<PAGE> 1
Exhibit 99.1
UNAUDITED PRO FORMA CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma information set forth below for AT&T gives effect to the
MediaOne Group, Inc. (MediaOne Group) and Tele-Communications, Inc. (TCI)
mergers as if they had been completed on January 1, 1999, for income statement
purposes, and as if the MediaOne Group merger had been completed on March 31,
2000, for balance sheet purposes, subject to the assumptions and adjustments in
the accompanying notes to the pro forma information. The TCI merger was
completed on March 9, 1999, and therefore, TCI is reflected in the March 31,
2000, balance sheet, accordingly there is no pro forma TCI impact on the balance
sheet. As a result of the TCI merger, AT&T is accounting for Liberty Media Group
(LMG) under the equity method of accounting because AT&T does not have a
controlling financial interest for financial accounting purposes in LMG.
The pro forma adjustments do not reflect any operating efficiencies and cost
savings that may be achieved with respect to the combined company. The pro forma
adjustments do not include any adjustments to historical sales for any future
price changes nor any adjustments to selling, marketing or any other expenses
for any future operating changes. Upon the closing of the MediaOne Group merger,
AT&T will incur certain integration related expenses not reflected in the pro
forma financial statements as a result of the elimination of duplicate
facilities, operational realignment and related workforce reductions. Such costs
will generally be recognized by AT&T as a liability assumed as of the merger
date resulting in additional goodwill in accordance with Emerging Issues Task
Force No. 95-3, Recognition of Liabilities in Connection with a Purchase
Business Combination ("EITF 95-3"). The assessment of integration related
expenses is ongoing. The following pro forma information is not necessarily
indicative of the financial position or operating results that would have
occurred had the MediaOne Group merger, and the TCI merger, been consummated on
the dates, or at the beginning of the periods, for which such transactions are
being given effect. The pro forma adjustments reflecting the consummation of the
merger are based upon the assumptions set forth in the notes hereto, including
the exchange of all of the outstanding shares of MediaOne Group for an aggregate
of approximately 606 million shares of AT&T common stock not including AT&T
stock options.
The merger with MediaOne closed on June 15, 2000. AT&T has accounted for the
MediaOne Group merger under the purchase method of accounting. Accordingly,
AT&T has established a new basis for MediaOne Group's assets and liabilities
based upon the fair values and the AT&T purchase price including the costs of
the merger. The purchase accounting adjustments made in connection with the
development of the pro forma condensed financial statements are preliminary and
have been made solely for purposes of developing such pro forma condensed
financial information.
AT&T currently knows of no events other than those disclosed in these pro forma
notes that would require a material change to the preliminary purchase price
allocation of MediaOne Group. However, a final determination of required
purchase accounting adjustments will be made upon the completion of a study
undertaken by AT&T in conjunction with independent appraisers to determine the
fair value of certain of MediaOne Group's assets and liabilities, including
intangible assets. Refer to note 3 for a discussion of the sensitivity to
earnings that may occur as a result of the final determination of fair value.
The actual financial position and results of operations will differ, perhaps
significantly, from the pro forma amounts reflected herein because of a variety
of factors, including access to additional information, changes in value not
currently identified and changes in operating results between the dates of the
pro forma financial data and the date on which the merger takes place.
1
<PAGE> 2
AT&T
Unaudited Pro Forma Condensed Balance Sheet
As of March 31, 2000
(In millions)
<TABLE>
<CAPTION>
Pro Forma
Historical AT&T with
Historical MediaOne Pro Forma MediaOne
AT&T(1) Group(1) Adjustments Group
---------- -------- --------- --------
<S> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents ....................... $ 102 $ 7,540 $ (345)(3d) $ 7,297
23,573 (6)
(23,573)(3a)
Receivables-net ................................. 10,943 374 -- 11,317
Other current assets ............................ 2,574 160 -- 2,734
--------- --------- --------- ---------
Total current assets ............................ 13,619 8,074 (345) 21,348
Property, plant and equipment-net ............... 38,853 5,369 -- 44,222
Franchise-net ................................... 32,194 -- 18,830(3m) 51,024
Licensing cost-net .............................. 8,578 -- -- 8,578
Goodwill-net .................................... 7,390 11,329 14,068(3n) 21,458
(11,329)(3f)
Investment in Liberty Media Group and
related receivables ............................ 41,983 -- -- 41,983
Other investments ............................... 21,567 12,334 13,402(3h) 49,560
2,026 (5)
231 (5)
Other assets .................................... 9,498 3,152 (1,500)(4) 9,124
(2,026)(5)
Assets held for sale ............................ -- 820 (231)(5) 3,609
3,020 (3i)
--------- --------- --------- ---------
Total assets .................................... $173,682 $41,078 $ 36,146 $250,906
========= ========= ========= =========
</TABLE>
(CONTINUED)
<PAGE> 3
AT&T
Unaudited Pro Forma Condensed Balance Sheet
As of March 31, 2000
(In millions)
<TABLE>
<CAPTION>
Pro Forma
Historical AT&T with
Historical MediaOne Pro Forma MediaOne
AT&T(1) Group(1) Adjustments Group
---------- -------- --------- --------
<S> <C> <C> <C> <C>
LIABILITIES:
Accounts payable ......................................... $ 6,401 $ 292 $ -- $ 6,693
Debt maturing within one year ............................ 15,195 1,505 23,573(6) 38,773
(1,500)(4)
Other current liabilities ................................ 9,117 1,681 -- 10,798
--------- --------- --------- ---------
Total current liabilities ................................ 30,713 3,478 22,073 56,264
Long-term debt ........................................... 23,511 10,179 (124)(3j) 33,566
Deferred income taxes .................................... 23,846 7,998 10,670 (3l) 42,514
Other long-term liabilities and deferred
credits ................................................. 7,827 349 -- 8,176
--------- --------- --------- ---------
Total liabilities ........................................ 85,897 22,004 32,619 140,520
Minority interest ........................................ 2,378 1,115 21 (3k) 3,514
Company-obligated convertible quarterly
income preferred securities of a
subsidiary trust holding solely
subordinated debt securities of AT&T .................... 4,702 -- -- 4,702
Preferred stock subject to mandatory
redemption .............................................. -- 50 (50)(3g) 46
46 (3c)
AT&T common stock ........................................ 3,147 10,943 (10,943)(3e) 3,753
606 (3b)
Liberty Media Group Class A common
stock ................................................... 2,363 -- -- 2,363
Liberty Media Group Class B common
stock ................................................... 206 -- -- 206
Additional paid-in capital ............................... 57,636 -- 20,813(3b) 78,449
Retained earnings ........................................ 8,553 5,280 (5,280)(3e) 8,553
Other .................................................... 8,800 1,686 (1,686)(3e) 8,800
--------- --------- --------- ---------
Total shareowners' equity ....................... 80,705 17,909 3,510 102,124
Total liabilities and shareowners' equity ................ $ 173,682 $ 41,078 $ 36,146 $ 250,906
========= ========= ========= =========
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
<PAGE> 4
AT&T
Unaudited Pro Forma Condensed Statement of Income
Three Months Ended March 31, 2000
(In millions, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical AT&T with
Historical MediaOne Pro Forma MediaOne
AT&T(1) Group(1) Adjustments Group
---------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue ............................................. $15,901 $ 706 $ -- $16,607
Operating Expenses:
Access and other connection ......................... 3,588 -- -- 3,588
Cost of services and products ....................... 3,915 296 -- 4,211
Selling, general and administrative ................. 3,289 171 -- 3,460
Depreciation and amortization ....................... 1,934 379 206 (7) 2,373
(146)(8)
Net restructuring and other charges ................. 773 -- -- 773
-------- ----- ---- --------
Total operating expenses ................... 13,499 846 60 14,405
Operating income(loss) .............................. 2,402 (140) (60) 2,202
Equity earnings from Liberty Media Group ............ 942 -- -- 942
Other income(expense) ............................... 296 2,200 (154)(7) 2,342
Interest expense .................................... 589 147 383 (10) 1,124
5 (7)
Income(loss) before income taxes .................... 3,051 1,913 (602) 4,362
Provision for income taxes .......................... 368 755 (209)(11) 914
-------- ----- ---- --------
Net income ................................. 2,683 1,158 (393) 3,448
Dividend requirements on preferred stock ............ -- (1) -- (1)
-------- ----- ---- --------
Income(loss) attributable to common
shareowners ........................................ $ 2,683 $1,157 $(393) $ 3,447
======== ===== ==== ========
AT&T Common Stock Group:
Income .............................................. $ 1,741 $ 2,505
Weighted-average shares outstanding
(basic) ............................................. 3,185 3,791
Basic EPS ........................................... $ 0.55 $ 0.66
Income .............................................. $ 1,749 $ 2,513
Weighted-average shares outstanding
(diluted) ........................................... 3,256 3,871
Diluted EPS ......................................... $ 0.54 $ 0.65
Liberty Media Group:
Basic and Diluted EPS ............................... $ 0.37 $ 0.37
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
<PAGE> 5
AT&T
Unaudited Pro Forma Condensed Statement of Income
Twelve months ended December 31, 1999
(In millions, except share amounts)
<TABLE>
<CAPTION>
Pro Forma
Historical Liberty/
TCI Ventures Other TCI
Historical (Jan-Feb Group Pro Forma
AT&T(1) '99)(1) Adjustment(2) Adjustments(9)
----- ------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUE ........................... $62,600 $1,145 $(204) $ --
OPERATING EXPENSES:
Access and other
connection ........................ 14,686 -- -- --
Cost of services and
products .......................... 14,594 543 (79) --
Selling, general and
administrative .................... 13,516 677 (260) --
Depreciation and
amortization ...................... 7,439 277 (22) 120
Net restructuring and other
charges ........................... 1,506 -- -- --
------ ----- ----- -----
Total operating expenses ........ 51,741 1,497 (361) 120
OPERATING INCOME (LOSS) ........... 10,859 (352) 157 (120)
Equity losses from Liberty Media
Group .............................. (2,022) -- (68) (156)
Other income (expense) ............. (387) 356 (321) (45)
Interest expense ................... 1,765 161 (25) 82
Income (loss) before income taxes... 6,685 (157) (207) (403)
Provision (benefit) for income
taxes .............................. 3,257 119 (207) (111)
------ ----- ----- -----
Income (loss) ...................... 3,428 (276) -- (292)
Dividend requirements on
preferred stocks ................... -- (4) -- --
------ ----- ----- -----
INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREOWNERS ................. $3,428 $(280) $ -- $(292)
------ ----- ----- -----
AT&T COMMON STOCK GROUP:
Income ............................. $5,450
Weighted-average shares
outstanding (basic) ................ 3,082
Basic EPS .......................... $1.77
Income ............................. $5,476
Weighted-average shares
outstanding (diluted) .............. 3,152
Diluted EPS ........................ $1.74
Liberty Media Group EPS
Basic and Diluted .................. $(0.80)
<CAPTION>
Pro Forma
AT&T
MediaOne With TCI
Pro Forma Historical Group Pro and
AT&T MediaOne Forma MediaOne
With TCI Group(1) Adjustments Group
-------- -------- ----------- -----
<S> <C> <C> <C> <C>
REVENUE ........................... $63,541 $2,695 $ -- $66,236
OPERATING EXPENSES:
Access and other
connection ........................ 14,686 -- -- 14,686
Cost of services and
products .......................... 15,058 1,069 -- 16,127
Selling, general and
administrative .................... 13,933 749 -- 14,682
Depreciation and
amortization ...................... 7,814 1,248 822 (7) 9,365
(519)(8)
Net restructuring and other
charges ........................... 1,506 -- -- 1,506
------- ------ ------- -------
Total operating expenses ........ 52,997 3,066 303 56,366
OPERATING INCOME (LOSS) ........... 10,544 (371) (303) 9,870
Equity losses from Liberty Media
Group ............................. (2,246) -- -- (2,246)
Other income (expense) ............ (397) 7,551 (616)(7) 8,038
1,500 (4)
Interest expense .................. 1,983 449 1,532(10) 3,984
20 (7)
Income (loss) before income taxes.. 5,918 6,731 (971) 11,678
Provision (benefit) for income
taxes ............................. 3,058 3,217 (1,009)(11) 5,266
------- ------ ------- -------
Income (loss) ..................... 2,860 3,514 38 6,412
Dividend requirements on
preferred stocks .................. (4) (77) 46 (12) (35)
------- ------ ------- -------
INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREOWNERS ................ $ 2,856 $3,437 $ 84 $ 6,377
------- ------ ------- -------
AT&T COMMON STOCK GROUP:
Income ............................ $ 5,102 $ 8,623
Weighted-average shares
outstanding (basic) ............... 3,181 3,787
Basic EPS ......................... $ 1.60 $ 2.28
Income ............................ $ 5,128 $ 8,649
Weighted-average shares
outstanding (diluted) ............. 3,299 3,914
Diluted EPS ....................... $ 1.55 $ 2.21
Liberty Media Group EPS
Basic and Diluted ................. $ (0.89) $ (0.89)
</TABLE>
See Notes to Unaudited AT&T Condensed Pro Forma Financial Statements
<PAGE> 6
Notes to Unaudited AT&T Pro Forma Condensed Financial Statements
1. These columns reflect the historical results of operations and financial
position of the respective companies. AT&T's historical balance sheet as of
March 31, 2000, gives effect to the TCI merger.
2. This column reflects the deconsolidation to the equity method of accounting
of the historical results of operations for the interests represented by
the shares of LMG tracking stock. AT&T accounts for LMG under the equity
method because it does not possess a "controlling financial interest" for
financial accounting purposes in LMG.
3. This adjustment reflects the acquisition of MediaOne Group and the
excess consideration over net assets acquired (goodwill). Accordingly,
the historical shareowners' equity accounts of MediaOne Group have been
eliminated (entry 3e). For the purpose of these pro forma financial
statements, consideration has been calculated assuming a mixed cash and
stock election pursuant to the terms of the merger agreement of $36.27
per share in cash and 0.95 of a share of AT&T common stock for each
share of MediaOne Group common stock outstanding at the pro forma
balance sheet date. The $36.27 cash consideration per share consisted
of $30.85 per share as stipulated in the merger agreement and $5.42 per
share representing the maximum amount of additional cash per share that
could be paid based on AT&T's stock price being below a predetermined
amount. This reflects the actual cash consideration at the time of the
closing of the merger on June 15, 2000.
The AT&T Series E preferred stock to be issued as consideration in
exchange for the MediaOne Group Series E preferred stock has been valued
as a convertible debt security based on fair value. All outstanding and
unvested options to purchase shares of MediaOne Group common stock will
vest upon completion of the merger and have been included as consideration
assuming a "standard option election" pursuant to the terms of the merger
agreement. Under the standard option election, each MediaOne Group
optionholder will receive cash and a converted option to purchase AT&T
common stock, the fair value of which will be determined by using the
Black-Scholes option-pricing model.
<PAGE> 7
This adjustment reflects the acquisition of MediaOne Group and the excess
consideration over net assets acquired (goodwill) (in millions, except per
share amounts).
<TABLE>
<S> <C>
Shares of MediaOne Group common stock to be exchanged for cash and AT&T
common stock ........................................................ 638
Cash per share........................................................ $ 36.27
Cash consideration for outstanding shares ............................. $ 23,137
Cash consideration for 28.4 million outstanding options (average cash
payment per option of $15.35) ....................................... $ 436
a. Total cash consideration .................................................... $ 23,573
AT&T common stock exchange ratio per share .................................. 0.95
Equivalent AT&T shares (par value $1) ....................................... 606
AT&T common stock share price based on the average closing price a few days
before and after the establishment of final consideration ................. $ 34.59
SUB-TOTAL ................................................................... $ 20,968
Fair value of AT&T stock options resulting from the conversion of MediaOne
Group stock options in the merger ......................................... $ 451
b. AT&T common stock equity consideration ...................................... $ 21,419
c. Value of AT&T Series E preferred stock to be issued in exchange for
MediaOne Group Series E preferred stock .................................... 46
d. Merger costs (estimate) ..................................................... 345
TOTAL CONSIDERATION ........................................................ $ 45,383
e. Historical net book value of MediaOne Group ................................. (17,909)
Pro Forma Adjustments relating to:
f. Existing MediaOne Group intangible assets ................................... 11,329
g. Exchange of MediaOne Group Series E preferred stock ......................... (50)
h. Investments ................................................................. (13,402)
i. Assets held for sale (see note 5) ........................................... (3,020)
j. Debt ........................................................................ (124)
k. Minority interest in Centaur Funding Corporation ............................ 21
l. Deferred tax impacts ........................................................ 10,670
m. Franchise intangible ........................................................ (18,830)
n. Preliminary goodwill ........................................................ $ 14,068
</TABLE>
A preliminary allocation of the purchase price has been made to certain
identifiable tangible assets, the franchise intangible, and liabilities of
MediaOne Group, including deferred income tax impacts, based upon information
available to the management of AT&T at the date of the preparation of the
accompanying pro forma condensed financial statements. Such information
includes quoted market prices where available and estimates of fair values
provided in conjunction with AT&T's financial advisors. At June 15, 2000, the
date of the closing of the merger, preliminary goodwill of $16 billion was
recorded. The change in goodwill from March 31, 2000, primarily related to the
change in value attributable to certain investments of MediaOne. The total
consideration will be allocated to the specific identifiable tangible and
intangible assets and liabilities of MediaOne Group after the completion of
third-party appraisals during the allocation period specified by Statement of
Financial Accounting Standards No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises".
Assuming an estimated useful life of 10 years, each $1 billion of consideration
allocated to intangible assets other than franchise/goodwill would have the
effect of decreasing net income by $46 million annually ($0.01 per diluted
share). Certain restructuring related costs will be recorded by AT&T as a
liability upon the closing of the merger in accordance with EITF 95-3 that will
result in additional goodwill to be amortized over 40 years.
<PAGE> 8
4. As a result of the termination of the merger agreement between MediaOne
Group and Comcast, MediaOne Group paid Comcast a termination fee of $1.5
billion. The termination fee was loaned to MediaOne Group by AT&T and was
recorded on MediaOne Group's balance sheet as a note payable to AT&T. The
note bears interest at LIBOR plus 0.15% and matures on December 31, 2000.
The note is due on demand at any time following consummation of the merger.
For the purpose of the pro forma financial statements, the note payable to
AT&T has been eliminated in consolidation and the non-recurring charge has
been eliminated from the condensed statement of income for the year ended
December 31, 1999.
5. MediaOne Group and AT&T intend to divest over a period of time not expected
to exceed one year from the date of the closing of the merger certain
nonstrategic MediaOne Group assets preliminarily valued at $3,609 million.
MediaOne Group currently accounts for these assets as equity method
investments. The carrying value of assets no longer intended to be sold of
$231 million has been reclassified out of the balance sheet caption "assets
held for sale" to "other investments". In addition, other MediaOne
investments with a carrying value of $2,026 million have been reclassified
out of "other assets" to "other investments" to conform with AT&T's
presentation. The remaining assets held for sale have been valued at their
expected disposition value ($3,020 million represents the excess of fair
value over carrying value).
6. Reflects additional borrowings equal to the cash consideration to be
exchanged in the merger. The incremental borrowings are assumed to be
short-term indebtedness.
7. Represents the amortization of franchise and goodwill resulting from the
preliminary allocation of the excess of consideration over the net assets
of MediaOne Group. AT&T expects the amount of excess consideration
allocated to goodwill and franchise agreements upon completion of
third-party appraisals to be amortized over 40 years. The Chief
Accountant's office of the Securities and Exchange Commission (SEC) has
notified AT&T that as a result of competitive, technological and regulatory
forces, the SEC believes the expiration of the intangible assets associated
with the merger could occur sooner than 40 years. The SEC believes a more
reasonable amortization period to be in the range of 20 to 25 years. AT&T
has considered the views of the SEC but continues to believe that
consideration allocated to franchise agreements and goodwill has an
indeterminate life that is to be amortized over the maximum period of 40
years under current generally accepted accounting principles. The
amortization period for goodwill and franchise intangibles of 40 years is
based by AT&T upon the expected useful life of the franchise agreements and
value related to the access to homes passed that is integral to AT&T's
strategy of providing fully-integrated facilities-based residential
communications services on a national basis. The factors considered in
determining the appropriate amortization period included the expected life
of the associated technology including hybrid fiber optic cable, legal and
regulatory considerations, experience with renewing franchises and
territories, future changes in technology, anticipated market demand and
competition. If the franchise intangible and goodwill (including cable
investments) were amortized over a period of 25 years, AT&T's net income
would be reduced annually by $436 million, or $0.11 per diluted share. If
the amortization period were 20 years, AT&T's net income would be reduced
by $770 million, or $0.20 per diluted share annually. An allocation to
customer relationships and other intangible assets with shorter
amortization periods will be made, however the amounts are not expected to
be material. AT&T will evaluate the periods of amortization continually to
determine whether later events and circumstances warrant revised estimates
of useful lives. As discussed in note 3, amounts allocated to other assets
such as intangible assets may be amortized over shorter periods resulting
in a lower net income. An assessment of the useful lives attributable to
other assets is not complete. Consideration allocated to MediaOne Group
investments has been amortized over the estimated period of benefit
preliminarily estimated to range from 20 to 30 years. Interest expense
accretion on MediaOne Group debt and other mezzanine obligations has been
recognized over the remaining life of the debt.
<PAGE> 9
8. Gives effect to the elimination of MediaOne Group historical amortization
expense.
9. Represents TCI merger purchase accounting adjustments. These adjustments
include the amortization of the excess of the purchase price over the net
assets acquired and incremental interest expense on additional borrowings.
The TCI merger closed on March 9, 1999.
10. Represent the recognition of incremental interest expense on the additional
borrowings incurred to fund the cash consideration to be exchanged in the
merger (see note 6). Interest expense was calculated using an interest rate
of 6.50%. The interest rate reflects the 90-day commercial paper rate in
effect as of June 15, 2000, the closing date of the merger.
11. Reflects the statutory tax effect of the pro forma adjustments.
12. Gives effect to the elimination of dividend requirements on MediaOne Group
Series C preferred stock, which were redeemed in the third quarter of 1999
and MediaOne Group Series D preferred stock which were converted into
MediaOne Group common stock in the fourth quarter of 1999.
