 million shares of common stock, of which
approximately 60 million were treasury shares. The AT&T shares had
an aggregate market value of approximately $21 billion and cash
payments totaled approximately $24 billion. In addition, the
transaction included debt and other obligations of MediaOne
totaling approximately $11 billion.
The merger was accounted for under the purchase method of
accounting, accordingly the results of MediaOne have been included
in the accompanying consolidated financial statements since the
date of acquisition as part of our Broadband segment.
Approximately $17 billion of the purchase price of $56 billion has
been attributed to agreements with local franchise authorities
that allow access to homes in our broadband service areas
("franchise costs") and is being amortized on a straight-line
basis over 40 years. Also included in the $56 billion purchase
price was approximately $29 billion related to nonconsolidated
investments, including investments in Time Warner Entertainment
(TWE) and Vodafone Group, plc, approximately $5 billion related to
property, plant and equipment, approximately $10 billion
attributable to MediaOne debt, and approximately $1 billion of
minority interest in Centaur Funding Corporation (Centaur), a
subsidiary of MediaOne. The purchase resulted in preliminary
goodwill of $16 billion, which is being amortized on a
straight-line basis over 40 years. We may make refinements to the
allocation of the purchase price in future periods as the related
fair value appraisals of certain assets and liabilities are
finalized.
MERGER WITH TELE-COMMUNICATIONS, INC. (TCI)
In March 1999, AT&T completed a merger with TCI, renamed AT&T
Broadband (Broadband), in an all-stock transaction valued at
approximately $52 billion. The merger was accounted for under the
purchase method of accounting and, accordingly, the results of
Broadband have been included in the financial results of AT&T
since the acquisition.
In connection with the closing, AT&T issued a separate tracking
stock designed to reflect the economic performance of LMG, TCI's
former programming and technology investment business.
AT&T does not have a controlling financial interest for financial
accounting purposes in LMG; therefore, our investment in LMG is
accounted for under the equity method in the accompanying
consolidated financial statements. The amounts attributable to LMG
are reflected as separate line items "Equity earnings (losses)
from Liberty Media Group" and "Investment in Liberty Media Group
and related receivables, net," in the accompanying consolidated
financial statements.
<PAGE>
AT&T Form 10-Q - Part I
PRO FORMA RESULTS
Following is a summary of the pro forma results of AT&T as if the
mergers with MediaOne and TCI had closed effective January 1,
1999:
(Unaudited)
Shares in millions
For the Nine Months Ended September 30, 2000 1999
Revenue $50,422 $49,145
Net income 8,658 3,081
Weighted-average AT&T common shares 3,765 3,780
Weighted-average AT&T common shares
and potential common shares 3,842 3,871
Weighted-average AT&T Wireless Group shares 360 -
Weighted-average Liberty Media Group Shares 2,573 2,514
AT&T Common Stock Group earnings per
common share:
Basic $ 1.51 $ 1.09
Diluted $ 1.49 $ 1.07
AT&T Wireless Group earnings per
common share:
Basic and diluted $ 0.05 $ -
Liberty Media Group earnings (loss) per
common share:
Basic and diluted $ 1.15 $ (0.41)
Pro forma data may not be indicative of the results that would
have been obtained had these events actually occurred at the
beginning of the periods presented, nor does it intend to be a
projection of future results.
(c) OTHER ACQUISITIONS, EXCHANGES AND DISPOSITIONS
AT HOME CORPORATION (EXCITE@HOME)
On August 28, 2000, AT&T and Excite@Home announced shareholder
approval of a new board of directors and governance structure for
Excite@Home and completion of the extension of distribution
contracts with AT&T, Cox Communications (Cox) and Comcast
Corporation (Comcast). AT&T was given the right to designate six
of the 11 Excite@Home board members. In addition, Excite@Home
converted approximately 50 million AT&T's Series A shares into
Series B shares, each of which has ten votes. As a result of these
governance changes, AT&T gained a controlling financial interest
and began consolidating Excite@Home's results upon the closing of
the transaction on September 1, 2000, at which time we had an
approximate 24% economic interest and 74% voting interest,
compared with our previous 56% voting interest. As of September
30, 2000, AT&T had an approximate 23% economic interest in
Excite@Home.
<PAGE>
AT&T Form 10-Q - Part I
In exchange for Cox and Comcast relinquishing their rights under
the shareholder agreement, AT&T granted put options to Cox and
Comcast on a combined total of 60.4 million shares of Excite@Home
Series A common stock. The put options provide Cox and Comcast
with the right to convert their Excite@Home shares into either
AT&T stock or cash at their option, at any time between January 1,
2001 and June 4, 2002, at the higher of (i) $48 per share or (ii)
the 30 day average trading price at the time of exercise
(beginning 15 trading days prior to the exercise date and ending
15 days after the exercise date). If the average price is above
$48 per share, the number of Excite@Home shares that AT&T would
acquire would be reduced proportionately from the original 60.4
million shares. The maximum amount that AT&T would be required to
pay in cash or stock is approximately $2.9 billion based on the
$48 strike price. The obligation under these put options was
recorded as other long-term liabilities on the balance sheet at
fair value, with gains or losses resulting from changes in fair
value being recorded as a component of other income (expense). A
charge of approximately $21 was recorded in the third quarter of
2000 to reflect the increase in fair value of the put options.
Also, in connection with the distribution agreements through 2008,
AT&T obtained the right to purchase up to approximately 25 million
Excite@Home Series A shares and 25 million Series B shares. In
addition, Cox and Comcast each will receive new warrants to
purchase two Series A shares for each home its system passes.
These warrants will vest in installments every six months
beginning in June 2001, and be fully vested in June 2006, if Cox
and Comcast elect to continue their extended non-exclusive
distribution agreements through that period.
As a result of the consolidation of Excite@Home, AT&T's balance
sheet as of September 30, 2000, reflected minority interest of
approximately $5.4 billion, goodwill of approximately $8.7
billion, short-term liabilities of approximately $2.4 billion,
other net assets of approximately $1.0 billion and the removal of
our investment in Excite@Home of approximately $1.9 billion.
(d) NET RESTRUCTURING AND OTHER CHARGES
During the quarter AT&T recorded $24 of net restructuring and
other charges. These charges represent cash severance costs for
approximately 490 employees recorded in conjunction with the
synergies created by the MediaOne merger. Approximately one-half
of the individuals were management employees and one-half were
non-management employees. Approximately 30% of the affected
employees have left their positions as of September 30, 2000, and
the remaining employees will leave the company by the end of 2000.
Net restructuring and other charges for the nine months ended
September 30, 2000, totaled $797. The charge included
restructuring and exit costs of $706 and a $91 charge related to
the mandated disposition of AT&T Communications (U.K.) Ltd. (Comms
U.K.), which would have competed directly with Concert, our global
venture with British Telecommunication plc. The restructuring and
exits costs related to actions across several of our business
units. These actions were primarily driven by our continuing
efforts to streamline operations and reduce costs by $2 billion by
the end of the year.
<PAGE>
AT&T Form 10-Q - Part I
The charge for the nine months ended September 30, 2000, included
cash termination benefits of $482 associated with the involuntary
separation of about 6,700 employees. Approximately one-half of the
individuals were management employees and one-half were
non-management employees. Approximately 50% of the affected
employees have left their positions as of September 30, 2000.
The charge also included $62 of network lease and other contract
termination costs associated with penalties incurred as part of
notifying vendors of the termination of these contracts during the
first quarter of 2000.
The following table displays the activity and balances of the
restructuring liability accounts from January 1, 2000, to
September 30, 2000:
Jan. 1, Sept. 30,
2000 2000
Type of Cost Balance Additions Deductions Balance
Employee
separations $150 $482 $(333) $299
Facility closings 239 - (53) 186
Other 21 62 (39) 44
Total $410 $544 $(425) $529
Deductions reflect cash payments of $337 and noncash utilization
of $88. The cash outlay was primarily funded through cash from
operations. Noncash utilization included deferred severance
primarily related to executive terminations.
Also included in the charge for the nine months ended September
30, 2000, was $144 of benefit curtailment costs associated with
employee separations as part of these exit plans. We also recorded
an asset impairment charge of $18 related to the write-down of
unrecoverable assets in certain businesses in which the carrying
value is no longer supported by future cash flows.
As a result of our merger with MediaOne and as part of our
objective to benefit from the synergies created by the merger, we
expect to record additional restructuring charges for exit and
separation plans in the fourth quarter.
Net restructuring and other charges for the nine months ended
September 30, 1999, totaled $702. The charge included a pretax
in-process research and development charge of $594 related to the
TCI acquisition, a $128 pretax net charge primarily related to our
exit from certain joint ventures that would have competed directly
with Concert and a $50 pretax charge related to a contribution
agreement entered into by Broadband to satisfy certain liabilities
of Phoenixstar, Inc. These charges were partially offset by a $70
pretax gain related to the settlement of pension obligations for
former employees who accepted AT&T's voluntary retirement
incentive program offer.
<PAGE>
AT&T Form 10-Q - Part I
(e) EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE
Earnings (losses) attributable to the different classes of AT&T
common stock is as follows:
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2000 1999 2000 1999
AT&T Common Stock Group $1,319 $1,633 $4,805 $4,297
AT&T Wireless Group (3) - 19 -
Liberty Media Group 1,756 (217) 2,965 (818)
Net income $3,072 $1,416 $7,789 $3,479
Basic earnings per share (EPS) for AT&T Common Stock Group for the
three and nine months ended September 30, 2000 and 1999, were
computed by dividing earnings attributable to AT&T Common Stock
Group shareowners by the weighted-average number of AT&T common
shares outstanding during the period.
Diluted EPS for AT&T Common Stock Group was computed by dividing
earnings attributable to AT&T Common Stock Group shareowners,
adjusted for the conversion of securities, by the weighted-average
number of AT&T common shares and dilutive potential common shares
outstanding during the period, assuming conversion of the
potential common shares at the beginning of the periods presented.
Shares issuable upon conversion of preferred stock of
subsidiaries, convertible debt securities of a subsidiary,
convertible put options, stock options and other performance
awards have been included in the diluted calculation of
weighted-average shares to the extent that the assumed issuance of
such shares would have been dilutive, as illustrated below. The
convertible quarterly income preferred securities were
antidilutive and were excluded from the computation of diluted
EPS. The dividends on these securities have an after-tax impact to
quarterly earnings of approximately $40. Assuming the conversion
of these securities, the dividends would no longer be included as
a reduction to net income and the securities would convert into
approximately 67 million shares of AT&T common stock.
A reconciliation of the income and share components for diluted
EPS calculations with respect to AT&T Common Stock Group is as
follows:
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
2000 1999 2000 1999
AT&T Common Stock Group:
Income available $1,319 $1,633 $4,805 $4,297
Income impact of assumed
conversion of preferred stock
of subsidiary 8 8 24 18
Income impact of mark-to-market on
convertible put options 13 - 13 -
Income available adjusted for
conversion of securities $1,340 $1,641 $4,842 $4,315
<PAGE>
AT&T Form 10-Q - Part I
Shares in millions
Weighted-average common
shares 3,752 3,195 3,397 3,045
Stock options 17 32 23 37
Preferred stock of subsidiary 40 40 40 30
Convertible debt securities of
subsidiary - - - 2
Convertible put options 33 - 11 -
Weighted-average common shares
and potential common shares 3,842 3,267 3,471 3,114
Basic EPS for AT&T Wireless Group for the third quarter and for
the period from the date of the initial public offering through
September 30, 2000, was computed by dividing the income
attributable to AT&T Wireless Group shareowners by the
weighted-average number of shares outstanding of AT&T Wireless
Group of 360 million. Potentially dilutive securities consisted of
approximately 73 million stock options, which were antidilutive at
September 30, 2000.
Basic EPS for LMG was computed by dividing the earnings (loss)
attributable to LMG shareowners by the weighted-average number of
shares outstanding of LMG of 2,578 million and 2,530 million, for
the three months ended September 30, 2000 and 1999, respectively,
and 2,573 million and 2,514 million for the nine months ended
September 30, 2000, and from the date of acquisition through
September 30, 1999, respectively.
Potentially dilutive securities, including fixed and nonvested
performance awards and stock options, have not been factored into
the dilutive calculations because past history has indicated that
these contracts are generally settled in cash. There were 98
million and 104 million of these potentially dilutive securities
outstanding at September 30, 2000 and 1999, respectively. The
diluted earnings per share calculation for the third quarter of
2000 also excludes approximately 700 thousand warrants outstanding
at September 30, 2000, which were antidilutive. Since LMG had a
loss in the quarter and year-to-date periods of 1999, the impact
of any potential shares would have been antidilutive.
(f) LONG-TERM DEBT
EXCHANGEABLE NOTES
During 1999 and 1998, MediaOne issued debt (the Exchangeable
Notes) which is mandatorily redeemable at MediaOne's option into
(i) Vodafone American Depository Receipts (ADRs) held by MediaOne,
(ii) the cash equivalent, or (iii) a combination of cash and
Vodafone ADRs. The maturity value of the Exchangeable Notes varies
based upon the fair market value of a Vodafone ADR.
<PAGE>
AT&T Form 10-Q - Part I
Following is a summary of the Exchangeable Notes outstanding by
year of issue:
Year of Issue
EXCHANGEABLE NOTES 1999 1998
Proceeds $1,129 $1,686
Interest Rate 7.0% 6.25%
Maturity Date Nov. 15, 2002 Aug. 15, 2001
Carrying Value $1,055 $2,395
The redemption formula for the 1999 Exchangeable Notes is as
follows:
(a) If the fair market value of a Vodafone ADR is greater
than or equal to $51.2563, each 1999 Exchangeable Note
is equivalent to 0.8475 of a Vodafone ADR;
(b) If the fair market value of a Vodafone ADR is less than
or equal to $43.4375, each 1999 Exchangeable Note is
equivalent to one Vodafone ADR; or
(c) If the fair market value of a Vodafone ADR is less than
$51.2563 but greater than $43.4375 per share, each
1999 Exchangeable Note is equivalent to a fraction of
a Vodafone ADR equal to (i) $43.4375 divided by (ii)
the fair market value of one Vodafone ADR.
The number of Vodafone ADRs to be exchanged at maturity for each
1998 Exchangeable Note will be based upon a redemption value of
$9.00 in cash plus 2 1/2 times the fair market value of a Vodafone
ADR (the Maturity Price), as follows:
(a) If the Maturity Price is greater than or equal to $71.75
per share, each 1998 Exchangeable Note is equivalent
to 0.8101 of the Maturity Price;
(b) If the Maturity Price is less than or equal to $58.125
per share, each 1998 Exchangeable Note is equivalent to
the Maturity Price; or
(c) If the Maturity Price is less than $71.75 per share but
greater than $58.125 per share, each 1998 Exchangeable
Note is equivalent to $58.125.
The Exchangeable Notes are being accounted for as indexed debt
instruments since the maturity value of the Exchangeable Notes is
dependent upon the fair market value of the underlying Vodafone
ADRs. For the 1999 debt issuance, the market risk of a decline in
value of Vodafone ADRs below $43.4375 per share on 26.0 million of
the 148.3 million Vodafone ADRs held by MediaOne has been
eliminated. In addition, MediaOne has limited the market gains it
may earn to 15.25% of the fair market value in excess of $51.2563
per share on 26.0 million Vodafone ADRs. For the 1998 debt
issuance, the market risk of a decline in value of Vodafone ADRs
below $19.65 per share on 72.5 million of the 148.3 million
Vodafone ADRs held by MediaOne has been eliminated. In addition,
MediaOne has limited the market gains it may earn to approximately
19% of the fair market value in excess of $25.10 per share on 72.5
million Vodafone ADRs.
<PAGE>
AT&T Form 10-Q - Part I
Since the Vodafone ADRs are a cost method investment being
accounted for as "available-for-sale" securities under Statement
of Financial Accounting Standards (SFAS) No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," changes in the
maturity value of the Exchangeable Notes are being recorded as
unrealized gains or losses, net of tax, within other comprehensive
income as a component of shareowners' equity.
The Exchangeable Notes are unsecured obligations of MediaOne,
ranking equally in right of payment with all other unsecured and
unsubordinated obligations of MediaOne.
FLOATING RATE DEBT
Two subsidiaries of MediaOne, MediaOne SPC IV and MediaOne SPC VI,
entered into a series of purchased and written options on Vodafone
ADRs contributed to them by MediaOne and issued floating rate
debt. The carrying value of debt outstanding at September 30,
2000, was $1,739, which pays interest at three-month London
Inter-Bank Offering Rate (LIBOR) plus 0.5%. This debt matures in
equal quarterly installments beginning in 2003 and ending in 2005.
The assets of MediaOne SPC IV, which are primarily 29.1 million
Vodafone ADRs, are only available to pay the creditors of MediaOne
SPC IV. Likewise, the assets of MediaOne SPC VI, which are
primarily 18.0 million Vodafone ADRs, are only available to pay
the creditors of MediaOne SPC VI.
SUBSIDIARY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUSTS HOLDING SOLELY SUBORDINATED DEBT SECURITIES
OF AN AT&T SUBSIDIARY
Certain subsidiary trusts of MediaOne (the MediaOne Trusts) had
preferred securities outstanding at September 30, 2000, as
follows:
Interest Maturity Carrying
Subsidiary Trust Rate Date Amount
MediaOne Financing I 7.96% 2025 $ 30
MediaOne Financing II 8.25% 2036 28
MediaOne Financing I 9.30% 2025 -
MediaOne Finance II 9.50% 2036 214
MediaOne Finance III 9.04% 2038 504
Total $ 776
The MediaOne Trusts exist for the exclusive purpose of issuing the
Trust Preferred Securities and investing the proceeds thereof into
Subordinated Deferrable Interest Notes (the Subordinated Debt
Securities) of MediaOne Group Funding, Inc., a wholly-owned
subsidiary of MediaOne. The Subordinated Debt Securities have the
same interest rate and maturity date as the Trust Preferred
Securities to which they relate. The Subordinated Debt Securities
are fully and unconditionally guaranteed by MediaOne. All of the
Subordinated Debt Securities are redeemable by MediaOne Group
Funding, Inc. or MediaOne at a redemption price of $25.00 per
security, plus accrued and unpaid interest. Upon redemption of the
Subordinated Debt Securities, the Trust Preferred
<PAGE>
AT&T Form 10-Q - Part I
Securities will be mandatorily redeemable, at a price of $25.00
per share, plus accrued and unpaid distributions. The 9.30% and
7.96% Subordinated Debt Securities became redeemable after
September 11, 2000, and the 9.30% securities were fully redeemed
by the end of the third quarter. The 9.50% and 8.25% Subordinated
Debt Securities are redeemable after October 29, 2001. The 9.04%
Subordinated Debt Securities are redeemable after October 28,
2003. The Trust Preferred Securities are recorded within long-term
debt in the accompanying consolidated balance sheet.
(g) FINANCIAL INSTRUMENTS
COLLARS
Two subsidiaries of MediaOne, MediaOne SPC IV and MediaOne SPC VI,
entered into a series of purchased and written options
(collectively the collars) on Vodafone ADRs contributed to them by
MediaOne and issued floating rate debt. The collars have been
designated and are effective as a hedge of the market risk
associated with the investment in Vodafone ADRs. The collars are
therefore carried at intrinsic value, with unrealized gains or
losses, net of tax, being recorded within other comprehensive
income as a component of shareowners' equity, together with any
change in the fair value of the Vodafone ADRs. The carrying value
of the collars at September 30, 2000, was $515.
At the expiration of the MediaOne SPC IV collar, we will receive
cash if the market value of a Vodafone ADR is less than
approximately $34.00 per share, effectively eliminating downside
risk on the stock below $34.00 per share. Conversely, if the
market value of a Vodafone ADR is greater than approximately
$49.00 per share, we will be required to pay cash, which will be
offset by the corresponding increase in the value of the Vodafone
ADR. This collar expires quarterly beginning in 2003 and ending in
2005.
At the expiration of the MediaOne SPC VI collar, we will receive
cash if the market value of a Vodafone ADR is less than
approximately $40.00 per share, effectively eliminating downside
risk on the stock below $40.00 per share. Conversely, if the
market value of a Vodafone ADR is greater than approximately
$58.00 per share, we will be required to pay cash, which will be
offset by the corresponding increase in the value of the Vodafone
ADR. This collar expires quarterly beginning in 2003 and ending in
2005.
INTEREST RATE SWAPS
In connection with the floating rate debt issued by MediaOne SPC
IV and VI, interest rate swaps were entered into to swap the
floating rate debt to fixed rate debt. The interest rate swaps
have the same maturities as the debt and mature in equal quarterly
installments beginning in 2003 and ending in 2005. MediaOne
prepaid the fixed interest payments pursuant to the swap
agreements; the costs of which were deferred and are amortized as
adjustments to the interest expense over the term of the debt. As
a result of the swaps and related amortization, MediaOne expects
to have a fixed effective interest rate of 5.91% on the MediaOne
SPC IV debt and 6.02% on the MediaOne SPC VI debt. The unamortized
prepaid interest rate swap balance was approximately $441 as of
September 30, 2000.
<PAGE>
AT&T Form 10-Q - Part I
LETTERS OF CREDIT
At September 30, 2000, we had letters of credit of $641. The
increase from December 31, 1999, was primarily related to letters
of credit to support subsidiary debt as well as letters of credit
MediaOne had entered into prior to the merger.
EQUITY HEDGES
We enter into equity hedges to manage our exposure to changes in
equity prices associated with stock appreciation rights of
affiliated companies. The fair value of our equity hedges as of
September 30, 2000, was approximately $4.
(h) MINORITY INTEREST IN CENTAUR FUNDING CORPORATION
Centaur Funding Corporation (Centaur), a subsidiary of MediaOne,
issued three series of preferred shares prior to AT&T's
acquisition of MediaOne. Centaur was created for the principal
purpose of raising capital through the issuance of preferred
shares and investing those proceeds into notes issued by MediaOne
SPC II, a subsidiary of MediaOne. Principal and interest payments
from the notes are expected to be Centaur's principal source of
funds to make dividend and redemption payments on the preferred
shares. In addition, the dividend and certain redemption payments
on the preferred shares will be determined by reference to the
dividend and redemption activity of the preferred stock of
AirTouch Communications, Inc. (ATI Shares) held by MediaOne SPC
II. Payments on the preferred shares are neither guaranteed nor
secured by MediaOne or AT&T. The assets of MediaOne SPC II, which
includes the ATI shares, are only available to pay the creditors
of MediaOne SPC II.
These securities remained outstanding at September 30, 2000, as
follows:
Dividend Rate Maturity Date Carrying Amount
Series A Variable None $ 100
Series B 9.08% 4/21/2020 927
Series C None 4/21/2020 115
Total $1,142
The Auction Market Preference Shares, Series A, have a liquidation
value of $250 thousand per share and dividends are payable
quarterly when declared by Centaur's Board of Directors out of
funds legally available.
The 9.08% Cumulative Preference Shares, Series B, have a
liquidation value of $1 thousand per share and dividends are
payable quarterly in arrears when declared by Centaur's Board of
Directors out of funds legally available. In addition, dividends
may be declared and paid only to the extent that dividends have
been declared and paid on the ATI shares.
The Preference Shares, Series C, have a liquidation value of $1
thousand per share at maturity. The value of the Series C will be
accreted to reach its liquidation value upon maturity.
The preferred shares issued by Centaur are recorded within
Minority Interest in the accompanying consolidated balance sheets.
<PAGE>
AT&T Form 10-Q - Part I
(i) RELATED PARTY TRANSACTIONS
AT&T has various related party transactions with Concert as a
result of the closure of this global venture in early January.
Included in revenue for the three and nine months ended September
30, 2000, are $269 and $819, respectively, for services provided
to Concert.
Included in access and other connection expenses for the three and
nine months ended September 30, 2000, are charges from Concert
representing costs incurred on our behalf to connect calls made to
foreign countries (international settlements) and costs paid by
AT&T to Concert for distributing Concert products totaling $568
and $1,728, respectively.
During the first quarter of 2000, AT&T loaned $1.0 billion to
Concert which is included within investments and related advances
in the accompanying consolidated balance sheet. Interest income of
$18 and $48 was recognized for the three and nine months ended
September 30, 2000, respectively.
Included in accounts receivable and other current assets at
September 30, 2000, was $455 and $908, respectively, related to
transactions with Concert. Included in accounts payable and other
current liabilities at September 30, 2000, was $413 and $1,259,
respectively, also related to transactions with Concert.
In addition, Broadband had various related party transactions with
LMG. Included in costs of services and products were programming
expenses related to services from LMG which amounted to $69 and
$184 for the three and nine months ended September 30, 2000,
respectively, and $55 and $168 for the three and nine months ended
September 30, 1999, respectively.
Included in investment in LMG and related receivables was $113 and
$27 at September 30, 2000, and December 31, 1999, respectively,
primarily related to taxes pursuant to a tax sharing agreement
between LMG and Broadband, which existed prior to the TCI merger.
AT&T pays certain expenses on behalf of LA Cellular, which is
owned through our equity interest in AB Cellular Holding LLC (AB
Cellular). Accounts receivable included approximately $167 related
to these receivables at September 30, 2000.
(j) GUARANTEE OF PREFERRED SECURITIES
TCI Securities:
Prior to the consummation of the TCI merger, TCI issued
mandatorily redeemable preferred securities through subsidiary
trusts that held subordinated debt securities of TCI. AT&T
provides a full and unconditional guarantee on the outstanding
securities issued by TCI Communications Financing I, II and IV. At
September 30, 2000, $1,247 of the guaranteed redeemable preferred
securities remained outstanding. Following is a summary of the
results of TCI which have been included in the financial results
of AT&T for each corresponding period. The summarized financial
information includes transactions with AT&T that were eliminated
in consolidation.
<PAGE>
AT&T Form 10-Q - Part I
For the Nine For the Seven
Months Ended Months Ended
September 30, 2000 September 30, 1999
Revenue $ 4,755 $ 3,489
Operating loss (226) (744)
Net income (loss) 1,775 (2,406)
As of As of
September 30, 2000 December 31, 1999
Current assets $ 802 $ 468
Noncurrent assets 98,460 93,798
Current liabilities 4,803 2,814
Noncurrent liabilities 39,898 37,853
Minority interest 7,450 2,175
MediaOne Securities:
Prior to the consummation of the MediaOne merger, MediaOne issued
mandatorily redeemable exchangeable notes and mandatorily
redeemable preferred securities through subsidiary trusts that
held subordinated debt securities of MediaOne. AT&T provides a
full and unconditional guarantee on these outstanding securities
issued by MediaOne. At September 30, 2000, $4,227 of the
guaranteed securities remained outstanding. Following is a summary
of the results of MediaOne which have been included in the
financial results of AT&T since the date of acquisition on June
15, 2000. The summarized financial information includes
transactions with AT&T that were eliminated in consolidation.
For the period from
June 15, 2000 to
September 30, 2000
Revenue $ 914
Operating loss (303)
Net loss (286)
As of
September 30,
2000
Current assets $ 6,267
Noncurrent assets 65,442
Current liabilities 3,793
Noncurrent liabilities 22,700
Minority interest 1,143
(k) SEGMENT REPORTING
AT&T's results are segmented according to the way we manage our
business: Business Services, Consumer Services, Wireless Services
and Broadband. Our existing segments reflect certain managerial
changes since the publication of our 1999 annual results. All
prior period results have been restated to reflect these changes.
In addition, 2000 results reflect the acquisition of MediaOne,
included in the Broadband segment from the June 15, 2000, date of
acquisition, and the impact of assets and businesses contributed
to Concert, which were included in 1999 results.
Reflecting the dynamics of our business, we continuously review
our management model and structure, which may result in additional
adjustments to our operating segments in the future.
<PAGE>
AT&T Form 10-Q - Part I
REVENUE
Three Nine
Months Ended Months Ended
September 30, September 30,
2000 1999 2000 1999
Business services external
revenue $ 6,895 $ 6,859 $20,818 $19,715
Business services internal
revenue 213 197 573 553
Total business services
revenue 7,108 7,056 21,391 20,268
Consumer services external
revenue 4,672 5,578 14,715 16,527
Wireless services external
revenue 2,799 2,050 7,474 5,490
Broadband external revenue 2,417 1,505 5,691 3,479
Total reportable segments
revenue 16,996 16,189 49,271 45,764
Corporate and Other revenue (a) (21) 144 (174) 438
Total revenue $16,975 $16,333 $49,097 $46,202
(a) Included in Corporate and Other is revenue from international
operations and ventures, Excite@Home, other corporate operations
and the elimination of internal revenue.
RECONCILIATION OF EARNINGS BEFORE INTEREST AND TAXES (EBIT) TO
INCOME BEFORE INCOME TAXES
Three Nine
Months Ended Months Ended
September 30, September 30,
2000 1999 2000 1999
Business services $1,733 $1,509 $4,870 $4,536
Consumer services 1,854 2,159 5,425 5,852
Wireless services 105 54 551 128
Broadband (627) (310) (717) (1,187)
Total reportable segments'
EBIT 3,065 3,412 10,129 9,329
Corporate and Other EBIT (40) (398) (1,020) (1,165)
Liberty Media Group equity
earnings (losses) 1,756 (217) 2,965 (818)
Interest expense 946 493 2,158 1,188
Total income before income
taxes $3,835 $2,304 $9,916 $6,158
<PAGE>
AT&T Form 10-Q - Part I
ASSETS
At Sept. 30, At Dec. 31,
2000 1999
Business services $ 33,360 $ 32,010
Consumer services 4,945 6,279
Wireless services 33,045 23,312
Broadband 117,289 53,810
Total reportable segments 188,639 115,411
Corporate and Other:
Other segments 6,962 3,386
Prepaid pension costs 2,978 2,464
Deferred taxes 1,183 899
Other corporate assets 13,361 8,786
Investment in Liberty Media Group
and related receivables, net 39,229 38,460
Total assets $252,352 $169,406
(l) NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB)
issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities." Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities
in the statement of financial position and measure those
instruments at fair value. Gains and losses resulting from changes
in the fair values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies
for hedge accounting. The effective date for this standard was
delayed via the issuance of SFAS No. 137. The effective date for
SFAS No. 133 is now for fiscal years beginning after June 15,
2000, though earlier adoption is encouraged and retroactive
application is prohibited. For AT&T, this means that the standard
must be adopted no later than January 1, 2001.
In June 2000, the FASB issued SFAS No. 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities" as
an amendment to SFAS No. 133. This statement provides
clarification with regard to certain implementation issues under
SFAS No. 133 on specific types of hedges.
The impact of the adoption of SFAS No. 133, as amended by SFAS No.
138, on AT&T's results of operations is dependent upon the fair
values of our derivatives and related financial instruments at the
date of adoption and could result in more pronounced quarterly
fluctuations in other income (expense) in future periods. However,
had we adopted SFAS No. 133 in the third quarter of 2000, we would
have recorded a cumulative effect of an accounting change, net of
applicable taxes, of approximately $325 of income, or $0.08 per
diluted share, primarily attributable to fair value adjustments of
debt instruments acquired in conjunction with the MediaOne merger,
as well as to our warrant portfolio.
<PAGE>
AT&T Form 10-Q - Part I
Management does not expect the impact of the adoption of SFAS No.
133 on our interest rate swap and foreign exchange portfolios to
be material to AT&T's results of operations, financial condition,
or cash flows.
In addition, management is currently reassessing the appropriate
classification of certain investment securities that support debt,
which is indexed to those securities. Had these securities been
reclassified from available-for-sale to trading securities during
the third quarter, a charge of $235, or $0.06 per diluted share,
net of applicable taxes, would have been recorded to other income
(expense), concurrently with the adoption of SFAS No. 133. As an
available-for-sale security, changes in fair value are included
within other comprehensive income.
In December 1999, the Securities and Exchange Commission issued
Staff Accounting Bulletin No. 101 (SAB No. 101), "Revenue
Recognition in Financial Statements." The SEC delayed the date by
which registrants must apply the accounting and disclosures
described in SAB No. 101 until the fourth quarter of 2000.
Management does not expect the adoption of SAB No. 101 to have a
material impact on our results of operations.
(m) SUBSEQUENT EVENTS
RESTRUCTURING PLAN
On October 25, 2000, AT&T announced a restructuring plan designed
to create four publicly traded companies from each of our major
operating units. AT&T shareowners would ultimately own stock in
each of the four businesses. Upon completion of the plan, AT&T
Wireless, AT&T Broadband, AT&T Consumer and AT&T Business will all
be represented by asset-based or tracking stocks.
In the first phase of the restructuring plan, AT&T intends to
offer AT&T shareowners the opportunity to exchange their AT&T
common stock for AT&T Wireless Group tracking stock. We plan to
distribute our remaining interest in AT&T Wireless Group to AT&T
shareowners in 2001.
AT&T also plans to create a new class of stock to track the
economic performance of our AT&T Consumer business and plans to
distribute 100% of the tracking stock to AT&T shareowners in the
second half of 2001. In addition, depending on market conditions,
AT&T plans to conduct an initial public offering of stock that
will track the economic performance of our Broadband unit during
the summer of 2001. AT&T's ownership interest in Excite@Home will
be part of the Broadband entity. AT&T plans to recapitalize the
Broadband tracking stock into an asset-based common stock within
twelve months of the initial public offering.
<PAGE>
AT&T Form 10-Q - Part I
AT&T Business will be the legal owner of the AT&T brand, which it
will license to the other companies. It will also be the parent
company of the AT&T Consumer business.
The board of directors is reviewing the dividend policy of AT&T
before the end of 2000 and AT&T expects that AT&T's dividend prior
to the creation of the four new companies as well as the combined
dividend of the four new companies will be substantially lower
than our current dividend.
AT&T does not expect significant downsizing to result from our
plans, although each company will continue to size its operations
as appropriate. AT&T expects these transactions will be tax-free
to U.S. shareholders. Certain aspects of the above transactions
remain subject to regulatory and other approvals.
OTHER EVENTS
AT&T currently holds a 55.62% equity interest in AB Cellular,
which was formed in 1998 with BellSouth, with each party having a
50% voting interest. AB Cellular owns, controls and supervises
wireless properties in Los Angeles, Houston and Galveston. Public
documents filed by BellSouth indicate that BellSouth anticipates
exercising an option available to them pursuant to the AB Cellular
LLC Agreement, which would result in AB Cellular redeeming AT&T's
interest in AB Cellular in consideration of 100% of the net assets
of the Los Angeles property. If this transaction takes place, AT&T
anticipates recording a gain and will begin consolidating the
results of the Los Angeles property.
On November 13, 2000, two of AT&T's wireless affiliates, TeleCorp
PCS, Inc. (TeleCorp) and Tritel, Inc., merged as part of a stock
transaction. In connection with the merger, AT&T contributed to
TeleCorp rights to acquire wireless licenses in Wisconsin and Iowa
and $20 in cash in exchange for approximately 9.3 million shares
of common stock in the newly merged entity. In a separate
transaction, AT&T exchanged certain wireless licenses and rights
to acquire licenses in the Wisconsin and Iowa markets, and made a
cash payment of approximately $80 in return for certain TeleCorp
PCS licenses and wireless systems in several New England markets.
AT&T expects that these transactions will result in a gain.
<PAGE>
AT&T Form 10-Q - Part I
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
OVERVIEW
AT&T Corporation (AT&T) is among the world's communications leaders, providing
voice, data and video telecommunications services to large and small businesses,
consumers and government agencies. We provide domestic and international long
distance, regional, local and wireless communications services, cable television
and Internet communications services. We also provide directory and calling-card
services to support our communications business.
On June 15, 2000, AT&T completed a merger with MediaOne Group, Inc. (MediaOne)
in a cash and stock transaction valued at approximately $56 billion. For each
share of MediaOne stock, MediaOne shareholders received, in the aggregate, 0.95
of a share of AT&T common stock and $36.27 per share in cash, consisting of
$30.85 per share as stipulated in the merger agreement and $5.42 per share based
on AT&T's stock price preceding the merger, which was below a predetermined
amount. AT&T issued approximately 603 million shares of common stock, of which
approximately 60 million were treasury shares. The merger with MediaOne was
accounted for under the purchase method of accounting, accordingly the operating
results of MediaOne have been included in the accompanying consolidated
financial statements since the date of acquisition as part of our Broadband
segment.
On April 27, 2000, AT&T created a new class of stock when we completed an
initial public offering of 360 million shares of AT&T Wireless Group tracking
stock. This stock is designed to track the economic performance of AT&T's
wireless services business and represented a 15.6% interest in that business.
AT&T retained the remaining 84.4% interest in the AT&T Wireless Group. In
connection with our first quarter 1999 merger with Tele-Communications, Inc.,
(TCI) renamed AT&T Broadband (Broadband), we issued a separate tracking stock to
reflect the economic performance of Liberty Media Group (LMG), Broadband's
former programming and technology investment businesses. All other businesses of
AT&T comprise AT&T Common Stock Group, including AT&T's retained 84.4% interest
in AT&T Wireless Group, the economic performance of which is represented by AT&T
common stock.
The consolidated results of AT&T include AT&T Wireless Group in its entirety on
a fully consolidated basis. We do not have a controlling financial interest in
Liberty Media Group for financial accounting purposes; therefore, our ownership
in LMG is reflected as an investment accounted for under the equity method in
AT&T's consolidated financial statements.
The earnings attributable to AT&T Wireless Group represent 15.6% of the earnings
for the third quarter, and 15.6% of the earnings from April 27, 2000, the date
of the initial public offering, through September 30, 2000, for the year-to-date
period. The remaining earnings of AT&T's wireless services business are included
in the earnings attributable to AT&T Common Stock Group. Similarly, the earnings
or losses related to LMG are excluded from the earnings available to AT&T Common
Stock Group.
Ownership of shares of AT&T common stock, AT&T Wireless Group tracking stock or
Liberty Media Group tracking stock does not represent a direct legal interest in
the assets and liabilities of any of these groups, but an ownership of AT&T in
total. Each of these shares represents an interest in the economic performance
of each of these groups.
<PAGE>
AT&T Form 10-Q - Part I
On January 5, 2000, AT&T and British Telecommunications, plc (BT) announced
financial closure of Concert, their global communications joint venture. AT&T
contributed all of its international gateway-to-gateway assets and the economic
value of approximately 270 multinational customers. In addition, we contributed
our international settlement business (revenue and expenses) to Concert. Results
for 2000 reflect the impact of these contributions.
The discussion and analysis that follows provides information management
believes is relevant to an assessment and understanding of AT&T's consolidated
results of operations and cash flows for the three and nine months ended
September 30, 2000 and 1999, and financial condition as of September 30, 2000,
and December 31, 1999.
FORWARD-LOOKING STATEMENTS
Except for the historical statements and discussions contained herein,
statements herein constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, including statements concerning future operating
performance, AT&T's share of new and existing markets, AT&T's short- and
long-term revenue and earnings growth rates, and general industry growth rates
and AT&T's performance relative thereto. These forward-looking statements rely
on a number of assumptions concerning future events, including the adoption and
implementation of balanced and effective rules and regulations by the Federal
Communications Commission (FCC) and the state public regulatory agencies, and
AT&T's ability to achieve a significant market penetration in new markets. These
forward-looking statements are subject to a number of uncertainties and other
factors, many of which are outside AT&T's control that could cause actual
results to differ materially from such statements. AT&T disclaims any intention
or obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
CONSOLIDATED RESULTS OF OPERATIONS
REVENUE
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 1999 2000 1999
Dollars in Millions
Business Services $ 7,108 $ 7,056 $21,391 $20,268
Consumer Services 4,672 5,578 14,715 16,527
Wireless Services 2,799 2,050 7,474 5,490
Broadband 2,417 1,505 5,691 3,479
Corporate and Other (21) 144 (174) 438
Total revenue $16,975 $16,333 $49,097 $46,202
Revenue increased $642 million in the third quarter of 2000, or 3.9%, to $16,975
million compared with the third quarter of 1999, and increased $2,895 million in
the first nine months of 2000, or 6.3%, to $49,097 million compared with the
first nine months of 1999. Normalized revenue, which adjusts revenue for the
acquisitions of MediaOne and the IBM Global Network (renamed AT&T Global Network
Services, or AGNS), the impact of businesses contributed to Concert, the
elimination of per-line charges by the FCC, the consolidation of At Home Corp.
(Excite@Home), certain international divestments, and closed cable partnerships,
increased $612 million in the third quarter of 2000, or 3.7%, from $16,363
million in the third quarter of 1999.
<PAGE>
AT&T Form 10-Q - Part I
The increase was led by Wireless Services, Broadband, and Business Services,
partially offset by a decline in Consumer Services. For the first nine months of
2000 normalized revenue, which also adjusts for the acquisition of TCI, rose
$2,261 million, or 4.7%, from $48,234 million in the first nine months of 1999.
The increase was led by Wireless Services, Business Services, and Broadband,
partially offset by a decline in Consumer Services.
OPERATING EXPENSES
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Access and other connection $3,255 $3,654 $10,460 $11,054
Access and other connection expenses decreased 10.9%, to $3,255 million for the
three months ended September 30, 2000. Included within access and other
connection expenses are costs that we pay to connect domestic calls on the
facilities of other service providers. These costs decreased primarily due to
mandated reductions in per-minute access costs and decreased per-line charges
(Primary Interexchange Carrier Charges). Effective July 1, 2000, per-line
charges AT&T pays for residential and single-line business customers were
eliminated by the FCC. These decreases were partially offset by volume increases
and higher Universal Service Fund contributions.
Also included within access and other connection expenses are costs paid to
foreign telephone companies to connect calls made to foreign countries
(international settlements). As result of the commencement of operations of
Concert, most of our international settlements are incurred by Concert. In
addition, most of our foreign billed revenue is now earned by Concert. The
amount charged by Concert in 2000 is lower than interconnection expense incurred
in 1999, since AT&T recorded these transactions within revenue and expense, as
applicable. Concert bills us a net expense comprised of international settlement
(interconnection) expense and foreign billed revenue. Partially offsetting the
decline were costs incurred related to Concert products that AT&T now sells to
its customers.
Access and other connection expenses decreased 5.4%, to $10,460 million for the
nine months ended September 30, 2000. The decrease was primarily attributable to
lower net interconnection expense largely related to the commencement of
operations of Concert.
Also contributing to the decrease were mandated reductions in per-minute access
costs as well as the sale of ACC International, more efficient network usage and
reduced Primary Interexchange Carrier Charges resulting from the elimination of
certain per-line charges by the FCC effective July 1, 2000. These decreases were
partially offset by volume increases and higher Universal Service Fund
contributions.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Costs of services and products $4,547 $3,932 $12,578 $10,660
Costs of services and products increased 15.7%, to $4,547 million in the third
quarter of 2000 compared with the third quarter of 1999. Excluding the impact of
<PAGE>
AT&T Form 10-Q - Part I
the acquisitions of MediaOne and AGNS, the formation of Concert, certain
international divestments and the consolidation of Excite@Home, costs of
services and products increased approximately 8% in the third quarter. The
increase was primarily due to higher equipment costs associated with the growth
of the wireless subscriber base, increased costs to support growth in
outsourcing contracts and increased broadband programming expenses due to rate
increases. These increases were partially offset by continued cost control
efforts and a higher pension credit in 2000, primarily driven by a higher
pension trust asset base resulting from increased investment returns.
Costs of services and products increased 18.0%, to $12,578 million in the first
nine months of 2000 compared with the same period in 1999. Excluding the impact
of the acquisitions of TCI, MediaOne and AGNS, the formation of Concert, certain
international divestments and the consolidation of Excite@Home, costs of
services and products increased approximately 8%. This increase was primarily
due to higher costs associated with our growing wireless subscriber base and
wireless network, increased costs to support growth in outsourcing contracts and
higher video programming costs principally due to rate increases. These
increases were partially offset by continued cost control efforts, a higher
pension credit and a lower provision for uncollectible receivables primarily in
Consumer Services.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Selling, general and administrative $3,397 $3,442 $9,796 $10,060
Selling, general and administrative (SG&A) expenses decreased 1.3% in the third
quarter of 2000, and decreased 2.6% for the first nine months of 2000 compared
with the same periods of 1999. Excluding the impact of the acquisitions of TCI,
MediaOne and AGNS, the formation of Concert, certain international divestments
and the consolidation of Excite@Home, SG&A expenses declined approximately 6% in
both periods. The decrease was primarily the result of cost control efforts as
well as a larger pension credit in 2000. These were partially offset by
increased customer acquisition and customer care expenses associated with our
growth businesses of wireless and broadband.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Depreciation and other amortization $1,919 $1,558 $5,182 $4,408
Depreciation and other amortization expenses increased 23.2% in the third
quarter of 2000 and increased 17.5% in the first nine months of 2000 compared
with the same periods in 1999. Excluding the impact of the acquisitions of TCI,
MediaOne and AGNS, the formation of Concert, certain international divestments
and the consolidation of Excite@Home, depreciation and other amortization
expenses increased approximately 12% in the third quarter of 2000 and increased
approximately 11% in the first nine months of 2000. These increases were
primarily due to a higher asset base resulting from continued infrastructure
investment. Capital expenditures were $3.6 billion for the third quarter,
bringing year-to-date capital expenditures to $10.1 billion. We continue to
focus the majority of our capital spending on our growth businesses of wireless,
broadband, data and Internet Protocol (IP) and local voice.
<PAGE>
AT&T Form 10-Q - Part I
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Amortization of goodwill, franchise
costs and other purchased
intangibles $879 $358 $1,661 $900
Amortization of goodwill, franchise costs, and other purchased intangibles
increased $521 million to $879 million in the third quarter of 2000 compared
with the third quarter of 1999. The increase was primarily attributable to the
consolidation of Excite@Home beginning September 1, 2000, and the acquisition of
MediaOne in 2000. In the first nine months of 2000, amortization of goodwill,
franchise costs and other purchased intangibles increased $761 million to $1,661
million compared with the first nine months of 1999, primarily due to the
acquisition of MediaOne in 2000, the acquisitions of TCI and AGNS in 1999, and
the consolidation of Excite@Home in 2000.
AT&T also has amortization of goodwill associated with nonconsolidated
investments recorded as a reduction of other income. This totaled $238 million
and $164 million in the third quarter of 2000, and 1999, respectively, and
totaled $471 million and $356 million for the first nine months of 2000 and
1999, respectively.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Net restructuring and other charges $24 $ - $797 $702
During the third quarter of 2000, AT&T recorded $24 million of net restructuring
and other charges, which had a minimal impact on diluted earnings per share. The
charge resulted from synergies associated with the MediaOne merger and related
to cash termination benefits associated with the involuntary separation of about
490 employees. Approximately one-half of the individuals were management
employees and one-half were nonmanagement employees.
This restructuring initiative is projected to yield a net cash payout of
approximately $18 million in 2000, with approximately $27 million per year in
cash savings per year thereafter, as well as earnings before interest and taxes
(EBIT) savings of approximately $6 million in 2000 and approximately $27 million
per year thereafter. We expect that increased spending in growth businesses will
largely offset these cash and EBIT savings. The EBIT savings, primarily
attributable to reduced personnel-related expenses, will be realized in SG&A
expenses and costs of services and products.
Net restructuring and other charges for the nine months ended September 30,
2000, totaled $797 million, which had an approximate $0.14 impact on earnings
per diluted share. The charge included restructuring and exit costs of $706
million and a $91 million charge related to the mandated disposition of AT&T
Communications (U.K.) Ltd. (Comms U.K.), which would have competed directly with
Concert. The restructuring and exit costs related to actions across several of
our business units and included severance costs associated with about 6,700
employees. These actions were primarily driven by our continuing efforts to
streamline operations and reduce costs by $2 billion by the end of the year.
<PAGE>
AT&T Form 10-Q - Part I
The charge for the nine months ended September 30, 2000, also included $62
million of network lease and other contract termination costs associated with
penalties incurred as part of notifying vendors of the termination of these
contracts during the first quarter of 2000. Additionally, the charge included
$144 million of benefit curtailment costs associated with employee separations
as part of these exit plans. We also recorded an $18 million asset impairment
charge related to the write-down of unrecoverable assets in certain businesses
in which the carrying value is no longer supported by future cash flows.
Net restructuring and other charges for the nine months ended September 30,
1999, totaled $702 million, which had an approximate $0.21 impact on earnings
per diluted share. The charge included a pretax in-process research and
development charge of $594 million related to the TCI acquisition, a $128
million pretax net charge primarily related to the exit from certain joint
ventures that would have competed directly with Concert and a $50 million pretax
charge related to a contribution agreement entered into by Broadband to satisfy
certain liabilities of Phoenixstar, Inc. These charges were partially offset by
a $70 million pretax gain related to the settlement of pension obligations for
former employees who accepted AT&T's voluntary retirement incentive program
offer.
The $594 million in-process research and development charge reflected the
estimated fair value of research and development projects at TCI, as of the date
of the acquisition, which had not yet reached technological feasibility or that
had no alternative future use. Although there are technological issues to
overcome to successfully complete the acquired in-process research and
development, we believe we are on track for successful completion. The projects
identified related to efforts to offer voice over Internet Protocol (IP),
product-integration efforts for advanced set-top devices, cost-savings efforts
for cable telephony implementation and in-process research and development
related to Excite@Home. We expect to test IP telephony equipment for field
deployment and begin field trials related to our product integration efforts for
set-top devices late in the fourth quarter into early 2001. In addition, trials
related to our telephony cost reductions are complete and implementation has
begun in certain markets.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Operating Income $2,954 $3,389 $8,623 $8,418
Operating income decreased 12.9% in the third quarter of 2000 primarily due to a
decline in Consumer Services revenue, the acquisition of MediaOne and the
consolidation of Excite@Home. These decreases were partially offset by a higher
pension credit in 2000 and cost control efforts within Business Services.
Operating income increased 2.4% for the first nine months of 2000, primarily due
to operational efficiencies within Business Services and Wireless Services as
well as corporate staff functions, and a higher pension credit in 2000. The
year-to-date increase was partially offset by the acquisition of MediaOne, a
decline in Consumer Services revenue, the consolidation of Excite@Home, the
acquisition of TCI and higher restructuring charges. Operating income margin
(operating income as a percent of revenue) was 17.4% for the third quarter and
17.6% for the nine months ended September 30, 2000, compared with 20.8% and
18.2% in the comparable 1999 periods, respectively.
<PAGE>
AT&T Form 10-Q - Part I
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Other income (expense) $71 $(375) $486 $(254)
Other income (expense) increased $446 million to income of $71 million in the
third quarter of 2000, compared with an expense of $375 million in the third
quarter of 1999. The increase was primarily attributable to higher minority
interest and lower equity losses on investments associated with the
consolidation of Excite@Home effective September 1, 2000. Also contributing to
the increase was higher interest and dividend income and greater gains on sales
of businesses and investments.
Other income (expense) increased $740 million to income of $486 million for the
nine months ended September 30, 2000, compared with an expense of $254 million
for the same prior year period. The increase was primarily attributable to
greater gains on sales of businesses and investments and higher interest and
dividend income. Further contributing to the increase were equity earnings from
Concert. These increases were partially offset by higher losses on equity
investments, primarily from Excite@Home through August 31, 2000.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
EBIT, excluding LMG $3,025 $3,014 $9,109 $8,164
EBIT, excluding LMG, remained essentially flat for the third quarter of 2000
compared with the third quarter of 1999, with the increase in other income being
virtually offset by the decrease in operating income. For the first nine months
of 2000, EBIT grew 11.6% compared with the same period in 1999, which was
attributable to increases in both other income and operating income. The EBIT
growth was impacted by gains on sales of businesses and investments, our
ownership interests in Cablevision Systems Corp. (Cablevision) and Time Warner
Entertainment (TWE) and net restructuring and other charges. Excluding these
items, EBIT increased 6.8% and 11.3% for the third quarter and year-to-date
periods, respectively. The improvement for the third quarter was primarily
attributable to increased other income partially offset by a decrease in
operating income. The improvement for the year-to-date period was primarily due
to both higher other income and operating income.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Equity earnings (losses) from
Liberty Media Group $1,756 $(217) $2,965 $(818)
Equity earnings from Liberty Media Group were $1,756 million in the third
quarter of 2000, compared with losses of $217 million in the same prior year
quarter. The increase was primarily due to a gain associated with the
acquisition of TV Guide by Gemstar - TV Guide International, Inc. (Gemstar)
reflecting the difference between the carrying value of LMG's interest in TV
<PAGE>
AT&T Form 10-Q - Part I
Guide, Inc. (TV Guide) and the fair value of the Gemstar securities received in
the acquisition. Equity earnings from LMG for the nine months ended September
30, 2000, were $2,965 million compared with losses of $818 million in 1999. In
addition to the gain associated with the TV Guide acquisition, the increase in
equity earnings for the nine months ended September 30, 2000, was also impacted
by a gain associated with the acquisition of Flextech p.l.c. (Flextech) by
Telewest Communications plc (Telewest) and a gain associated with the
acquisition of General Instrument Corporation (General Instrument) by Motorola,
Inc. (Motorola). These gains also represent the difference between the carrying
value of LMG's interest in the acquired company and the fair value of securities
received in the merger. These gains were partially offset by impairment charges
recorded on Liberty Media's investments in Teligent, Inc. (Teligent) and ICG
Communications, Inc. (ICG) to reflect other than temporary declines in value.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Interest expense $946 $493 $2,158 $1,188
Interest expense increased 92.2% to $946 million in the third quarter of 2000
compared with the third quarter of 1999, primarily due to a higher average debt
balance as a result of our June 15, 2000, acquisition of MediaOne, including
outstanding debt of MediaOne and debt issued to fund the MediaOne acquisition.
Interest expense increased 81.6% to $2,158 million for the nine months ended
September 30, 2000, compared with the nine months ended September 30, 1999. The
increase was primarily due to a higher average debt balance as a result of our
March 1999 acquisition of TCI, and our June 2000 acquisition of MediaOne,
including outstanding debt of MediaOne and debt issued to fund the MediaOne
acquisition.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
Dollars in Millions
Provision for income taxes $763 $888 $2,127 $2,679
The provision for income taxes decreased $125 million, or 14.2%, to $763 million
in the third quarter of 2000 compared with the third quarter of 1999. The
decrease was primarily due to lower earnings before taxes, partially offset by a
slightly higher effective tax rate. The effective tax rate for the third quarter
of 2000 was 36.7%, up from 35.2% in the third quarter of 1999. The increase was
due to impact of the consolidation of Excite@Home, which is unable to record tax
benefits on its pretax losses, as well as the positive impact of certain foreign
legal entity restructurings in 1999.
The provision for income taxes for the nine months ended September 30, 2000,
decreased $552 million compared with the same period in 1999. The effective tax
rate for the nine months ended September 30, 2000, was 30.6%, down from 38.4%
for the same prior year period. In 2000, the effective tax rate was positively
impacted by a tax-free gain resulting from an exchange of AT&T stock for an
entity owning certain cable systems and other assets with Cox Communications
Inc. (Cox), and the benefit of the write-off of the related deferred tax
liability. The 1999 effective rate was negatively impacted by an in-process
research and development charge which was not tax deductible, which was offset
by the positive
<PAGE>
AT&T Form 10-Q - Part I
impact of a change in net operating loss utilization tax rules. Excluding the
impacts of the Cox transaction, the in-process research and development charge,
and the change in the net operating loss rules, the effective income tax rates
were 36.8% and 36.4% for the nine months ended September 30, 2000 and 1999,
respectively.
Three Months Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
AT&T Common Stock Group earnings per
AT&T common share:
Basic $ 0.35 $ 0.51 $1.41 $ 1.41
Diluted $ 0.35 $ 0.50 $1.40 $ 1.39
AT&T Wireless Group earnings per AT&T
common share:
Basic and diluted $(0.01) - $0.05 $ -
Liberty Media Group earnings (loss)
per share:
Basic and diluted $ 0.68 $(0.09) $1.15 $(0.33)
As reported, diluted earning per share (EPS) attributable to AT&T Common Stock
Group decreased 30.0% to $0.35 in the third quarter of 2000, compared with the
third quarter of 1999. The decrease was primarily driven by the acquisition of
MediaOne, including the impact of shares issued, additional interest expense and
operating losses generated by MediaOne largely attributable to depreciation
expense and amortization of franchise costs, goodwill and other purchased
intangibles. The decrease was partially offset by an increase in other income
primarily associated with higher interest and dividend income and gains on sales
of businesses and investments.
As reported, diluted EPS attributable to AT&T Common Stock Group increased 0.7%
to $1.40 in the nine months ended September 30, 2000, compared with the nine
months ended September 30, 1999. The increase was primarily due to higher other
income, and improved operating income in the period resulting from margin
improvements. These improvements were partially offset by the acquisition of
MediaOne, including the impact of shares issued, additional interest expense and
operating losses generated by MediaOne largely attributable to depreciation
expense and amortization of franchise costs, goodwill and other purchased
intangibles.
Included in EPS for the third quarter are the following items:
..Losses of $0.03 in the third quarter of 2000 and $0.02 in the third quarter of
1999, reflecting the earnings impact of our investments in TWE and
Cablevision;
..Gain on sale of a business of $0.02 in the third quarter of 1999.
Included in EPS for the first nine months of 2000 and 1999 are the following
items:
..Net restructuring and other charges of $0.14 in the first nine months of 2000
and $0.21 in the same period of 1999;
..Losses of $0.05 in the first nine months of 2000 and $0.05 in the same period
of 1999, reflecting the earnings impact of our investments in Cablevision and
TWE;
..Net gains on sales of businesses and investments and other of $0.21 in the
first nine months of 2000 and $0.07 in the same period of 1999;
..A $0.02 benefit in the first nine months of 1999 from changes in tax rules
with respect to the utilization of acquired net operating losses.
<PAGE>
AT&T Form 10-Q - Part I
The total impact of these items to diluted EPS was a decrease of $0.03 for the
three months ended September 30, 2000, and an increase of $0.02 for the nine
months ended September 30, 2000. These items had no net impact to diluted EPS
for the third quarter of 1999 and decreased diluted EPS by $0.17 for the nine
months ended September 30, 1999. We quantify the impact on our results of our
investments in Cablevision and TWE since these businesses have financial
information publicly available and their results can be reviewed independently
of AT&T's results.
EPS excluding these items was $0.38 per diluted share in the third quarter of
2000, a decrease of 24.0%, or $0.12, over the comparable prior year quarter. EPS
excluding these items was $1.38 per diluted share for the nine months ended
September 30, 2000, compared with $1.56 for the same period in 1999, a decrease
of 11.5%.
EPS for Liberty Media Group was $0.68 per share for the three months ended
September 30, 2000, compared with a loss of $0.09 per share for the three months
ended September 30, 1999. The increase in EPS for the third quarter of 2000, is
primarily due to a gain associated with the acquisition of TV Guide by Gemstar
reflecting the difference between the carrying value of LMG's interest in TV
Guide and the fair value of the Gemstar securities received in the acquisition.
EPS for Liberty Media Group was $1.15 per share for the first nine months of
2000, compared with a loss of $0.33 per share in 1999. The first nine months of
2000 results include nine months of Liberty Media Group results compared with
seven months in 1999, reflecting the March 1999 acquisition of TCI by AT&T. In
addition to the gain associated with the TV Guide acquisition, the increase in
EPS for the nine months ended September 30, 2000, was also impacted by a gain
associated with the acquisition of Flextech by Telewest and a gain associated
with the acquisition of General Instrument by Motorola. These gains also
represent the difference between the carrying value of LMG's interest in the
acquired company and the fair value of securities received in the mergers. These
gains were partially offset by impairment charges recorded on Liberty Media's
investments in Teligent and ICG to reflect other than temporary declines in
value.
SEGMENT RESULTS
In support of the services we provide, we segment our results by the business
units that support our primary lines of business: Business Services, Consumer
Services, Wireless Services and Broadband. A fifth category, Corporate and
Other, includes corporate staff functions, the elimination of inter-segment
business as well as the results of international operations and ventures and
Excite@Home. Although not a segment, we also discuss the results of LMG.
The discussion of segment results includes revenue; earnings, including other
income, before interest and taxes (EBIT); earnings, including other income,
before interest, taxes, depreciation and amortization, and minority interest
(EBITDA); total assets; and capital additions. The discussion of EBITDA for
Wireless Services and Broadband is modified to exclude other income (expense).
Total assets for each segment generally exclude intercompany assets. Prepaid
pension assets and corporate-owned or leased real estate are generally held at
the corporate level and therefore are included in the Corporate and Other group.
Shared network assets are allocated to the segments and reallocated each
January, based on two years of volumes. Capital additions for each segment
include capital expenditures for property, plant and equipment, acquisitions of
licenses, additions to nonconsolidated investments, increases in franchise costs
and additions to internal-use software.
<PAGE>
AT&T Form 10-Q - Part I
EBIT is the primary measure used by AT&T's chief operating decision makers to
measure AT&T's operating results and to measure segment profitability and
performance. AT&T calculates EBIT as operating income plus other income. In
addition, management also uses EBITDA as a measure of segment profitability and
performance, and is defined as EBIT plus depreciation and amortization and
minority interest. Interest and taxes are not factored into the profitability
measure used by the chief operating decision makers; therefore, trends for these
items are discussed on a consolidated basis. Management believes EBIT is
meaningful to investors because it is used by AT&T's chief operating decision
makers and provides a measure of return on total capitalization. We believe
EBITDA is meaningful to investors as a measure of each segment's liquidity and
is utilized by our chief operating decision makers. In addition, we believe that
both EBIT and EBITDA allow investors a means to evaluate the financial results
of each segment in relation to AT&T. Our calculation of EBIT and EBITDA may or
may not be consistent with the calculation of these measures by other public
companies. EBIT and EBITDA should not be viewed by investors as an alternative
to generally accepted accounting principles (GAAP) measures of income as a
measure of performance or to cash flows from operating, investing and financing
activities as a measure of liquidity. In addition, EBITDA does not take into
account changes in certain assets and liabilities that can affect cash flow.
Our existing segments reflect certain managerial changes since the publication
of our 1999 annual results. All prior period results have been restated to
reflect these changes.
To provide comparability, we normalize revenue to reflect the impact of certain
1999 and 2000 transactions. For example, when we normalize for Concert, we
remove the revenue associated with businesses/customers contributed to Concert
from 1999 results. The acquisitions of TCI, AGNS and MediaOne and certain
international divestments are normalized as if those acquisitions/dispositions
occurred on January 1, 1999. The elimination of per-line charges by the FCC is
normalized in 1999 results as if the elimination occurred on July 1, 1999.
Finally, certain 2000 Broadband cable swaps are normalized in 1999 results as if
those swaps happened on the corresponding date in 1999.
BUSINESS SERVICES
Our Business Services segment offers a variety of global communications services
including long distance, local and data and Internet Protocol (IP) networking to
small and medium-sized businesses, large domestic and multinational businesses
and government agencies. Business Services is also a provider of voice, data and
IP transport to service resellers (wholesale services). Also included in this
segment is AT&T Solutions, which is composed of the Solutions outsourcing and
network management business unit and the internal AT&T Information Technology
Services unit.
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
Dollars in Millions 2000 1999 2000 1999
External revenue $ 6,895 $ 6,859 $20,818 $19,715
Internal revenue 213 197 573 553
Total revenue 7,108 7,056 21,391 20,268
EBIT 1,733 1,509 4,870 4,536
EBITDA 2,664 2,347 7,594 6,948
<PAGE>
AT&T Form 10-Q - Part I
OTHER ITEMS
Capital additions $ 1,517 $ 1,963 $ 4,169 $ 4,544
At September 30, At December 31,
2000 1999
Total assets $33,360 $32,010
REVENUE
Business Services revenue increased $52 million, or 0.7%, in the third quarter
of 2000, and increased $1,123 million, or 5.5%, for the first nine months of
2000, compared with the prior year. Normalized for the impact of Concert, the
1999 acquisition of AGNS and the elimination of PICC for single-line business
customers by the FCC, revenue increased 2.5% and 4.1% for the quarter and
year-to-date periods, respectively. The increases were driven primarily by
strength in data/IP and outsourcing services, partially offset by a decline in
long distance voice services.
Normalized data/IP services revenue grew over 20% for the quarter, led by growth
in frame relay, high-speed private line and IP services. For the year-to-date
period, normalized data/IP services revenue grew at a high-teens rate led by
growth in frame relay, IP and high-speed private line services. IP services,
which include AT&T WorldNet services and Virtual Private Network Services (VPN),
grew over 50% for both the three and nine months ended September 30, 2000,
compared with the same periods in 1999. On a combined basis, packet services
(frame relay, ATM (Asynchronous Transfer Mode) and IP) grew over 50% for the
quarter and over 45% for the year-to-date period, compared with the same periods
in 1999.
AT&T Solutions outsourcing revenue, normalized for the acquisition of AGNS, grew
20.2% in the third quarter of 2000, and grew 22.5% for the first nine months of
2000, compared with the same periods in the prior year. These increases were
primarily due to growth from new contract signings and add-on business from
existing clients.
Normalized long distance voice revenue declined at a mid single-digit rate for
the third quarter, as pricing declines outpaced high single-digit volume
increases. For the year-to-date period, normalized long distance voice revenue
declined at a low single-digit rate, as pricing declines outpaced volume
increases of over 10%. Business services revenue continues to shift to higher
growth products such as data/IP and outsourcing. This shift, and the continued
pricing pressures, have resulted in a decline in long distance voice revenue. We
expect competition and the resulting pricing pressures to continue to negatively
impact Business Services long distance voice revenue.
Normalized local voice revenue grew at a mid-teen rate for the quarter, and grew
over 20% for the year-to-date period. Revenue growth was negatively impacted, in
the year-to-date period, by the settlement of public utility commission rulings.
There were eight additional switches activated in third quarter, for a total of
29 new local switches activated year-to-date through September 30, 2000. These
local switches enhance AT&T's network capacity for the provision of business
local voice services. AT&T's integrated business local operations added over 130
thousand access lines in the third quarter bringing total access lines in
service as of September 30, 2000, to almost 2.1 million. Access lines enable
AT&T to provide local service to customers by allowing direct connection from
customer equipment to the AT&T network. On-net buildings (buildings where AT&T
owns the fiber that runs into the building) totaled 5,969 at September 30, 2000,
a 4.1% increase over September 30, 1999.
<PAGE>
AT&T Form 10-Q - Part I
EBIT/EBITDA
EBIT increased $224 million, or 14.8%, in the third quarter of 2000, and
increased $334 million, or 7.4%, in the first nine months of 2000, compared with
the same prior year periods. EBITDA increased $317 million, or 13.5%, in the
third quarter of 2000, and increased $646 million, or 9.3%, in the first nine
months of 2000, compared with the same prior year periods. Excluding a first
quarter 2000 restructuring charge of $93 million, EBIT increased 9.4% and EBITDA
increased 10.6% in the first nine months of 2000, compared with the same period
of 1999. The quarterly increases were primarily due to continued SG&A cost
control efforts and revenue growth, partially offset by the impact of the
customers contributed to Concert. The year-to-date increases were primarily due
to revenue growth and continued SG&A cost control efforts, partially offset by
the impact of the customers contributed to Concert. In addition, higher
depreciation expense also partially offset the EBIT improvement. The equity
earnings of Concert are reported within Corporate and Other.
OTHER ITEMS
Capital additions decreased $446 million, or 22.7%, to $1,517 million in the
third quarter of 2000 compared with the third quarter of 1999. The decrease was
primarily driven by reduced capital expenditures for network assets that support
long distance voice and data services. For the first nine months of 2000,
capital additions decreased $375 million, or 8.2%, to $4,169 million compared
with the first nine months 1999. The decrease was primarily driven by reduced
capital expenditures for network assets that support long distance voice
services.
Total assets increased $1,350 million, or 4.2%, to $33,360 million at September
30, 2000, compared with December 31, 1999. The increase was primarily driven by
a higher accounts receivable balance due to timing of cash receipts, an increase
in the age of outstanding receivables and higher revenue in our outsourcing
business. In addition, property, plant and equipment increased as a result of
capital expenditures, partially offset by depreciation expense for the period,
as well as the contribution of assets to Concert.
CONSUMER SERVICES
Our Consumer Services segment provides a variety of any-distance communications
services including long distance, local toll (intrastate calls outside the
immediate local area) and Internet access to residential customers. In addition,
Consumer Services provides transaction services such as prepaid calling card and
operator-handled calling services. Local phone service is also provided in
certain areas.
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
Dollars in Millions 2000 1999 2000 1999
Revenue $4,672 $5,578 $14,715 $16,527
EBIT 1,854 2,159 5,425 5,852
EBITDA 1,996 2,352 5,853 6,425
OTHER ITEMS
Capital additions $ 76 $ 133 $ 204 $ 341
At September 30, At December 31,
2000 1999
Total assets $4,945 $ 6,279
<PAGE>
AT&T Form 10-Q - Part I
REVENUE
Consumer Services revenue decreased 16.2% in the third quarter of 2000, and
declined 11.0% for the first nine months of 2000, compared with the same periods
in 1999. Normalized for the impact of Concert and the elimination of per-line
charges, revenue decreased 10.9% in the third quarter and declined 7.9% for the
first nine months of the year as long distance calling volumes continued to
decline at a mid single-digit rate during these periods. These results reflect
the ongoing competitive nature of the consumer long distance industry, which has
resulted in pricing pressures and a loss of market share. Also negatively
impacting revenue was product substitution and market migration away from direct
dial wireline and calling card services to the rapidly growing wireless
services. We expect competition and product substitution to continue to
negatively impact Consumer Services revenue.
EBIT/EBITDA
EBIT declined 14.1% and EBITDA declined 15.2% in the third quarter of 2000,
compared with the same period of 1999. For the first nine months of the year,
EBIT decreased 7.3% and EBITDA decreased 8.9%, compared with the same period in
1999. EBIT and EBITDA continue to be negatively impacted by the decline in
revenue, however, reflecting our cost control initiatives, EBIT and EBITDA
margins continue to improve. The EBIT margin was 39.7% and the EBITDA margin was
42.7% in the third quarter of 2000, compared with an EBIT margin of 38.7% and an
EBITDA margin of 42.2% for the same period in 1999. EBIT and EBITDA include a
$96 million restructuring charge for the first nine months of 2000, and include
a $153 million gain on the sale of Language Line Services in the first nine
months of 1999. Excluding these items, the EBIT and EBITDA margins improved to
37.5% and 40.4%, respectively, for the first nine months of 2000, compared with
34.5% and 37.9%, respectively, for the same period in 1999, primarily due to our
cost control initiatives, partially offset by lower revenue.
OTHER ITEMS
Capital additions declined $57 million, or 43.0%, to $76 million in the third
quarter of 2000, compared with the third quarter of 1999. For the first nine
months of 2000, capital additions decreased $137 million, or 40.1%, compared
with the first nine months of 1999. These decreases were primarily attributable
to reduced capital expenditures for network assets that support long distance
voice services and decreased spending on internal-use software.
Total assets decreased $1,334 million, or 21.3%, to $4,945 million at September
30, 2000, compared with December 31, 1999, primarily due to a decrease in
property, plant and equipment as a result of the contribution of certain assets
to Concert, coupled with depreciation expense during the period. In addition,
accounts receivable declined as a result of lower revenue.
WIRELESS SERVICES
Our Wireless Services segment offers wireless voice and data services and
products to customers in our 850 megahertz (cellular) and 1900 megahertz
(Personal Communications Services, or PCS) markets. Wireless Services also
includes certain interests in partnerships and affiliates that provide wireless
services in the United States and internationally, aviation communications
services, and fixed wireless. Fixed wireless provides high-speed Internet access
and any-distance voice services using wireless technology to residential and
small business customers.
<PAGE>
AT&T Form 10-Q - Part I
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
Dollars in Millions 2000 1999 2000 1999
Revenue $ 2,799 $2,050 $ 7,474 $5,490
EBIT 105 54 551 128
EBITDA excluding other income 472 397 1,381 902
OTHER ITEMS
Capital additions $ 1,028 $ 704 $ 3,782 $1,564
At September 30, At December 31,
2000 1999
Total assets $33,045 $23,312
REVENUE
Wireless Services revenue grew $749 million, or 36.6%, to $2,799 million in the
third quarter of 2000, compared with the third quarter of 1999, including growth
in services revenue of 34.3% to $2,509 million. Revenue increased $1,984
million, or 36.2%, to $7,474 million in the first nine months of 2000, compared
with the same period of 1999, including growth in services revenue of 36.8% to
$6,741 million. Revenue, adjusted to exclude the June 2000 acquisition of
properties in the San Francisco Bay area from the quarter and year-to-date 2000
periods as well as the year-to-date impact of Vanguard Cellular Systems, Inc.
for the months prior to the May 1999 acquisition, grew 27.3% in the quarter and
29.7% for the first nine months of 2000. The increases were due to subscriber
growth reflecting the continued successful execution of AT&T's wireless strategy
of targeting and retaining specific customer segments, expanding the national
wireless footprint, focusing on digital service, and offering simple rate plans.
In addition, an increase in average monthly revenue per user contributed to the
year-to-date growth. Equipment revenue grew 59.9% to $290 million in the third
quarter of 2000, and grew 30.6% to $733 million for the first nine months of
2000, compared with the respective prior year periods.
AT&T continues to experience strong growth in wireless subscribers. Consolidated
subscribers grew to over 12.6 million at September 30, 2000, representing an
increase of 38.4% over the prior year quarter, including approximately 1.3
million subscribers associated with the completed acquisitions of our remaining
interest in CMT Partners (which owned wireless properties in the San Francisco
Bay area), Wireless One Network, L.P. (which owned wireless properties in
northwest and southwest Florida) and properties in the San Diego area. Net
consolidated wireless subscriber additions in the third quarter totaled
approximately 750,000, a 195.1% increase over the prior year quarter. Total
subscribers, including partnership markets in which AT&T does not own a
controlling interest, were nearly 15 million at the end of the third quarter, a
26.2% increase over the prior year quarter. This includes approximately 450,000
subscribers associated with the acquisition of American Cellular in February
2000. AT&T's average monthly churn rate in the third quarter of 2000 was 2.9%,
compared with 2.6% in the third quarter of 1999. AT&T's average monthly churn
rate in the first nine months of 2000 was 2.8% compared with 2.6% in the first
nine months of 1999.
<PAGE>
AT&T Form 10-Q - Part I
EBIT/EBITDA EXCLUDING OTHER INCOME
EBIT increased $51 million, or 97.2%, to $105 million in the third quarter of
2000, and increased $423 million, or 331.1%, to $551 million in the first nine
months of the year, compared with the same prior year periods. The year-to-date
increase was impacted by a second quarter 2000 gain of $95 million on the sale
of Celumovil and a second quarter 1999 gain of $88 million on the sale of
WOOD-TV. Excluding these gains, EBIT improved $416 million to $456 million for
the first nine months of the year. The improvement for both periods was
primarily the result of revenue growth, as well as higher other income due to
intercompany interest income on the initial public offering proceeds attributed
to AT&T Wireless Group. These were partially offset by increased customer
acquisition and customer care costs and higher depreciation and amortization
expenses as a result of an increased asset base. Also partially offsetting the
improvements were higher network costs attributable to the growth in subscribers
and their minutes of use, as well as higher information technology costs
associated with growth in the subscriber base.
EBITDA, excluding other income, increased $75 million, or 18.6%, to $472 million
in the third quarter of 2000, and increased $479 million, or 53.1%, to $1,381
million for the first nine months of the year, compared with the same prior year
periods. The improvement for both periods was primarily driven by higher
revenue, partially offset by increased customer acquisition and customer care
costs, as well as higher network costs and increased information technology
costs.
OTHER ITEMS
In the third quarter of 2000, capital additions increased $324 million to $1,028
million compared with the third quarter of 1999. For the first nine months of
2000, capital additions increased $2,218 million to $3,782 million compared with
the first nine months of 1999. These increases were primarily driven by capital
expenditures on capacity upgrades and improvements to network quality. Also
contributing to the increase in capital additions for the first nine months of
the year was our investment in American Cellular in the first quarter of 2000.
Total assets increased $9,733 million, or 41.8%, to $33,045 million at September
30, 2000, compared with December 31, 1999. The increase was primarily driven by
the acquisitions of our remaining interest in CMT Partners, Wireless One
Network, L.P. and properties in the San Diego area. These acquisitions resulted
in increases to licensing costs, goodwill, property, plant and equipment and
other assets. Also contributing to the increase in assets was an intercompany
note receivable for the remaining initial public offering proceeds attributed to
the AT&T Wireless Group, as well as higher property, plant and equipment as a
result of capital expenditures in support of the continued expansion and build
out of our wireless network, partially offset by depreciation expense for the
period.
BROADBAND
Our Broadband segment offers a variety of services through our cable broadband
network, including traditional analog video and new services such as digital
video service, high-speed data service and telephony service.
<PAGE>
AT&T Form 10-Q - Part I
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
Dollars in Millions 2000 1999 2000 1999
Revenue $ 2,417 $1,505 $ 5,691 $ 3,479
EBIT (627) (310) (717) (1,187)
EBITDA excluding other income 514 389 1,253 420
OTHER ITEMS
Capital additions $ 1,247 $1,007 $ 3,577 $ 2,155
At September 30, At December 31,
2000 1999
Total assets $117,289 $53,810
The three months ended September 30, 2000, includes the results of MediaOne for
the full quarter and the nine months ended September 30, 2000, includes the
results of MediaOne since the June 15, 2000, date of acquisition, while the
comparable periods for 1999 do not include any results of MediaOne. In addition,
year-to-date 2000 results include a full nine months of TCI results, while 1999
includes only seven months of TCI results reflecting the March 1999 acquisition.
REVENUE
Broadband's revenue increased $912 million, or 60.7%, for the third quarter of
2000, and increased $2,212 million, or 63.6%, for the nine months ended
September 30, 2000, compared with the same periods of last year. The increase in
revenue was primarily due to the inclusion of MediaOne results since the date of
acquisition, higher revenue from new services (digital video, high-speed data
and telephony) and a basic cable rate increase. In addition, revenue for the
nine months ended September 30, 2000, was impacted by the acquisition of TCI in
March of 1999. Revenue, normalized for the MediaOne acquisition and adjusted for
the net disposition of cable properties, increased 10.8% in the third quarter of
2000 compared with the third quarter of 1999. Revenue for the nine months ended
September 30, 2000, on this same basis and normalized for the TCI acquisition,
increased 9.9% compared with the same prior year period.
Broadband ended the third quarter of 2000 with 16.1 million basic cable
customers, passing approximately 28 million homes, more than 2.5 million
digital-video customers, approximately 888,000 high-speed data customers, and
provided telephony service to nearly 350,000 customers. While we expect
Broadband revenue to continue to grow, the rate of growth may be impacted by
slower than anticipated telephony and basic subscriber additions due to
increased competition.
EBIT/EBITDA EXCLUDING OTHER INCOME
EBIT was a deficit of $627 million for the quarter ended September 30, 2000,
compared with a deficit of $310 million in 1999. Excluding the impact of our
ownership interests in Cablevision and TWE and restructuring and other charges,
EBIT for the third quarter of 2000, was a deficit of $431 million, a decline of
$233 million from the third quarter of 1999. This decrease was primarily due to
the acquisition of MediaOne, increased spending associated with cable telephony
and high-speed data services and higher programming costs. These were partially
offset by higher revenue and lower equity losses due to dispositions of certain
investments in 1999. EBIT for the nine months ended September 30, 2000, was a
deficit of $717 million compared with a deficit of $1,187 million in 1999.
<PAGE>
AT&T Form 10-Q - Part I
Excluding the impact of our ownership interests in Cablevision and TWE, certain
gains and restructuring and other charges, EBIT was a deficit of $720 million
for the nine months ended September 30, 2000, compared with a deficit of $439
million in 1999. The decrease was primarily due to higher expenses associated
with high-speed data and telephony services, the acquisition of MediaOne and
increased programming costs. Partially offsetting these decreases to EBIT was
higher revenue and lower equity losses due to the disposition of certain
investments in 1999.
EBITDA, excluding other income, for the third quarter was $514 million, an
increase of 32.1%, compared with the third quarter of 1999. Excluding the 2000
restructuring and other charges, EBITDA, excluding other income, increased 38.2%
to $538 million in the third quarter of 2000. This increase was primarily due to
the MediaOne acquisition and higher revenue, partially offset by higher expenses
associated with high-speed data and telephony services as well as increased
programming costs. EBITDA, excluding other income for the nine months ended
September 30, 2000, was $1,253 million compared with $420 million for the same
period of 1999. Excluding the 2000 and 1999 restructuring and other charges,
EBITDA, excluding other income, increased 42.1% to $1,293 million in 2000. This
increase was primarily due to higher revenue, the inclusion of a full nine
months of TCI and the acquisition of MediaOne. These increases were partially
offset by higher expenses associated with high-speed data and telephony services
as well as increased programming costs.
OTHER ITEMS
Capital additions in the third quarter of 2000 increased 23.8% to $1,247
million, and increased 66.0% to $3,577 million for the nine months ended
September 30, 2000. The increases were due to capital expenditures for the
launch of new services as well as the MediaOne acquisition. In addition, capital
expenditures for the year-to-date period increased due to spending on the
upgrade of the cable plant. Capital additions for the year-to-date period were
also impacted by increased contributions to various nonconsolidated investments.
Total assets were $117,289 million at September 30, 2000, compared with $53,810
million at December 31, 1999. The increase was due to the MediaOne acquisition,
and an increase in property, plant and equipment as a result of capital
expenditures, partially offset by depreciation expense for the period. These
increases were partially offset by a decrease in the mark-to-market valuation of
certain investments and lower franchise costs and property, plant property and
equipment as a result of the exchange of an entity owning certain cable systems
and other assets with Cox for AT&T stock.
CORPORATE AND OTHER
This group reflects corporate staff functions, the elimination of transactions
between segments as well as the results of international operations and ventures
and Excite@Home.
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
Dollars in Millions 2000 1999 2000 1999
Revenue $ (21) $144 $ (174) $ 438
EBIT (40) (398) (1,020) (1,165)
EBITDA 219 (180) (398) (642)
<PAGE>
AT&T Form 10-Q - Part I
OTHER ITEMS
Capital additions $ 1,763 $832 $ 1,955 $ 1,298
At September 30, At December 31,
2000 1999
Total assets $24,484 $15,535
REVENUE
Revenue for Corporate and Other primarily includes the elimination of
inter-segment revenue of negative $222 million (an increase of $32 million from
the third quarter of 1999), revenue from Excite@Home of $79 million (which was
consolidated beginning on September 1, 2000), and revenue from our international
operations and ventures of $78 million (a decline of $242 million from the third
quarter of 1999). The international operations and ventures revenue decrease was
largely due to the revenue impact of businesses contributed to Concert and due
to lower revenue associated with the divestment of certain international
businesses. Corporate and Other revenue, normalized for the divestments of
international businesses, the impact of Concert and Excite@Home was negative $21
million in the third quarter of 2000, compared with negative $47 million for the
third quarter of 1999. The improvement was primarily due to higher revenue from
Excite@Home.
For the first nine months of 2000, revenue for Corporate and Other primarily
included the elimination of inter-segment revenue of negative $585 million (an
increase of $29 million from the first nine months of 1999), revenue from our
international operations and ventures of $262 million (a decline of $682 million
from the first nine months of 1999) and revenue from Excite@Home of $79 million
(which was consolidated beginning September 1, 2000). The international
operations and ventures revenue decrease was largely due to the revenue impact
of businesses contributed to Concert and due to lower revenue associated with
the divestment of certain international businesses. Corporate and Other revenue,
normalized for the divestments of international businesses, the impact of
Concert and Excite@Home, was negative $174 million in the first nine months of
2000 compared with negative $223 million for the first nine months of 1999,
primarily due to higher revenue from Excite@Home as well as higher revenue from
international operations and ventures.
EBIT/EBITDA
EBIT and EBITDA for Corporate and Other improved $358 million to a deficit of
$40 million and improved $399 million to $219 million, respectively, in the
third quarter of 2000, compared with the third quarter of 1999. Excluding the
third quarter 1999 gain on the sale of AT&T Canada of $110 million, EBIT and
EBITDA for Corporate and Other increased $468 million and $509 million,
respectively, in the third quarter of 2000, compared with the third quarter of
1999. The increases were primarily due to a larger pension credit in 2000
primarily driven by a higher pension trust asset base resulting from increased
investment returns, lower SG&A expenses, including cost control efforts, and
higher other income as a result of increased gains on sales of miscellaneous
investments. In addition, equity earnings for Concert were $25 million during
the third quarter.
EBIT and EBITDA for Corporate and Other improved $145 million to a deficit of
$1,020 million and improved $244 million to a deficit of $398 million in the
first nine months of 2000, compared with the same period in 1999, respectively.
<PAGE>
AT&T Form 10-Q - Part I
Excluding net restructuring charges of $568 million in 2000 and $212 million in
1999, as well as the 1999 gain on the sale of AT&T Canada of $110 million, EBIT
and EBITDA increased $611 million to a deficit of $452 million and increased
$710 million to $170 million in the first nine months of 2000, compared with the
same period in 1999, respectively. The increases were primarily due to a larger
pension credit in 2000 primarily driven by a higher pension trust asset base
resulting from increased investment returns, higher other income as a result of
increased gains on sales of miscellaneous investments and higher interest and
dividend income as well as cost control efforts. In addition, equity earnings
for Concert were $91 million during the first nine months of 2000. Partially
offsetting these improvements were higher equity losses from Excite@Home and
greater distributions on trust preferred securities.
OTHER ITEMS
Capital additions for corporate and other increased $931 million, or 111.8%, to
$1,763 million in the third quarter of 2000, compared with the same quarter of
1999. For the first nine months of 2000, capital additions increased $657
million, or 50.6%, to $1,955 million compared with the first nine months of
1999. The increase in both periods was primarily driven by our investment in
Net2Phone, partially offset by lower investments in international
nonconsolidated subsidiaries.
Total assets increased $8,949 million during the first nine months of 2000, to
$24,484 million primarily due to the consolidation of Excite@Home, our
investment in Concert, including the assets contributed by Business Services and
Consumer Services, and our investment in Net2Phone.
LIBERTY MEDIA GROUP RESULTS
Liberty Media Group (LMG) produces, acquires and distributes entertainment,
educational and informational programming services through all available formats
and media. LMG is also engaged in electronic retailing services, direct
marketing services, advertising sales relating to programming services,
infomercials and transaction processing. Equity earnings (losses) from Liberty
Media Group were $1,756 million for the quarter ended September 30, 2000, and
were $(217) million in the comparable 1999 period. Equity earnings (losses) from
LMG were $2,965 million for the first nine months of 2000, compared with $(818)
million for the period from the date of acquisition through September 30, 1999.
These increases were primarily due to gains associated with the acquisition of
companies that LMG has an investment in. The gains represent the difference
between the carrying value of LMG's interest in the acquired company and the
fair value of securities received in the acquisitions. In particular, TV Guide
was acquired by Gemstar in the third quarter of 2000, Flextech was acquired by
Telewest in the second quarter of 2000 and General Instrument was acquired by
Motorola in the first quarter of 2000. These gains were partially offset by the
impairment charges recorded on LMG's investments in Teligent and ICG to reflect
other than temporary declines in value.
<PAGE>
AT&T Form 10-Q - Part I
LIQUIDITY
For the Nine
Months Ended
September 30,
Dollars in Millions 2000 1999
CASH FLOWS:
Provided by operating activities $ 9,174 $ 7,050
Used in investing activities (33,176) (21,353)
Provided by financing activities 23,294 11,143
EBITDA $ 16,448 $ 13,921
Net cash provided by operating activities increased $2,124 million for the nine
months ended September 30, 2000, compared with the prior year period. The
increase was primarily driven by an increase in operating income before
depreciation and amortization expense and a decrease in cash tax payments
primarily resulting from the first quarter 1999 tax payment on the gain on the
1998 sale of Universal Card Services Inc. These were partially offset by higher
interest payments in 2000.
Net cash used by investing activities for the nine months ended September 30,
2000, increased $11,823 million compared with the prior year period. The
increase was primarily driven by increased acquisitions in 2000, particularly
MediaOne and various wireless properties, increased capital expenditures in 2000
primarily attributable to growth in Wireless and Broadband, and our investment
in Net2Phone, partially offset by the contribution of $5.5 billion of cash to
LMG in 1999.
During the first nine months of 2000, net cash provided by financing activities
increased by $12,151 million compared with the prior year period. The increase
was primarily due to higher proceeds from issuance of short-term debt, the
proceeds from the initial public offering of AT&T Wireless Group shares and a
decrease in the purchase of treasury stock. These were partially offset by lower
proceeds from the issuance of long-term debt and redeemable securities in 1999.
At September 30, 2000, we had current assets of $15.5 billion and current
liabilities of $51.3 billion. A significant portion of the current liabilities,
$32.3 billion, relate to short-term notes, the majority of which was commercial
paper or debt with an original maturity of one year or less. We expect that we
will retire a portion of the short-term debt with funds that will be generated
from the expected mid-2001 initial public offering of AT&T Broadband tracking
stock. In addition, we continue to investigate and negotiate other financing
alternatives including, the monetization of publicly-held securities, sales of
certain non-strategic assets and investments, securitization of certain accounts
receivable, and a potential separate debt offering by AT&T Wireless. Since
September 30, 2000, we have monetized certain publicly held securities through
the issuance of approximately $1 billion of asset-backed debt. Lastly, we are
presently in negotiations to increase our $10 billion line of credit to $25
billion. At September 30, 2000, all of the $10 billion line of credit was
available for our use. There can be no assurance that we will be able to obtain
financing on terms that are acceptable to us.
<PAGE>
AT&T Form 10-Q - Part I
As a result of the announced restructuring plans to create four new companies,
AT&T's debt ratings have been under review by the applicable rating agencies. As
a result of this review, AT&T's ratings have been either downgraded and /or put
on credit watch with negative outlook. These actions will result in an increased
cost of future borrowings.
Also in connection with our restructuring, we are reviewing our dividend policy
as it relates to each of the new companies we will create. The board of
directors' review of AT&T's dividend policy will be completed and implemented by
the end of the year. We expect that AT&T's dividend prior to the creation of the
four new companies as well as the combined dividend of the four new companies
will be substantially lower than our current dividend.
During the quarter, we granted put options to Cox and Comcast Corporation
(Comcast) on shares of Excite@Home Series A common stock having a maximum
combined put price of $2.9 billion. The put options provide Cox and Comcast with
the right to convert their Excite@Home shares into either AT&T stock or cash at
their option, at any time between January 1, 2001 and June 4, 2002, at the
higher of (i) $48 per share or (ii) the 30 day average trading price at the time
of the exercise. As a result, AT&T could be required to pay the maximum
aggregate $2.9 billion put price in January, 2001. Assuming a put price of $48
per share, the maximum number of Excite@Home shares covered by the put would be
approximately 60.4 million shares.
Earnings, including other income, before interest, taxes, depreciation and
amortization, and minority interest (EBITDA) is a measure of our ability to
generate cash flow and should be considered in addition to, but not as a
substitute for, other measures of financial performance reported in accordance
with generally accepted accounting principles. EBITDA was $16,448 million for
the first nine months of the year, an increase of 18.1% over the first nine
months of last year. The EBITDA growth was impacted by gains on sales of
businesses and investments and other, net restructuring and other charges, and
our ownership interests in Cablevision and TWE. Excluding these items, EBITDA
increased $2,441 million, or 16.9%, over the first nine months of last year to
$16,841 million. The improvement was primarily due to operational efficiencies
which resulted in higher operating income before depreciation and amortization,
and increased other income.
<PAGE>
AT&T Form 10-Q - Part I
EURO CONVERSION
On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
currency (Euro). The transition period is anticipated to extend between January
1, 1999, and July 1, 2002. We have assessed the impact of the conversion on
information-technology systems, currency exchange rate risk, derivatives and
other financial instruments, continuity of material contracts as well as income
tax and accounting issues. We do not expect the conversion during the transition
period to have a material impact on our consolidated financial statements.
FINANCIAL CONDITION
Total assets increased $82,946 million, or 49.0%, to $252,352 million at
September 30, 2000, compared with December 31, 1999, primarily due to the impact
of the MediaOne acquisition and the consolidation of Excite@Home. Other
significant activity included increased property, plant and equipment due to
capital expenditures, net of depreciation expense; an increase in licenses
resulting from our wireless acquisitions, increased accounts receivable
attributable to transactions with Concert; our investment in Net2Phone; and
AT&T's investment in Concert, consisting of $1.7 billion of property, plant and
equipment and a loan of $1.0 billion.
Total liabilities increased $45,102 million, or 54.1%, to $128,490 million at
September 30, 2000, compared with December 31, 1999, primarily due to the impact
of the MediaOne acquisition and the consolidation of Excite@Home. In addition,
total debt increased due to borrowings to fund the MediaOne acquisition.
Minority interest increased $6,655 million to $9,046 million primarily
reflecting the minority interest of Excite@Home.
Total shareowners' equity increased $31,181 million, or 39.5%, to $110,108
million at September 30, 2000, compared with December 31, 1999. The increase was
primarily driven by the issuance of AT&T common stock for the MediaOne
acquisition as well the issuance of AT&T Wireless Group tracking stock.
The ratio of total debt to total capital, excluding LMG (debt divided by total
debt and equity of AT&T, excluding LMG) was 45.0% at September 30, 2000,
compared with 44.3% at December 31, 1999. The equity portion of this calculation
includes convertible trust preferred securities. The increase was primarily
driven by higher debt associated with the MediaOne merger, almost entirely
offset by a higher equity base associated with the MediaOne merger and the AT&T
Wireless Group initial public offering. Included in debt is approximately $5.2
billion of notes, which are exchangeable into or collaterialized by Vodafone
American Depository Receipts (ADRs) we own. Excluding this debt, the ratio of
debt to total capital at September 30, 2000, was 42.8%. The ratio of debt (net
of cash) to operational EBITDA was 2.74X at September 30, 2000, compared with
1.75X at December 31, 1999, reflecting additional debt associated with the
MediaOne merger.
RISK MANAGEMENT
We are exposed to market risk from changes in interest, foreign exchange rates,
and equity prices. On a limited basis we use certain derivative financial
instruments, including interest rate swaps, options, forwards and other
derivative contracts to manage these risks. We do not use financial instruments
for trading or speculative purposes. All financial instruments are used in
accordance with board-approved policies.
<PAGE>
AT&T Form 10-Q - Part I
Assuming a 10% downward shift in interest rates at September 30, 2000, the fair
value of unhedged debt would have increased by approximately $1.1 billion.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Among other provisions, it requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
Gains and losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The effective date for this standard was delayed
via the issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for
fiscal years beginning after June 15, 2000, though earlier adoption is
encouraged and retroactive application is prohibited. For AT&T, this means that
the standard must be adopted no later than January 1, 2001.
In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities" as an amendment to SFAS No. 133.
This statement provides clarification with regard to certain implementation
issues under SFAS No. 133 on specific types of hedges.
The impact of the adoption of SFAS No. 133, as amended by SFAS No. 138, on
AT&T's results of operations is dependent upon the fair values of our
derivatives and related financial instruments at the date of adoption and could
result in more pronounced quarterly fluctuations in other income (expense) in
future periods. However, had we adopted SFAS No. 133 in the third quarter of
2000, we would have recorded a cumulative effect of an accounting change, net of
applicable taxes, of approximately $325 million of income, or $0.08 per diluted
share, primarily attributable to fair value adjustments of monetized debt
instruments acquired in conjunction with the MediaOne merger, as well as to our
warrant portfolio. Management does not expect the impact of the adoption of SFAS
No. 133 on our interest rate swap and foreign exchange portfolios to be material
to AT&T's results of operations, financial condition, or cash flows.
In addition, management is currently reassessing the appropriate classification
of certain investment securities that support debt which is indexed to those
securities. Had these securities been reclassified from available-for-sale to
trading securities during the third quarter, a charge of $235 million, or $0.06
per diluted share, net of applicable taxes, would have been recorded to other
income (expense), concurrently with the adoption of SFAS No. 133. As an
available-for-sale security, changes in fair value are included within other
comprehensive income.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB No. 101), "Revenue Recognition in Financial Statements."
The SEC delayed the date by which registrants must apply the accounting and
disclosures described in SAB No. 101 until the fourth quarter of 2000.
Management does not expect the adoption of SAB No. 101 to have a material impact
on our results of operations.
<PAGE>
AT&T Form 10-Q - Part I
SUBSEQUENT EVENTS
RESTRUCTURING PLAN
On October 25, 2000, AT&T announced a restructuring plan designed to create four
publicly traded companies from each of our major operating units. AT&T
shareowners would ultimately own stock in each of the four businesses. Upon
completion of the plan, AT&T Wireless, AT&T Broadband, AT&T Consumer and AT&T
Business will all be represented by asset-based or tracking stocks.
In the first phase of the restructuring plan, AT&T intends to offer AT&T
shareowners the opportunity to exchange their AT&T common stock for AT&T
Wireless Group tracking stock. We plan to distribute our remaining interest in
AT&T Wireless Group to AT&T shareowners in 2001.
AT&T also plans to create a new class of stock to track the economic performance
of our AT&T Consumer business and plans to distribute 100% of the tracking stock
to AT&T shareowners in the second half of 2001. In addition, depending on market
conditions, AT&T plans to conduct an initial public offering of stock that will
track the economic performance of our Broadband unit during the summer of 2001.
AT&T's ownership interest in Excite@Home will be part of the Broadband entity.
AT&T plans to recapitalize the Broadband tracking stock into an asset-based
common stock within twelve months of the initial public offering.
AT&T Business will be the legal owner of the AT&T brand, which it will license
to the other companies. It will also be the parent company of the AT&T Consumer
business.
The board of directors is reviewing the dividend policy of AT&T before the end
of 2000 and AT&T expects that AT&T's dividend prior to the creation of the four
new companies as well as the combined dividend of the four new companies will be
substantially lower than our current dividend.
AT&T does not expect significant downsizing to result from our plans, although
each company will continue to size its operations as appropriate. AT&T expects
these transactions will be tax-free to U.S. shareholders. Certain aspects of the
above transactions remain subject to regulatory and other approvals.
OTHER EVENTS
AT&T currently holds a 55.62% equity interest in AB Cellular Holding LLC (AB
Cellular), which was formed in 1998 with BellSouth, with each party having a 50%
voting interest. AB Cellular owns, controls and supervises wireless properties
in Los Angeles, Houston and Galveston. Public documents filed by BellSouth
indicate that BellSouth anticipates exercising an option available to them
pursuant to the AB Cellular LLC Agreement, which would result in AB Cellular
redeeming AT&T's interest in AB Cellular in consideration of 100% of the net
assets of the Los Angeles property. If this transaction takes place, AT&T
anticipates recording a gain and will begin consolidating the results of the Los
Angeles property.
On November 13, 2000, two of AT&T's wireless affiliates, TeleCorp PCS, Inc.
(TeleCorp) and Tritel, Inc., merged as part of a stock transaction. In
connection with the merger, AT&T contributed to TeleCorp rights to acquire
wireless licenses in Wisconsin and Iowa and $20 million in cash in exchange for
approximately 9.3 million shares of common stock in the newly merged entity. In
a separate transaction, AT&T exchanged certain wireless licenses and rights to
acquire licenses in the Wisconsin and Iowa markets, and made a cash payment of
approximately $80 million in return for certain TeleCorp PCS licenses and
wireless systems in several New England markets. AT&T expects that these
transactions will result in a gain.
<PAGE>
AT&T Form 10-Q - Part II
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
MEDIAONE SHAREHOLDER LITIGATION
In March 1999, several putative class action complaints were filed against
MediaOne Group, Inc. and certain of its officers and directors in Delaware
Chancery Court, subsequently consolidated under the caption, In re MediaOne
Group Inc. Shareholders Litigation, C.A. No. 17037, alleging that the MediaOne
directors had breached their fiduciary duties to MediaOne shareholders by
causing MediaOne to enter into a merger agreement with Comcast Corp. without
taking the necessary steps to obtain the best price available upon a sale of
control of MediaOne. A similar suit was filed in New York Supreme Court, New
York County, under the caption Krim v. Cote, et al., No. 99-602028. After the
suits were filed, MediaOne terminated the Comcast merger agreement in order to
accept a superior proposal from AT&T. Thereafter, on August 13, 1999, a
Consolidated and Amended Class Action Complaint was filed in the Delaware action
alleging that the MediaOne directors could only fulfill their fiduciary duties
in connection with the AT&T merger if, among other things, they caused AT&T to
issue one or more tracking stocks as part of the consideration in the merger. On
December 6, 1999, with the consent of MediaOne, AT&T announced plans to issue a
new class of common stock to track its wireless operations. MediaOne's consent
was conditioned upon the agreement of AT&T that no distribution, or setting of a
record date for the distribution, of this tracking stock to holders of common
stock of AT&T occur prior to the effective time of MediaOne's merger with AT&T.
On June 15, 2000, MediaOne consummated its merger with AT&T and became a
wholly-owned subsidiary of AT&T.
In light of these events, plaintiffs in the MediaOne shareholder actions
stipulated to the dismissal of the actions as moot. As part of the stipulation,
AT&T agreed to pay and plaintiffs' attorneys agreed to accept the sum of $340
thousand in full satisfaction and discharge of their claim for compensation for
legal services performed and reimbursement of expenses incurred in connection
with the prosecution of the actions. On August 28, 2000, the Delaware Chancery
Court approved the dismissal of the Delaware actions on mootness grounds,
conditioned upon the dismissal of the New York action and the provision of
notice of the terms of the stipulation in AT&T's next Form 10-Q.
OTHER LITIGATION
On July 6, 1997, MCI Telecommunications Corp. and Ronald A. Katz Technology
Licensing, L.P. filed suit in United States District Court in Philadelphia,
Pennsylvania against AT&T. The suit alleged that a number of AT&T services
infringe patents owned by Katz but licensed to MCI for enforcement against AT&T.
On November 1, 2000, without any admission of liability or wrongdoing of any
kind, AT&T settled this matter for an undisclosed amount.
In October and November 2000, the Company was named as a defendant in several
purported securities class action lawsuits filed in the United States District
Courts for the District of New Jersey and for the Southern District of New York
purportedly filed on behalf of persons who purchased securities of the Company
for various periods from October 25, 1999 through May 1, 2000. These lawsuits
assert claims under Section 10(b) and 20(a) of the Securities Exchange Act of
1934, as amended, and allege, among other things, that during the period
referenced above, the Company made materially false and misleading statements
and omitted to state material facts concerning its future business prospects.
The complaints seek unspecified damages. The Company believes that the lawsuits
are without merit and intends to defend them vigorously.
<PAGE>
AT&T Form 10-Q - Part II
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
99.1 Liberty Media Group financial results for the
three and nine months ended September 30, 2000
and 1999
99.2 AT&T Wireless Group financial results and
Management's Discussion and Analysis for the
three and nine months ended September 30,
2000 and 1999
(b) Reports on Form 8-K
Form 8-K-A dated June 15, 2000 was filed pursuant to Item 5
(Other Events) and Item 7 (Financial Statements and
Exhibits) on August 29, 2000.
<PAGE>
AT&T Form 10-Q - Part II
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AT&T Corp.
/s/ N. S. Cyprus
------------------------------
By: N. S. Cyprus
Vice President and Controller
(Principal Accounting Officer)
Date: November 13, 2000
<PAGE>
AT&T Form 10-Q
Exhibit Index
Exhibit
Number
12 Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
99.1 Liberty Media Group financial results for the three
and nine months ended September 30, 2000 and 1999
99.2 AT&T Wireless Group financial results and
Management's Discussion and Analysis for the three
and nine months ended September 30, 2000 and 1999
