## Debt-Equity Ratio Computation P.V. Viswanath

This is an exercise on how the debt-equity ratio can be computed, and how there is frequently no consistency between the number provided on different websites.  The data and the computations below were obtained on Feb. 14, 2000.

### Computation of the debt-equity ratio

According to http://biz.yahoo.com/p/t/t.html, the debt-equity ratio for the most recent quarter is 0.41.  According to the Profiles Help, this is defined as "Total Debt for the most recent fiscal quarter divided by Total Shareholder Equity for the same period."  However, if we compute the debt-equity ratio (using information from the 10-Q filings posted on the AT&T website) as of Sept. 30, 1999, using D/E ratio = Long Term Debt/Shareholder Equity, we get (in billions) 22.073/74.763 = 0.295.

If we compute D/E ratio = Current plus long-term portion of long-term debt/shareholder equity, we get (in billions) (8.856 + 22.073)/74.763 = 0.414, which is close to the number provided in Yahoo.

The debt-equity ratio provided by msn.com ( http://moneycentral.msn.com/investor/invsub/results/hilite.asp?Symbol=t) is 0.30, which is substantially different from 0.41.  However, the site declares: "Computed ratios are based on latest 12 months' results."  Can we replicate this?  Are the numbers for the end of 1998?  For what date are they valid?  Here are the ratios computed at various dates using the two different definitions, using data from the 10-Q filings posted at the AT&T website..

 Sept. 30, 1999 June 30, 1999 Mar 30, 1999 Dec. 30, 1998 Sept. 30, 1998 Debt defined excl. current portion 0.295 0.301 0.320 0.218 0.253 Debt defined incl. current portion 0.414 0.398 0.389 0.264 0.295

Clearly, the definition and/or the date used by MSN is unclear, which makes it much more difficult to use.

According to Quicken (http://www.quicken.com/investments/stats/?symbol=T), the ratio is 0.26.  According to Quicken, this ratio is defined as follows: The ratio of a company's liabilities to its equity (total value of stock). Long-term debt-equity is the ratio of a company's long-term liabilities (debt that won't be paid off in one year) to its equity. Total debt-equity is the ratio of a company's long-term and current liabilities (debt that will be paid off within one year) to its equity.

Using data from the 10-K filings obtained from Disclosure, the numbers are:

 As of date 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 Debt-Equity Ratio (incl current portion) 0.2636 0.5044 0.5091 1.1994 1.3964 1.5577 0.8564 0.9574 0.9094 0.8298 Debt-Equity Ratio (excl current portion) 0.2177 0.3318 0.3884 0.4945 0.6338 0.8040 0.4547 0.5228 0.5889 0.6393

Plotted over time, this gives us an idea of how AT&T has changed its capital structure over time.

### Events in the life of AT&T as of early February 2000.

• When a firm acquires another firm, the financial statements for previous years are restated so that it is possible to compare across years.  In our case, there was a merger with TCI (renamed AT&T broadband and Internet services or "AB&IS"), which was completed on March 9,  1999,  in an  all-stock  transaction  valued at approximately  \$52  billion.  A similar accounting procedure is followed when part of a company is sold.
• (From AT&T's 10-Q filings on Nov. 3, 1999) In the first quarter of 1999 in connection with the merger and the formation of Liberty Media Group (LMG) from TCI's former programming business and technology investments business, AT&T issued a separate tracking stock designed to reflect the separate economic performance of LMG.  A total of 1,080 million shares of Class A Liberty Media Group Tracking Stock and 110 million shares of Class B Liberty Media Group Tracking Stock were issued by AT&T.  AT&T also issued an additional 60 million shares of Class A Liberty Media Group Tracking Stock in connection with the conversion of certain convertible notes.  AT&T does not have a controlling financial interest for financial accounting purposes in LMG, therefore AT&T's investment in LMG has been reflected as an equity method investment in the accompanying consolidated financial statements. The amounts attributable to LMG are reflected in separate line items "Equity losses from Liberty Media Group" and "Investment in Liberty Media Group and related receivables, net", in the accompanying consolidated financial statements. As a separate tracking stock, all of the earnings or losses related to LMG are excluded from the earnings available to the holders of AT&T common stock. AB&IS' cable and certain other operations, including its ownership interest in At Home Corporation were combined with the existing AT&T operations to form the AT&T common stock group (AT&T Group).

The merger was recorded as a purchase. Accordingly, the operating results of AB&IS have been included in the accompanying consolidated financial statements since the date of acquisition. For accounting purposes the deemed effective date of the acquisition is March 1, 1999, since the impact of the results from March 1, 1999, through March 9, 1999, is deemed immaterial to our consolidated results. AB&IS' cable and certain other operations, including its ownership interest in At Home Corporation (Excite@Home), but excluding LMG, were combined with the existing operations of AT&T to form the AT&T Common Stock Group (AT&T Group).

### Balance Sheet Information obtained from Disclosure (compiled from 10-K filings): 12/31/94 to 12/31/98

 ANNUAL ASSETS (000s) FISCAL YEAR ENDING 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 CASH 3,160,000 318,000 NA 129,000 1,208,000 MRKTABLE SECURITIES NA 307,000 NA NA NA RECEIVABLES 8,652,000 8,675,000 8,969,000 19,024,000 28,623,000 INVENTORIES NA NA NA NA 3,633,000 OTHER CURRENT ASSETS 2,306,000 7,477,000 8,104,000 2,935,000 4,147,000 TOTAL CURRENT ASSETS 14,118,000 16,777,000 17,073,000 22,088,000 37,611,000 PROP, PLANT & EQUIP 26,903,000 24,203,000 19,736,000 16,083,000 22,035,000 NET PROP & EQUIP 26,903,000 24,203,000 19,736,000 16,083,000 22,035,000 INVEST & ADV TO SUBS 4,434,000 3,866,000 3,875,000 3,646,000 2,708,000 OTHER NON-CUR ASSETS 670,000 2,895,000 2,382,000 8,194,000 4,513,000 DEFERRED CHARGES 2,074,000 2,156,000 10,004,000 1,793,000 8,402,000 INTANGIBLES 7,948,000 8,368,000 NA 8,056,000 NA DEPOSITS & OTH ASSET 3,403,000 2,830,000 2,312,000 2,535,000 3,993,000 TOTAL ASSETS 59,550,000 61,095,000 55,382,000 62,395,000 79,262,000 ANNUAL LIABILITIES (000S) FISCAL YEAR ENDING 12/31/98 12/31/97 12/31/96 12/31/95 12/31/94 ACCOUNTS PAYABLE 6,226,000 6,402,000 6,157,000 5,089,000 6,011,000 CUR LONG TERM DEBT 1,171,000 4,085,000 2,449,000 12,176,000 13,666,000 ACCRUED EXPENSES 1,986,000 2,390,000 2,614,000 2,908,000 4,105,000 OTHER CURRENT LIAB 6,059,000 4,440,000 4,931,000 4,407,000 7,148,000 TOTAL CURRENT LIAB 15,442,000 17,317,000 16,151,000 24,580,000 30,930,000 DEFERRED CHARGES/INC 5,453,000 8,853,000 4,827,000 5,446,000 4,921,000 LONG TERM DEBT 5,556,000 7,857,000 7,883,000 8,542,000 11,358,000 OTHER LONG TERM LIAB 7,577,000 3,390,000 6,226,000 6,553,000 13,039,000 TOTAL LIABILITIES 34,028,000 37,417,000 35,087,000 45,121,000 60,248,000 MINORITY INT (LIAB) NA NA NA NA 1,093,000 COMMON STOCK NET 1,754,000 1,789,000 1,623,000 1,596,000 1,569,000 CAPITAL SURPLUS 15,195,000 17,121,000 15,697,000 16,614,000 15,825,000 RETAINED EARNINGS 8,676,000 4,876,000 3,078,000 -687,000 687,000 OTHER EQUITIES -103,000 -108,000 -103,000 -249,000 -160,000 SHAREHOLDER EQUITY 25,522,000 23,678,000 20,295,000 17,274,000 17,921,000 TOT LIAB & NET WORTH 59,550,000 61,095,000 55,382,000 62,395,000 79,262,000

### Balance Sheet Information obtained from Disclosure (compiled from 10-K filings): 12/31/89 to 12/31/93

 ANNUAL ASSETS (000s) FISCAL YEAR ENDING 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 CASH 671,000 1,310,000 2,148,000 1,875,000 1,183,000 RECEIVABLES 23,664,000 19,609,000 16,526,000 13,413,000 9,555,000 INVENTORIES 3,222,000 2,659,000 3,125,000 3,125,000 3,206,000 OTHER CURRENT ASSETS 2,811,000 2,936,000 2,814,000 1,933,000 1,347,000 TOTAL CURRENT ASSETS 30,368,000 26,514,000 24,613,000 20,346,000 15,291,000 PROP, PLANT & EQUIP 21,015,000 19,358,000 18,689,000 18,661,000 15,919,000 NET PROP & EQUIP 21,015,000 19,358,000 18,689,000 18,661,000 15,919,000 INVEST & ADV TO SUBS 3,060,000 864,000 976,000 1,471,000 1,187,000 OTHER NON-CUR ASSETS 3,815,000 3,643,000 3,180,000 2,658,000 1,709,000 DEFERRED CHARGES 7,570,000 3,480,000 3,084,000 NA NA DEPOSITS & OTH ASSET 3,565,000 3,329,000 2,813,000 5,186,000 3,581,000 TOTAL ASSETS 69,393,000 57,188,000 53,355,000 48,322,000 37,687,000 ANNUAL LIABILITIES (000S) FISCAL YEAR ENDING 12/31/93 12/31/92 12/31/91 12/31/90 12/31/89 ACCOUNTS PAYABLE 4,853,000 5,045,000 4,989,000 4,846,000 4,763,000 CUR LONG TERM DEBT 11,063,000 7,600,000 7,053,000 5,090,000 2,426,000 ACCRUED EXPENSES 3,802,000 3,336,000 3,259,000 2,896,000 2,571,000 OTHER CURRENT LIAB 6,336,000 5,405,000 5,690,000 4,200,000 2,477,000 TOTAL CURRENT LIAB 26,054,000 21,386,000 20,991,000 17,032,000 12,237,000 DEFERRED CHARGES/INC 2,764,000 5,191,000 4,333,000 4,139,000 3,178,000 LONG TERM DEBT 11,802,000 8,604,000 8,484,000 9,354,000 8,144,000 OTHER LONG TERM LIAB 13,446,000 2,634,000 2,902,000 1,599,000 1,390,000 TOTAL LIABILITIES 54,066,000 37,815,000 36,710,000 32,124,000 24,949,000 MINORITY INT (LIAB) 648,000 452,000 417,000 315,000 NA PREFERRED STOCK 1,305,000 NA NA NA NA COMMON STOCK NET 1,547,000 1,340,000 1,309,000 1,275,000 1,076,000 CAPITAL SURPLUS 14,324,000 11,425,000 10,624,000 9,497,000 8,700,000 RETAINED EARNINGS -2,110,000 6,498,000 4,599,000 5,580,000 2,962,000 OTHER EQUITIES -387,000 -342,000 -304,000 -469,000 NA SHAREHOLDER EQUITY 14,679,000 18,921,000 16,228,000 15,883,000 12,738,000 TOT LIAB & NET WORTH 69,393,000 57,188,000 53,355,000 48,322,000 37,687,000

### 10-Q filings filed on Nov. 3, 1999 (obtained from AT&T Website)

```                           CONSOLIDATED BALANCE SHEETS
(Dollars in Millions Except Share Amounts)
(Unaudited)

September 30,   December 31,
1999           1998
ASSETS

Cash and cash equivalents ...........................  \$      -        \$ 3,160

Receivables, less allowances of \$1,488 and \$1,060....    10,629          9,055

Deferred income taxes................................     1,638          1,310

Other current assets.................................       773            593

TOTAL CURRENT ASSETS.................................    13,040         14,118

Property, plant and equipment, net of accumulated
depreciation of \$28,886 and \$25,374................    36,475         26,903

Franchise costs, net of accumulated amortization
of \$509............................................    32,122              -

Licensing costs, net of accumulated amortization
of \$1,430 and \$1,266...............................     8,353          7,948

Goodwill, net of accumulated amortization of
\$304 and \$226......................................     7,214          2,205

Investment in Liberty Media Group and related
receivables, net...................................    35,519              -

Other investments....................................    20,211          4,434

Prepaid pension costs................................     2,364          2,074

Other assets.........................................     6,508          1,868

TOTAL ASSETS.........................................  \$161,806        \$59,550

(CONT'D)

AT&T Form 10-Q - Part I

CONSOLIDATED BALANCE SHEETS (CONT'D)
(Dollars in Millions Except Share Amounts)
(Unaudited)

September 30,   December 31,
1999         1998
LIABILITIES

Accounts payable.....................................  \$  5,915      \$ 6,226
Payroll and benefit-related liabilities..............     2,278        1,986
Debt maturing within one year........................     8,856        1,171
Dividends payable....................................       703          581
Other current liabilities............................     5,763        5,478

TOTAL CURRENT LIABILITIES............................    23,515       15,442

Long-term debt.......................................    22,073        5,556
Long-term benefit-related liabilities................     4,248        4,255
Deferred income taxes................................    24,708        5,453
Other long-term liabilities and deferred credits.....     3,752        3,213

TOTAL LIABILITIES ...................................    78,296       33,919

Minority Interest in Equity of Consolidated
Subsidiaries.......................................     2,401          109

Company-Obligated Convertible Quarterly Income
Preferred Securities of Subsidiary Trust Holding
Solely Subordinated Debt Securities of AT&T........     4,697            -

Subsidiary-Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trusts Holding Solely
Subordinated Debt Securities of an AT&T
Subsidiary.........................................     1,649            -

SHAREOWNERS' EQUITY
Common Stock:
AT&T Common Stock, \$1 par value,  authorized
6,000,000,000  shares;  issued and outstanding
3,195,633,438  shares  (net of  287,528,136  treasury
shares) at September  30,  1999 and  2,630,391,784
shares (net of  80,222,341 treasury shares) at
December 31, 1998..................................     3,196        2,630
Liberty Media Group Class A Tracking Stock, \$1 par
value, authorized 2,500,000,000 shares; issued
and outstanding 1,156,751,950 shares at
September 30, 1999.................................     1,157            -
Liberty Media Group Class B Tracking Stock, \$1 par
value, authorized 250,000,000 shares; issued
and outstanding 108,421,708 shares at
September 30, 1999.................................       108            -