EX-99 2 form8kjuly23proforma.txt EXHIBIT 99.1 EXHIBIT 99.1 UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS The unaudited pro forma condensed combined financial statements set forth below for AT&T give effect to - The AT&T Wireless Group Exchange Offer - the AT&T Wireless Group distribution (collectively, the AT&T wireless events) - the Liberty Media Group distribution (collectively, the AT&T restructuring events), as if such events had been completed on January 1, 1998 for income statement purposes, and at March 31, 2001 for balance sheet purposes, subject to the assumptions and adjustments in the accompanying notes to the pro forma financial statements. The unaudited pro forma condensed combined financial statements set forth below for AT&T also give effect to the TCI and MediaOne mergers as if they had been completed on January 1, 1998 for income statement purposes. Based on the receipt of a favorable IRS Ruling on May 30, 2001, AT&T will report AT&T Wireless Group as Discontinued Operations, in accordance with APB Opinion No. 30 "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions" (APB30). For accounting purposes, the spin-off/split-off (the "distribution") of AT&T Wireless Group is considered a non pro-rata distribution and is expected to be recorded at fair value resulting in the recognition of a gain on the remaining AT&T entity upon the distribution date. The split-off of Liberty Media Group will be a pro-rata distribution and is therefore recorded at historical cost. See the Notes to the Unaudited Pro Forma Condensed Combined Financial Statements for additional disclosure of potential material nonrecurring charges and credits directly attributable to the events as noted above which are not reflected in the pro forma financial statements. The pro forma adjustments included herein are based on available information and certain assumptions that management believes are reasonable and are described in the accompanying notes to the pro forma financial statements. The unaudited pro forma condensed combined financial statements do not necessarily represent what AT&T's financial position or results of operations would have been had the TCI or MediaOne mergers, the AT&T wireless events or the distribution of Liberty Media Group occurred on such dates or to project AT&T's financial position or results of operations at or for any future date or period. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma financial information have been made. The unaudited pro forma condensed combined financial statements should be read in conjunction with the historical financial statements of AT&T, AT&T Wireless Group and Liberty Media Group. AT&T closed its merger with MediaOne on June 15, 2000. Therefore, MediaOne is reflected in the March 31, 2001 balance sheet. Accordingly, AT&T has established a new basis for MediaOne Group's assets and liabilities using their preliminarily assigned fair values based on the allocation of the purchase price including the costs of the merger. AT&T closed its merger with TCI on March 9, 1999. Therefore, TCI is reflected in the March 31, 2001 balance sheet. The merger was accounted for using the purchase method of accounting. Accordingly, AT&T has established a new basis for TCI's assets and liabilities using their assigned fair values based on the allocation of the purchase price including the costs of the merger. In connection with the merger, AT&T issued a separate tracking stock to reflect the economic performance of Liberty Media Group, TCI's former programming and technology investment businesses. On April 27, 2000, AT&T completed the sale of a tracking stock (AT&T Wireless Group tracking stock) intended to reflect 15.6% of the financial performance and economic value of AT&T Wireless Group. The results of AT&T Wireless Group are included in their entirety in the consolidated results of AT&T. The earnings available to Common Shareholders are (reduced) increased by the 15.6% of (income) loss from the AT&T Wireless Group beginning on April 27, 2000, the date of formation of the AT&T Wireless Group Tracking Stock. Upon the split-off, AT&T Wireless Services will assume a portion of AT&T's outstanding employee stock options. In connection with this assumption, AT&T will, effective immediately prior to the split-off, reduce the AT&T Common Stock Group's retained portion of the value of the AT&T Wireless Group by the equivalent of 12,577,650 shares of AT&T Wireless Group tracking stock. This will have the effect of reducing the total number of shares of AT&T Wireless Services common stock distributed to holders of AT&T common stock in the split-off.
AT&T UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET March 31, 2001 (in millions) AWE Pro Forma Exchange AT&T Historical Pro Forma AWE Other Excluding AT&T(1) Adjustments(5) Distribution(8) Adjustments(10) AWE --------- ----------- ------------ ----------- -------- ASSETS Cash and cash equivalents........ 136 -- (34) -- 102 5,742 (9) (5,742)(9) Receivables -- net............... 12,438 -- (12,399) 10,710 10,749 Deferred income taxes............ 855 -- (170) -- 685 Other current assets............. 2,824 -- (477) -- 2,347 Property, plant and equipment -- net............................. 52,265 -- (10,725) -- 41,540 Franchise costs -- net........... 47,924 -- -- -- 47,924 Licensing cost -- net............ 13,568 -- (13,568) -- -- Goodwill -- net.................. 30,525 -- (4,686) -- 25,839 Investment in Liberty Media Group and related receivables, net..... 34,072 -- -- -- 34,072 Other investments and related advances........................ 34,287 -- (763) 3,000 33,524 (3,000)(9) Prepaid pension costs............ 3,092 -- -- -- 3,092 Other assets..................... 9,155 -- (966) 1,798 8,187 (1,800)(9) (13,806) 13,806 (7) ---- ---- ---- ---- ---- TOTAL ASSETS..................... 241,141 -- (48,588) 15,508 208,061 ==== ==== ==== ==== ==== LIABILITIES Accounts payable................. 4,905 -- (800) 83 4,188 Payroll and benefit-related liabilities..................... 1,882 -- (263) -- 1,619 Debt maturing within one year.... 17,225 -- (103) 10,542 22,864 (10,542)(9) 5,742 (9) Other current liabilities........ 10,432 -- (1,468) 83 9,047 Long-term debt................... 39,004 -- (8,290) 1,800 32,514 Long-term benefit-related liabilities..................... 3,654 -- -- -- 3,654 Deferred income taxes............ 36,665 -- (4,739) -- 31,926 Other long-term liabilities and deferred credits................ 5,114 -- (288) -- 4,521 (305) ---- ---- ---- ---- ---- TOTAL LIABILITIES................ 118,881 -- (21,056) 12,508 110,333 Minority interest................ 4,222 -- (42) -- 4,180 Company-obligated convertible quarterly income preferred securities of subsidiary trust holding solely subordinated debt securities of AT&T........ 4,713 -- -- -- 4,713 Convertible preferred stock...... 9,362 -- (9,362) -- -- SHAREOWNERS' EQUITY Common Stock: AT&T common stock, $1 par value, authorized 6,000,000,000 shares; issued and outstanding 3,809,487,226 shares............. 3,809 (372) -- -- 3,437 AT&T Wireless Group Preferred Stock............................ -- -- (3,000) 3,000 -- AT&T Wireless Group Common Stock, $1 par value, authorized 6,000,000,000 shares; issued and outstanding 363,203,425...... 363 438 406 -- -- (1,207) Liberty Media Group Class A Common Stock, $1 par value, authorized 4,000,000,000 shares; issued and outstanding 2,376,748,041 shares........... 2,377 -- -- -- 2,377 Liberty Media Group Class B Common Stock, $1 par value, authorized 400,000,000 shares; issued and outstanding 212,045,288 shares............... 212 -- -- -- 212 Total additional paid-in capital.......................... 92,045 (7,467) 9,190 -- 82,256 7,481 (18,993) Retained earnings................ 6,732 (80) 13,806 (7) -- 951 (19,273) (234) Accumulated other comprehensive income........................... (1,575) -- 1,177 -- (398) TOTAL SHAREOWNERS' EQUITY........ 103,963 -- (18,128) 3,000 88,835 TOTAL LIABILITIES & EQUITY....... 241,141 -- (48,588) 15,508 208,061 ==== ==== ==== ==== ==== SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO-FORMA FINANCIAL STATEMENTS
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AT&T UNAUDITED CONDENSED COMBINED PRO FORMA BALANCE SHEET -- (continued) March 31, 2001 (in millions) Pro Forma AT&T Liberty Excluding Media Other Pro Forma AWE Distribution(11) Adjustments AT&T --------- ------------ ----------- -------- ASSETS Cash and cash equivalents...... 102 (827)(12) 725(13) -- Receivables -- net............. 10,749 -- -- 10,749 -- Deferred income taxes.......... 685 -- -- 685 Other current assets........... 2,347 -- -- 2,347 Property, plant and equipment -- net............................ 41,540 -- -- 41,540 Franchise costs -- net......... 47,924 -- -- 47,924 Licensing cost -- net.......... -- -- -- -- Goodwill -- net................ 25,839 -- -- 25,839 Investment in Liberty Media Group and related receivables, net............. 34,072 (34,072) -- -- Other investments and related advances....................... 33,524 -- -- 33,524 Prepaid pension costs.......... 3,092 -- -- 3,092 Other assets................... 8,187 -- -- 8,187 ---- ---- ---- ---- TOTAL ASSETS................... 208,061 (34,899) 725 173,887 ==== ==== ==== ==== LIABILITIES Accounts payable............... 4,188 -- 725 (13) 4,913 -- Payroll and benefit-related liabilities.................... 1,619 -- -- 1,619 Debt maturing within one year.. 22,864 -- -- 22,864 Other current liabilities...... 9,047 (24) -- 9,023 Long-term debt................. 32,514 -- -- 32,514 Long-term benefit-related liabilities.................... 3,654 -- -- 3,654 Deferred income taxes.......... 31,926 -- -- 31,926 Other long-term liabilities and deferred credits............... 4,521 -- -- 4,521 ---- --- --- ---- TOTAL LIABILITIES.............. 110,333 (24) 725 111,034 Minority interest.............. 4,180 -- -- 4,180 Company-obligated convertible quarterly income preferred securities of subsidiary trust holding solely subordinated debt securities of AT&T........................ 4,713 -- -- 4,713 Convertible preferred stock.... -- -- -- -- SHAREOWNERS' EQUITY Common Stock: AT&T common stock, $1 par value, authorized 6,000,000,000 shares; issued and outstanding 3,809,487,226 shares......... 3,437 -- -- 3,437 AT&T Wireless Group Preferred Stock.......................... -- -- -- AT&T Wireless Group Common Stock, $1 par value, authorized 6,000,000,000 shares; issued and outstanding 363,203,425...... -- -- -- -- Liberty Media Group Class A Common Stock, $1 par value, authorized 4,000,000,000 shares; issued and outstanding 2,376,748,041 shares............ 2,377 (2,377) -- -- Liberty Media Group Class B Common Stock, $1 par value, authorized 400,000,000 shares; issued and outstanding 212,045,288 shares............... 212 (212) -- -- Total additional paid-in capital.......................... 82,256 (32,865) -- 49,391 Retained earnings................. 951 -- -- 951 Accumulated other comprehensive income.................... ..... (398) 579 -- 181 ---- ---- ---- ---- TOTAL SHAREOWNERS' EQUITY...... 88,835 (34,875) -- 53,960 TOTAL LIABILITIES & EQUITY..... 208,061 (34,899) 725 173,887 ==== ==== ==== ==== SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO-FORMA FINANCIAL STATEMENTS
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AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME For the Three Months Ended, March 31, 2001 (in millions) AWE Exchange Pro Forma Historical Pro Forma AWE Other AT&T Excluding Liberty Media Pro Forma AT&T(1) Adjustments Distribution(8) Adjustments(10) AWE Distribution(11) AT&T ---------- ----------- ------------ ----------- ----------- ------------- --------- Revenue................ 16,763 -- (3,212) 101 13,652 -- 13,652 OPERATING EXPENSES Costs of services and products............... 4,837 -- (1,276) 101 3,662 -- 3,662 Access and other connection............. 3,286 -- (135) -- 3,151 -- 3,151 Selling, general and administrative......... 3,868 -- (1,085) -- 2,783 -- 2,783 Depreciation and amortization........... 2,987 -- (575) -- 2,412 -- 2,412 Net restructuring and other charges.......... 808 -- -- -- 808 -- 808 ---- ---- ---- ---- ---- ---- ---- Total operating expenses................15,786 -- (3,071) 101 12,816 -- 12,816 Operating income (loss).................. 977 -- (141) -- 836 -- 836 Other income (expense)............... (781) -- (80) 158 (703) -- (703) Interest expense....... 969 -- (47) 116 1,095 -- 1,095 57(9) Income from continuing operations before income taxes and earnings (losses) from equity investments...............(773) -- (174) (15) (962) -- (962) Provision (benefit) for income taxes.............. 292 -- (79) (22)(9) 191 -- 191 Minority interest income (expense).......... 650 -- (4) -- 646 -- 646 Equity earnings (losses) from Liberty Media Group................. (697) -- -- -- (697) 697 -- Net earnings/(losses) from other equity investments........... (136) -- 99 -- (37) -- (37) Income (loss) from continuing operations.. (1,248) -- -- 7 (1,241) 697 (544) Dividend Requirements on Preferred Stock..... 181 -- (42) 42 181 -- 181 Net income (loss) ---- ---- ---- ---- ---- ---- ---- attributable to common shareowners........... (1,429) -- 42 (35) (1,422) 697 (725) ==== ==== ==== ==== ==== ==== ==== AT&T COMMON STOCK GROUP: Net income............. $ (739) $ (8)(5) $ (725) $ (725) Weighted average shares outstanding (basic & diluted).............. 3,805 (372)(5) 3,433 3,433 Basic EPS.............. (0.19) (0.21) (0.21) AT&T WIRELESS GROUP: Income................. $ 7 $ 8 (5) Basic and diluted EPS.. $ 0.02 $ 0.02(5) LIBERTY MEDIA GROUP: Basic and diluted EPS.. $(0.27) $ (0.27) SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
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AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME For the Year Ended, December 31, 2000 (in millions) Pro Forma DoCoMo & Pro Forma MediaOne AT&T AWE Exchange AT&T Historical Historical Pro Forma With Pro Forma AWE Other Excluding AT&T(1) MediaOne(1) Adjustments(4) MediaOne Adjustments Distribution(8) Adjustments(10) AWE --------- -------- ----------- -------- ----------- ------------ ----------- ------ Revenue......................... 65,981 1,325 -- 67,306 -- (10,447) 321 57,180 OPERATING EXPENSES Costs of services and products....................... 17,587 554 -- 18,141 -- (4,827) 321 13,635 Access and other connection..... 13,518 -- -- 13,518 -- (378) -- 13,140 Selling, general and administrative................. 13,303 342 -- 13,645 -- (3,590) -- 10,055 Depreciation and amortization... 10,267 706 156 11,129 -- (1,678) -- 9,451 Net restructuring and other charges........................ 7,029 -- -- 7,029 -- -- -- 7,029 ---- ---- ---- ---- ---- ---- ---- ---- Total operating expenses........ 61,704 1,602 156 63,462 -- (10,473) 321 53,310 Operating income (loss)......... 4,277 (277) (156) 3,844 -- 26 -- 3,870 Other income (expense).......... 1,514 3,341 243 5,098 -- (507) 353 4,944 Interest expense................ 3,183 312 712 4,207 (144)(6) 12 242 4,544 227(9) Income from continuing operations before income taxes and earnings (losses) from equity investments............. 2,608 2,752 (625) 4,735 144 (493) (116) 4,270 Provision (benefit) for income taxes.......................... 3,342 1,189 (196) 4,335 55(6) (172) (87)(9) 4,131 Minority interest income (expense)...................... 4,120 -- (48) 4,072 -- (17) -- 4,055 Equity earnings (losses) from Liberty Media Group............ 1,488 -- -- 1,488 -- -- -- 1,488 Net earnings/(losses) from other equity investments....... (205) -- (138) (343) -- (383) -- (726) Income (loss) from continuing operations..................... 4,669 1,563 (615) 5,617 89 (721) (29) 4,956 Dividend Requirements on Preferred Stock................ -- -- -- -- -- (111) 111 -- Net income (loss) attributable ---- ---- ---- ---- ---- ---- ---- ---- to common shareowners.......... 4,669 1,563 (615) 5,617 89 (610) (140) 4,956 ==== ==== ==== ==== ==== ==== ==== ==== AT&T COMMON STOCK GROUP: Net income......................$ 3,105 $ 4,053 $ 89 (6) $ 3,468 Weighted average shares outstanding (basic)............ 3,486 3,762 (372)(5) 3,390 Basic EPS....................... 0.89 1.08 1.02 Net income...................... 3,137 4,085 89 (6) 3,500 Weighted average shares outstanding (diluted).......... 3,545 3,821 (372)(5) 3,449 Diluted EPS..................... 0.88 1.07 1.01 AT&T WIRELESS GROUP: Income..........................$ 76 $ 76 $ 92 (5) Basic and diluted EPS...........$ 0.21 $ 0.21 $0.21 (5) LIBERTY MEDIA GROUP: Basic and diluted EPS...........$ 0.58 $ 0.58 $ 0.58 SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
5 AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME -- (continued) for the Year Ended, December 31, 2000 (in millions) Pro Forma AT&T Excluding Liberty Media Pro Forma AWE Distribution(11) AT&T -------------- ------------- --------- Revenue......................... 57,180 -- 57,180 OPERATING EXPENSES Costs of services and products.. 13,635 -- 13,635 Access and other connection..... 13,140 -- 13,140 Selling, general and administrative................. 10,055 -- 10,055 Depreciation and amortization... 9,451 -- 9,451 Net restructuring and other charges........................ 7,029 -- 7,029 ----- --- ----- Total operating expenses........ 53,310 -- 53,310 Operating income (loss)......... 3,870 -- 3,870 Other income (expense).......... 4,944 -- 4,944 Interest expense................ 4,544 -- 4,544 Income from continuing operations before income taxes and earnings (losses) from equity investments............. 4,270 -- 4,270 Provision (benefit) for income taxes.......................... 4,131 -- 4,131 Minority interest income (expense)...................... 4,055 -- 4,055 Equity earnings (losses) from Liberty Media Group............ 1,488 (1,488) -- Net earnings/(losses) from other equity investments....... (726) -- (726) Income (loss) from continuing operations..................... 4,956 (1,488) 3,468 Dividend Requirements on Preferred Stock................ -- -- -- Net income (loss) attributable ---- ---- ---- to common shareowners.......... 4,956 (1,488) 3,468 ==== ==== ==== AT&T COMMON STOCK GROUP: Net income...................... $ 3,468 $ 3,468 Weighted average shares outstanding (basic)............ 3,390 3,390 Basic EPS....................... 1.02 1.02 Net income...................... 3,500 3,500 Weighted average shares outstanding (diluted).......... 3,449 3,449 Diluted EPS..................... 1.01 1.01 AT&T WIRELESS GROUP: Income.......................... Basic and diluted EPS........... LIBERTY MEDIA GROUP: Basic and diluted EPS........... $ 0.58 SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS 6
AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME For the Year Ended December 31, 1999 (in millions) Pro Forma Liberty Ventures Other TCI Pro Forma Historical Historical Historical Group Pro Forma AT&T MediaOne AT&T(1) TCI(1) Adjustments(2) Adjustments(3) with TCI Group(1) ---------- --------- -------------- -------------- -------------- ----------- Revenue...................... 62,600 1,145 (204) -- 63,541 2,695 OPERATING EXPENSES Costs of services and products.................... 14,594 543 (79) -- 15,058 1,069 Access and other connection.. 14,686 -- -- -- 14,686 -- Selling, general and administrative.............. 13,516 677 (260) -- 13,933 749 Depreciation and amortization................ 7,439 277 (22) 120 7,814 1,248 Net restructuring and other charges............... 1,506 -- -- -- 1,506 -- ---- ---- ---- ---- ---- ---- Total operating expenses..... 51,741 1,497 (361) 120 52,997 3,066 Operating income (loss)...... 10,859 (352) 157 (120) 10,544 (371) Other income (expense)....... 931 356 (321) 142 1,108 7,551 Interest expense............. 1,765 161 (25) 82 1,983 449 Income from continuing operations before income taxes and earnings (losses) from equity investments................. 10,025 (157) (139) (60) 9,669 6,731 Provision (benefit) for income taxes................ 3,695 119 (207) (49) 3,558 3,217 Minority interest income (expense).................... (115) -- -- (26) (141) -- Equity earnings (losses) from Liberty Media Group... (2,022) -- (68) (156) (2,246) -- Net earnings/(losses) from other equity investments.... (765) -- -- (99) (864) -- Income (loss) from continuing operations....... 3,428 (276) -- (292) 2,860 3,514 Dividend Requirements on preferred stocks............ -- (4) -- -- (4) (77) ---- ---- ---- ---- ---- ---- Net income (loss) attributable to common shareowners.......... 3,428 (280) -- (292) 2,856 3,437 ==== ==== ==== ==== ==== ==== AT&T COMMON STOCK GROUP: Net income................... $ 5,450 $ 5,102 Weighted average shares outstanding (basic)......... 3,082 3,181 Basic EPS.................... 1.77 1.60 Net income................... 5,476 5,128 Weighted average shares outstanding (diluted)....... 3,152 3,299 Diluted EPS.................. 1.74 1.55 LIBERTY MEDIA GROUP: Basic and diluted EPS........ $ (0.80) $ (0.89) SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME For the Year Ended December 31, 1999 (in millions) MediaOne Pro Forma DoCoMo & Pro Forma Group AT&T w/ TCI AWE Exchange AT&T Pro Forma and Media Pro Forma AWE Other Excluding Adjustments(4) One Group Adjustments Distribution(8) Adjustments(10) AWE --------------- --------------- --------------- ------------- ------------- ------------ Revenue...................... -- 66,236 -- (7,627) 227 58,836 OPERATING EXPENSES Costs of services and products..................... -- 16,127 -- (3,606) 227 12,748 Access and other connection.. -- 14,686 -- (247) -- 14,439 Selling, general and administrative.............. -- 14,682 -- (2,663) -- 12,019 Depreciation and amortization................ 414 9,476 -- (1,245) -- 8,231 Net restructuring and other charges............... -- 1,506 -- (530) -- 976 ---- ------ ---- ---- ---- ---- Total operating expenses..... 414 56,477 -- (8,291) 227 48,413 Operating income (loss)...... (414) 9,759 -- 664 -- 10,423 Other income (expense)....... 1,918 10,577 -- (106) -- 10,471 Interest expense............. 1,554 3,986 (144)(6) (10) 227 (9) 4,059 Income from continuing operations before income taxes and earnings (losses) from equity investments..... (50) 16,350 144 568 (227) 16,835 Provision (benefit) for income taxes................ (538) 6,237 55 (6) 250 (87)(9) 6,455 Minority interest income (expense).................... (217) (358) -- (11) -- (369) Equity earnings (losses) from Liberty Media Group... -- (2,246) -- -- -- (2,246) Net earnings/(losses) from other equity investments.... (158) (1,022) -- 10 -- (1,012) Income (loss) from continuing operations....... 113 6,487 89 317 (140) 6,753 Dividend Requirements on preferred stocks............ 46 (35) -- -- -- (35) ---- ------ ---- ---- ---- ---- Net income (loss) attributable to common shareowners.......... 159 6,452 89 317 (140) 6,718 ==== ==== ==== ==== ==== ==== AT&T COMMON STOCK GROUP: Net income................... $ 8,698 $ 89 (6) $ 8,964 Weighted average shares outstanding (basic)......... 3,784 (372)(5) 3,412 Basic EPS.................... 2.30 2.63 Net income................... 8,724 $ 89 (6) 8,990 Weighted average shares outstanding (diluted)....... 3,906 (372)(5) 3,534 Diluted EPS.................. 2.23 2.54 LIBERTY MEDIA GROUP: Basic and diluted EPS........ $ (0.89) $ (0.89) SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
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AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME -- (continued) For the Year Ended December 31, 1999 (in millions) Pro Forma AT&T Liberty Excluding Media Pro Forma AWE Distribution(11) AT&T ---------- ---------- ---------- Revenue............................................. 58,836 -- 58,836 OPERATING EXPENSES Costs of services and products...................... 12,748 -- 12,748 Access and other connection......................... 14,439 -- 14,439 Selling, general and administrative................. 12,019 -- 12,019 Depreciation and amortization....................... 8,231 -- 8,231 Net restructuring and other charges................. 976 -- 976 ---- ---- ---- Total operating expenses............................ 48,413 -- 48,413 Operating income (loss)............................. 10,423 -- 10,423 Other income (expense).............................. 10,471 -- 10,471 Interest expense.................................... 4,059 -- 4,059 Income from continuing operations before income taxes and earnings (losses) from equity investments...... 16,835 -- 16,835 Provision (benefit) for income taxes................ 6,455 -- 6,455 Minority interest income (expense).................. (369) -- (369) Equity earnings (losses) from Liberty Media Group... (2,246) 2,246 -- Net earnings/(losses) from other equity investments. (1,012) -- (1,012) Income (loss) from continuing operations............ 6,753 2,246 8,999 Dividend Requirements on preferred stocks........... (35) -- (35) ---- ---- ---- Net income (loss) attributable to common shareowners 6,718 2,246 8,964 ==== ==== ==== AT&T COMMON STOCK GROUP: Net income.......................................... $ 8,964 $ 8,964 Weighted average shares outstanding (basic)......... 3,412 3,412 Basic EPS........................................... 2.63 2.63 Net income.......................................... 8,990 8,990 Weighted average shares outstanding (diluted)....... 3,534 3,534 Diluted EPS......................................... 2.54 2.54 LIBERTY MEDIA GROUP: Basic and diluted EPS............................... $ (0.89) SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
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AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME For the Year Ended December 31, 1998 (in millions) Liberty Ventures Other TCI Pro Forma Historical Historical Historical Group Pro Forma AT&T MediaOne AT&T(1) TCI(1) Adjustments(2) Adjustments(3) with TCI Group(1) ---------- --------- -------------- -------------- -------------- ----------- Revenue...................... $53,223 $7,351 $(1,148) $ -- $59,426 $2,882 OPERATING EXPENSES Costs of services and products.................... 10,495 3,087 (495) -- 13,087 1,013 Access and other connection.. 15,328 -- -- -- 15,328 -- Selling, general and administrative.............. 12,770 2,583 (943) -- 14,410 926 Depreciation and amortization................ 4,629 1,735 (135) 719 6,948 1,182 Net restructuring and other charges..................... 2,514 5 (5) -- 2,514 -- ---- ---- ---- ---- ---- ---- Total operating expenses..... 45,736 7,410 (1,578) 719 52,287 3,121 Operating income (loss)...... 7,487 (59) 430 (719) 7,139 (239) Other income (expense)....... 1,281 4,658 (1,631) (1,343) 2,965 3,368 Interest expense............. 427 1,061 (103) 489 1,874 491 Income from continuing operations before income taxes and earnings (losses) from equity investments..... 8,341 3,538 (1,098) (2,551) 8,230 2,638 Provision (benefit) for income taxes................ 3,049 1,595 (472) (1,087) 3,085 1,208 Minority interest income (expense).................... 21 -- -- (88) (67) -- Equity earnings (losses) from Liberty Media Group... -- -- 626 (928) (302) -- Net earnings/(losses) from other equity investments.... (78) -- -- (859) (937) -- Income (loss) from continuing operations.................. 5,235 1,943 -- (3,339) 3,839 1,430 Dividend Requirements on preferred stocks............ -- (24) -- 14 (10) (108) ---- ---- ---- ---- ---- ---- Net income (loss) attributable to common shareowners.......... $ 5,235 $1,919 $ -- $(3,325) $ 3,829 $ 1,322 ==== ==== ==== ==== ==== ==== AT&T COMMON STOCK GROUP: Net income................... $ 5,235 $ 4,131 Weighted average shares outstanding (basic)......... 2,676 3,146 Basic EPS.................... 1.96 1.31 Net income................... 5,235 4,131 Weighted average shares outstanding (diluted)....... 2,700 3,251 Diluted EPS.................. 1.94 1.27 LIBERTY MEDIA GROUP: Basic and diluted EPS........ $ (0.13) SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME For the Year Ended December 31, 1998 (in millions) MediaOne Pro Forma DoCoMo & Pro Forma Group AT&T w/ TCI AWE Exchange AT&T Pro Forma and Media Pro Forma AWE Other Excluding Adjustments(4) One Group Adjustments Distribution(8) Adjustments(10) AWE --------------- --------------- --------------- ------------- ------------- ------------ Revenue...................... $ -- $62,308 $ -- $ (5,406) $ 73 $56,975 OPERATING EXPENSES Costs of services and products.................... -- 14,100 -- (2,217) -- 11,883 Access and other connection -- 15,328 -- (211) 66 15,183 Selling, general and administrative.............. -- 15,336 -- (2,123) 7 13,220 Depreciation and amortization................ 414 8,544 -- (1,050) -- 7,494 Net restructuring and other charges..................... -- 2,514 -- -- -- 2,514 ---- ---- ---- ---- ---- ---- Total operating expenses..... 414 55,822 -- (5,601) 73 50,294 Operating income (loss)...... (414) 6,486 -- 195 -- 6,681 Other income (expense)....... 436 6,769 -- (470) -- 6,299 Interest expense............. 1,554 3,919 (144)(6) 86 227 (9) 4,088 Income from continuing operations before income taxes and earnings (losses) from equity investments.....(1,532) 9,336 144 (361) (227) 8,892 Provision (benefit) for income taxes................ (487) 3,806 55 (6) (125) (87)(9) 3,649 Minority interest income (expense).................... (74) (141) -- (21) -- (162) Equity earnings (losses) from Liberty Media Group.... -- (302) -- -- -- (302) Net earnings/(losses) from other equity investments.... (268) (1,205) -- (30) -- (1,235) Income (loss) from continuing operations.......(1,387) 3,882 89 (287) (140) 3,544 Dividend Requirements on preferred stocks............ 46 (72) -- -- -- (72) ---- ---- ---- ---- ---- ---- Net income (loss) attributable to common shareowners.........$(1,341) $3,810 $ 89 $ (287) $(140) $ 3,472 ==== ==== ==== ==== ==== ==== AT&T COMMON STOCK GROUP: Net income................... $4,112 $ 89 (6) $ 3,774 Weighted average shares outstanding (basic)......... 3,760 (372)(5) 3,388 Basic EPS.................... 1.09 1.11 Net income................... 4,112 $ 89 (6) 3,774 Weighted average shares outstanding (diluted)....... 3,874 (372)(5) 3,502 Diluted EPS.................. 1.06 1.08 LIBERTY MEDIA GROUP: Basic and diluted EPS........ $ (0.13) $ (0.13) SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
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AT&T UNAUDITED CONDENSED COMBINED PRO FORMA STATEMENT OF INCOME -- (continued) For the Year Ended December 31, 1998 (Dollars in millions) Pro Forma AT&T Liberty Excluding Media Pro Forma AWE Distribution(11) AT&T ---------- ---------- ---------- Revenue............................................... $56,975 $ -- $56,975 OPERATING EXPENSES Costs of services and products........................ 11,883 -- 11,883 Access and other connection........................... 15,183 -- 15,183 Selling, general and administrative................... 13,220 -- 13,220 Depreciation and amortization......................... 7,494 -- 7,494 Net restructuring and other charges................... 2,514 -- 2,514 ---- ---- ---- Total operating expenses.............................. 50,294 -- 50,294 Operating income (loss)............................... 6,681 -- 6,681 Other income (expense)................................ 6,299 -- 6,299 Interest expense...................................... 4,088 -- 4,088 Income from continuing operations before income taxes and earnings (losses) from equity investments.. 8,892 -- 8,892 Provision (benefit) for income taxes.................. 3,649 -- 3,649 Minority interest income (expense).................... (162) -- (162) Equity earnings (losses) from Liberty Media Group..... (302) 302 -- Net earnings/(losses) from other equity investments... (1,235) -- (1,235) Income (loss) from continuing operations.............. 3,544 302 3,846 Dividend Requirements on preferred stocks............. (72) -- (72) ---- ---- ---- Net income (loss) attributable to common shareowners.. $ 3,472 $ 302 $ 3,774 ==== ==== ==== AT&T COMMON STOCK GROUP: Net income............................................ $ 3,774 $ 3,774 Weighted average shares outstanding (basic)........... 3,388 3,388 Basic EPS............................................. 1.11 1.11 Net income............................................ 3,774 3,774 Weighted average shares outstanding (diluted)......... 3,502 3,502 Diluted EPS........................................... 1.08 1.08 LIBERTY MEDIA GROUP: Basic and diluted EPS................................. $ (0.13) SEE NOTES TO UNAUDITED AT&T CONDENSED COMBINED PRO FORMA FINANCIAL STATEMENTS
10 NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS 1. These columns reflect the historical results of operations and financial position of the respective companies. 2. This column reflects the deconsolidation of the historical results of operations for the interests represented by the shares of Liberty Media Group tracking stock for the period January 1, 1998 through February 28, 1999. AT&T accounts for the Liberty Media Group under the equity method because it does not possess a "controlling financial interest" for financial accounting purposes in the Liberty Media Group. 3. This column reflects the TCI merger purchase accounting adjustments. These adjustments include the amortization of the excess of the purchase price over the net assets acquired and incremental interest expense on additional borrowings for the period January 1, 1998 through February 28, 1999. 4. This column reflects the MediaOne merger purchase accounting adjustments. These adjustments include the amortization of the excess of the purchase price over the net assets acquired, incremental interest expense on additional borrowings for the period January 1, 1998 through June 15, 2000 and the elimination of a non-recurring charge related to the termination of MediaOne's merger with Comcast Corp. included in 1999. 5. These entries give effect to the approximate $7.9 billion exchange of 438 million shares of AT&T Wireless Group tracking stock for 372 million shares of AT&T common stock recorded during the second quarter of 2001 pursuant to the AT&T Wireless Group Exchange Offer of April 17, 2001. A premium of approximately $80 million was recorded based on the closing trading prices for shares of AT&T common stock and AT&T Wireless Group tracking stock on May 25, 2001, the expiration date of the exchange offer. The exchange offer, as calculated, reflects a reduction of approximately 18.9 percent of the AT&T Common Stock Group's portion of the value of AT&T Wireless Group. Due to the fact that the premium is a one-time event associated with the exchange, its effects have not been included as a pro forma adjustment to the income statement. The impact to diluted earnings per share attributable to the AT&T Common Stock Group for the year ended December 31, 2000 related to the premium is a reduction of approximately $0.02 per share, or $0.99 earnings per diluted share and for the three month period ended March 31, 2001 a reduction of approximately $0.02 per share or $0.19 loss per share. As a result of the exchange offer, the earnings per share calculation of the AT&T Common Stock Group reflects a decrease in the number of outstanding shares of AT&T common stock in all periods, and a decrease in net income attributable to the AT&T Common Stock Group as a result of the decrease in the portion of the value of the AT&T Wireless Group retained by the AT&T Common Stock Group for the period subsequent to April 27, 2000, the date of the IPO of AT&T Wireless Group tracking stock. The effect of the exchange offer on the balance sheet includes: 1) a decrease in the par and additional paid-in-capital of AT&T common stock and 2) an increase in the par and additional paid-in-capital of AT&T Wireless Group tracking stock and 3) a decrease in retained earnings as a result of the exchange offer premium. Since the number of shares of AT&T Wireless Group tracking stock and the net income attributable to the AT&T Wireless Group increased proportionally, there is no change to the calculated earnings per share for the AT&T Wireless Group. 6. This entry reflects the impact to interest and tax expense associated with the pay down in short-term debt from the use of $3.6 billion of proceeds attributable to the DoCoMo investment. The pay down in short-term debt would result in a reduction in interest expense, of $144 million ($89 million, net of taxes) for the years ended December 31, 2000, 1999 and 1998. The pro forma impact for the three months ended March 31, 2001 is not material and therefore has not been presented as a pro forma adjustment. The reduction in interest expense was calculated using an interest rate of 3.95%, which reflects the current 90-day commercial paper rate. 7. This entry reflects the fair value adjustment for accounting purposes that result in a gain which will be recorded upon the distribution of the AT&T Wireless Group. This distribution is non pro-rata due to the alteration of shareowner interests in the AT&T Wireless Group as a result of the exchange offer. For this reason, the distribution will be accounted for at fair value and will result in a nonrecurring gain upon distribution equal to the excess of the fair value of the securities issued over AT&T's carrying value of the net assets of the AT&T Wireless Group adjusted for the AT&T Wireless Group shares retained by AT&T at the time of the distribution. For purposes of the gain calculation, the carrying value of the net assets of AT&T Wireless Group have been adjusted to reflect repayment of the $3 billion of preferred stock. Due to the fact that the gain is a one-time event, its effects have not been included as a pro forma adjustment to the income statement; however, it has been included as a pro forma adjustment to retained earnings on the pro forma balance sheet. The actual gain will be calculated based on the carying value of the net assets of AT&T Wireless Group at the date of the distribution. The estimated gain as of March 31, 2001 is calculated as follows (numbers in millions): Fair value of AT&T Wireless Group Tracking Stock (assumed to represent approximately 2,117 million shares of AT&T Wireless Group Tracking Stock at $16.95 per share as of July 9, 2001)................................................... $ 35,876 Fair value of approximately 228 million new primary shares of AT&T Wireless Group Tracking Stock issued to DoCoMo upon conversion of the preferred stock at $16.95 per share as of July 9, 2001.............................................. $ 3,867 11 Fair value of AT&T Wireless Group to be distributed..................................................... $ 39,743 Carrying Value of net assets of AT&T Wireless Group to be distributed......................................... $ 25,937 Gain on distribution............................................. $ 13,806 8. The adjustments presented deduct the historical results of operations and the historical financial position of the AT&T Wireless Group to reflect the distribution of the AT&T Wireless Group from AT&T. The distribution is a fair value transaction and as such the fair value of the net assets has been recorded as a reduction to retained earnings for the dividend of AT&T's retained portion of the value of AT&T Wireless Group and par and additional paid-in-capital for the distribution to the AT&T Wireless Group tracking stock Shareholders. The reduction to retained earnings and the reduction to additional paid in capital is calculated as follows: (Amounts in millions) AT&T Wireless Group Tracking Stock shares........................ 2,117 Issuance of new primary shares of AT&T Wireless Group tracking stock to DoCoMo wireless tracking preferred stock (beyond AT&T's retained portion)............................................... 228 ---- Total pro forma AT&T Wireless Group Tracking Stock shares outstanding after conversion of the DoCoMo wireless tracking stock and distribution of AT&T's retained portion......................................... 2,345 AT&T Wireless Group Tracking Stock shares outstanding as of March 31, 2001 which reflect 15.7% of AT&T Wireless Group prior to distribution.............. 363 Pro forma AT&T Wireless Group Tracking Stock issued for the exchange offer.................................. 438 AT&T Wireless Group Tracking Stock shares issued to DoCoMo upon conversion of DoCoMo wireless tracking stock (including 228 million new primary issued and 178 million shares issued out of AT&T's retained portion).................. 406 ----- Total pro forma AT&T Wireless Group Tracking Stock shares outstanding after conversion of preferred stock held by DoCoMo, and exchange, prior to distribution of AT&T's retained portion........................ 1,207 Split-Off % of AT&T Wireless Group Tracking Stock shares (1,207/2,345)........................................... 51.5% Spin-Off % of AT&T Wireless Group (1 - 51.5%)................... 48.5% Fair value of AT&T Wireless Group associated with the split-off (39,743 x 51.5%)................................. 20,471 AT&T Wireless Group tracking stock par.......................... (1,207) DoCoMo warrants................................................. (305) Other........................................................... 34 ---- Reduction to Additional Paid in Capital......................... 18,993 Fair value of AT&T Wireless Group associated with the spin-off (39,743 x 48.5%) (Reduction to Retained Earnings)...................................................... 19,273 12 In addition to the historical adjustments, other adjustments relating to the DoCoMo transaction have been presented. These adjustments reflect that the preferred stock associated with the transaction is converted to 406 million shares of AT&T Wireless Group tracking stock, the accelerated write-off of the beneficial conversion feature and the warrants associated with the transaction are converted to warrants in AT&T Wireless Services. On February 15, 2001, AT&T announced that they would retain approximately $3 billion in value of AT&T Wireless Services shares subject to an IRS Ruling of the distribution. Based on the AT&T Wireless Group tracking stock price as of the record date of June 22, 2001, AT&T will retain 185,308,303 shares. The retained shares will be accounted for as a cost method investment under SFAS 115, and therefore any differences between historical cost and fair value on a periodic basis will be recorded, net of applicable taxes, as a component of Other Comprehensive Income. 9. These adjustments reflect the incremental borrowing by AT&T in connection with the repayment of the net $5.7 billion intercompany loan to AT&T Wireless Group. The repayment of intercompany indebtedness is contained in the preliminary Separation and Distribution Agreement between AT&T and AT&T Wireless Group. The increase in short-term debt would result in an increase in interest expense of $227 million ($140 million net of taxes) for the years ended December 31, 2000, 1999 and 1998 and $57 million ($35 million net of taxes) for the three month period ended March 31, 2001. The increase in interest expense was calculated using an interest rate of 3.95%, which reflects the current 90-day commercial paper rate. 10. Reflects certain Inter-Group transactions appropriately reflected in the separate financial statements of AT&T after excluding the AT&T Wireless Group on a pro forma basis that were eliminated in the AT&T consolidated financial statements and were therefore not reflected in AT&T's historical results and financial position. 11. The adjustments presented deduct the historical results of operations and the historical financial position of the Liberty Media Group to reflect the split-off of the Liberty Media Group from AT&T. The split-off is a pro-rata distribution and as such the historical value of the net assets has been recorded as an elimination of the AT&T Liberty Media Group equity. 12. This entry reflects the settlement of AT&T's net payable of $827 million to Liberty Media Group primarily for the value of certain TCI pre-acquisition net operating loss carryforwards, pursuant to the tax sharing agreements dated March 9, 1999. 13. This entry reclasses the pro forma cash overdraft to accounts payable. 13