EX-99.1 4 0004.txt EXHIBIT 99.1 - LIBERTY MEDIA GROUP FINANCIALS Exhibit 99.1 "LIBERTY MEDIA GROUP" (a combination of certain assets, as defined in note 1) Combined Balance Sheets (unaudited)
June 30, December 31, 2000 1999 ---------------- ----------------- amounts in millions Assets ------ Current assets: Cash and cash equivalents $ 1,271 1,714 Cash collateral under securities lending agreement (note 6) 423 -- Short-term investments 369 378 Trade and other receivables, net 243 134 Prepaid expenses and committed program rights 517 406 Deferred income tax assets 595 750 Other current assets 15 5 ---------------- ----------------- Total current assets 3,433 3,387 ---------------- ----------------- Investments in affiliates, accounted for under the equity method, and related receivables (note 3) 17,943 15,922 Investments in available-for-sale securities and others (notes 4, 5 and 6) 29,567 28,601 Property and equipment, at cost 783 162 Less accumulated depreciation 84 19 ---------------- ----------------- 699 143 ---------------- ----------------- Intangible assets: Excess cost over acquired net assets (note 5) 10,953 9,973 Franchise costs 269 273 ---------------- ----------------- 11,222 10,246 Less accumulated amortization 735 454 ---------------- ----------------- 10,487 9,792 ---------------- ----------------- Other assets, at cost, net of accumulated amortization 897 839 ---------------- ----------------- Total assets $ 63,026 58,684 ================ =================
(continued) Combined Balance Sheets (unaudited)
June 30, December 31, 2000 1999 ---------------- ---------------- amounts in millions Liabilities and Combined Equity ------------------------------- Current liabilities: Accounts payable $ 81 44 Accrued liabilities 355 201 Accrued stock compensation 1,978 2,405 Program rights payable 179 166 Current portion of debt 203 554 ---------------- ---------------- Total current liabilities 2,796 3,370 ---------------- ---------------- Long-term debt (note 6) 6,340 2,723 Deferred income tax liabilities 14,242 14,107 Other liabilities 32 23 ---------------- ---------------- Total liabilities 23,410 20,223 ---------------- ---------------- Minority interests in equity of attributed subsidiaries 266 1 Obligation to redeem AT&T Liberty Media Group tracking stock (note 7) 55 -- Combined equity (note 7): Combined equity 34,212 31,876 Accumulated other comprehensive earnings, net of taxes 4,996 6,557 ---------------- ---------------- 39,208 38,433 Due to related parties 87 27 ---------------- ---------------- Total combined equity 39,295 38,460 ---------------- ---------------- Commitments and contingencies (note 8) Total liabilities and combined equity $ 63,026 58,684 ================ ================ See accompanying notes to combined financial statements.
Combined Statements of Operations and Comprehensive Earnings (unaudited)
Three months Three months ended ended June 30, 2000 June 30, 1999 ---------------- ---------------- Revenue $ 382 221 Operating costs and expenses: Operating, selling, general and administrative 295 184 Stock compensation (216) 496 Depreciation and amortization 236 177 ---------------- ---------------- 315 857 ---------------- ---------------- Operating income (loss) 67 (636) Other income (expense): Interest expense (100) (33) Adjustment to interest expense for contingent portion of exchangeable debentures (note 6) 200 -- Dividend and interest income 85 82 Share of losses of affiliates, net (note 3) (412) (279) Minority interests in losses of attributed subsidiaries 36 12 Gain (loss) on dispositions, net (note 3) 611 (2) Other, net 2 (4) ---------------- ---------------- 422 (224) ---------------- ---------------- Earnings (loss) before income taxes 489 (860) Income tax benefit (expense) (222) 317 ---------------- ---------------- Net earnings (loss) $ 267 (543) ---------------- ---------------- Other comprehensive earnings (loss), net of taxes: Foreign currency translation adjustments (87) (55) Unrealized holding gains (losses) arising during the period, net of reclassification adjustments (3,224) 1,118 ---------------- ---------------- Other comprehensive earnings (loss) (3,311) 1,063 ---------------- ---------------- Comprehensive earnings (loss) $ (3,044) 520 ================ ================ See accompanying notes to combined financial statements.
Combined Statements of Operations and Comprehensive Earnings (unaudited)
New Liberty Old Liberty ----------------------------------------------- --------------------- (note 1) (note 1) Six months Four months Two months ended ended ended June 30, 2000 June 30, 1999 February 28, 1999 ---------------------- ---------------------- --------------------- amounts in millions Revenue $ 617 292 282 Operating costs and expenses: Operating, selling, general and administrative 469 240 227 Stock compensation (239) 455 183 Depreciation and amortization 403 230 47 ---------------- ---------------- --------------- 633 925 457 ---------------- ---------------- --------------- Operating income (loss) (16) (633) (175) Other income (expense): Interest expense (175) (46) (28) Adjustment to interest expense for contingent portion of exchangeable debentures (note 6) (164) -- -- Dividend and interest income 165 106 12 Share of losses of affiliates, net (note 3) (794) (359) (66) Minority interests in losses of attributed subsidiaries 28 12 4 Gain (loss) on dispositions, net (notes 3, 4 and 5) 3,055 (2) 14 Gains on issuance of equity by affiliates and subsidiaries (note 3) -- -- 389 Other, net 7 (4) -- ---------------- ---------------- --------------- 2,122 (293) 325 ---------------- ---------------- --------------- Earnings (loss) before income taxes 2,106 (926) 150 Income tax (expense) benefit (897) 325 (209) ---------------- ---------------- --------------- Net earnings (loss) $ 1,209 (601) (59) ---------------- ---------------- --------------- Other comprehensive earnings (loss), net of taxes: Foreign currency translation adjustments (118) (43) (15) Unrealized holding gains (losses) arising during the period, net of reclassification adjustments (1,443) 2,012 971 ---------------- ---------------- --------------- Other comprehensive earnings (loss) (1,561) 1,969 956 ---------------- ---------------- --------------- Comprehensive earnings (loss) $ (352) 1,368 897 ================ ================ =============== See accompanying notes to combined financial statements.
"LIBERTY MEDIA GROUP" (a combination of certain assets, as defined in note 1) Combined Statement of Equity Six months ended June 30, 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 1,209 -- -- 1,209 Issuance of AT&T Liberty Media Group tracking stock for acquisitions (note 5) 1,024 -- -- 1,024 Issuances of common stock by attributed subsidiaries and affiliates, net of taxes 167 -- -- 167 Purchase of AT&T Liberty Media Group tracking stock (9) -- -- (9) Premium received in connection with put obligation, net 4 -- -- 4 Reclassification of redemption amount of AT&T Liberty Media Group tracking stock subject to put obligation (55) -- -- (55) Utilization of net operating losses of Liberty Media Group by AT&T (4) -- -- (4) Foreign currency translation adjustments -- (118) -- (118) Recognition of previously unrealized gains on available-for-sale securities, net -- (1,479) -- (1,479) Unrealized gains on available-for-sale securities -- 36 -- 36 Other transfers from related parties, net -- -- 60 60 ------------- --------------- ------------- ---------- Balance at June 30, 2000 $ 34,212 4,996 87 39,295 ============= =============== =========== ========== 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) Six months Four months Two months ended ended ended June 30, 2000 June 30, 1999 February 28, 1999 ---------------------- ---------------------- ------------------------ amounts in millions (see note 2) Cash flows from operating activities: Net earnings (loss) $ 1,209 (601) (59) Adjustments to reconcile net earnings (loss) to net cash provided (used) by operating activities: Depreciation and amortization 403 230 47 Stock compensation (239) 455 183 Payments of stock compensation (283) (27) (126) Share of losses of affiliates, net 794 359 66 Deferred income tax expense (benefit) 930 (314) 205 Intergroup tax allocation (34) (14) -- Cash payment from AT&T pursuant to tax sharing agreement 123 45 -- Minority interests in losses of attributed subsidiaries (28) (12) (4) Loss (gain) on disposition of assets, net (3,055) 2 (14) Gains on issuance of equity by affiliates and subsidiaries -- -- (389) Noncash interest 169 -- -- Other noncash charges -- -- 9 Changes in operating assets and liabilities, net of the effect of acquisitions and dispositions: Change in receivables 24 (12) (19) Change in prepaid expenses and committed program rights (102) (7) (10) Change in payables and accruals 88 67 4 ----------------- ----------------- ------------------- Net cash provided (used) by operating activities (1) 171 (107) ----------------- ----------------- ------------------- Cash flows from investing activities: Cash paid for acquisitions (546) (1) -- Capital expended for property and equipment (82) (16) (21) Investments in and loans to affiliates and others (2,336) (434) (45) Purchases of marketable securities (735) (6,172) (132) Sales and maturities of marketable securities 1,326 2,759 34 Cash proceeds from dispositions 87 2 43 Cash balances of deconsolidated subsidiaries -- -- (53) Other, net 8 (12) (9) ----------------- ----------------- ------------------- Net cash used by investing activities (2,278) (3,874) (183) ----------------- ----------------- -------------------
(continued) Combined Statements of Cash Flows, continued (unaudited)
New Liberty Old Liberty ----------------------------------------------- --------------------- (note 1) (note 1) Six months Four months Two months ended ended ended June 30, 2000 June 30, 1999 February 28, 1999 ---------------------- ---------------------- --------------------- amounts in millions (see note 2) Cash flows from financing activities: Borrowings of debt 3,022 495 156 Repayments of debt (1,123) (463) (148) Premium received on put contracts, net 4 -- -- Purchase of AT&T Liberty Media Group tracking stock (9) -- -- Cash transfers (to) from related parties (59) (160) 132 Repurchase of stock of subsidiaries -- -- (45) Other, net 1 16 (1) ---------------- ----------------- ---------------- Net cash provided (used) by financing activities 1,836 (112) 94 ---------------- ----------------- ---------------- Net decrease in cash and cash equivalents (443) (3,815) (196) Cash and cash equivalents at beginning of period 1,714 5,319 407 ---------------- ----------------- ---------------- Cash and cash equivalents at end of period $ 1,271 1,504 211 ================ ================= ================ 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 June 30, 2000 (unaudited) (1) Basis of Presentation The accompanying combined financial statements include the accounts of the subsidiaries and assets of AT&T Corp. ("AT&T") that are attributed to Liberty Media Group, as defined below. On March 9, 1999, AT&T acquired Tele-Communications, Inc. ("TCI"), the former owner of the assets attributed to Liberty Media Group, in a merger transaction (the "AT&T Merger"). The AT&T Merger has been accounted for using the purchase method. Accordingly, Liberty Media Group's assets and liabilities have been recorded at their respective fair market values therefor, creating a new cost basis. For financial reporting purposes the AT&T Merger and related restructuring transactions are deemed to have occurred on March 1, 1999. Accordingly, for periods prior to March 1, 1999 the assets and liabilities attributed to Liberty Media Group and the related combined financial statements are sometimes referred to herein as "Old Liberty", and for periods subsequent to February 28, 1999 the assets and liabilities attributed to Liberty Media Group and the related combined financial statements are sometimes referred to herein as "New Liberty". The "Company" and "Liberty Media Group" refer to both New Liberty and Old Liberty. At June 30, 2000, Liberty Media Group consisted principally of the following: o AT&T's assets and businesses which provide programming services including production, acquisition and distribution through all available formats and media of branded entertainment, educational and informational programming and software, including multimedia products; o AT&T's assets and businesses engaged in electronic retailing, direct marketing, advertising sales relating to programming services, infomercials and transaction processing; o certain of AT&T's interests in technology and Internet businesses; o certain of AT&T's assets and businesses engaged in international cable, telephony and programming businesses; and, o AT&T's holdings in a class of tracking stock of Sprint Corporation (the "Sprint PCS Group Stock"). All significant intercompany accounts and transactions have been eliminated. The combined financial statements of Liberty Media Group are presented for purposes of additional analysis of the consolidated financial statements of AT&T and should be read in conjunction with such consolidated financial statements. The accompanying interim combined financial statements are unaudited but, in the opinion of management, reflect all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the results for such periods. The results of operations for any interim period are not necessarily indicative of results for the full year. These combined financial statements should be read in conjunction with the combined financial statements and notes thereto included as an exhibit to AT&T's Report on Form 10-K for the year ended December 31, 1999. (continued) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Effective June 9, 2000, AT&T issued stock dividends to holders of AT&T Liberty Media Group tracking stock (the "Liberty Dividend"). The Liberty Dividend consisted of one share of AT&T Liberty Media Group tracking stock for every one share of AT&T Liberty Media Group tracking stock owned. The Liberty Dividend has been treated as a stock split, and accordingly, all share amounts have been restated to reflect the Liberty Dividend. Certain prior period amounts have been reclassified for comparability with the 2000 presentation. (2) Supplemental Disclosures to Combined Statements of Cash Flows Cash paid for interest was $121 million for the six months ended June 30, 2000, $58 million for the four month period ended June 30, 1999 and $32 million for the two month period ended February 28, 1999. Cash paid for income taxes for the six months ended June 30, 2000, the four months ended June 30, 1999 and the two months ended February 28, 1999 was not material.
New Liberty Old Liberty --------------------------- ------------- (note 1) (note 1) Six months Four months Two months ended ended ended June 30, June 30, February 28, 2000 1999 1999 ---------- ----------- ------------ amounts in millions Cash paid for acquisitions (note 5): Fair value of assets acquired $ 3,415 3 -- Net liabilities assumed (1,119) (2) -- Deferred tax liability recorded (347) -- -- Minority interests in equity of acquired attributed subsidiaries (379) -- -- AT&T Liberty Media Group tracking stock issued (1,024) -- -- ---------- ----------- ------------ Cash paid for acquisitions $ 546 1 -- ========== =========== ============
(continued) The following table reflects the change in cash and cash equivalents resulting from the AT&T Merger and related restructuring transactions (amounts in millions): Cash and cash equivalents prior to the AT&T Merger $ 211 Cash received in restructuring transactions, net of cash balances transferred 5,284 Cash paid to TCI Group for certain warrants (note 4) (176) ------------- Cash and cash equivalents subsequent to the AT&T Merger $ 5,319 Liberty Media Group ceased to include TV Guide, Inc. ("TV Guide") in its combined financial results and began to account for TV Guide using the equity method of accounting, effective March 1, 1999 (see note 3). The effect of changing the method of accounting for Liberty Media Group's ownership interest in TV Guide from the consolidation method to the equity method is summarized below (amounts in millions): Assets (other than cash and cash equivalents) reclassified to investments in affiliates $ (200) Liabilities reclassified to investments in affiliates 190 Minority interests in equity of attributed subsidiaries reclassified to investments in affiliates 63 ------------- Decrease in cash and cash equivalents $ 53 ============= (3) Investments in Affiliates Accounted for under the Equity Method --------------------------------------------------------------- Liberty Media Group has various investments accounted for under the equity method. The following table includes Liberty Media Group's carrying amount of the more significant investments in affiliates:
June 30, 2000 December 31, 1999 ---------------------- ----------------------- amounts in millions USA Networks, Inc. ( "USAI ") and related investments $ 2,848 2,699 Telewest Communications plc ( "Telewest ") 3,048 1,996 Discovery Communications, Inc. ("Discovery") 3,313 3,441 TV Guide 1,708 1,732 QVC Inc. ( "QVC ") 2,510 2,515 Teligent, Inc. ( "Teligent") 1,202 -- Flextech p.l.c. ("Flextech") -- 727 UnitedGlobalCom, Inc. ("UnitedGlobalCom") 445 505 Various foreign equity investments (other than Telewest and Flextech) 1,536 1,463 Other 1,333 844 ------------------- -------------------- $ 17,943 15,922 =================== ====================
(continued) The following table reflects Liberty Media Group's share of earnings (losses) of affiliates:
New Liberty Old Liberty ------------------------------------------ ----------------- (note 1) (note 1) Six months Four months Two months ended ended ended June 30, June 30, February 28, 2000 1999 1999 -------------------- ------------------- ----------------- amounts in millions USAI and related investments $ (16) (9) 10 Telewest (168) (97) (38) Discovery (128) (76) (8) TV Guide (25) (11) -- QVC (5) (9) 13 Teligent (152) -- -- Flextech (18) (13) (5) UnitedGlobalCom (88) -- -- Other foreign investments (130) (56) (22) Other (64) (88) (16) -------------------- ------------------- ----------------- $ (794) (359) (66) ==================== =================== =================
Summarized unaudited combined financial information for affiliates is as follows:
New Liberty Old Liberty ------------------------------------------ ----------------- (note 1) (note 1) Six months Four months Two months ended ended ended June 30, June 30, February 28, 2000 1999 1999 --------------------- ------------------- ----------------- amounts in millions Revenue $ 7,896 4,060 2,341 Operating expenses (7,296) (3,451) (1,894) Depreciation and amortization (1,545) (520) (353) --------------------- ------------------- ----------------- Operating income (loss) (945) 89 94 Interest expense (1,167) (323) (281) Other, net 125 (244) (127) --------------------- ------------------- ----------------- Net loss $ (1,987) (478) (314) ===================== =================== =================
(continued) USAI owns and operates businesses in network and television production, television broadcasting, electronic retailing, ticketing operations, and internet services. At June 30, 2000, Liberty Media Group directly and indirectly held 74.4 million shares of USAI's common stock. Liberty Media Group also held shares directly in certain subsidiaries of USAI which are exchangeable into 79.0 million shares of USAI common stock. Liberty Media Group's direct ownership of USAI is currently restricted by Federal Communications Commission ("FCC") regulations. The exchange of these shares can be accomplished only if there is a change to existing regulations or if Liberty Media Group obtains permission from the FCC. If the exchange of subsidiary stock into USAI common stock was completed at June 30, 2000, Liberty Media Group would own 153.4 million shares or approximately 21% (on a fully-diluted basis) of USAI common stock. USAI's common stock reported a closing price of $21-5/8 per share on June 30, 2000. Telewest currently operates and constructs cable television and telephone systems in the UK. Flextech develops and sells a variety of television programming in the UK. In April 2000, Telewest acquired Flextech. As a result, each share of Flextech was exchanged for 3.78 new Telewest shares. Prior to the acquisition, Liberty Media Group owned an approximate 37% equity interest in Flextech and a 22% equity interest in Telewest. As a result of the acquisition, Liberty Media Group owns an approximate 24.6% equity interest in Telewest. Liberty Media Group recognized a $649 million gain (excluding related tax expense of $227 million) on the acquisition during the second quarter of 2000 based on the difference between the carrying value of Liberty Media Group's interest in Flextech and the fair value of the Telewest shares received. At June 30, 2000, Liberty Media Group indirectly owned 724 million of the issued and outstanding Telewest ordinary shares. Telewest's ordinary shares reported a closing price of $3.46 per share on June 30, 2000. Teligent is a full-service, facilities based communications company in which Liberty Media Group acquired an approximate 40% equity interest in its January 14, 2000 acquisition of The Associated Group, Inc. (the "Associated Group") (see note 5). At June 30, 2000, Liberty Media Group held 21 million shares of Teligent Class A common stock. Teligent's Class A common stock reported a closing price of $23-5/8 per share on June 30, 2000. (continued) On March 1, 1999, United Video Satellite Group, Inc. ("UVSG") and The News Corporation Limited ("News Corp.") completed a transaction whereby UVSG acquired News Corp.'s TV Guide properties, creating a broader platform for offering television guide services to consumers and advertisers, and UVSG was renamed TV Guide. News Corp. received total consideration of $1.9 billion including $800 million in cash, 45 million shares of TV Guide's Class A common stock and 75 million shares of TV Guide's Class B common stock valued at an average of $9.325 per share. In addition, News Corp. purchased approximately 13 million additional shares of TV Guide's Class A common stock for $129 million in order to equalize its ownership with that of Liberty Media Group. As a result of these transactions, and another transaction completed on the same date, News Corp, Liberty Media Group and TV Guide's public stockholders own on an economic basis approximately 44%, 44% and 12%, respectively, of TV Guide. Following such transactions, News Corp. and Liberty Media Group each have approximately 49% of the voting power of TV Guide's outstanding stock. In connection with the increase in TV Guide's equity, net of dilution of Liberty Media Group's ownership interest in TV Guide, Liberty Media Group recognized a gain of $372 million (before deducting deferred income taxes of $147 million). The Class A common stock of TV Guide is publicly traded. At June 30, 2000, Liberty Media Group held 58 million shares of TV Guide Class A common stock and 75 million shares of TV Guide Class B common stock. The TV Guide Class B common stock is convertible, one-for-one, into TV Guide Class A common stock. TV Guide's Class A common stock reported a closing price of $34.25 per share on June 30, 2000. UnitedGlobalCom is the largest global broadband communications provider of video, voice and data services with operations in over 20 countries throughout the world. At June 30, 2000, Liberty Media Group owned an approximate 11% economic ownership interest representing an approximate 37% voting interest in UnitedGlobalCom. UnitedGlobalCom's Class A common stock reported a closing price of $46.75 per share on June 30, 2000. Liberty Media Group owns 9.9 million shares of UnitedGlobalCom Class B common stock, which stock is convertible, on a one-for-one basis, into UnitedGlobalCom Class A common stock. The $13 billion aggregate excess of Liberty Media Group's aggregate carrying amount in its affiliates over Liberty Media Group's proportionate share of its affiliates' net assets is being amortized over an estimated useful life of 20 years. (continued) (4) Investments in Available-for-sale Securities and Others ------------------------------------------------------- Investments in available-for-sale securities and others are summarized as follows:
June 30, December 31, 2000 1999 -------------- ---------------- amounts in millions Sprint Corporation ("Sprint") $ 11,575 10,186 Time Warner, Inc. ("Time Warner") 8,564 8,202 News Corp. 2,804 2,403 Motorola, Inc. ("Motorola") 2,059 3,430 Other available-for-sale securities 3,806 3,773 Other investments, at cost, and related receivables 1,128 985 -------------- ---------------- 29,936 28,979 Less short-term investments 369 378 -------------- ---------------- $ 29,567 28,601 ============== ================
On January 5, 2000, Motorola completed the acquisition of General Instrument Corporation ("General Instrument") through a merger of General Instrument with a wholly owned subsidiary of Motorola. In the merger, each outstanding share of General Instrument common stock was converted into the right to receive 1.725 shares (as adjusted for a subsequent stock split) of Motorola common stock. In connection with the merger Liberty Media Group received 54 million shares (as adjusted for a subsequent stock split) and warrants to purchase 37 million shares (as adjusted for a subsequent stock split) of Motorola common stock in exchange for its holdings in General Instrument. Liberty Media Group recognized a $2.2 billion gain (excluding related tax expense of $883 million) on such transaction during the first quarter of 2000 based on the difference between the carrying value of Liberty Media Group's interest in General Instrument and the fair value of the Motorola securities received. Liberty Media Group's right to exercise warrants to purchase 18.4 million shares (as adjusted for a subsequent stock split) of Motorola common stock is subject to AT&T satisfying the terms of a purchase commitment in 2000. AT&T has agreed to pay Liberty Media Group $4.78 (as adjusted for a subsequent stock split) for each warrant that does not vest as a result of the purchase commitment not being met. Investments in available-for-sale securities are summarized as follows:
June 30, December 31, 2000 1999 --------------- ------------------ amounts in millions Equity securities: Fair value $ 25,834 24,472 Gross unrealized holding gains 10,730 11,457 Gross unrealized holding losses (2,388) (646) Debt securities: Fair value 1,410 1,995 Gross unrealized holding gains 35 -- Gross unrealized holding losses (51) (22)
(continued) Management of Liberty Media Group estimates the market value, calculated using a variety of approaches including multiple of cash flow, per subscriber value, a value of comparable public or private businesses or publicly quoted market prices, of all of Liberty Media Group's investments in available-for-sale securities and others aggregated $30.9 billion and $29.2 billion at June 30, 2000 and December 31, 1999, respectively. No independent appraisals were conducted for those assets. (5) Acquisitions On January 14, 2000, Liberty Media Group completed its acquisition of Associated Group pursuant to a merger agreement among AT&T, Liberty Media Group and Associated Group. Under the merger agreement, each share of Associated Group's Class A common stock and Class B common stock was converted into 0.49634 shares of AT&T common stock and 2.41422 shares of AT&T Class A Liberty Media Group tracking stock. Prior to the merger, Associated Group's primary assets were (1) approximately 19.7 million shares of AT&T common stock, (2) approximately 46.8 million shares of AT&T Class A Liberty Media Group tracking stock, (3) approximately 10.6 million shares of AT&T Class B Liberty Media Group tracking stock, (4) approximately 21.4 million shares of common stock, representing approximately a 40% interest, of Teligent, and (5) all of the outstanding shares of common stock of TruePosition, Inc., which provides location services for wireless carriers and users designed to determine the location of any wireless transmitter, including cellular and PCS telephones. Immediately following the completion of the merger, all of the assets and businesses of Associated Group were transferred to Liberty Media Group. All of the shares of AT&T common stock, AT&T Class A Liberty Media Group tracking stock and AT&T Class B Liberty Media Group tracking stock previously held by Associated Group were retired by AT&T. The acquisition of Associated Group was accounted for as a purchase and the $17 million excess of the fair value of the net assets acquired over the purchase price is being amortized over ten years. As a result of the issuance of AT&T Liberty Media Group tracking stock, net of the shares of AT&T Liberty Media Group tracking stock acquired in this transaction, Liberty Media Group recorded a $778 million increase to combined equity. On March 16, 2000, Liberty Media Group purchased shares of preferred stock in TCI Satellite Entertainment, Inc. ("TSAT") in exchange for Liberty Media Group's economic interest in approximately 5 million shares of Sprint PCS Group Stock, valued at $300 million. Liberty Media Group received 150,000 shares of TSAT Series A 12% Cumulative Preferred Stock and 150,000 shares of TSAT Series B 8% Cumulative Convertible Voting Preferred Stock. The Series A preferred stock does not have voting rights, while the Series B preferred stock gives Liberty Media Group approximately 85% of the voting power of TSAT. In connection with this transaction, Liberty Media Group realized a $211 million gain (before related tax expense of $84 million) during the first quarter of 2000 based on the difference between the cost basis and fair value of the economic interest in the Sprint PCS Group Stock exchanged. (continued) On March 28, 2000, Liberty Media Group announced that it had completed its cash tender offer for the outstanding common stock of Ascent Entertainment Group, Inc. ("Ascent") at a price of $15.25 per share. Approximately 85% of the outstanding shares of common stock of Ascent were tendered in the offer and Liberty Media Group paid approximately $385 million. On June 8, 2000, Liberty Media Group completed its acquisition of 100% of Ascent for an additional $67 million. Such transaction was accounted for as a purchase and the $283 million excess of the purchase price over the fair value of the net assets acquired is being amortized over 20 years. On April 10, 2000, Liberty Media Group acquired all of the outstanding common stock of Four Media Company ("Four Media") in exchange for approximately $123 million, 6.4 million shares of AT&T Class A Liberty Media Group tracking stock and a warrant to purchase approximately 700,000 shares of AT&T Class A Liberty Media Group tracking stock at an exercise price of $23 per share. The acquisition was accounted for as a purchase. In connection with this acquisition, Liberty Media Group recorded a $145 million increase to combined equity and the $307 million excess of the purchase price over the fair value of the net assets acquired is being amortized over 20 years. Four Media provides technical and creative services to owners, producers and distributors of television programming, feature films and other entertainment products both domestically and internationally. On June 9, 2000, Liberty Media Group acquired a controlling interest in The Todd-AO Corporation ("Todd-AO"), consisting of approximately 6.5 million shares of Class B Common Stock of Todd-AO, representing 60% of the equity and approximately 94% of the voting power of Todd-AO outstanding immediately prior to the closing, in exchange for approximately 5.4 million shares of AT&T Class A Liberty Media Group tracking stock. The acquisition was accounted for as a purchase. In connection with this acquisition, Liberty Media Group recorded a $101 million increase to combined equity and the $94 million excess of the purchase price over the fair value of the net assets acquired is being amortized over 20 years. Todd-AO provides sound, video and ancillary post production and distribution services to the motion picture and television industries in the United States and Europe. Immediately following the closing of such transaction, Liberty Media Group contributed to Todd-AO 100% of the capital stock of Four Media, in exchange for approximately 16.6 million shares of the Class B Common Stock of Todd-AO increasing Liberty Media Group's ownership interest in Todd-AO to approximately 84% of the equity and approximately 98% of the voting power of Todd-AO outstanding immediately following the closing. Following Liberty Media Group's acquisition of Todd-AO, and the contribution by Liberty Media Group to Todd-AO of Liberty Media Group's ownership in Four Media, Todd-AO changed its name to Liberty Livewire Corporation. (continued) (6) Long-Term Debt Debt is summarized as follows:
June 30, December 31, 2000 1999 ---------------- ----------------- amounts in millions Parent company debt: Senior notes $ 741 741 Senior debentures (a) 1,486 494 Senior exchangeable debentures (b) 1,996 1,022 Securities lending agreement (c) 1,026 -- Bank credit facilities -- 390 ---------------- ----------------- 5,249 2,647 Debt of subsidiaries: Bank credit facilities 924 573 Senior notes 170 -- Other debt, at varying rates 200 57 ---------------- ----------------- 1,294 630 ---------------- ----------------- Total debt 6,543 3,277 Less current maturities 203 554 ---------------- ----------------- Total long-term debt $ 6,340 2,723 ================ ================= (a) On February 2, 2000, Liberty Media Group received net cash proceeds of approximately $983 million from the issuance of 8-1/4% Senior Debentures due 2030. The senior debentures have an aggregate principal amount of $1 billion. Interest on the senior debentures is payable on February 1 and August 1 of each year. (b) On February 10, 2000, Liberty Media Group received net cash proceeds of $735 million from the issuance of $750 million principal amount of 3-3/4% Senior Exchangeable Debentures due 2030. On March 8, 2000, Liberty Media Group received net cash proceeds of $59 million from the issuance of an additional $60 million principal amount of 3-3/4% Senior Exchangeable Debentures due 2030. Each debenture has a $1,000 face amount and is exchangeable at the holder's option for the value of 16.7764 shares of Sprint PCS Group Stock. This amount will be paid only in cash until the later of February 15, 2002 and the date the direct and indirect ownership level of Sprint PCS Group Stock owned by Liberty Media Group falls below a designated level, after which, at Liberty Media Group's election, Liberty Media Group may pay the amount in cash, Sprint PCS Group Stock or a combination thereof. Interest on these exchangeable debentures is payable on February 15 and August 15 of each year. The carrying amount of the exchangeable debentures in excess of the principal amount (the "Contingent Portion) is based on the fair value of the underlying Sprint PCS Group Stock. The increase or decrease in the Contingent Portion is recorded as an adjustment to interest expense in the combined statement of operations and comprehensive earnings. (continued) (c) On January 7, 2000, a trust, which holds Liberty Media Group's investment in Sprint, entered into agreements to loan 18 million shares of Sprint PCS Group Stock to a third party, as Agent. The obligation to return those shares is secured by cash collateral equal to 100% of the market value of that stock. During the period of the loan, which is terminable by either party at any time, the cash collateral is to be marked-to-market daily. The trust, for the benefit of Liberty Media Group, has the use of 80% of the cash collateral plus any interest earned thereon during the term of the loan, and is required to pay a rebate fee equal to the Federal funds rate less 30 basis points to the borrower of the loaned shares. The cash collateral of $423 million at June 30, 2000 included $205 million of restricted cash. At June 30, 2000, Liberty Media Group had utilized $603 million of the cash collateral under the securities lending agreement.
At June 30, 2000, Liberty Media Group had approximately $236 million in unused lines of credit under its bank credit facilities. The bank credit facilities of Liberty Media Group generally contain restrictive covenants which require, among other things, the maintenance of certain financial ratios, and include limitations on indebtedness, liens, encumbrances, acquisitions, dispositions, guarantees and dividends. Liberty Media Group was in compliance with its debt covenants at June 30, 2000. Additionally, Liberty Media Group pays fees ranging from .15% to .375% per annum on the average unborrowed portions of the total amounts available for borrowings under bank credit facilities. Based on quoted market prices, the fair value of Liberty Media Group's debt at June 30, 2000 is as follows (amounts in millions): Senior notes of parent company $ 720 Senior debentures of parent company 1,392 Senior exchangeable debentures of parent company 2,134 Senior notes of attributed subsidiary 183 Liberty Media Group believes that the carrying amount of the remainder of its debt approximated its fair value at June 30, 2000. (7) Combined Equity AT&T Liberty Media Group Tracking Stock In conjunction with a stock repurchase program or similar transaction, the issuer may elect to sell put options on it own common stock. Proceeds from any sales of puts with respect to AT&T Liberty Media Group tracking stock is reflected as an increase to combined equity, and an amount equal to the maximum redemption amount under unexpired put options with respect to such tracking stock is reflected as an "Obligation to redeem AT&T Liberty Media Group tracking stock" in the accompanying combined balance sheets. During the six months ended June 30, 2000, pursuant to a stock repurchase program, 400,000 shares of AT&T Liberty Media Group tracking stock were purchased at an aggregate cost of $9 million. Such amount is reflected as a decrease to combined equity in the accompanying combined financial statements. (continued) Stock Issuances of Subsidiary During the six months ended June 30, 2000, Liberty Digital, Inc. ("Liberty Digital") issued approximately 4.2 million shares of common stock in connection with certain acquisitions and the exercise of certain employee stock options. In connection with the increase in Liberty Digital's equity, net of the dilution of Liberty Media Group's interest in Liberty Digital, that resulted from such stock issuances, Liberty Media Group recorded a $169 million increase to combined equity. Transactions with Officers and Directors Prior to the AT&T Merger, a limited liability company owned by Dr. John C. Malone (Chairman of the Board of Liberty Media Corporation) acquired, from certain attributed subsidiaries of Liberty Media Group, for $17 million, working cattle ranches located in Wyoming. No gain or loss was recognized on such acquisition. The purchase price was paid by such limited liability company in the form of a 12-month note in the amount of $17 million having an interest rate of 7%. Such note was paid in March 2000. In connection with the AT&T Merger, Liberty Media Group paid two of its directors and one other individual, all three of whom were directors of TCI, an aggregate of $12 million for services rendered in connection with the AT&T Merger. Such amount is included in operating, selling, general and administrative expenses for the two months ended February 28, 1999 in the accompanying combined statements of operations and comprehensive earnings. Transactions with AT&T Certain AT&T corporate general and administrative costs are charged to Liberty Media Group based on the cost of services provided. Management believes this allocation method is reasonable. During the six months ended June 30, 2000, the four months ended June 30, 1999 and the two months ended February 28, 1999 Liberty Media Group was charged less than $1 million, less than $1 million and $2 million, respectively, in corporate general and administrative costs by AT&T. These costs are included in operating, selling, general and administrative expenses in the accompanying combined statements of operations and comprehensive earnings. Certain subsidiaries attributed to Liberty Media Group produce and/or distribute programming and other services to cable distribution operators (including AT&T) and others. Charges to AT&T are based upon customary rates charged to others. Amounts included in revenue for services provided to AT&T were $111 million, $71 million and $43 million for the six months ended June 30, 2000, the four months ending June 30, 1999 and the two month period ending February 28, 1999, respectively. Subsidiaries of Liberty Media Group lease satellite transponder facilities from a subsidiary of AT&T. Charges for such arrangements and other related operating expenses for the six months ended June 30, 2000 and the four months ended June 30, 1999 aggregated $9 million and $10 million, respectively, and are included in operating expenses in the accompanying combined statements of operations and comprehensive earnings. (continued) Liberty Media Group makes marketing support payments to AT&T. Charges by AT&T for such arrangements were $1 million for the six months ended June 30, 2000 and less than $1 million for each of the four months ended June 30, 1999 and the two months ended February 28, 1999. A certain subsidiary attributed to Liberty Media Group purchases programming services from AT&T. The charges, which approximate AT&T's cost and are based on the aggregate number of subscribers served by the subsidiary, aggregated $4 million, $2 million and $1 million during the six months ended June 30, 2000, the four months ended June 30, 1999 and the two months ended February 28, 1999, respectively, and are included in operating expenses in the accompanying combined statements of operations and comprehensive earnings. During the quarter ended June 30, 2000, a subsidiary of Liberty Media Group entered into an agreement for AT&T to provide dedicated hosting services to the subsidiary. As of June 30, 2000, no amounts have been paid to AT&T for such services. Due to Related Parties The amounts included in "Due to related parties" represent a non-interest bearing intercompany account which includes income tax allocations that are to be settled at some future date. All other amounts included in the intercompany account are to be settled within thirty days following notification. (8) Commitments and Contingencies Starz Encore Group LLC ("Starz Encore Group") provides premium programming distributed by cable, direct satellite, TVRO and other distributors throughout the United States. Starz Encore Group is obligated to pay fees for the rights to exhibit certain films that are released by various producers through 2017 (the "Film Licensing Obligations"). Based on customer levels at June 30, 2000, these agreements require minimum payments aggregating approximately $1.2 billion. The aggregate amount of the Film Licensing Obligations under these license agreements is not currently estimable because such amount is dependent upon the number of qualifying films released theatrically by certain motion picture studios as well as the domestic theatrical exhibition receipts upon the release of such qualifying films. Nevertheless, required aggregate payments under the Film Licensing Obligations could prove to be significant. Liberty Media Group has guaranteed various loans, notes payable, letters of credit and other obligations (the "Guaranteed Obligations") of certain affiliates. At June 30, 2000, the Guaranteed Obligations aggregated approximately $774 million. Currently, Liberty Media Group is not certain of the likelihood of being required to perform under such guarantees. (continued) Pursuant to a final judgment (the "Final Judgment") agreed to by Liberty Media Corporation, AT&T and the United States Department of Justice (the "DOJ") on December 31, 1998, Liberty Media Group transferred all of its beneficially owned securities (the "Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the AT&T Merger. The Final Judgment, which was entered by the United States District Court for the District of Columbia on August 23, 1999, requires the Trustee, on or before May 23, 2002, to dispose of a portion of the Sprint Securities sufficient to cause Liberty Media Group to beneficially own no more than 10% of the outstanding Series 1 PCS Stock of Sprint on a fully diluted basis on such date. On or before May 23, 2004, the Trustee must divest the remainder of the Sprint Securities beneficially owned by Liberty Media Group. The Final Judgment requires that the Trustee vote the Sprint Securities beneficially owned by Liberty Media Group in the same proportion as other holders of Sprint's PCS Group Stock so long as such securities are held by the trust. The Final Judgment also prohibits the acquisition by Liberty Media Group of additional Sprint Securities, with certain exceptions, without the prior written consent of the DOJ. Liberty Media Group leases business offices, has entered into pole rental and transponder lease agreements and uses certain equipment under lease arrangements. Liberty Media Group has contingent liabilities related to legal proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible Liberty Media Group may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying combined financial statements.