-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FSZ5kBRSnGPMcOSF4H3M01JYEVORuP493ZMCfd3qVMgfEJZdualrhP6iynui2Vs+ pVVZvSgJCDa/Y/yg+7viYQ== 0000005907-00-000025.txt : 20000516 0000005907-00-000025.hdr.sgml : 20000516 ACCESSION NUMBER: 0000005907-00-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AT&T CORP CENTRAL INDEX KEY: 0000005907 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 134924710 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-01105 FILM NUMBER: 632205 BUSINESS ADDRESS: STREET 1: 32 AVENUE OF THE AMERICAS CITY: NEW YORK STATE: NY ZIP: 10013 BUSINESS PHONE: 2123875400 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN TELEPHONE & TELEGRAPH CO DATE OF NAME CHANGE: 19920703 10-Q 1 1ST QUARTER 10-Q REPORT FOR 2000 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 March 31, 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 April 30, 2000, the following shares of stock were outstanding: AT&T common stock - 3,145,338,509 shares Liberty Media Group Class A tracking stock - 1,184,602,868 shares Liberty Media Group Class B tracking stock - 103,117,226 shares AT&T Wireless Group tracking stock - 360,000,000 shares AT&T Form 10-Q - Part I PART I - FINANCIAL INFORMATION CONSOLIDATED STATEMENTS OF INCOME (Dollars in Millions Except Per Share Amounts) (Unaudited) For the Three Months Ended March 31, 2000 1999 Revenue $15,836 $14,096 Operating Expenses Access and other connection 3,588 3,732 Costs of services and products 3,850 2,872 Selling, general and administrative 3,289 3,157 Depreciation and other amortization 1,566 1,304 Amortization of goodwill, franchise costs and other purchased intangibles 368 184 Net restructuring and other charges 773 731 Total operating expenses 13,434 11,980 Operating income 2,402 2,116 Equity earnings (losses) from Liberty Media Group 942 (58) Other income 262 149 Interest expense 555 190 Income before income taxes 3,051 2,017 Provision for income taxes 368 999 Net income $ 2,683 $ 1,018 AT&T Group earnings per AT&T common share: Basic $ 0.55 $ 0.39 Diluted $ 0.54 $ 0.38 Dividends declared per AT&T common share $ 0.22 $ 0.22 Liberty Media Group earnings (loss) per share: Basic and diluted $ 0.73 $ (0.05) See Notes to Consolidated Financial Statements AT&T Form 10-Q - Part I CONSOLIDATED BALANCE SHEETS (Dollars in Millions Except Share Amounts) (Unaudited) March 31, December 31, 2000 1999 ASSETS Cash and cash equivalents $ 102 $ 1,024 Receivables, less allowances of $1,267 and $1,507 10,943 10,453 Deferred income taxes 1,499 1,287 Other current assets 1,075 1,120 TOTAL CURRENT ASSETS 13,619 13,884 Property, plant and equipment, net of accumulated depreciation of $28,884 and $30,057 38,853 39,618 Franchise costs, net of accumulated amortization of $883 and $697 32,194 32,693 Licensing costs, net of accumulated amortization of $1,551 and $1,491 8,578 8,548 Goodwill, net of accumulated amortization of $426 and $363 7,390 7,445 Investment in Liberty Media Group and related receivables, net 41,983 38,460 Other investments and related advances 21,567 19,366 Prepaid pension costs 2,571 2,464 Other assets 6,927 6,928 TOTAL ASSETS $173,682 $169,406 (CONTINUED) AT&T Form 10-Q - Part I CONSOLIDATED BALANCE SHEETS (CONTINUED) (Dollars in Millions Except Share Amounts) (Unaudited) March 31, December 31, 2000 1999 LIABILITIES Accounts payable $ 6,401 $ 6,771 Payroll and benefit-related liabilities 2,457 2,651 Debt maturing within one year 15,195 12,633 Dividends payable 692 703 Other current liabilities 5,968 5,449 TOTAL CURRENT LIABILITIES 30,713 28,207 Long-term debt 21,886 21,591 Long-term benefit-related liabilities 3,943 3,964 Deferred income taxes 23,846 24,199 Other long-term liabilities and deferred credits 3,884 3,801 TOTAL LIABILITIES 84,272 81,762 Minority Interest in Equity of Consolidated Subsidiaries 2,378 2,391 Company-Obligated Convertible Quarterly Income Preferred Securities of Subsidiary Trust Holding Solely Subordinated Debt Securities of AT&T 4,702 4,700 Subsidiary-Obligated Mandatorily Redeemable Preferred Securities of Subsidiary Trusts Holding Solely Subordinated Debt Securities of an AT&T Subsidiary 1,625 1,626 SHAREOWNERS' EQUITY Common Stock: AT&T Common Stock, $1 par value, authorized 6,000,000,000 shares; issued and outstanding 3,146,934,773 shares (net of 357,151,160 treasury shares) at March 31, 2000, and 3,196,436,757 shares (net of 287,866,419 treasury shares) at December 31, 1999 3,147 3,196 Liberty Media Group Class A Tracking Stock, $1 par value, authorized 2,500,000,000 shares; issued and outstanding 1,181,420,568 shares (net of 23,368,954 treasury shares) at March 31, 2000, and 1,156,778,730 shares at December 31, 1999 1,181 1,157 Liberty Media Group Class B Tracking Stock, $1 par value, authorized 250,000,000 shares; issued and outstanding 103,117,226 shares (net of 5,303,888 treasury shares) at March 31, 2000, and 108,421,114 shares at December 31, 1999 103 108 Additional paid-in capital 58,921 60,792 Guaranteed ESOP obligation - (17) Retained earnings 8,553 6,712 Accumulated other comprehensive income 8,800 6,979 TOTAL SHAREOWNERS' EQUITY 80,705 78,927 TOTAL LIABILITIES & SHAREOWNERS' EQUITY $173,682 $169,406 See Notes to Consolidated Financial Statements AT&T Form 10-Q - Part I CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (Dollars in Millions Except Share Amounts) (Unaudited) For the Three Months Ended March 31, 2000 1999 AT&T Common Shares Balance at beginning of year $ 3,196 $ 2,630 Shares issued (acquired), net: Under employee plans 1 (2) For acquisitions - 553 Other* (50) - Balance at end of period 3,147 3,181 Liberty Media Group Class A Tracking Stock Balance at beginning of year 1,157 - Shares issued, net: For acquisitions 24 1,140 Other - 2 Balance at end of period 1,181 1,142 Liberty Media Group Class B Tracking Stock Balance at beginning of year 108 - Shares issued (acquired), net: For acquisitions - 110 Other (5) - Balance at end of period 103 110 Additional Paid-In Capital Balance at beginning of year 60,792 15,195 Shares issued (acquired), net: Under employee plans 50 (103) For acquisitions 756 43,144 Other* (2,619) 47 Gain on issuance of common stock by affiliates (95) - Other 37 64 Balance at end of period 58,921 58,347 Guaranteed ESOP Obligation Balance at beginning of year (17) (44) Amortization 17 13 Balance at end of period - (31) Retained Earnings Balance at beginning of year 6,712 7,800 Net income 2,683 1,018 Dividends declared (692) (699) Treasury shares issued at less than cost (150) (1,360) Balance at end of period 8,553 6,759 (CONTINUED) AT&T Form 10-Q - Part I CONSOLIDATED STATEMENTS OF CHANGES IN SHAREOWNERS' EQUITY (CONTINUED) (Dollars in Millions Except Share Amounts) (Unaudited) For the Three Months Ended March 31, 2000 1999 Accumulated Comprehensive Income Balance at beginning of year 6,979 (59) Other comprehensive income 1,821 913 Balance at end of year 8,800 854 Total Shareowners' Equity $80,705 $70,362 Summary of Total Comprehensive Income: Net income $ 2,683 $ 1,018 Net foreign currency translation adjustment (net of taxes of $(34) and $(2)) (58) (1) Net revaluation of investments (net of taxes of $1,227 and $597) 1,879 914 Comprehensive Income $ 4,504 $ 1,931 * Represents AT&T stock received from Cox Communications, Inc., in exchange for certain cable systems and other assets. In the first quarter of 2000, other comprehensive income included Liberty Media Group's foreign currency translation adjustments totaling $(31), net of applicable taxes, and revaluation of Liberty Media Group's available-for-sale securities totaling $3,259, net of applicable taxes, partially offset by the recognition of previously unrecognized available for sale securities of $1,478. In the first quarter of 1999, other comprehensive income included Liberty Media Group's foreign currency translation adjustments totaling $12, net of applicable taxes, and revaluation of Liberty Media Group's available-for-sale securities totaling $894, net of applicable taxes. AT&T accounts for treasury stock as retired stock, and as of March 31, 2000, had 357 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. We have 6 billion authorized shares of AT&T Wireless Group tracking stock at $1 par value, none of which were issued or outstanding as of the end of the first quarter, however, 360 million were issued and outstanding as a result of the initial public offering on April 27, 2000. See Notes to Consolidated Financial Statements AT&T Form 10-Q - Part I CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Millions) (Unaudited) For the Three Months Ended March 31, 2000 1999 Operating Activities Net income $ 2,683 $ 1,018 Adjustments to reconcile net income to net cash provided by operating activities: Gains on sales (594) (158) Net restructuring and other charges 748 731 Depreciation and amortization 1,934 1,488 Provision for uncollectibles 284 386 Net equity (earnings) losses from Liberty Media Group (942) 58 Net losses from other equity investments 301 81 Increase in accounts receivable (890) (622) Decrease in accounts payable (73) (742) Net change in other operating assets and liabilities (483) (1,460) Other adjustments (592) (34) Net cash provided by operating activities 2,376 746 Investing Activities Capital expenditures and other additions (3,236) (1,913) Proceeds from sale or disposal of property, plant and equipment 143 16 (Increase) decrease in other receivables (980) 4 Net (acquisitions) dispositions of licenses (82) 9 Equity investment distributions and sales 417 69 Equity investment contributions and purchases (1,059) (5,821) (Acquisitions) dispositions of businesses including cash acquired in acquisitions (188) 797 Other investing activities, net (16) (52) Net cash used in investing activities (5,001) (6,891) Financing Activities Proceeds from long-term debt issuances 739 7,948 Retirements of long-term debt (1,007) (493) Net acquisition of treasury shares (393) (4,344) Dividends paid on common stock (703) (603) Distributions on trust preferred securities (97) (12) Increase in short-term borrowings, net 3,179 1,834 Other financing activities, net (15) 118 Net cash provided by financing activities 1,703 4,448 Net decrease in cash and cash equivalents (922) (1,697) Cash and cash equivalents at beginning of year 1,024 3,160 Cash and cash equivalents at end of period $ 102 $ 1,463 See Notes to Consolidated Financial Statements AT&T Form 10-Q - Part I 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, the financial statements of Liberty Media Group for the year ended December 31, 1999, included in AT&T's Form 10-K filed on March 27, 2000, and the financial statements of Liberty Media Group for the quarter ended March 31, 2000, included as Exhibit 99 to this AT&T quarterly report on Form 10-Q. We have reclassified certain prior period amounts to conform with our current presentation. (b) MERGER WITH TELE-COMMUNICATIONS, INC. (TCI) On March 9, 1999, AT&T completed a merger with TCI, renamed AT&T Broadband (Broadband), in an all-stock transaction valued at approximately $52 billion. The merger was accounted for under the purchase method of accounting and, accordingly, the results of Broadband have been included with the financial results of AT&T since the date of acquisition. In connection with the closing, AT&T issued separate tracking stock designed to reflect the economic performance of Liberty Media Group (LMG), TCI's former programming and technology investment business. AT&T does not have a controlling financial interest for financial accounting purposes in LMG; therefore, our investment in LMG is accounted for under the equity method in the accompanying consolidated financial statements. The amounts attributable to LMG are reflected as separate line items "Equity earnings (losses) from Liberty Media Group" and "Investment in Liberty Media Group and related receivables, net," in the accompanying consolidated financial statements. As a separate tracking stock, all of the earnings or losses related to LMG are excluded from the earnings attributable to the holders of AT&T common stock, referred to as AT&T Group. The $52 billion aggregate value assigned to Broadband's net assets was composed of AT&T common stock of approximately $27 billion, Liberty Media Group tracking stock of approximately $23 billion, and assumption of convertible notes and preferred stock of approximately $2 billion. Approximately $20 billion of the purchase price of $52 billion was attributed to franchise costs. Also included was approximately $11 billion related to nonconsolidated investments, approximately $5 billion related to property, plant and equipment, approximately $11 billion of Broadband long-term debt and approximately $7 billion related to other net liabilities. In addition, our investment in LMG was recorded at approximately $34 billion. AT&T Form 10-Q - Part I Following is a summary of the pro forma results of AT&T as if the merger had closed effective January 1, 1999: For the Three Months Ended March 31, 1999 Shares in millions (unaudited) Revenue $15,037 Net income 446 Weighted-average AT&T Group common shares 3,147 Weighted-average AT&T Group common shares and potential common shares 3,253 Weighted-average Liberty Media Group shares 1,190 Earnings per AT&T common share: Basic $ 0.23 Diluted $ 0.22 Liberty Media Group loss per share: Basic and diluted $ 0.24 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 period presented, nor does it intend to be a projection of future results. (c) OTHER ACQUISITIONS, EXCHANGES AND DISPOSITIONS EXCITE@HOME On March 29, 2000, AT&T and At Home Corporation (Excite@Home), along with Comcast Corporation (Comcast) and Cox Communications, Inc. (Cox), agreed to new extended distribution arrangements and a reorganization of the governance of Excite@Home. Under the agreement, Comcast and Cox will give up certain veto rights at the Excite@Home board level and their representatives will resign from the board. AT&T will have the right to elect a majority of the board members and Excite@Home will amend the charter to allow board action by simple majority. As a result, AT&T will continue to have 25% of the economic interest in Excite@Home on a fully diluted basis, however our voting interest will increase to 74% compared with the 56% voting interest we currently have. As a result of the governance changes, AT&T will gain a controlling financial interest and will begin consolidating Excite@Home's results upon the close of these transactions. Also, in connection with the new distribution agreements, AT&T will have the right through 2008 to purchase up to approximately 25 million Series A shares and 25 million Series B shares. In addition, on July 1, 2000, AT&T will sell a put option to Comcast and Cox that gives Comcast and Cox the right to sell their shares in Excite@Home to AT&T for a minimum price of $48 a share any time between January 1, 2001, and June 4, 2002. Comcast and Cox each own approximately 30 million Series A shares, or about 8% each of Excite@Home. AT&T's purchase obligation is limited to an aggregate value of approximately $3 billion. AT&T Form 10-Q - Part I COX COMMUNICATIONS, INC. On March 15, 2000, AT&T received 50.3 million shares of AT&T common stock held by Cox in exchange for an entity owning cable television systems serving approximately 312,000 customers and certain other net assets. Specifically, AT&T exchanged $1.1 billion of investments and related advances, $0.9 billion of franchise costs and $0.5 billion of other net assets for stock valued at $2.7 billion on March 15, 2000. The transaction resulted in a pretax gain of $211. LENFEST COMMUNICATIONS, INC. On January 18, 2000, AT&T sold its ownership in Lenfest Communications, Inc., to a subsidiary of Comcast. In connection with the sale, we received 48.6 billion shares of Comcast Class Special A common stock. The transaction resulted in a pretax gain of $231. CONCERT On January 5, 2000, AT&T and British Telecommunication, plc (BT) announced financial closure of Concert, their global communications joint venture. AT&T contributed all of its international gateway-to-gateway assets, which had a book value of $1.6 billion, as well as the economic value of approximately 270 multinational customers specifically targeted for direct sales by Concert. In addition, we contributed our international settlement business (revenue and expenses) to Concert. (d) NET RESTRUCTURING AND OTHER CHARGES During the quarter AT&T recorded $773 of net restructuring and other charges, which included $682 for restructuring and exit costs associated with AT&T's initiative to reduce costs by the end of 2000, and $91 related to the government-mandated disposition of AT&T Communications (U.K.) Ltd., which would have competed directly with Concert. Included in restructuring and exit costs was $458 of cash termination benefits associated with the involuntary separation of approximately 6,200 employees. Approximately one-half of the individuals were management employees and one-half were nonmanagement employees. Nearly 10% of the affected employees have left their positions as of March 31, 2000, and the remaining employees will leave the company during 2000. We also recorded $62 of network lease and other contract termination costs associated with penalties incurred as part of notifying vendors of the termination of these contracts during the quarter. AT&T Form 10-Q - Part I The following table displays the activity and balances of the restructuring reserve account from January 1, 2000, to March 31, 2000: Jan. 1, Mar. 31, 2000 2000 Type of Cost Balance Additions Deductions Balance Employee separations $150 $458 $(109) $499 Facility closings 239 - (18) 221 Other 21 62 (11) 72 Total $410 $520 $(138) $792 Deductions reflect cash payments of $89 related to employee separations and noncash utilization of $49. The cash outlay was primarily funded through cash from operations. Noncash utilization included deferred severance payments primarily related to executives. Also included in restructuring and exit costs 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 planned merger with MediaOne Group, Inc. and as part of our continuing efforts to reduce costs, we may record further charges for exit and separation plans. During the first quarter of 1999, we recorded $731 of net restructuring and other charges, which included a $594 in-process research and development charge related to the TCI acquisition. This charge reflected the estimated value, as of the acquisition date, of research and development projects at TCI which had not yet reached technological feasibility and which had no alternative future use. The projects identified related to TCI's efforts to offer voice over Internet protocol, cost savings efforts for cable telephony implementation, product integration efforts for advanced set-top devices that would enable TCI to offer next-generation digital services and in-process research and development related to Excite@Home. Also included in the 1999 first quarter charge was $196 primarily related to a settlement associated with the government-mandated disposition of a joint venture that would have competed directly with Concert. In addition, we recorded a benefit of $59 related to the settlement of pension obligations for former employees who accepted AT&T's 1998 voluntary retirement incentive program offer. AT&T Form 10-Q - Part I (e) EARNINGS PER COMMON SHARE AND POTENTIAL COMMON SHARE Basic earnings per share (EPS) for AT&T Group for the three months ended March 31, 2000 and 1999, were computed by dividing earnings attributable to AT&T Group common shareowners by the weighted-average number of common shares outstanding of AT&T Group during the period. Diluted EPS for AT&T Group was computed by dividing earnings attributable to AT&T Group common shareowners, adjusted for the conversion of securities, by the weighted-average number of common shares and dilutive potential common shares outstanding of AT&T Group 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, 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 quarterly income preferred securities were antidilutive and were excluded from the computation of diluted EPS. The dividends have an after-tax impact to quarterly earnings of approximately $40. Assuming the conversion of these securities, the dividends would no longer be included as a reduction to net income and the securities would convert into 66.667 million shares of AT&T common stock. Income for the three months ended March 31, 2000 and 1999, of $2,683 and $1,018, respectively, included income attributable to AT&T Group of $1,741 and $1,076, respectively, as well as earnings (losses) from LMG of $942 and $(58), respectively. A reconciliation of the income and share components for diluted EPS calculations with respect to AT&T Group is as follows: Three Months Ended March 31, 2000 1999 Income attributable to AT&T Group $1,741 $1,076 Income impact of assumed conversion of preferred stock of subsidiary 8 - Income attributable to AT&T Group adjusted for conversion of securities $1,749 $1,076 Shares in millions AT&T Group weighted-average common shares 3,185 2,751 Stock options 31 41 Preferred stock of subsidiary 40 10 Convertible debt securities of subsidiary - 7 AT&T Group weighted-average common shares and potential common shares 3,256 2,809 Basic EPS for LMG for the three months ended March 31, 2000, and for the period from the date of acquisition through March 31, 1999, was computed by dividing the earnings (loss) attributable to LMG shareowners by the weighted-average number of shares outstanding of LMG of 1,282 million and 1,194 million, respectively. Potentially dilutive securities have not been factored into the dilutive calculations because past history has indicated that these contracts are generally settled in cash. In addition, since LMG had a loss in the first quarter of 1999, the impact of any potential shares would have been antidilutive. There were 50 million and 180 million potentially AT&T Form 10-Q - Part I dilutive securities outstanding at March 31, 2000 and 1999, respectively. Subject to shareowner approval, the board of directors has approved a two-for-one stock split of Liberty Media stock to shareowners of record on May 25, 2000. The shares will be distributed on or after June 9, 2000. (f) GUARANTEE OF PREFERRED 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 March 31, 2000, $1,266 of the guaranteed redeemable preferred securities remained outstanding. Following is a summary of the results of TCI which have been included in the financial results of AT&T for each corresponding period. The summarized financial information includes transactions with AT&T that were eliminated in consolidation. For the Three For the One Months Ended Month Ended March 31, 2000 March 31, 1999 Revenue $ 1,490 $ 483 Operating loss 96 544 Net loss 616 740 As of As of March 31, December 31, 2000 1999 Current assets $ 489 $ 468 Noncurrent assets 93,780 93,798 Current liabilities 2,587 2,814 Noncurrent liabilities 36,050 36,227 Minority interests 2,170 2,175 (g) RELATED PARTY TRANSACTIONS AT&T has various related party transactions with Concert as a result of the closure of the global venture in early January. Included in revenue in the first quarter of 2000 is $266 for services provided to Concert. Included in access and other connection expenses in the first quarter of 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 $579. During the first quarter of 2000, AT&T loaned $1.0 billion to Concert which is included within investments and related advances in the accompanying consolidated balance sheets. Included in accounts receivable and accounts payable are $510 and $845, respectively, related to transactions with Concert. AT&T Form 10-Q - Part I (h) 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. The Business Services segment was expanded to include the AT&T Solutions outsourcing unit, AT&T Global Network Services (AGNS), and the AT&T Information Technology Services unit, formerly all part of the Solutions Group. The results of fixed wireless have been moved from the Consumer Services segment to the Wireless Services segment, and management of the business sales force that supports wireless products was transferred from Business Services to Wireless Services. Additionally WOOD-TV (which was sold in 1999) was transferred and corporate overhead was allocated to Wireless Services from Corporate and Other, to align the Wireless Services segment with the results to be included in the AT&T Wireless Group. All prior period results have been restated to reflect these changes. In addition, 2000 results reflect 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. REVENUE For the Three Months Ended March 31, 2000 1999 Business services external revenue $ 6,958 $6,285 Business services internal revenue 178 163 Total business services revenue 7,136 6,448 Consumer services external revenue 5,059 5,470 Wireless services external revenue 2,198 1,562 Broadband external revenue 1,492 483 Total reportable segments 15,885 13,963 Corporate and Other revenue (a) (49) 133 Total revenue $15,836 $14,096 (a) Included in Corporate and Other is revenue from international operations and ventures, other corporate operations and the elimination of internal revenue. RECONCILIATION OF EARNINGS BEFORE INTEREST AND TAXES (EBIT) TO INCOME BEFORE INCOME TAXES For the Three Months Ended March 31, 2000 1999 Business services $1,525 $1,592 Consumer services 1,719 1,851 Wireless services 111 (51) Broadband (45) (673) Total reportable segments' EBIT 3,310 2,719 Corporate and Other EBIT (646) (454) Liberty Media Group equity earnings (losses) 942 (58) Interest expense 555 190 Total income before income taxes $3,051 $2,017 AT&T Form 10-Q - Part I ASSETS At Mar. 31, At Dec. 31, 2000 1999 Business services $ 31,855 $ 32,010 Consumer services 5,418 6,279 Wireless services 24,666 23,312 Broadband 53,826 56,536 Total reportable segments 115,765 118,137 Corporate and Other: Other segments 5,185 3,386 Prepaid pension costs 2,571 2,464 Deferred taxes 1,258 899 Other corporate assets 6,920 6,060 Investment in Liberty Media Group and related receivables, net 41,983 38,460 Total assets $173,682 $169,406 (i) SUBSEQUENT EVENTS On April 27, 2000, AT&T completed an initial public offering of 360,000,000 shares of AT&T Wireless Group tracking stock at an initial public offering price of $29.50 per share. This stock is designed to track the performance of AT&T's wireless services businesses. The net proceeds to AT&T after deducting underwriter's discount and related fees and expenses, were $10.3 billion. AT&T has allocated $7.0 billion of net proceeds to the AT&T Wireless Group to expand its network, pursue acquisition opportunities, make capital expenditures and for general corporate purposes. The remaining net proceeds of $3.3 billion have been allocated to the AT&T Common Stock Group for general corporate purposes. Holders of AT&T Wireless Group tracking stock are entitled to one-half of a vote per share. The AT&T Wireless Group tracking stock issued in the initial public offering reflected only a portion of the economic performance of the AT&T Wireless Group. AT&T retained the remaining interest in the economic performance of the AT&T Wireless Group in the form of an inter-group interest. AT&T currently intends to distribute a portion of the AT&T Common Stock Group's interest in the AT&T Wireless Group in the second half of this year. Such disposition will include a distribution in the form of a dividend to holders of AT&T Common Stock Group shares for at least a portion of such interest, but may also include an exchange offer, a further sale of AT&T Wireless Group tracking stock or a combination thereof. The method, timing and sequence of the distribution options, which could occur in stages, will be based on the AT&T Board of Directors' assessment of the market conditions and other circumstances, as appropriate, with the goal of maximizing value for all AT&T shareowners. Following the distribution we expect that the outstanding shares of AT&T Wireless Group tracking stock will reflect 100% of the economic performance of the AT&T Wireless Group. The AT&T Wireless Group tracking stock is listed on the New York Stock Exchange under the symbol "AWE." AT&T Form 10-Q - Part I MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OVERVIEW 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. AT&T also provides billing, directory and calling-card services to support our communications business. On January 5, 2000, AT&T and British Telecommunications, plc (BT) announced financial closure of Concert, their global communications joint venture. Concert began operations as a leading global telecommunications company, serving multinational business customers, international carriers and Internet service providers worldwide, providing them with voice, data and Internet services. AT&T contributed all of its international gateway-to-gateway assets and the economic value of approximately 270 multinational customers. In addition, AT&T contributed our international settlement business (revenue and expenses) to Concert. Results for 2000 reflect the impact of these contributions. 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. We do not have a controlling financial interest in Liberty Media Group for financial accounting purposes; therefore, our ownership in LMG is reflected as an investment accounted for under the equity method in the AT&T consolidated financial statements. All other businesses of AT&T comprise the AT&T Group, the economic performance of which is represented by AT&T common stock. References to AT&T common stock do not include the LMG tracking stock. Ownership of shares of AT&T common stock or Liberty Media tracking stock does not represent a direct legal interest in the assets and liabilities of either of the groups, but an ownership of AT&T in total. Each of these shares represents an interest in the economic performance of the net assets of each of these groups. Accordingly, the earnings and losses related to LMG are excluded from earnings attributable to AT&T Group, and earnings and losses related to AT&T Group are excluded from earnings attributable to LMG. Because we account for LMG as an equity investment, revenue, operating expenses, other income, interest expense and provision for taxes for AT&T Group are the same as for consolidated AT&T. On March 14, 2000, AT&T shareowners approved the creation of a stock that will track the economic performance of the AT&T Wireless Group. An initial public offering of the AT&T Wireless Group tracking stock was completed on April 27, 2000, with the issuance of 360,000,000 shares, which represented 15.6% of the economic interest of the AT&T Wireless Group. The issuance of the tracking stock had no impact on results of operations or financial condition for the first quarter of 2000. 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 months ended March 31, 2000 and 1999, and financial condition as of March 31, 2000 and December 31, 1999. AT&T Form 10-Q - Part I 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 For the Three Months Ended March 31, 2000 1999 Dollars in Millions Business services $ 7,136 $ 6,448 Consumer services 5,059 5,470 Wireless services 2,198 1,562 Broadband 1,492 483 Corporate and Other (49) 133 Total revenue $15,836 $14,096 Revenue increased $1,740 million in the first quarter of 2000, or 12.3%, to $15,836 million compared with the first quarter of 1999. Revenue was impacted by the 1999 acquisitions of TCI and the IBM Global Network (renamed AT&T Global Network Services, or AGNS), and the formation of Concert, our global venture with BT. Normalized revenue, which adjusts 1999 revenue for the acquisition of TCI, including all closed cable partnerships and Excite@Home, the acquisition of AGNS, various divestments of international businesses, and the impact of businesses contributed to Concert, increased $862 million in the first quarter of 2000, or 5.8%, from $14,974 million in the first quarter of 1999. The increase was primarily driven by Wireless Services, Business Services and Broadband, partially offset by a decline in Consumer Services. OPERATING EXPENSES For the Three Months Ended March 31, 2000 1999 Dollars in Millions Access and other connection $3,588 $3,732 Access and other connection expenses decreased $144 million, or 3.9%, to $3,588 million in the first quarter of 2000 compared with the first quarter of 1999. 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 declined during the quarter primarily due to mandated reductions in per-minute access costs and the sale of ACC International, partially offset by increased per-line charges (Primary Interexchange Carrier Charges) and Universal Service Fund contributions. AT&T Form 10-Q - Part I 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, all of our international settlements are incurred by Concert. In addition, all of our foreign billed revenue is now earned by Concert. Concert bills us a net expense comprised of international settlement (interconnection) expense and foreign billed revenue. 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. Partially offsetting this decline were costs incurred related to Concert products that AT&T now sells to its customers. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Costs of services and products $3,850 $2,872 Costs of services and products, previously called "network and other costs of services," increased $978 million, or 34.0%, to $3,850 million in the first quarter of 2000 compared with the same quarter last year, largely due to our 1999 acquisitions of TCI and AGNS, partially offset by the impact of the businesses contributed to Concert. Excluding these items, costs of services and products increased slightly. The increase resulted from higher costs associated with our growing wireless subscriber base, increased costs to support growth in outsourcing contracts and an increase in per-call compensation expense as a result of a favorable impact of a first quarter 1999 FCC ruling. These increases were partially offset by a lower provision for uncollectible receivables in Business and Consumer Services and cost control initiatives. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Selling, general and administrative $3,289 $3,157 Selling, general and administrative (SG&A) expenses were up $132 million, or 4.2%, to $3,289 million in the first quarter of 2000 compared with the year-ago quarter. The increase was primarily driven by our 1999 acquisitions of TCI and AGNS, partially offset by the impact of businesses contributed to Concert. Excluding these items, SG&A expenses declined by approximately 2%. The decline was primarily due to our cost control initiatives, such as headcount reductions, and lower customer acquisition and retention spending in Consumer Services, partially offset by an increase in expenses associated with our growing wireless subscriber base. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Depreciation and other amortization $1,566 $1,304 Depreciation and other amortization expenses increased $262 million, or 20.1%, in the first quarter of 2000 compared with the first quarter of 1999. The increase primarily resulted from the acquisitions of TCI and AGNS and the growth in AT&T Group's depreciable asset base resulting from continued infrastructure investments throughout 1999. Capital expenditures were $2.8 billion in the first quarter of 2000. We continue to focus the vast majority of our capital spending to support our growth products of wireless, broadband, data, and local services. AT&T Form 10-Q - Part I For the Three Months Ended March 31, 2000 1999 Dollars in Millions Amortization of goodwill, franchise costs and other purchased intangibles $368 $184 Amortization of goodwill, franchise costs, and other purchased intangibles increased $184 million, or 99.8%, in the first quarter of 2000 compared with the same quarter of 1999. The increase was largely attributable to the 1999 acquisitions of TCI and AGNS. AT&T also has amortization of goodwill associated with nonconsolidated investments recorded as a reduction of other income which amounted to $120 million and $40 million in the first quarter of 2000 and 1999, respectively. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Net restructuring and other charges $773 $731 During the quarter AT&T recorded $773 million of net restructuring and other charges, which had an approximate $0.14 impact on diluted earnings per share. Included in the charges was $682 million for restructuring and exit costs recorded as part of AT&T's initiative to reduce costs by the end of 2000. The restructuring and exit plans primarily focus on cost controls through headcount reductions across many of AT&T's businesses. Also included in the charges was $91 million related to the government-mandated disposition of AT&T Communications (U.K.) Ltd., which would have competed directly with Concert. Included in restructuring and exit costs was $458 million of cash termination benefits associated with the involuntary separation of approximately 6,200 employees. Approximately one-half of the individuals were management employees and one-half were nonmanagement employees. Nearly 10% of the affected employees have left their positions as of March 31, 2000, and the remaining employees will leave the company throughout 2000. We also recorded $62 million of network lease and other contract termination costs associated with penalties incurred as part of notifying vendors of the termination of these contracts during the quarter. Additionally, restructuring and exit costs included $144 million of benefit curtailment costs associated with employee separations as part of these exit plans. We also recorded an $18 million asset impairment charge related to the write-down of unrecoverable assets in certain businesses in which the carrying value is no longer supported by future cash flows. This restructuring initiative is projected to yield cash savings of approximately $10 million in 2000 (net of severance benefit pay-outs of approximately $350 million) and approximately $600 million per year thereafter, as well as EBIT savings of approximately $420 million in 2000 and nearly $650 million per year thereafter. We expect 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 costs of services and products and SG&A expenses. As a result of our planned merger with MediaOne and as part of our continuing efforts to reduce costs, we may record further charges for exit and separation plans. AT&T Form 10-Q - Part I During the first quarter of 1999, we recorded $731 million of net restructuring and other charges, which had an approximate $0.24 impact on earnings per diluted share. The charges included $594 million of in-process research and development costs related to the TCI acquisition. The 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 in late 2000, begin field trials related to our product integration efforts for set-top devices in mid 2000, and test and deploy devices related to our telephony cost reductions by the end of 2000. Also included in the 1999 first quarter charge was $196 million primarily related to a settlement associated with the government-mandated disposition of a joint venture that would have competed directly with Concert. In addition, we recorded a benefit of $59 million related to the settlement of pension obligations for former employees who accepted AT&T's 1998 voluntary retirement incentive program offer. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Operating Income $2,402 $2,116 Operating income increased 13.6% in the first quarter of 2000 compared with 1999. The improvement was primarily due to operational efficiencies across most of AT&T's business units, partially offset by the impact of our 1999 TCI acquisition and the impact of Concert, which began operations in January 2000. Operating income margin (operating income as a percent of revenue) was 15.2% in the first quarter of 2000 compared with 15.0% in the same quarter of 1999. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Other income $262 $149 Other income was $262 million in the first quarter of 2000, an increase of 75.7% from the year-ago quarter. The increase was primarily attributable to greater gains on sales of businesses and investments, including a gain on the sale of AT&T Form 10-Q - Part I Lenfest Communications, Inc. (Lenfest), to Comcast Corporation of $231 million and a gain on the exchange with Cox Communications, Inc. (Cox), of certain cable systems and other assets for AT&T stock (Cox transaction) of $211 million in the first quarter of 2000, partially offset by a gain on the sale of Language Line Services of $153 million in the first quarter of 1999. Additionally, we recorded earnings from our equity interest in Concert of $43 million, partly offset by $8 million of amortization of goodwill on our investment in Concert. These increases were partially offset by higher net losses from other investments, largely due to the inclusion of a full quarter of losses in 2000 of At Home Corporation (Excite@Home) and Cablevision Systems Corp. (Cablevision), and greater distributions on trust preferred securities also due to the inclusion of a full quarter in 2000. For the Three Months Ended March 31, 2000 1999 Dollars in Millions AT&T Group earnings before interest and taxes (EBIT) $2,664 $2,265 AT&T Group EBIT increased 17.7% to $2,664 million in the first quarter of 2000 compared with the first quarter of 1999. AT&T Group EBIT was impacted by net restructuring and other charges, gains on sales of Lenfest and Language Line, a gain on the Cox transaction, and our investments in Excite@Home and Cablevision. Excluding these items, AT&T Group EBIT was $3,353 million in the first quarter of 2000, an increase of 15.0% compared with first quarter of 1999. The improvement was primarily due to cost control initiatives in our long distance businesses, Wireless Services, and corporate staff functions, partially offset by the impact of the 1999 TCI acquisition. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Equity earnings (losses) from Liberty Media Group $942 $(58) Equity earnings from Liberty Media Group were $942 million in the first quarter of 2000 compared with losses of $58 million in the year-ago quarter. The difference is primarily due to a gain associated with the acquisition of General Instrument Corporation (General Instrument) by Motorola, Inc. (Motorola) reflecting the difference between the carrying value of LMG's interest in General Instrument and the fair value of the Motorola securities received in the merger. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Interest expense $555 $190 Interest expense was $555 million in the first quarter of 2000 compared with $190 million in the first quarter of 1999. The increase in interest expense was primarily due to a higher average debt balance as a result of our 1999 acquisition of TCI. For the Three Months Ended March 31, 2000 1999 Dollars in Millions Provision for income taxes $368 $999 The provision for income taxes decreased $631 million, or 63.2%, to $368 million in the first quarter of 2000 compared with the first quarter of 1999 due to a lower effective income tax rate. Effective income tax rates for the first quarter of 2000 and 1999 were 17.4% and 48.1%, respectively. The first quarter AT&T Form 10-Q - Part I 2000 effective income tax rate was positively impacted by the Cox transaction, which was tax-free, and the benefit of the write-off of the related deferred tax liabilities previously recorded on these assets. The 1999 effective income tax rate was negatively impacted by the in-process research and development charge, which was not tax deductible. Excluding the Cox transaction in the first quarter of 2000 and the in-process research and development charge in the first quarter of 1999, the effective income tax rates were 38.0% and 37.4% in the first quarter of 2000 and 1999, respectively. For the Three Months Ended March 31, 2000 1999 AT&T Group earnings per AT&T common share: Basic $ 0.55 $ 0.39 Diluted $ 0.54 $ 0.38 Liberty Media Group earnings (loss) per share: Basic and diluted $ 0.73 $ (0.05) AT&T Group earnings per share (EPS) on a diluted basis increased 42.1% in the first quarter of 2000 to $0.54, compared with the same quarter in 1999. The increase was principally due to higher gains on the sales of businesses and investments, lower net restructuring charges, revenue growth and operational efficiencies across most AT&T business units. The increases were partially offset by the impact of the TCI acquisition. Included in EPS are the following items: ..Net restructuring and other charges of $0.14 in the first quarter of 2000 and $0.24 in the first quarter of 1999; ..Gains on the sale of Lenfest and the exchange with Cox of $0.22 in the first quarter of 2000 and a gain on the sale of Language Line Services of $0.03 in the first quarter of 1999; ..Losses of $0.07 in the first quarter of 2000 and $0.02 in the first quarter of 1999 reflecting the earnings impact of our investments in Excite@Home and Cablevision. The total impact of the these items was an increase to diluted EPS of $0.01 for the first quarter of 2000 and a decrease of $0.23 to diluted EPS for the first quarter of 1999. We quantify the impact on our results of our investments in Excite@Home and Cablevision since these businesses have financial information publicly available and their results can be reviewed independently of AT&T's results. EPS, excluding these items, was $0.53 per diluted share in the first quarter of 2000, a decrease of 13.1%, or $0.08, over the comparable prior year quarter, primarily as a result of the impact of the TCI acquisition, including shares issued, partially offset by operational efficiencies across most of AT&T's business units. EPS for Liberty Media Group was $0.73 per share for the three months ended March 31, 2000, compared with a loss of $0.05 per share for the three months ended March 31, 1999. First quarter of 2000 reflects three months of Liberty Media Group results compared with one month in the first quarter of 1999, reflecting the March 1999 acquisition of TCI by AT&T. Included in first quarter 2000 results is a gain associated with the acquisition of General Instrument by Motorola reflecting the difference between the carrying value of LMG's interest in General Instrument and the fair value of the Motorola securities received in the merger. AT&T Form 10-Q - Part I SEGMENT RESULTS In support of the services we provide, we segment our results by the business units that support our primary lines of business: Business Services, Consumer Services, Wireless Services and Broadband. A fifth category, Corporate and Other, includes corporate staff functions, the elimination of inter-segment business as well as the results of international operations and ventures. Although not a segment, we also discuss the results of LMG. The discussion of segment results includes revenue; earnings, including other income, before interest and taxes (EBIT); earnings, including other income, before interest, taxes, depreciation and amortization (EBITDA); total assets; and capital additions. The discussion of EBITDA for Wireless Services and Broadband is modified to exclude other income. Total assets for each segment include all assets, except intercompany receivables. Prepaid pension assets and corporate-owned or leased real estate are generally held at the corporate level and therefore are included in the Corporate and Other group. Shared network assets are allocated to the segments and reallocated each January, based on two years of volumes. Capital additions for each segment include capital expenditures for property, plant and equipment, acquisitions of licenses, additions to nonconsolidated investments, increases in franchise costs and additions to internal-use software. EBIT is the primary measure used by AT&T's chief operating decision makers to measure AT&T's operating results and to measure segment profitability and performance. AT&T calculates EBIT as operating income plus other income. In addition, management also uses EBITDA as a measure of segment profitability and performance, and is defined as EBIT plus depreciation and amortization. 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 provides analysis of operating results using the same measures used by AT&T's chief operating decision makers and provides a return on total capitalization measure. We believe EBITDA is meaningful to investors as a measure of each segment's liquidity consistent with the measure 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. The Business Services segment was expanded to include the AT&T Solutions outsourcing unit, AT&T Global Network Services (AGNS), and the AT&T Information Technology Services unit, formerly all part of the Solutions Group. The results of fixed wireless have been moved from the Consumer Services segment to the Wireless Services segment, and management of the business sales force that supports wireless products was transferred from Business Services to Wireless Services. Additionally WOOD-TV (which was sold in 1999) was transferred and corporate overhead was allocated to Wireless Services from Corporate and Other, to align the Wireless Services segment with the results to be included in the AT&T Wireless Group. All prior period results have been restated to reflect these changes. AT&T Form 10-Q - Part I BUSINESS SERVICES Our Business Services segment offers a variety of global communications services including long distance, local and data and 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. Three months ended March 31, Dollars in Millions 2000 1999 External revenue $ 6,958 $ 6,285 Internal revenue 178 163 Total revenue 7,136 6,448 EBIT 1,525 1,592 EBITDA 2,384 2,332 OTHER ITEMS Capital additions $ 1,260 $ 912 At March 31, At Dec. 31, 2000 1999 Total assets $31,855 $32,010 REVENUE Business Services revenue increased $688 million, or 10.7%, in the first quarter of 2000 compared with the first quarter of 1999. Normalized for the 1999 acquisition of AGNS and the impact of Concert, revenue increased 6.0% quarter-over-quarter. The increase was driven primarily by strength in data/IP and outsourcing services. Normalized data/IP services revenue grew at a mid-teens rate in the first quarter of 2000 led by continued strength in frame relay, IP and growth in high-speed private line services. Excluding low-speed private line, data/IP grew at a high-teens rate. IP services, which includes AT&T WorldNet services and Virtual Private Network Services (VPN), grew almost 50% during the first quarter of 2000 and almost 60% excluding AGNS. On a combined basis, packet services (frame relay, ATM and IP) grew approximately 40% during the quarter. In the first quarter of 2000, AT&T Solutions outsourcing revenue grew by $483 million, or 161.4%, to $782 million compared with the first quarter of 1999. Normalized for the 1999 acquisition of AGNS, revenue grew by $155 million, or 24.6%, versus the prior year. Excluding the impact of the IBM outsourcing contract, revenue grew over 35% in the first quarter of 2000 compared with the year-ago quarter primarily due to growth from new contract signings and add-on business from existing clients. Normalized voice revenue growth was up slightly in the first quarter of 2000 compared with the first quarter of 1999 as high-teens volume increases were offset by pricing declines. The price declines reflect competition and product mix. Growth in domestic long distance and local voice revenue was partially offset by a decline in international voice revenue. AT&T Form 10-Q - Part I As a component of voice revenue, local revenue grew over 30% as compared to the first quarter a year-ago. AT&T's integrated business local operations added 170,000 access lines in the first quarter bringing total access lines in service as of March 31, 2000, to almost 1.5 million. On-net buildings totaled almost 5,900 at the end of the first quarter of 2000, a 5.5% increase over the first quarter of 1999. EBIT/EBITDA EBIT declined $67 million, or 4.2%, and EBITDA increased $52 million, or 2.3%, in the first quarter of 2000 compared with the same period last year. Excluding a $93 million restructuring charge in the first quarter of 2000, EBIT was $1,618 million, an increase of 1.6%, and EBITDA was $2,477 million, an increase of 6.3%, compared with the prior year quarter. These increases were primarily due to revenue growth combined with continued cost reductions partially offset by the EBIT and EBITDA impact of customers contributed to Concert. The earnings impact of our equity interest in Concert is reported within Corporate and Other. OTHER ITEMS Capital additions increased $348 million, or 38.2%, to $1,260 million in the first quarter of 2000 compared with the first quarter of 1999, primarily driven by additions to property, plant and equipment to enhance our data/IP and local networks. Total assets decreased $155 million, or 0.5%, to $31,855 million at March 31, 2000, compared with December 31, 1999, primarily resulting from a decrease in property, plant and equipment as a result of the contribution of assets to Concert combined with depreciation for the period, partially offset by capital expenditures. CONSUMER SERVICES Our Consumer Services segment provides a variety of any-distance communications services including long distance, local toll (intrastate calls outside the immediate local area) and Internet access to residential customers. In addition, Consumer Services provides transaction services such as prepaid calling-card and operator-handled calling services. Local phone service is also provided in certain areas. Three months ended March 31, Dollars in Millions 2000 1999 Revenue $5,059 $5,470 EBIT 1,719 1,851 EBITDA 1,870 2,044 OTHER ITEMS Capital additions $ 54 $ 88 At March 31, At Dec. 31, 2000 1999 Total assets $5,418 $6,279 REVENUE Consumer services revenue decreased 7.5% compared with the first quarter of 1999. Normalized for the impact of Concert, revenue declined 5.6% as long distance calling volumes declined at a high-single digit rate. These results reflect the ongoing competitive nature of the consumer long distance industry, which has resulted in pricing pressures and a loss of customers. Also negatively impacting revenue was product substitution and market migration away from direct dial wireline and calling card services to rapidly growing wireless services. AT&T Form 10-Q - Part I EBIT/EBITDA EBIT and EBITDA for Consumer Services declined 7.1% and 8.5%, respectively, in the first quarter of 2000 compared with the first quarter of last year. The declines were impacted by a $96 million restructuring charge in the first quarter of 2000 and a first quarter 1999 gain of $153 million on the sale of Language Line Services. Excluding these items, EBIT and EBITDA improved 6.9% and 4.0% to $1,815 million and $1,966 million, respectively, over the comparable prior year quarter. These improvements were due to cost control initiatives, primarily in SG&A and costs of services and products expenses. These cost reductions were partially offset by lower revenue and higher costs associated with our efforts to penetrate local markets. OTHER ITEMS Capital additions were $54 million in the first quarter of 2000 compared with $88 million in the year-ago quarter primarily due to decreased additions to internal use software and lower capital expenditures. Total assets decreased $861 million, or 13.7%, to $5,418 million at March 31, 2000, from 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. 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 residential and small business customers high-speed Internet access and any-distance voice services using wireless technology. Three months ended March 31, Dollars in Millions 2000 1999 Revenue $ 2,198 $ 1,562 EBIT 111 (51) EBITDA excluding other income 401 184 OTHER ITEMS Capital additions $ 1,390 $ 190 At March 31, At Dec. 31, 2000 1999 Total assets $24,666 $23,312 REVENUE Wireless Services revenue increased $636 million, or 40.7%, to $2,198 million in the first quarter of 2000 compared with the first quarter of 1999, including growth in services revenue of 45.2% to $1,992 million. Adjusted to exclude the acquisition of Vanguard Cellular Systems, Inc., in May 1999, total revenue grew 33.1% compared with the year-ago quarter. The growth reflects the continued successful execution of AT&T's wireless strategy of targeting and retaining specific customer segments, expanding the national wireless footprint, focusing on digital service, and offering simple rate plans. This has resulted in an increase in consolidated subscribers and an increase in average monthly revenue per user (ARPU). Equipment revenue grew 8.0% to $206 million in the first quarter of 2000 compared with the year-ago quarter. AT&T Form 10-Q - Part I AT&T continues to experience strong growth in wireless subscribers. Consolidated subscribers grew to nearly 10 million at March 31, 2000, representing an increase of 32.3% over the year-ago quarter. Net subscriber additions totaled 418,000 during the first quarter of 2000, a 12.3% increase over the year-ago quarter. Total subscribers, including partnership markets in which AT&T does not own a controlling interest, were more than 13.1 million at March 31, 2000, a 30.2% increase over the year-ago quarter. AT&T's churn rate in the first quarter of 2000 was 2.9% compared with 2.8% in the first quarter of 1999. The company continues to rapidly migrate customers to digital service, which generates more efficient use of the network and a lower churn rate compared with analog service. At the end of the first quarter, 84.8% of AT&T's nearly 10 million consolidated subscribers were on digital service, up from 67.5% on digital service a year ago. AT&T's focus on high-value subscribers has helped generate rising usage by customers, increasing ARPU quarter over quarter. ARPU across all of AT&T's wireless markets was $67.20 in the first quarter of 2000, an increase of 10.5% from the year-ago quarter. EBIT/EBITDA EXCLUDING OTHER INCOME EBIT was $111 million in the first quarter of 2000 compared with a deficit of $51 million in the first quarter of 1999. The improvement resulted from increased revenue and an improving cost structure, mostly off-network roaming expenses. Our average off-network rate per minute declined approximately 34% quarter over quarter. These improvements were partially offset by increased customer acquisition and customer care costs associated with growth in the wireless subscriber base as well as higher other income due to a gain on the redemption of certain securities and increased earnings from equity investments. EBIT was negatively impacted by the results of fixed wireless, which had a deficit of $44 million and a deficit of $21 million in the first quarter of 2000 and 1999, respectively. EBITDA excluding other income was $401 million in the first quarter of 2000, an increase of 117.9% from the year-ago quarter. The improvement was primarily the result of revenue growth and an improving cost structure. EBITDA excluding other income was impacted by the results of fixed wireless, which had a deficit of $34 million and a deficit of $15 million in the first quarter of 2000 and 1999, respectively. OTHER ITEMS In the first quarter of 2000 capital additions increased $1,200 million to $1,390 million compared with the same quarter last year, primarily driven by capital expenditures related to network capacity upgrades and improvements to network quality. Also contributing to the increase in capital additions was our acquisition of American Cellular through a joint venture during the quarter. Total assets increased $1,354 million, or 5.8%, to $24,666 million at March 31, 2000, compared with December 31, 1999. The increase was primarily driven by higher equity investments as a result of our acquisition of American Cellular through a joint venture and the attribution of 50% of AT&T's investment in Japan Telecom from international operations and ventures, which is part of Corporate and Other. Also contributing to the increase in assets was higher property, plant and equipment resulting from capital expenditures in support of the continued expansion and build out of our wireless network, partially offset by depreciation expense for the period. AT&T Form 10-Q - Part I BROADBAND Our Broadband segment offers a variety of services through our cable broadband network, including traditional analog video and new services such as digital cable and AT&T@Home, our high-speed cable Internet access service. Also included in this segment are the results associated with providing, developing and installing the infrastructure that supports broadband telephony. Three months One month ended ended March 31, March 31, Dollars in Millions 2000 1999 Revenue $ 1,492 $ 483 EBIT (45) (673) EBITDA excluding other income 350 (392) OTHER ITEMS Capital additions $ 1,344 $ 310 At March 31, At Dec. 31, 2000 1999 Total assets $53,826 $56,536 First quarter 2000 includes a full quarter of Broadband results while first quarter of 1999 includes only one month of Broadband results reflecting the March 1999 acquisition of TCI. REVENUE Broadband's revenue was $1,492 million for the first quarter of 2000 and $483 million for the one month ended March 31, 1999. Revenue for the first quarter increased $110 million, or 7.9%, from $1,382 million, normalized for the impact of the TCI acquisition, including adjustments for all closed cable partnerships and Excite@Home. Broadband ended the first quarter of 2000 with 11.1 million basic cable customers, passing approximately 19.2 million homes, and had more than 1.9 million digital-cable customers. Broadband's high-speed cable Internet service, AT&T@Home, ended the first quarter of 2000 with approximately 294,000 customers, compared with approximately 207,000 at the end of 1999. During the first quarter of 2000, AT&T expanded its presence and provisioning of its telephony offering. At the end of the quarter, AT&T offered its telephony service to 39,500 customers in ten markets. At the end of 1999, AT&T had nearly 8,300 broadband telephony customers. EBIT/EBITDA EXCLUDING OTHER INCOME EBIT was a deficit of $45 million and EBITDA excluding other income was $350 million for the first quarter of 1999. The amortization of franchise costs and other purchased intangibles as well as equity losses associated with Excite@Home and Cablevision, partially offset by the gains on the sale of Lenfest and the Cox transaction, contributed to the EBIT deficit. EBIT and EBITDA excluding other income were deficits of $673 million and $392 million for the one month ended March 31, 1999. These deficits were primarily the result of a charge for in-process research and development projects at Broadband. AT&T Form 10-Q - Part I OTHER ITEMS Capital additions were $1,344 million in the first quarter of 2000, comprised primarily of capital expenditures directed towards the launch of advanced new services as well as spending on the upgrade of cable plants. Capital additions also included contributions to various nonconsolidated investments. Total assets were $53,826 million at March 31, 2000, compared with $56,536 million at December 31, 1999, which represents a 4.8% decrease. The decrease was primarily driven by decreased investments and franchise costs as a result of the exchange of certain cable systems and other assets with Cox for AT&T stock, and the disposition of our investment in Lenfest. In addition, investments declined as a result of losses on our equity investments recognized during the quarter. CORPORATE AND OTHER This group reflects corporate staff functions and elimination of transactions between segments as well as the results of international operations and ventures. Three months ended March 31, Dollars in Millions 2000 1999 Revenue $ (49) $ 133 EBIT (646) (454) EBITDA (559) (365) OTHER ITEMS Capital additions $ 105 $ 335 At March 31, At Dec. 31, 2000 1999 Total assets $15,934 $12,836 REVENUE Revenue for Corporate and Other primarily includes revenue from our international operations and ventures of $114 million, a decline of $176 million from the first quarter of 1999, and the elimination of inter-segment revenue of $178 million, an increase of $9 million from the first quarter of 1999. In the first quarter of 2000, Corporate and Other revenue declined $182 million to negative $49 million. The decrease was largely due to the impact of Concert and due to lower international operations and ventures revenue associated with the divestment of certain businesses. Corporate and Other revenue, normalized for the divestments of international businesses and for the impact of Concert, was negative $49 million in the first quarter of 2000 compared with a negative $64 million for the first quarter of 1999. International operations and ventures normalized revenue grew 28.8%, to $114 million, in the first quarter of 2000 as a result of strong growth in frame relay services and interconnection services. EBIT/EBITDA EBIT and EBITDA for Corporate and Other declined $192 million and $194 million to deficits of $646 million and $559 million, respectively. The declines were largely due to the first quarter 2000 charge of $568 million, primarily associated with business restructuring, which was in excess of the first quarter 1999 charge of $137 million, primarily associated with the government-mandated disposition of an international business that would have competed directly with Concert. Excluding the charges in the first quarter of 2000 and 1999, EBIT and EBITDA improved $239 million and $237 million to a deficit of $78 million and income of $9 million, respectively. These improvements were primarily due to sales of miscellaneous investments, a larger pension credit in 2000 as a result of a higher pension trust asset base and an increased discount rate used to measure the pension and postretirement obligations, continued expense reductions and earnings from our equity interest in Concert. These improvements were partially offset by distributions on trust securities. AT&T Form 10-Q - Part I OTHER ITEMS Capital additions decreased $230 million to $105 million in the first quarter of 2000 compared with the first quarter of 1999 reflecting decreased investment in international nonconsolidated subsidiaries primarily as a result of the disposition of certain non-strategic investments during 1999. Assets increased $3,098 million during the first quarter of 2000 to $15,934 million primarily due to our investment in Concert, including the assets contributed by Business Services and Consumer Services. LIBERTY MEDIA GROUP RESULTS Liberty Media Group (LMG) produces, acquires and distributes entertainment, educational and informational programming services through all available formats and media. LMG is also engaged in electronic retailing services, direct marketing services, advertising sales relating to programming services, infomercials and transaction processing. Equity earnings (losses) from Liberty Media Group were $942 million for the three months ended March 31, 2000, and were $(58) million for the period from the date of acquisition through March 31, 1999. The difference primarily resulted from a first quarter 2000 gain associated with the acquisition of General Instrument by Motorola reflecting the difference between the carrying value of LMG's interest in General Instrument and the fair value of the Motorola securities received in the merger. LIQUIDITY Three months ended March 31, Dollars in Millions 2000 1999 CASH FLOWS: Provided by operating activities $ 2,376 $ 746 Used in investing activities (5,001) (6,891) Provided by financing activities 1,703 4,448 AT&T GROUP EBITDA $ 4,718 $ 3,793 In the first quarter of 2000 net cash provided by operating activities increased $1,630 million to $2,376 million. The increase was primarily driven by a decrease in cash tax payments resulting from the first quarter 1999 tax payment on the gain on the sale of Universal Card Services Inc. and greater access payments made in March 1999 as a result of timing differences. AT&T's investing activities resulted in a net use of cash of $5,001 million for the first quarter 2000 compared with a net use of cash of $6,891 million for the first quarter of 1999. During the first quarter of 2000 AT&T used $3.2 billion for capital expenditures and other additions and loaned $1.0 billion to Concert. During the first quarter of 1999 AT&T transferred $5.5 billion of cash to LMG and used $1.9 billion for capital expenditures and other additions. During the first quarter of 2000 net cash provided by financing activities was $1,703 million compared with $4,448 million for the first quarter of 1999. The decrease was primarily due to lower proceeds from the issuance of long-term debt and the net issuance of short-term debt in the first quarter of 2000 compared with the first quarter 1999. The decline was partially offset by cash used in the first quarter of 1999 to fund the purchase of treasury stock. AT&T Form 10-Q - Part I Earnings, including other income, before interest, taxes, depreciation and amortization (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. AT&T Group EBITDA increased $925 million, or 24.4%, to $4,718 million for the first quarter of 2000 compared with the first quarter of 1999. EBITDA was impacted by net restructuring and other charges, gains on the sales of Lenfest and Language Line, a gain on the Cox transaction, and our investments in Excite@Home and Cablevision. Excluding these items, EBITDA was $5,305 million in the first quarter of 2000, an increase of 20.8% compared with first quarter of 1999. The improvement was primarily due to cost control initiatives in our long distance businesses, Wireless Services, and corporate staff functions, and the impact of our 1999 TCI acquisition. 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 $4,276 million, or 2.5%, to $173,682 million at March 31, 2000, compared with December 31, 1999. Our investment in LMG increased due to greater combined equity of LMG, driven primarily by increased market value of investments held by LMG and increased income. Investments and related advances increased $2,201 million principally due to the establishment of our investment in Concert, consisting of $1.6 billion of property, plant and equipment and a loan of $1.0 billion. The decrease in property, plant and equipment principally related to the Concert contribution, partly offset by capital expenditures. The increase in accounts receivable was primarily attributable to transactions with Concert and lower franchise costs resulted from the exchange with Cox of certain cable systems and other assets for AT&T stock (Cox transaction). Total liabilities increased $2,510 million, or 3.1%, to $84,272 million at March 31, 2000, compared with December 31, 1999. The increase was primarily due to increased short-term debt as a result of the issuance of $3.0 billion of one-year notes and increased current liabilities as a result of higher accrued income taxes. Partially offsetting these increases were declines in accounts payable and deferred income taxes. Accounts payable decreased primarily due to timing of payments, partly offset by increased payables to Concert. Lower deferred income taxes resulted from the Cox transaction. Total shareowners' equity increased $1,778 million, or 2.3%, to $80,705 million at March 31, 2000, compared with December 31, 1999. Total shareowners' equity includes equity attributable to both AT&T common shareowners' (AT&T Group) and Liberty Media Group. AT&T Group equity at March 31, 2000, was $38,635 million, a decrease of 4.4% from $40,406 million at December 31, 1999. The decrease was primarily due to the receipt of AT&T stock in connection with the Cox transaction. Liberty Media Group's equity at March 31, 2000, was $42,070 million, an increase of 9.2% from $38,521 million at December 31, 1999. The ratio of total debt to total AT&T Group capital (debt divided by debt plus equity of AT&T Group) was 47.2% at March 31, 2000, compared with 44.3% at December 31, 1999. Equity includes the convertible trust preferred securities and debt includes redeemable non-convertible trust preferred securities. The increase was primarily driven by an increase in borrowings and lower equity. AT&T Form 10-Q - Part I RISK MANAGEMENT We are exposed to market risk from changes in interest and foreign exchange rates. 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. Assuming a 10% downward shift in interest rates at March 31, 2000, the fair value of unhedged debt would have increased by approximately $950 million. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities." Among other provisions, it requires that entities recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Gains and losses resulting from changes in the fair values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. The effective date for this standard was delayed via the issuance of SFAS No. 137. The effective date for SFAS No. 133 is now for fiscal years beginning after June 15, 2000, though earlier adoption is encouraged and retroactive application is prohibited. For AT&T, this means that the standard must be adopted no later than January 1, 2001. Based on the types of derivatives we currently have, we do not expect the adoption of this standard will have a material impact on AT&T's results of operations, financial position or cash flows. In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial Statements." The SEC delayed the effective date of this SAB in the first quarter of 2000, so that the SAB must now be adopted by June 30, 2000. We are currently assessing the impact of SAB 101 on our results of operations. OTHER MATTERS On March 31, 2000, an AT&T-led consortium announced it will acquire a 39% voting stake in Net2Phone, the leading provider of Internet telephony and other Web-based communications services. Under the terms of the agreement, the consortium will purchase four million newly-issued Class A shares from Net2Phone at a price of $75 per share. In addition, the consortium will purchase 14.9 million Class A Net2Phone shares from Net2Phones's controlling shareholder for $75 per share. Following these transactions, the consortium will have a 39% voting stake and a 32% economic stake in Net2Phone for a total cash investment of approximately $1.4 billion. AT&T plans to invest $725 million for a 51% stake in the consortium. Other partners, including Liberty Media and BT, are expected to purchase the remaining partnership interest. AT&T and Net2Phone plan to jointly develop new Internet voice applications for cable telephony and the business communications market. SUBSEQUENT EVENTS On April 27, 2000, AT&T completed an initial public offering of 360 million shares of AT&T Wireless Group tracking stock at an initial public offering price of $29.50 per share. This stock is designed to track the performance of AT&T's wireless services businesses. The net proceeds to AT&T after deducting underwriter's discount and related fees and expenses, were $10.3 billion. Holders of AT&T Wireless Group tracking stock are entitled to one-half of a vote per share. AT&T Form 10-Q - Part I The AT&T Wireless Group tracking stock issued in the initial public offering reflected only a portion of the economic performance of the AT&T Wireless Group. AT&T retained the remaining interest in the economic performance of the AT&T Wireless Group in the form of an inter-group interest. AT&T currently intends to distribute a portion of the AT&T Common Stock Group's interest in the AT&T Wireless Group in the second half of this year. Such disposition will include a distribution in the form of a dividend to holders of AT&T Common Stock Group shares for at least a portion of such interest, but may also include an exchange offer, a further sale of AT&T Wireless Group tracking stock or a combination thereof. The method, timing and sequence of the distribution options, which could occur in stages, will be based on the AT&T Board of Directors' assessment of the market conditions and other circumstances, as appropriate, with the goal of maximizing value for all AT&T shareowners. Following the distribution we expect that the outstanding shares of AT&T Wireless Group tracking stock will reflect 100% of the economic performance of the AT&T Wireless Group. The AT&T Wireless Group tracking stock is listed on the New York Stock Exchange under the symbol "AWE." AT&T Form 10-Q - Part II PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders A special meeting of the shareholders of the registrant was held on March 14, 2000. (c) Holders of common shares voted at this meeting on the following director's proposals, which were set forth in the registrant's proxy statement/prospectus dated January 26, 2000. (i) To approve an amendment to AT&T's charter to create AT&T Wireless Group tracking stock and to amend other provisions of the charter: % of Shares Voted % of Shares Outstanding For: 2,261,022,285 shares 97.63 67.77 Against: 35,326,322 shares 1.53 1.06 Abstain: 19,337,362 shares 0.84 0.58 (ii) To approve an amendment to the 1997 Long Term Incentive Program to grant incentive awards based on shares of AT&T Wireless Group tracking stock to officers and employees of the AT&T Common Stock Group and the AT&T Wireless Group and to permit non-employee directors of AT&T to participate with employees under the plan: % of Shares Voted % of Shares Outstanding For: 1,829,541,981 shares 79.00 54.83 Against: 457,315,125 shares 19.75 13.71 Abstain: 28,828,863 shares 1.25 0.87 (ii) In the event that any other matter may properly come before the special meeting, or any adjournment or postponement thereof, the Proxy Committee is authorized, at their discretion, to vote the matter: % of Shares Voted % of Shares Outstanding For: 1,416,674,206 shares 61.17 42.46 Against: 628,678,454 shares 27.15 18.85 Abstain: 270,333,309 shares 11.68 8.10 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 Liberty Media Group financial results for the three months ended March 31, 2000 and the period ended March 31, 1999 (b) Reports on Form 8-K Form 8-K dated January 6, 2000 was filed pursuant to Item 5 (Other Events) on January 6, 2000. Form 8-K dated January 11, 2000 was filed pursuant to Item 5 and Item 7 (Financial Statements and Exhibits) on January 14, 2000. Form 8-K dated March 13, 2000 was filed pursuant to Item 5 and Item 7 on March 13, 2000. Form 8-K dated March 17, 2000 was filed pursuant to Item 5 and Item 7 on March 17, 2000. Form 8-K dated March 27, 2000 was filed pursuant to Item 5 and Item 7 on March 27, 2000. Form 8-K dated March 27, 2000 was filed pursuant to Item 5 on March 27, 2000. Form 8-K dated March 29, 2000 was filed pursuant to Item 5 and Item 7 on April 4, 2000. AT&T Form 10-Q 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: May 12, 2000 AT&T Form 10-Q Exhibit Index Exhibit Number 12 Computation of Ratio of Earnings to Fixed Charges 27 Financial Data Schedule 99 Liberty Media Group Financial Results for the three months ended March 31, 2000 and period ended March 31, 1999 EX-12 2 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES Exhibit 12 Form 10-Q For the Three Months Ended March 31, 2000 AT&T Corp. Computation of Ratio of Earnings to Fixed Charges (Dollars in Millions) (Unaudited) Income before income taxes $3,051 Add equity investment losses, net of distributions of less than 50% owned affiliates 312 Add fixed charges, excluding capitalized interest 742 Total earnings before income taxes and fixed charges $4,105 Fixed Charges: Total interest expense excluding capitalized interest $ 555 Capitalized interest 68 Interest portion of rental expense 73 Dividend requirements on subsidiary preferred stock and interest on trust preferred securities 114 Total fixed charges $ 810 Ratio of earnings to fixed charges 5.1 EX-27 3 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 This schedule contains summary financial information extracted from the unaudited consolidated balance sheet of AT&T Corp. at March 31, 2000 and the unaudited consolidated statement of income for the three-month period ended March 31, 2000 and is qualified in its entirety by reference to such financial statements. 1,000,000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 102 0 12,210 1,267 0 13,619 67,737 28,884 173,682 30,713 21,886 6,327 0 4,431 76,274 173,682 0 15,836 0 13,434 0 284 555 3,051 368 2,683 0 0 0 2,683 0.55 0.54
EX-99 4 LIBERTY MEDIA FINANCIALS "LIBERTY MEDIA GROUP" (a combination of certain assets, as defined in note 1) Combined Balance Sheets (unaudited)
March 31, December 31, 2000 1999 ---------------- ----------------- amounts in millions Assets - ------ Current assets: Cash and cash equivalents $ 2,177 1,714 Cash collateral under securities lending agreement (note 6) 1,013 -- Short-term investments 525 378 Trade and other receivables, net 175 134 Prepaid expenses and committed program rights 495 406 Deferred income tax assets 731 750 Other current assets 11 5 ---------------- ----------------- Total current assets 5,127 3,387 ---------------- ----------------- Investments in affiliates, accounted for under the equity method, and related receivables (note 3) 17,040 15,922 Investments in available-for-sale securities and others (notes 4, 5 and 6) 34,564 28,601 Property and equipment, at cost 465 162 Less accumulated depreciation 24 19 ---------------- ----------------- 441 143 ---------------- ----------------- Intangible assets: Excess cost over acquired net assets 10,169 9,973 Franchise costs 269 273 ---------------- ----------------- 10,438 10,246 Less accumulated amortization 592 454 ---------------- ----------------- 9,846 9,792 ---------------- ----------------- Other assets, at cost, net of accumulated amortization 1,196 839 ---------------- ----------------- Total assets $ 68,214 58,684 ================ =================
(continued) Combined Balance Sheets, continued (unaudited)
March 31, December 31, 2000 1999 -------------------- ------------- amounts in millions Liabilities and Combined Equity - ------------------------------- Current liabilities: Accounts payable and accrued liabilities $ 329 245 Accrued stock compensation 2,179 2,405 Program rights payable 174 166 Current portion of debt 1,573 554 ---------------- ---------------- Total current liabilities 4,255 3,370 ---------------- ---------------- Long-term debt (note 6) 5,237 2,723 Deferred income tax liabilities 16,331 14,107 Other liabilities 136 23 ---------------- ---------------- Total liabilities 25,959 20,223 ---------------- ---------------- Minority interests in equity of attributed subsidiaries 286 1 Combined equity (note 7): Combined equity 33,675 31,876 Accumulated other comprehensive earnings, net of taxes 8,307 6,557 ---------------- ---------------- 41,982 38,433 Due (from) to related parties (13) 27 ---------------- ---------------- Total combined equity 41,969 38,460 ---------------- ---------------- Commitments and contingencies (note 8) Total liabilities and combined equity $ 68,214 58,684 ============= ================ See accompanying notes to combined financial statements.
Combined Statements of Operations and Comprehensive Earnings (unaudited)
New Liberty Old Liberty ----------------------------------------------- --------------------- (note 1) (note 1) Three months One month Two months ended ended ended March 31, 2000 March 31, 1999 February 28, 1999 ---------------------- ---------------------- ------------------------ amounts in millions Revenue $ 235 71 282 Operating costs and expenses: Operating, selling, general and administrative 174 56 227 Stock compensation (23) (41) 183 Depreciation and amortization 167 53 47 -------------- ---------------- ---------------- 318 68 457 -------------- ---------------- ---------------- Operating income (loss) (83) 3 (175) Other income (expense): Interest expense (439) (13) (28) Dividend and interest income 80 24 12 Share of losses of affiliates, net (note 3) (382) (80) (66) Minority interests in (earnings) losses of attributed subsidiaries (8) -- 4 Gains on dispositions, net (notes 4 and 5) 2,444 -- 14 Gains on issuance of equity by affiliates and subsidiaries (note 3) -- -- 389 Other, net 5 -- -- -------------- ---------------- ---------------- 1,700 (69) 325 -------------- ---------------- ---------------- Earnings (loss) before income taxes 1,617 (66) 150 Income tax benefit (expense) (675) 8 (209) -------------- ---------------- ---------------- Net earnings (loss) $ 942 (58) (59) ============== ================ ================ Other comprehensive earnings, net of taxes: Foreign currency translation adjustments (31) 12 (15) Unrealized holding gains arising during the period, net of reclassification adjustments 1,781 894 971 -------------- ---------------- ---------------- Other comprehensive earnings 1,750 906 956 -------------- ---------------- ---------------- Comprehensive earnings $ 2,692 848 897 ============== ================ ================ See accompanying notes to combined financial statements.
"LIBERTY MEDIA GROUP" (a combination of certain assets, as defined in note 1) Combined Statement of Equity Three months ended March 31, 2000 (unaudited)
Accumulated other Due to comprehensive (from) Total Combined earnings, related combined equity net of taxes parties equity ------------- ---------------- ------------ ----------- amounts in millions Balance at January 1, 2000 $ 31,876 6,557 27 38,460 Net earnings 942 -- -- 942 Foreign currency translation adjustments -- (31) -- (31) Recognition of previously unrealized gains on available-for-sale securities, net -- (1,478) -- (1,478) Unrealized gains on available-for-sale securities -- 3,259 -- 3,259 Issuance of AT&T Liberty Media Group tracking stock for acquisition (note 5) 778 -- -- 778 Issuances of common stock by attributed subsidiary and affiliate, net of taxes 79 -- -- 79 Other transfers to related parties, net -- -- (40) (40) ------------- ---------------- ------------ ----------- Balance at March 31, 2000 $ 33,675 8,307 (13) 41,969 ============= ================ ============ =========== See accompanying notes to combined financial statements.
"LIBERTY MEDIA GROUP" (a combination of certain assets, as defined in note 1) Combined Statements of Cash Flows (unaudited)
New Liberty Old Liberty ----------------------------------------------- --------------------- (note 1) (note 1) Three months One month Two months ended ended ended March 31, 2000 March 31, 1999 February 28, 1999 ---------------------- ---------------------- --------------------- amounts in millions (see note 2) Cash flows from operating activities: Net earnings (loss) $ 942 (58) (59) Adjustments to reconcile net earnings (loss) to net cash used by operating activities: Depreciation and amortization 167 53 47 Stock compensation (23) (41) 183 Payments of stock compensation (183) (1) (126) Share of losses of affiliates, net 382 80 66 Deferred income tax expense 721 3 205 Intergroup tax allocation (46) (12) -- Cash payment from AT&T pursuant to tax sharing agreement 33 -- -- Minority interests in earnings (losses) of attributed subsidiaries 8 -- (4) Gains on disposition of assets, net (2,444) -- (14) Noncash interest 364 -- -- Gains on issuance of equity by affiliates and subsidiaries -- -- (389) Other noncash charges -- -- 9 Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions: Change in receivables 15 2 (19) Change in prepaid expenses and committed program rights (88) (5) (10) Change in payables and accruals 7 (32) 4 ----------------- ----------------- --------------------- Net cash used by operating activities (145) (11) (107) ----------------- ----------------- --------------------- Cash flows from investing activities: Cash paid for acquisitions (342) -- -- Capital expended for property and equipment (12) (4) (21) Investments in and loans to affiliates and others (808) (88) (45) Purchases of marketable securities (337) (3,217) (132) Sales and maturities of marketable securities 511 -- 34 Cash proceeds from dispositions 8 3 43 Cash balances of deconsolidated subsidiaries -- -- (53) Other, net 15 4 (9) ----------------- ----------------- --------------------- Net cash used by investing activities (965) (3,302) (183) ----------------- ----------------- --------------------- (continued)
Combined Statements of Cash Flows, continued (unaudited)
New Liberty Old Liberty ----------------------------------------------- --------------------- (note 1) (note 1) Three months One month Two months ended ended ended March 31, 2000 March 31, 1999 February 28, 1999 ---------------------- ---------------------- --------------------- amounts in millions (see note 2) Cash flows from financing activities: Borrowings of debt 2,410 495 156 Repayments of debt (772) (448) (148) Cash transfers (to) from related parties (41) (80) 132 Repurchase of stock of subsidiaries -- -- (45) Other, net (24) -- (1) ----------------- ----------------- ------------------- Net cash provided (used) by financing activities 1,573 (33) 94 ----------------- ----------------- ------------------- Net increase (decrease) in cash and cash equivalents 463 (3,346) (196) Cash and cash equivalents at beginning of period 1,714 5,319 407 ----------------- ----------------- ------------------- Cash and cash equivalents at end of period $ 2,177 1,973 211 ================= ================= =================== See accompanying notes to combined financial statements.
"LIBERTY MEDIA GROUP" (a combination of certain assets, as defined in note 1) Notes to Combined Financial Statements March 31, 2000 (unaudited) (1) Basis of Presentation The accompanying combined financial statements include the accounts of the subsidiaries and assets of AT&T Corp. ("AT&T") that are attributed to Liberty Media Group, as defined below. On March 9, 1999, AT&T acquired Tele-Communications, Inc. ("TCI"), the former owner of the assets attributed to Liberty Media Group, in a merger transaction (the "AT&T Merger"). The AT&T Merger has been accounted for using the purchase method. Accordingly, Liberty Media Group's assets and liabilities have been recorded at their respective fair market values therefore, creating a new cost basis. For financial reporting purposes the AT&T Merger and related restructuring transactions are deemed to have occurred on March 1, 1999. Accordingly, for periods prior to March 1, 1999 the assets and liabilities attributed to Liberty Media Group and the related combined financial statements are sometimes referred to herein as "Old Liberty", and for periods subsequent to February 28, 1999 the assets and liabilities attributed to Liberty Media Group and the related combined financial statements are sometimes referred to herein as "New Liberty". The "Company" and "Liberty Media Group" refer to both New Liberty and Old Liberty. At March 31, 2000, Liberty Media Group consisted principally of the following: o AT&T's assets and businesses which provide programming services including production, acquisition and distribution through all available formats and media of branded entertainment, educational and informational programming and software, including multimedia products; o AT&T's assets and businesses engaged in electronic retailing, direct marketing, advertising sales relating to programming services, infomercials and transaction processing; o certain of AT&T's assets and businesses engaged in international cable, telephony and programming businesses; and, o AT&T's holdings in a class of tracking stock of Sprint Corporation (the "Sprint PCS Group Stock"). All significant intercompany accounts and transactions have been eliminated. The combined financial statements of Liberty Media Group are presented for purposes of additional analysis of the consolidated financial statements of AT&T and should be read in conjunction with such consolidated financial statements. The accompanying interim combined financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These combined financial statements should be read in conjunction with the combined financial statements and notes thereto included as an exhibit to AT&T's Report on Form 10-K for the year ended December 31, 1999. (continued) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Certain prior period amounts have been reclassified for comparability with the 2000 presentation. (2) Supplemental Disclosures to Combined Statements of Cash Flows Cash paid for interest was $70 million for the three months ended March 31, 2000, $16 million for the one month period ended March 31, 1999 and $32 million for the two month period ended February 28, 1999. Cash paid for income taxes for the three months ended March 31, 2000, the one month ended March 31, 1999 and the two months ended February 28, 1999 was not material.
New Liberty Old Liberty ----------------------------------------- ----------------- (note 1) (note 1) Three months One month Two months ended ended ended March 31, March 31, February 28, 2000 1999 1999 -------------------- ------------------- ------------- amounts in millions Cash paid for acquisitions (note 5): Fair value of assets acquired $ 2,510 -- -- Net liabilities assumed (743) -- -- Deferred tax liability recorded (362) -- -- Minority interests in equity of acquired attributed subsidiaries (285) -- -- AT&T Liberty Media Group tracking stock issued (778) -- -- ---------------- ---------------- ----------------- Cash paid for acquisitions $ 342 -- -- ================ ================ =================
The following table reflects the change in cash and cash equivalents resulting from the AT&T Merger and related restructuring transactions (amounts in millions): Cash and cash equivalents prior to the AT&T Merger $ 211 Cash received in restructuring transactions, net of cash balances transferred 5,284 Cash paid to TCI Group for certain warrants (176) ---------- Cash and cash equivalents subsequent to the AT&T Merger $ 5,319 ==========
(continued)
Liberty Media Group ceased to include TV Guide, Inc. ("TV Guide") in its combined financial results and began to account for TV Guide using the equity method of accounting, effective March 1, 1999 (see note 3). The effect of changing the method of accounting for Liberty Media Group's ownership interest in TV Guide from the consolidation method to the equity method is summarized below (amounts in millions): Assets (other than cash and cash equivalents) reclassified to investments in affiliates $ (200) Liabilities reclassified to investments in affiliates 190 Minority interests in equity of attributed subsidiaries reclassified to investments in affiliates 63 -------------- Decrease in cash and cash equivalents $ 53 ==============
(3) Investments in Affiliates Accounted for under the Equity Method --------------------------------------------------------------- Liberty Media Group has various investments accounted for under the equity method. The following table includes Liberty Media Group's carrying amount of the more significant investments in affiliates:
March 31, 2000 December 31, 1999 -------------------------- ----------------------- amounts in millions USA Networks, Inc. ("USAI") and related investments $ 2,682 2,699 Telewest Communications plc ("Telewest") 1,884 1,996 Discovery Communications, Inc. ("Discovery") 3,378 3,441 TV Guide 1,719 1,732 QVC Inc. ("QVC") 2,514 2,515 Teligent, Inc. ("Teligent") 1,317 -- Flextech p.l.c. ("Flextech") 707 727 UnitedGlobalCom, Inc. ("UnitedGlobalCom") 453 505 Various foreign equity investments (other than Telewest and Flextech) 1,440 1,463 Other 946 844 -------------- ---------------- $ 17,040 15,922 ============== ================
(continued) The following table reflects Liberty Media Group's share of earnings (losses) of affiliates:
New Liberty Old Liberty ------------------------------------------ ----------------- (note 1) (note 1) Three months One month Two months ended ended ended March 31, March 31, February 28, 2000 1999 1999 --------------------- ------------------- ----------------- amounts in millions USAI and related investments $ (7) 3 10 Telewest (87) (25) (38) Discovery (63) (16) (8) TV Guide (13) (4) -- QVC (1) (1) 13 Teligent (71) -- -- Flextech (10) (5) (5) UnitedGlobalCom (50) -- -- Other foreign investments (47) (15) (22) Other (33) (17) (16) ------------- ------------- --------------- $ (382) (80) (66) ============= ============= ===============
Summarized unaudited combined financial information for affiliates is as follows:
New Liberty Old Liberty ------------------------------------------ ---------------- (note 1) (note 1) Three months One month Two months ended ended ended March 31, March 31, February 28, 2000 1999 1999 --------------------- ------------------- ---------------- amounts in millions Revenue $ 3,610 993 2,341 Operating expenses (3,333) (849) (1,894) Depreciation and amortization (641) (124) (353) --------------- ----------------- ---------------- Operating income (loss) (364) 20 94 Interest expense (465) (37) (281) Other, net (4) (89) (127) --------------- ---------------- ----------------- Net loss $ (833) (106) (314) ============ ================ ================
(continued) USAI owns and operates businesses in network and television production, television broadcasting, electronic retailing, ticketing operations, and internet services. At March 31, 2000, Liberty Media Group directly and indirectly held 66.5 million shares of USAI's common stock. Liberty Media Group also held shares directly in certain subsidiaries of USAI which are exchangeable into 79.0 million shares of USAI common stock. Liberty Media Group's direct ownership of USAI is currently restricted by Federal Communications Commission ("FCC") regulations. The exchange of these shares can be accomplished only if there is a change to existing regulations or if Liberty Media Group obtains permission from the FCC. If the exchange of subsidiary stock into USAI common stock was completed at March 31, 2000, Liberty Media Group would own 145.5 million shares or approximately 21% (on a fully-diluted basis) of USAI common stock. USAI's common stock had a closing market value of $22.56 per share on March 31, 2000. Telewest currently operates and constructs cable television and telephone systems in the UK. At March 31, 2000, Liberty Media Group indirectly owned 506 million of the issued and outstanding Telewest ordinary shares. The reported closing price on the London Stock Exchange of Telewest ordinary shares was $7.66 per share at March 31, 2000. Teligent is a full-service, facilities based communications company in which Liberty Media Group acquired an approximate 40% equity interest in its January 14, 2000 acquisition of Associated Group, Inc. (the "Associated Group") (see note 5). At March 31, 2000, Liberty Media Group held 21 million shares of Teligent Class A common stock. The closing price for Teligent Class A common stock was $66.81 per share on March 31, 2000. On March 1, 1999, UVSG and News Corp. completed a transaction whereby UVSG acquired News Corp.'s TV Guide properties, creating a broader platform for offering television guide services to consumers and advertisers, and UVSG was renamed TV Guide. News Corp. received total consideration of $1.9 billion including $800 million in cash, 22.5 million shares of UVSG's Class A common stock and 37.5 million shares of UVSG's Class B common stock valued at an average of $18.65 per share. In addition, News Corp. purchased approximately 6.5 million additional shares of UVSG Class A common stock for $129 million in order to equalize its ownership with that of Liberty Media Group. As a result of these transactions, and another transaction completed on the same date, News Corp, Liberty Media Group and TV Guide's public stockholders own on an economic basis approximately 44%, 44% and 12%, respectively, of TV Guide. Following such transactions, News Corp. and Liberty Media Group each have approximately 49% of the voting power of TV Guide's outstanding stock. In connection with the increase in TV Guide's equity, net of dilution of Liberty Media Group's ownership interest in TV Guide, Liberty Media Group recognized a gain of $372 million (before deducting deferred income taxes of $147 million). (continued) The Class A common stock of TV Guide is publicly traded. At March 31, 2000, Liberty Media Group held 58 million shares of TV Guide Class A common stock and 75 million shares of TV Guide Class B common stock. The TV Guide Class B common stock is convertible, one-for-one, into TV Guide Class A common stock. The closing price for TV Guide Class A common stock was $48.06 per share on March 31, 2000. Flextech develops and sells a variety of television programming in the UK. At March 31, 2000, Liberty Media Group indirectly owned 58 million Flextech ordinary shares. The reported closing price on the London Stock Exchange of the Flextech ordinary shares was $28.34 per share at March 31, 2000. UnitedGlobalCom is the largest global broadband communications provider of video, voice and data services with operations in over 20 countries throughout the world. At March 31, 2000, Liberty Media Group owned an approximate 10% economic ownership interest representing an approximate 36% voting interest in UnitedGlobalCom. The closing price for UnitedGlobalCom Class A common stock was $75.06 per share on March 31, 2000. The UnitedGlobalCom Class B common stock is convertible, on a one-for-one basis, into UnitedGlobalCom Class A common stock. The $14 billion aggregate excess of Liberty Media Group's aggregate carrying amount in its affiliates over Liberty Media Group's proportionate share of its affiliates' net assets is being amortized over an estimated useful life of 20 years. (4) Investments in Available-for-sale Securities and Others ------------------------------------------------------- Investments in available-for-sale securities and others are summarized as follows:
March 31, December 31, 2000 1999 ---------------- ----------------- amounts in millions Sprint Corporation ("Sprint") $ 12,513 10,186 Time Warner, Inc. ("Time Warner") 10,975 8,202 News Corp. 2,801 2,403 Motorola, Inc. ("Motorola") 3,308 3,430 Other available-for-sale securities 4,427 3,773 Other investments, at cost, and related receivables 1,065 985 ---------------- ----------------- 35,089 28,979 Less short-term investments 525 378 ---------------- ----------------- $ 34,564 28,601 ============== =================
(continued) On January 5, 2000, Motorola completed the acquisition of General Instrument Corporation ("General Instrument") through a merger of General Instrument with a wholly owned subsidiary of Motorola. In the merger, each outstanding share of General Instrument common stock was converted into the right to receive 0.575 shares of Motorola common stock. In connection with the merger Liberty Media Group received 18 million shares and warrants to purchase 12 million shares of Motorola common stock in exchange for its holdings in General Instrument. Liberty Media Group recognized a $2.2 billion gain (excluding related tax expense of $883 million) on such transaction during the first quarter of 2000 based on the difference between the carrying value of Liberty Media Group's interest in General Instrument and the fair value of the Motorola securities received. Liberty Media Group's right to exercise warrants to purchase 6.1 million shares of Motorola common stock is subject to AT&T satisfying the terms of a purchase commitment in 2000. AT&T has agreed to pay Liberty Media Group $14.35 for each warrant that does not vest as a result of the purchase commitment not being met. Investments in available-for-sale securities are summarized as follows:
March 31, December 31, 2000 1999 ------------------ ----------------- amounts in millions Equity securities: Fair value $ 30,663 24,472 Gross unrealized holding gains 15,440 11,457 Gross unrealized holding losses (1,684) (646) Debt securities: Fair value 1,820 1,995 Gross unrealized holding gains 1 -- Gross unrealized holding losses (21) (22)
Management of Liberty Media Group estimates the market value, calculated using a variety of approaches including multiple of cash flow, per subscriber value, a value of comparable public or private businesses or publicly quoted market prices, of all of Liberty Media Group's investments in available-for-sale securities and others aggregated $33.3 billion and $29.2 billion at March 31, 2000 and December 31, 1999, respectively. No independent appraisals were conducted for those assets. (continued) (5) Acquisitions On January 14, 2000, Liberty Media Group completed its acquisition of Associated Group pursuant to a merger agreement among AT&T, Liberty Media Group and Associated Group. Under the merger agreement, each share of Associated Group's Class A common stock and Class B common stock was converted into 0.49634 shares of AT&T common stock and 1.20711 shares of AT&T Class A Liberty Media Group tracking stock. Prior to the merger, Associated Group's primary assets were (1) approximately 19.7 million shares of AT&T common stock, (2) approximately 23.4 million shares of AT&T Class A Liberty Media Group tracking stock, (3) approximately 5.3 million shares of AT&T Class B Liberty Media Group tracking stock, (4) approximately 21.4 million shares of common stock, representing approximately a 40% interest, of Teligent, and (5) all of the outstanding shares of common stock of TruePosition, Inc., which provides location services for wireless carriers and users designed to determine the location of any wireless transmitters, including cellular and PCS telephones. Immediately following the completion of the merger, all of the assets and businesses of Associated Group were transferred to Liberty Media Group. All of the shares of AT&T common stock, AT&T Class A Liberty Media Group tracking stock and AT&T Class B Liberty Media Group tracking stock previously held by Associated Group were retired by AT&T. The acquisition of Associated Group was accounted for as a purchase and the $20 million excess of the fair value of the net assets acquired over the purchase price is being amortized over ten years. As a result of the issuance of AT&T Liberty Media Group tracking stock, net of the shares of AT&T Liberty Media Group tracking stock acquired in this transaction, Liberty Media Group recorded a $778 million increase to combined equity. On March 16, 2000, Liberty Media Group purchased shares of preferred stock in TCI Satellite Entertainment, Inc. ("TSAT") in exchange for Liberty Media Group's economic interest in approximately 5 million shares of Sprint PCS Group Stock, valued at $300 million. Liberty Media Group received 150,000 shares of TSAT Series A 12% Cumulative Preferred Stock and 150,000 shares of TSAT Series B 8% Cumulative Convertible Voting Preferred Stock. The Series A preferred stock does not have voting rights, while the Series B preferred stock gives Liberty Media Group approximately 85% of the voting power of TSAT. In connection with this transaction, Liberty Media Group realized a $211 million gain (before related tax expense of $84 million) during the first quarter of 2000 based on the difference between the cost basis and fair value of the Sprint PCS Group Stock exchanged. On March 28, 2000, Liberty Media Group announced that it had completed its cash tender offer for the outstanding common stock of Ascent Entertainment Group, Inc. ("Ascent") at a price of $15.25 per share. Approximately 85% of the outstanding shares of common stock of Ascent were tendered in the offer and Liberty Media Group paid approximately $385 million. Such transaction was accounted for as a purchase and the $216 million excess of the purchase price over the fair value of the net assets acquired is being amortized over 20 years. (continued) (6) Long-Term Debt Debt is summarized as follows:
March 31, December 31, 2000 1999 ---------------- ---------------- amounts in millions Parent company debt: Bank credit facilities $ 288 390 Senior notes 741 741 Senior debentures (a) 1,486 494 Senior exchangeable debentures (b) 2,196 1,022 Securities lending agreement (c) 1,116 -- --------------- ---------------- 5,827 2,647 Debt of subsidiaries: Bank credit facilities 770 573 Senior notes 165 -- Other debt, at varying rates 48 57 --------------- ---------------- 983 630 --------------- ---------------- Total debt 6,810 3,277 Less current maturities 1,573 554 --------------- ---------------- Total long-term debt $ 5,237 2,723 =============== ================ (a) On February 2, 2000, Liberty Media Group received net cash proceeds of approximately $983 million from the issuance of 8-1/4% Senior Debentures due 2030. The senior debentures have an aggregate principal amount of $1 billion. Interest on the senior debentures is payable on February 1 and August 1 of each year. (b) On February 10, 2000, Liberty Media Group received net cash proceeds of $735 million from the issuance of $750 million principal amount of 3-3/4% Senior Exchangeable Debentures due 2030. On March 8, 2000, Liberty Media Group received net cash proceeds of $59 million from the issuance of an additional $60 million principal amount of 3-3/4% Senior Exchangeable Debentures due 2030. Each debenture has a $1,000 face amount and is exchangeable at the holder's option for the value of 16.7764 shares of Sprint PCS Group Stock. This amount will be paid only in cash until the later of February 15, 2002 and the date the direct and indirect ownership level of Sprint PCS Group Stock owned by Liberty Media Group falls below a designated level, after which, at Liberty Media Group's election, Liberty Media Group may pay the amount in cash, Sprint PCS Group Stock or a combination thereof. Interest on these exchangeable debentures is payable on February 15 and August 15 of each year. The carrying amount of the exchangeable debentures in excess of the principal amount (the "Contingent Portion) is based on the fair value of the underlying Sprint PCS Group Stock. The increase or decrease in the Contingent Portion is recorded as an increase or decrease to interest expense in the combined statement of operations and comprehensive earnings. (continued) (c) On January 7, 2000, a trust, which holds Liberty Media Group's investment in Sprint, entered into agreements to loan 18 million shares of Sprint PCS Group stock to a third party, as Agent. The obligation to return those shares is secured by cash collateral equal to 100% of the market value of that stock. During the period of the loan, which is terminable by either party at any time, the cash collateral is to be marked-to-market daily. The trust, for the benefit of Liberty Media Group, has the use of 80% of the cash collateral plus any interest earned thereon during the term of the loan, and is required to pay a rebate fee equal to the Federal funds rate less 30 basis points to the borrower of the loaned shares. The cash collateral of $1,013 million at March 31, 2000 included $223 million of restricted cash. At March 31, 2000, Liberty Media Group had utilized $103 million of the cash collateral under the securities lending agreement.
At March 31, 2000, Liberty Media Group had approximately $161 million in unused lines of credit under its bank credit facilities. The bank credit facilities of Liberty Media Group generally contain restrictive covenants which require, among other things, the maintenance of certain financial ratios, and include limitations on indebtedness, liens, encumbrances, acquisitions, dispositions, guarantees and dividends. Liberty Media Group was in compliance with its debt covenants at March 31, 2000. Additionally, Liberty Media Group pays fees ranging from .15% to .375% per annum on the average unborrowed portions of the total amounts available for borrowings under bank credit facilities.
Based on quoted market prices, the fair value of Liberty Media Group's debt at March 31, 2000 is as follows (amounts in millions): Senior notes of parent company $ 742 Senior debentures of parent company 1,483 Senior exchangeable debentures of parent company 2,295 Senior notes of attributed subsidiary 178
Liberty Media Group believes that the carrying amount of the remainder of its debt approximated its fair value at March 31, 2000. (7) Combined Equity Stock Issuances of Subsidiary During the first quarter of 2000, Liberty Digital, Inc. ("Liberty Digital") issued approximately 1.5 million shares of common stock in connection with a certain acquisition and the exercise of certain employee stock options. In connection with the increase in Liberty Digital's equity, net of the dilution of Liberty Media Group's interest in Liberty Digital, that resulted from such stock issuances, Liberty Media Group recorded a $75 million increase to combined equity. (continued) Transactions with Officers and Directors Prior to the AT&T Merger, a limited liability company owned by Dr. John C. Malone (Liberty Media Corporation's Chairman) acquired, from certain attributed subsidiaries of Liberty Media Group, for $17 million, working cattle ranches located in Wyoming. No gain or loss was recognized on such acquisition. The purchase price was paid by such limited liability company in the form of a 12-month note in the amount of $17 million having an interest rate of 7%. Such note was repaid in March 2000. In connection with the AT&T Merger, Liberty Media Group paid two of its directors and one other individual, all three of whom were directors of TCI, an aggregate of $12 million for services rendered in connection with the AT&T Merger. Such amount is included in operating, selling, general and administrative expenses for the two months ended February 28, 1999 in the accompanying combined statements of operations and comprehensive earnings. Transactions with AT&T Certain AT&T corporate general and administrative costs are charged to Liberty Media Group based on the cost of services provided. Management believes this allocation method is reasonable. During the three months ended March 31, 2000, the one month ended March 31, 1999 and the two months ended February 28, 1999 Liberty Media Group was charged less than $1 million, less than $1 million and $2 million, respectively, in corporate general and administrative costs by AT&T. These costs are included in operating expenses in the accompanying combined statements of operations and comprehensive earnings. Certain subsidiaries attributed to Liberty Media Group produce and/or distribute programming and other services to cable distribution operators (including AT&T) and others. Charges to AT&T are based upon customary rates charged to others. Amounts included in revenue for services provided to AT&T were $52 million, $18 million and $43 million for the three months ended March 31, 2000, one month period ending March 31, 1999 and the two month period ending February 28, 1999, respectively. Subsidiaries of Liberty Media Group lease satellite transponder facilities from a subsidiary of AT&T. Charges for such arrangements and other related operating expenses for the three months ended March 31, 2000, and the one month ended March 31, 1999 aggregated $5 million and $2 million, respectively, and are included in operating expenses in the accompanying combined statements of operations and comprehensive earnings. Liberty Media Group makes marketing support payments to AT&T. Charges by AT&T for such arrangements were less than $1 million for each of the three months ended March 31, 2000, the one month ended March 31, 1999 and the two months ended February 28, 1999. (continued) The Puerto Rico Subsidiary purchases programming services from AT&T. The charges, which approximate AT&T's cost and are based on the aggregate number of subscribers served by the Puerto Rico Subsidiary, aggregated $2 million, less than $1 million and $1 million during the three months ended March 31, 2000, the one month ended March 31, 1999 and the two months ended February 28, 1999, respectively, and are included in operating expenses in the accompanying combined statements of operations and comprehensive earnings. Due (from) to Related Parties The amounts included in "Due (from) to related parties" represent a non-interest bearing intercompany account which includes income tax allocations that are to be settled at some future date. All other amounts included in the intercompany account are to be settled within thirty days following notification. (8) Commitments and Contingencies Starz Encore Group provides premium programming distributed by cable, direct satellite, TVRO and other distributors throughout the United States. Starz Encore Group is obligated to pay fees for the rights to exhibit certain films that are released by various producers through 2017 (the "Film Licensing Obligations"). Based on customer levels at March 31, 2000, these agreements require minimum payments aggregating approximately $1.2 billion. The aggregate amount of the Film Licensing Obligations under these license agreements is not currently estimable because such amount is dependent upon the number of qualifying films released theatrically by certain motion picture studios as well as the domestic theatrical exhibition receipts upon the release of such qualifying films. Nevertheless, required aggregate payments under the Film Licensing Obligations could prove to be significant. Flextech has undertaken to finance the working capital requirements of a joint venture (the "Principal Joint Venture") formed with BBC Worldwide, and is obligated to provide the Principal Joint Venture with a primary credit facility of (pound)88 million and, subject to certain restrictions, a standby credit facility of (pound)30 million. As of March 31, 2000, the Principal Joint Venture had borrowed (pound)59 million under the primary credit facility. If Flextech defaults in its funding obligation to the Principal Joint Venture and fails to cure within 42 days after receipt of notice from BBC Worldwide, BBC Worldwide is entitled, within the following 90 days, to require that Liberty Media Group assume all of Flextech's funding obligations to the Principal Joint Venture. Liberty Media Group has guaranteed various loans, notes payable, letters of credit and other obligations (the "Guaranteed Obligations") of certain affiliates. At March 31, 2000, the Guaranteed Obligations aggregated approximately $679 million. Currently, Liberty Media Group is not certain of the likelihood of being required to perform under such guarantees. (continued) Pursuant to a final judgment (the "Final Judgment") agreed to by Liberty Media Corporation, AT&T and the United States Department of Justice (the "DOJ") on December 31, 1998, Liberty Media Group transferred all of its beneficially owned securities (the "Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the AT&T Merger. The Final Judgment, which was entered by the United States District Court for the District of Columbia on August 23, 1999, would require the Trustee, on or before May 23, 2002, to dispose of a portion of the Sprint Securities sufficient to cause Liberty Media Group to beneficially own no more than 10% of the outstanding Series 1 PCS Stock of Sprint on a fully diluted basis on such date. On or before May 23, 2004, the Trustee must divest the remainder of the Sprint Securities beneficially owned by Liberty Media Group. The Final Judgment requires that the Trustee vote the Sprint Securities beneficially owned by Liberty Media Group in the same proportion as other holders of Sprint's PCS Stock so long as such securities are held by the trust. The Final Judgment also prohibits the acquisition by Liberty Media Group of additional Sprint Securities, with certain exceptions, without the prior written consent of the DOJ. Liberty Media Group leases business offices, has entered into pole rental and transponder lease agreements and uses certain equipment under lease arrangements. Liberty Media Group has contingent liabilities related to legal proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible Liberty Media Group may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying combined financial statements. -----END PRIVACY-ENHANCED MESSAGE-----