<PAGE>
As filed with the Securities and Exchange Commission on June 26, 2000
Registration No. 333-36296
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LIBERTY MEDIA CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 4841 84-1288730
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
ofincorporation or organization) Classification code number) Identification No.)
</TABLE>
----------------
9197 South Peoria Street, Englewood, Colorado 80112 (720) 875-5400
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
Charles Y. Tanabe, Esq.
Liberty Media Corporation
9197 South Peoria Street
Englewood, Colorado 80112
(720) 875-5400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copy To:
Robert W. Murray Jr., Esq.
Baker Botts L.L.P.
599 Lexington Avenue
New York, New York 10022-6030
(212) 705-5000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act Registration Statement Number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the
same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO OF LIBERTY MEDIA CORPORATION]
Liberty Media Corporation
3 3/4% Senior Exchangeable Debentures due 2030
(Exchangeable for Sprint Corporation PCS Common Stock--Series 1 or cash based
on the value of that stock)
----------------
This prospectus relates to $810,000,000 original principal amount of our 3
3/4% senior exchangeable debentures due 2030, which may be sold from time to
time by the selling security holders named herein.
The debentures are exchangeable by the holders for the exchange market value
of the reference shares, calculated as described in this prospectus. The
reference shares currently consist of 16.7764 shares of Sprint PCS stock per
debenture. We will initially pay the exchange market value only in cash, and
may in the future, but not before February 15, 2002, pay the exchange market
value by delivering reference shares, cash or a combination of both.
In addition to paying interest on the debentures, we will distribute, as an
additional distribution on each debenture, cash or securities (other than
common equity securities) that correspond to any dividends, distributions or
other payments made in respect of the reference shares. If any common equity
securities are distributed in respect of the reference shares, those securities
will themselves become reference shares.
We may redeem the debentures at any time beginning on and after February 15,
2004, at the redemption prices described in this prospectus.
The debentures were initially sold by us in a private placement to qualified
institutional buyers and pursuant to offers and sales that occurred outside the
United States in accordance with Regulation S under the Securities Act of 1933.
This prospectus has been made available to the selling security holders in
fulfillment of our obligations under a registration rights agreement.
The selling security holders may offer and sell the debentures directly to
purchasers or through underwriters, brokers, dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions. The
debentures may be sold in one or more transactions at fixed or negotiated
prices or at prices based on prevailing market prices at the time of sale.
We will not receive any proceeds from the sale of the debentures by the
selling security holders. We are, however, responsible for the costs of
registering, under the Securities Act of 1933, the offer and sale of the
debentures by the selling security holders.
Investing in the debentures involves risks. See "Risk Factors" beginning on
page 9.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The date of this prospectus is June 26, 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 1
Risk Factors............................................................. 9
Sprint Corporation ...................................................... 18
Price Range and Dividend History of the Sprint PCS Stock ................ 19
Use of Proceeds.......................................................... 19
Capitalization........................................................... 20
Selected Historical Financial Data....................................... 21
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 22
Corporate History........................................................ 42
Business................................................................. 44
Management............................................................... 79
Selling Security Holders................................................. 94
Relationship with AT&T and Certain Related Transactions.................. 97
Description of the Debentures............................................ 106
Summary of Registration Rights of Selling Security Holders............... 133
Certain United States Federal Income Tax Considerations.................. 134
Plan of Distribution..................................................... 139
Legal Matters............................................................ 141
Experts.................................................................. 141
Where to Find More Information........................................... 141
Index to Financial Statements............................................ F-1
</TABLE>
----------------
This prospectus is based on information provided by us and other sources that
we believe to be reliable. This prospectus summarizes certain documents and
other information, and we refer you to them for a more complete understanding
of what we discuss in this prospectus.
This prospectus includes information concerning The News Corporation Limited,
Time Warner Inc., TV Guide, Inc., Gemstar International Group Limited, USA
Networks, Inc., Sprint Corporation, Telewest Communications plc, Motorola Inc.,
Todd-AO Corporation, Teligent, Inc., Cendant Corp., Antec Corporation, America
Online, Inc., ICG Communications, Inc., TCI Satellite Entertainment, Inc., IDT
Corporation, Ascent Entertainment Group, Inc., UnitedGlobalCom, Inc., Primedia
Inc., Corus Entertainment Inc. and On Command Corporation, all of which are
public companies that file reports and other information with the SEC in
accordance with the requirements of the Securities Act and the Securities
Exchange Act. Information contained in this prospectus concerning those
companies has been derived from the reports and other information filed by them
with the SEC. Liberty had no part in the preparation of those reports and other
information, nor are they incorporated by reference in this prospectus.You may
read and copy any reports and other information filed by those companies as set
forth under "Where to Find More Information."
You should rely only on the information contained in this prospectus or to
which we have referred you. We have not, and the selling security holders have
not, authorized any person to provide you with different information or to make
any representation not contained in this prospectus.
----------------
ii
<PAGE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
Neither the fact that a registration statement or an application for a
license has been filed under RSA 421-B with the state of New Hampshire nor the
fact that a security is effectively registered or a person is licensed in the
state of New Hampshire constitutes a finding by the secretary of state that any
document filed under RSA 421-B is true, complete and not misleading. Neither
any such fact nor the fact that an exemption or exception is available for a
security or a transaction means that the secretary of state has passed in any
way upon the merits or qualification of, or recommended or given approval to,
any person, security or transaction. It is unlawful to make or cause to be made
to any prospective purchaser, customer or client any representation
inconsistent with the provisions of this paragraph.
iii
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights selected information from this prospectus to
help you understand Liberty and the debentures. For a more complete
understanding of Liberty and the debentures, we encourage you to read this
entire document, including the "Risk Factors" section. All references to
"Liberty," "we," "us" and words to similar effect refer to Liberty Media
Corporation and, unless the context indicates otherwise, its consolidated
subsidiaries.
Liberty Media Corporation
We are a leading media, entertainment and communications company with
interests in a diverse group of public and private companies that are market
leaders in their respective industries. Our subsidiaries and business
affiliates are engaged in a broad range of programming, communications,
technology and Internet businesses and have some of the most recognized and
respected brands. These brands include Encore, STARZ!, Discovery, TV Guide,
Fox, USA, QVC, CNN, TBS, Motorola and Sprint PCS.
The media, entertainment and communications industries are currently
undergoing tremendous changes due in part to the growth of new distribution
technologies, led by the Internet and the implementation of digital
compression. The growth in distribution technologies has, in turn, created
strong demand for an ever increasing array of multimedia products and services.
Liberty is working with its subsidiaries and business affiliates to extend
their established brands, quality content and networks across multiple
distribution platforms to keep them at the forefront of these ongoing changes.
The following table lists our principal subsidiaries and business affiliates
and our direct equity interests or indirect attributed equity interests, based
on ownership of capital stock. Our direct or attributed equity interest in a
particular company does not necessarily represent our voting interest in that
company. Our indirect attributed interest is determined by multiplying our
ownership interest in the holder of an equity interest by that equity holder's
ownership interest in the listed subsidiary or business affiliate. The
ownership percentages are approximate, calculated as of May 15, 2000, and, in
the case of convertible securities we hold, assume conversion to common stock
by us and, to the extent known by us, other holders. In some cases our interest
is subject to buy/sell procedures, rights of first refusal or other
obligations. See "Business."
<TABLE>
<CAPTION>
Subsidiary/Business Affiliate Attributed Ownership %
----------------------------- ----------------------
<S> <C>
Starz Encore Group LLC. ........................... 100%
Liberty Digital, Inc. ............................. 87%
Discovery Communications, Inc. .................... 49%
TV Guide, Inc. .................................... 44%
QVC Inc. .......................................... 43%
Sprint PCS Group................................... 23%
Telewest Communications plc........................ 25%
USA Networks, Inc. ................................ 21%
Time Warner Inc. .................................. 9%
The News Corporation Limited....................... 8%
Motorola Inc. (successor to General Instrument
Corporation)...................................... 3%
</TABLE>
1
<PAGE>
Business Strategy
Our business strategy is to maximize the value of Liberty by (1) working with
the management teams of our existing subsidiaries and business affiliates to
grow their established businesses and create new businesses and (2) identifying
and executing strategic transactions that improve the value or optimize the
efficiency of Liberty's assets. Key elements of our business strategy include
the following:
. Promoting the internal growth of our subsidiaries and business
affiliates;
. Maintaining significant involvement in governance;
. Participating with experienced management and strategic partners; and
. Executing strategic transactions that optimize the efficiency of our
assets.
Relationship with AT&T Corp.
We have been a subsidiary of AT&T Corp. since March 9, 1999. On that date,
AT&T acquired by merger our parent company, the former Tele-Communications,
Inc., which has since been renamed AT&T Broadband LLC. As part of that merger,
AT&T issued AT&T common stock (NYSE: T) and Class A and Class B Liberty Media
Group common stock (NYSE: LMG.A and LMG.B). AT&T's Liberty Media Group common
stock is a tracking stock designed to reflect the economic performance of the
businesses and assets of AT&T attributed to the "Liberty Media Group." We are
included in the Liberty Media Group, and the businesses and assets of Liberty
and its subsidiaries constitute substantially all of the businesses and assets
of the Liberty Media Group. On April 27, 2000, AT&T effected the initial public
offering of its new AT&T Wireless Group tracking stock, which is designed to
reflect the economic performance of the wireless services businesses and assets
of AT&T attributed to the new AT&T Wireless Group. The AT&T common stock is
intended to reflect all other assets and businesses of AT&T, which we refer to
as the AT&T Common Stock Group. In addition, the AT&T Common Stock Group has
retained an approximately 84.4% economic interest in the AT&T Wireless Group.
For a more detailed description of the relationship between AT&T and Liberty,
see "Relationship with AT&T and Certain Related Transactions" starting on
page 97.
We have a substantial degree of managerial autonomy from AT&T as a result of
our corporate governance arrangement with AT&T. Our board of directors is
controlled by persons designated by TCI prior to its acquisition by AT&T, and
our board will continue to be controlled by those persons, or others chosen by
them, until at least 2006. Our management consists of individuals who managed
the businesses of Liberty prior to the AT&T merger. We have entered into
agreements with AT&T which provide us with a level of financial and operational
separation from AT&T, define our rights and obligations as a member of AT&T's
consolidated tax group, enable us to finance our operations separately from
those of AT&T and provide us with certain programming rights with respect to
AT&T's cable systems. See "Relationship with AT&T and Certain Related
Transactions" starting on page 97.
Our principal executive offices are located at 9197 South Peoria Street,
Englewood, Colorado 80112. Our main telephone number is (720) 875-5400.
2
<PAGE>
Relationship of Liberty Media Corporation to the Liberty Media Group
Liberty Media Corporation and its consolidated subsidiaries are attributed to
the Liberty Media Group. The businesses and assets of Liberty and its
subsidiaries currently constitute substantially all of the businesses and
assets of the Liberty Media Group. The following diagram illustrates the assets
of AT&T that are attributed to the Liberty Media Group, to the AT&T Wireless
Group and to the AT&T Common Stock Group. The following diagram also
illustrates the assets of Liberty, which is a holding company. For a more
complete description of the relationship of Liberty Media Corporation to AT&T
and the Liberty Media Group, see "Relationship with AT&T and Certain Related
Transactions" starting on page 97. For a discussion of Liberty's consolidated
subsidiaries and principal business affiliates, see "Business" starting on page
44.
[GRAPH]
3
<PAGE>
TERMS OF THE DEBENTURES
On February 10, 2000, and March 8, 2000, we completed the private placement
of $810,000,000 aggregate principal amount of our 3 3/4% Senior Exchangeable
Debentures due 2030. On February 10, 2000, we entered into a registration
rights agreement with the initial purchaser, in which we agreed to file for the
benefit of the holders of the debentures a shelf registration statement
covering public resales of the debentures. This prospectus is part of that
shelf registration statement, and the debentures being offered hereby are those
initially sold by us in the private placement.
Set forth below is a summary description of the terms of the debentures being
offered hereby. We refer you to "Description of the Debentures," beginning on
page 106, for a more complete description of the debentures.
Issuer..................... Liberty Media Corporation
Debentures offered......... $810,000,000 aggregate principal amount of 3 3/4%
Senior Exchangeable Debentures due 2030. The
debentures are being offered by the selling
security holders.
Ranking....................
The debentures are our unsecured senior
obligations and rank equally with all of our
existing and future unsecured and unsubordinated
obligations. As of March 31, 2000, we had
approximately $5.8 billion of unsecured and
unsubordinated indebtedness, all of which ranked
equally with the debentures. The debentures will
be effectively subordinated to all of our secured
indebtedness to the extent of the value of the
assets securing that indebtedness, and will be
effectively subordinated to all liabilities of our
consolidated subsidiaries. As of March 31, 2000,
we had no secured indebtedness and our
consolidated subsidiaries had outstanding
approximately $18.3 billion of liabilities, all of
which effectively ranks senior to the debentures.
Denominations; Principal
Amount....................
The minimum denomination is $1,000 original
principal amount, which we refer to as a
debenture, and debentures may be transferred in
integral multiples of $1,000 original principal
amount. The principal amount of the debentures is
subject to adjustment as described in this
prospectus. Because the principal amount is
subject to change, we refer to the principal
amount, at any time of determination, as the
adjusted principal amount.
Exchangeability............ At your option, each debenture can be exchanged
for the exchange market value, calculated in the
manner described in this prospectus, of the
reference shares attributable to that debenture.
At the date of this prospectus, the reference
shares consist of 16.7764 shares of Sprint PCS
stock; however, the composition of the reference
shares is subject to change as described in this
prospectus.
4
<PAGE>
Until at least February 15, 2002, we will pay only
in cash the exchange market value of each
debenture that you present for exchange. After
that date or, if later, the date on which we and a
trust for our benefit, taken together, no longer
beneficially own 10% or more of the outstanding
shares of any class or series of reference shares
that are registered under the Securities Exchange
Act of 1934, we may pay the exchange market value
of each debenture that you present for exchange as
follows:
. in cash;
. by delivering the reference shares
attributable to the debenture; or
. in a combination of cash and reference
shares.
Use of Proceeds............ We will not receive any of the proceeds from the
secondary sale by the selling security holders of
debentures. This prospectus fulfills an obligation
of ours under a registration rights agreement that
we entered into with the initial purchaser of the
debentures.
Sprint and its
Relationship to the
Debentures.................
According to publicly available information,
Sprint is a domestic and international long
distance communications provider through its FON
Group and a domestic wireless mobile phone
services provider through its PCS Group. Sprint's
PCS Group operates a digital PCS wireless network
in the United States. The Sprint PCS stock is a
"tracking stock" intended to reflect the
performance of Sprint's domestic wireless personal
communications services operations. Sprint has
entered into a merger agreement with MCI WorldCom,
Inc. Under this agreement, holders of Sprint PCS
stock would receive one share of WorldCom PCS
tracking stock and 0.116025 shares of MCI WorldCom
common stock for each share of Sprint PCS stock.
If this merger occurs, the shares issued in the
MCI WorldCom merger would replace the Sprint PCS
common stock as the reference shares that are
attributable to the debentures and MCI WorldCom
would become a successor reference company.
However, the merger is subject to many conditions,
including regulatory approvals, and may never
occur. Even if it does occur, the exchange ratio
for the shares to be received by holders of Sprint
PCS stock in the merger may change.
Neither Sprint nor any other reference company
will have any obligations whatsoever under the
debentures. This prospectus relates only to a
secondary offering of the debentures and does not
relate to any offering of the Sprint PCS stock or
any other securities of Sprint or any successor
reference company.
Maturity................... The debentures have a stated maturity of February
15, 2030.
5
<PAGE>
Interest................... We will pay you interest at the rate of 3 3/4% per
annum on the original principal amount of the
debentures. Interest will be paid semi-annually on
each February 15 and August 15, beginning on
August 15, 2000. The interest rate on the
debentures is subject to increase (by up to an
additional one percentage point) in the event this
prospectus becomes unusable for more than 30 days
in any twelve-month period.
Additional Distributions... We will distribute, as an additional distribution
on each debenture, cash or securities (other than
publicly traded common equity securities) that
correspond to any dividends, distributions or
other payments made in respect of the reference
shares. If any common equity securities are
distributed in respect of the reference shares,
those securities will themselves become reference
shares.
Any additional distribution that we pay as a
result of a regular cash dividend on the reference
shares will be distributed to you with the next
semi-annual interest payment on the debentures.
All other additional distributions will be paid or
made within 20 business days after the payment or
delivery of the related dividends or distributions
on the reference shares.
As of the date of this prospectus, Sprint has
never paid a cash dividend or made an
extraordinary distribution on its Sprint PCS
stock.
Adjusted Principal The original principal amount of the debentures
Amount..................... will be reduced by the amount of all additional
distributions that we make to holders of the
debentures that are attributable to extraordinary
distributions on or in respect of the reference
shares. The adjusted principal amount will also be
reduced on subsequent interest payment dates to
the extent necessary so that the annualized yield
on the debentures paid by us does not exceed 3
3/4% per annum. In no event will the adjusted
principal amount ever be less then zero.
Reductions to the adjusted principal amount will
not affect the amount of the semi-annual interest
payment received by a holder of debentures, which
is based on the original principal amount.
Adjustment for Excess
BorrowCosts...............
If, between now and February 15, 2004, which we
refer to as the borrow period, the determination
agent determines that (i) the weighted average
rebate paid on cash collateral posted to borrow
reference shares from the determination agent, as
principal or agent, is less than 200 basis points
below the Federal Funds Rate, which we refer to as
an excess borrow cost, and (ii) the determination
agent is not able to effectively lend reference
shares to holders of the debentures for a rebate
that does not result in an excess borrow cost for
20 or more trading days in any quarter ended
February 15, May 15, August 15 or November 15,
then we, at our election, with
6
<PAGE>
respect to each quarter for which excess borrow
costs exist during the borrow period, must either:
. effective as of the first day of the next
succeeding quarter, increase the exchange
market value of the reference shares
attributable to each debenture by 0.625% (a
premium adjustment); or
. for the next succeeding quarter, pay a
special interest payment on each debenture
in an amount equal to 0.625% of the
original principal amount of the debenture
(a special payment adjustment).
However, we are not required to effect a premium
adjustment, a special payment adjustment or any
combination of the two more than eight times.
Optional Redemption........ We may redeem the debentures, in whole or in part,
at any time on or after February 15, 2004, at the
redemption prices described herein. If we make a
partial redemption, debentures with an aggregate
principal amount of at least $100 million must
remain outstanding.
We may also redeem the debentures, in whole but
not in part, if a "share event" or "excess borrow
cost event" occurs on or before February 15, 2004,
at the redemption prices described in this
prospectus.
Covenants.................. The indenture governing the debentures contains
covenants with respect to:
. limitations on liens;
. limitations on sale and leaseback; and
. limitations on certain merger, consolidation
and similar transactions.
These covenants are subject to a number of
important qualifications and exceptions. See
"Description of the Debentures--Certain
Covenants."
Book-entry only............ The debentures have been issued in book-entry form
and are represented by global debentures deposited
with The Bank of New York on behalf of The
Depository Trust Company. Except to the extent
described herein, interests in the global
debentures will be shown on, and transfers will be
effected only through, records maintained by DTC
and its participants.
RISK FACTORS
An investment in the debentures involves risks. See "Risk Factors" beginning
on page 9 for a discussion of factors you should carefully consider before
deciding to purchase any debentures.
7
<PAGE>
Summary Historical Financial Data
In the table below we provide you with selected historical consolidated
financial data of Liberty. We derived the historical consolidated financial
data from our consolidated financial statements included elsewhere in this
prospectus.
Liberty has been a wholly owned subsidiary of TCI since August 1994. On March
9, 1999, AT&T acquired TCI in a merger transaction. For financial reporting
purposes, the merger of AT&T and TCI is deemed to have occurred on March 1,
1999. In connection with the merger, the assets and liabilities of Liberty were
adjusted to their respective fair values pursuant to the purchase method of
accounting. For periods prior to March 1, 1999, the assets and liabilities of
Liberty and the related consolidated results of operations are referred to
below as "Old Liberty," and for periods subsequent to February 28, 1999, the
assets and liabilities of Liberty and the related consolidated results of
operations are referred to as "New Liberty." In connection with the merger, TCI
effected an internal restructuring as a result of which certain assets and
approximately $5.5 billion in cash were contributed to Liberty.
The financial data presented below are not necessarily comparable from period
to period as a result of several transactions, including acquisitions and
dispositions of consolidated subsidiaries. For this and other reasons, you
should read the selected historical financial data provided below in
conjunction with our consolidated financial statements and accompanying notes
beginning on page F-1 and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 22.
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------------------------------- --------------------------
Three months One month Ten months Two months Year ended
ended ended ended ended December 31,
March 31, March 31, December 31, February 28, -------------
2000 1999 1999 1999 1998 1997
------------ --------- ------------ ------------ ------ -----
(in millions, except
ratios)
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue................. $ 235 71 $ 729 235 1,359 1,225
Operating loss.......... (83) 3 (2,214) (158) (431) (260)
Interest expense........ (439) (13) (287) (25) (104) (40)
Share of losses of
affiliates, net........ (311) (80) (904) (66) (1,002) (785)
Gain on dispositions,
net.................... 2,441 -- 4 14 2,449 406
Net income (loss)....... 977 (58) (1,975) (70) 622 (470)
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $2,177 1,973 $ 1,714 31 228 100
Short-term investments.. 525 3,217 378 125 159 248
Investments in
affiliates............. 15,723 17,093 15,922 3,971 3,079 2,359
Investment in Time
Warner, Inc............ 10,975 8,072 8,202 7,361 7,083 3,538
Investment in Sprint
Corporation............ 12,513 4,663 10,186 3,381 2,446 --
Total assets............ 66,889 48,524 58,650 16,886 15,783 7,735
Debt including current
portion................ 6,810 2,495 3,277 2,087 2,096 785
Stockholder's equity.... 41,121 34,451 38,408 9,449 9,230 4,721
Other Data:
Ratio of earnings to
fixed charges (a)...... 5.02x -- -- 5.12x 11.03x 2.06x
</TABLE>
--------
(a) The ratio of earnings to fixed charges of Liberty was less than 1.00x for
the one-month period ended March 31, 1999 and for the ten-month period
ended December 31, 1999. Thus, earnings available for fixed charges were
inadequate to cover fixed charges for that period. The amount of the
coverage deficiencies for the one-month period ended March 31, 1999 and for
the ten-month period ended December 31, 1999, were $59 million and $2,797
million, respectively. For the ratio calculations, earnings available for
fixed charges consist of earnings (losses) before income taxes plus fixed
charges, distributions from and losses of less than 50%-owned affiliates
with debt not guaranteed by Liberty (net of earnings not distributed of
less than 50%-owned affiliates) and minority interests in (earnings) losses
of consolidated subsidiaries. Fixed charges consist of:
. interest on debt, including interest related to debt guaranteed by
Liberty of less than 50%-owned affiliates where the investment in such
affiliates results in the recognition of a loss;
. Liberty's proportionate share of interest of 50%-owned affiliates;
. that portion of rental expense which Liberty believes to be
representative of interest (one-third of rental expense); and
. amortization of debt issuance costs.
8
<PAGE>
RISK FACTORS
An investment in the debentures involves risk. You should carefully consider
the following factors, as well as the other information included in this
prospectus, before deciding to purchase the debentures. Any of the following
risks could have a material adverse effect on our business, financial condition
or results of operations or on the value of the debentures.
Factors Relating to the Debentures
The return to investors on the debentures depends on the Sprint PCS
stock. The terms of the debentures differ from those of ordinary debt
securities because:
. the effective yield on the debentures may change depending upon the
dividend policy of Sprint or any other reference company;
. the debentures are exchangeable for (1) cash in an amount based on the
then exchange market value of the reference shares or (2) no earlier
than February 15, 2002, at the option of Liberty, the reference shares
themselves; and
. the principal amount of the debentures will be reduced by the amount of
an additional distribution that is made by Liberty following any
extraordinary dividend or distribution being paid or made on or in
respect of the reference shares.
Accordingly, the return that a holder of the debentures will realize may be
less than that of an ordinary fixed income debt security that may be issued by
us.
We do not have any control over the dividend policy of Sprint. As of the date
of this prospectus, Sprint has never paid a cash dividend on its Sprint PCS
stock. You should not expect that Sprint will commence paying dividends in the
future or, if commenced, that the dividend rate on the Sprint PCS stock will
remain the same during the period the debentures are outstanding.
It is difficult to predict whether the price of the Sprint PCS stock will
rise or fall. Trading prices of the Sprint PCS stock will be influenced by
Sprint's operating results and by complex and interrelated political, economic,
financial and other factors that can affect the capital markets generally, the
NYSE and the market segments of which Sprint is a part.
We do not directly own any shares of Sprint PCS stock. We cannot control the
sale of shares of Sprint PCS stock owned by a trust established for our
benefit, which could result in an early redemption of your debentures. Pursuant
to a final judgment agreed to by TCI and AT&T with the United States Department
of Justice in connection with the AT&T merger, Liberty has transferred legal
and record ownership of the following to the Liberty PCS Trust, which we refer
to as the Trust:
. approximately 192 million shares of Sprint's Series 2 Sprint PCS stock,
which convert automatically on a one-for-one basis into Sprint PCS stock
in a number of situations, including generally upon sales of the Series
2 Sprint PCS stock by the Trust to persons who are not our affiliates;
. shares of Sprint PCS Series 7 Preferred Stock, which are presently
convertible into approximately 8 million shares of Sprint PCS stock; and
. warrants that presently entitle the holder to purchase approximately
12.6 million shares of Series 2 Sprint PCS stock.
Any sales of the Series 2 Sprint PCS stock by the Trust will be for our
benefit. Some of those sales will be subject to a top up right agreement among
France Telecom S.A., Deutsche Telekom AG and the Trust. Under the top up right
agreement and subject to a number of exceptions, the Trust generally must offer
France Telecom and Deutsche Telekom the right to purchase a portion,
approximating 18%, of any shares of Series 2
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Sprint PCS stock that are sold by the Trust. In addition, the trustee of the
Trust, after consultation with certain directors of Liberty, has the absolute
authority to sell any and all of the Sprint securities held in the Trust. Under
the terms of the final judgment, the trustee is required to divest, by May 23,
2002, a portion of the Sprint securities sufficient to decrease the Trust's
holdings to no more than 10% of the Sprint PCS stock, and is required to divest
of any remaining holdings of Sprint securities by May 23, 2004. Sales of Sprint
PCS stock by the trustee of the Trust will not affect our obligations under the
debentures, except that sales of a large enough amount of Sprint PCS stock by
the trustee of the Trust may result in a "share event," in which case we may
redeem the debentures. If a share event occurs, we currently intend to redeem
the debentures.
Although cash dividends and any other property not consisting of Sprint
equity securities distributed on or in respect of the Sprint PCS stock in the
Trust are to be distributed by the trustee of the Trust at our order, any
dividend or distribution consisting of Sprint equity securities must be
retained by the trustee and disposed of in accordance with the final judgment.
Under the terms of the trust agreement and the final judgment, we cannot
direct the trustee of the Trust to sell any shares of Sprint PCS stock and we
may not acquire any additional shares of Sprint PCS stock without the
permission of the Department of Justice, for so long as the final judgment is
in effect. An affiliate of ours has entered into a standstill agreement with
Sprint that may restrict our ability to acquire additional shares of Sprint PCS
stock. Hence, we may not be able to hedge, in whole or in part, our obligations
under the debentures that are based on the Sprint PCS stock unless the final
judgment is modified or terminated. The trustee will be under no obligation to
deliver shares of Sprint PCS stock in connection with an exchange request, or
to sell shares of Sprint PCS stock to raise cash for Liberty to honor an
exchange request or to effect an optional redemption of debentures.
Sprint has no obligations with respect to the debentures. Sprint is not
involved in the offering of the debentures and has no obligations with respect
to the debentures, including any obligation to take our interests or your
interests into consideration for any reason or under any circumstance. Holders
of the debentures will not be entitled to any rights with respect to the Sprint
PCS stock other than indirectly pursuant to the express terms of the debentures
or at such time, if any, that Sprint PCS stock is exchanged by us for
debentures.
The number of reference shares attributable to the debentures will not adjust
for some dilutive transactions involving the reference shares. If specific
dilutive or anti-dilutive events occur with respect to the reference shares,
the number and type of reference shares that will be used to calculate the
amount of cash
or reference shares you will receive upon exchange, maturity or redemption of a
debenture will be adjusted to reflect such events. These adjustments will not
take into account various other events, such as offerings of reference shares
by a reference company for cash or business acquisitions by a reference company
with the reference shares, that may adversely affect the price of the reference
shares and may adversely affect the trading price and market value of the
debentures. We cannot assure you that a reference company will not make
offerings of the reference shares or other equity securities or enter into such
business acquisitions in the future. In particular, you should note that Sprint
may be able to take actions that would benefit its FON Group and disadvantage
its PCS Group. The number of shares of Sprint PCS stock attributable to the
debentures will not adjust for these actions.
Potential adverse tax consequences of purchasing the debentures. Before
purchasing the debentures, you should recognize that the amount of interest
income required to be included in income by you for each year will be in excess
of the semi-annual interest payments you actually receive. Any gain recognized
by you on the sale or exchange of the debentures will be ordinary income; any
loss will be ordinary loss to the extent of the interest previously included in
income, and thereafter, capital loss. See "Certain United States Federal Income
Tax Considerations."
The debentures are a recent issue of securities for which there is currently
no active trading market. The debentures are a recent issue of securities with
no active trading market. Liberty does not intend to list the debentures on any
national securities exchange. If a trading market does not develop or is not
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maintained, holders of the debentures may experience difficulty in reselling
the debentures or may be unable to sell them at all. We cannot assure you that
an active public or other market for the debentures will develop or be
maintained. If a market for the debentures develops, it may be discontinued at
any time.
The liquidity of any market for the debentures will depend upon the number of
holders of the debentures, our operating performance, the interest of
securities dealers in making a market in the debentures and other factors. A
liquid trading market may not develop for the debentures. Furthermore, the
market price for the debentures may be subject to substantial fluctuations.
Factors such as the following may have a significant effect on the market price
of the debentures:
. the market price of the Sprint PCS stock;
. hedging or arbitrage trading activity that may develop involving the
debentures and the Sprint PCS stock;
. actual or anticipated fluctuations in our operating results;
. our perceived business prospects;
. general economic conditions, including prevailing interest rates; and
. the market for similar securities.
Factors Relating to Liberty
Our holding company structure could restrict access to funds of our
subsidiaries that may be needed to service the debentures. Creditors of those
companies have a claim on their assets that is senior to that of holders of the
debentures. Liberty is a holding company with no significant assets other than
its equity interests in its subsidiaries and cash, cash equivalents and
marketable securities. Liberty is the only company obligated to make payments
under the debentures. Our subsidiaries are separate and distinct legal entities
and they have no obligation, contingent or otherwise, to pay any amounts due
under the debentures or to make any funds available for any of those payments.
In addition, neither AT&T nor any of its subsidiaries other than Liberty have
any obligation to make payments under the debentures or to make any funds
available for those payments.
All of the liabilities of our subsidiaries effectively rank senior to the
debentures. A substantial portion of the consolidated liabilities of Liberty
consists of liabilities incurred by its subsidiaries. Moreover, the indenture
governing the debentures does not limit the amount of indebtedness that may be
incurred by Liberty's subsidiaries in the future. The rights of Liberty and of
its creditors, including holders of the debentures, to participate in the
distribution of assets of any subsidiary upon the latter's liquidation or
reorganization will be subject to prior claims of the subsidiary's creditors,
including trade creditors, except to the extent Liberty may itself be a
creditor with recognized claims against the subsidiary. Where Liberty is itself
a creditor of a subsidiary, its claims will still be subject to the prior
claims of any secured creditor of that subsidiary and to the claims of any
holder of indebtedness that is senior to the claim held by Liberty. As of March
31, 2000, the aggregate amount of the total liabilities of our consolidated
subsidiaries was approximately $18.3 billion, of which approximately $15.8
billion was deferred income taxes.
We could be unable in the future to obtain a sufficient amount of cash with
which to service our financial obligations. Our ability to meet our debt
service requirements, including those with respect to the debentures, is
dependent upon our ability to access cash. Liberty's sources of cash include
its available cash balances, net cash from the operating activities of its
subsidiaries, dividends and interest from its investments, availability under
credit facilities and proceeds from asset sales. Although at March 31, 2000,
Liberty had cash and cash equivalents of approximately $2,177 million and
short-term investments of approximately $525 million, there is no requirement
in the indenture governing the debentures that any of Liberty's cash or cash
equivalents or proceeds from the sale of any of its marketable securities be
reserved for the payment of
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Liberty's obligations under the debentures. We cannot assure you that Liberty
will maintain significant amounts of cash, cash equivalents or marketable
securities in the future.
Liberty obtained from one of its subsidiaries net cash of $5 million in 1998
and net cash of $6 million in 1999. Liberty did not obtain cash, in the form of
dividends, loans, advances or otherwise, from any of its other operating
subsidiaries during those periods. The ability of Liberty's operating
subsidiaries to pay dividends or to make other payments or advances to Liberty
depends on their individual operating results and any statutory, regulatory or
contractual restrictions to which they may be or may become subject. Some of
our subsidiaries are subject to loan agreements that restrict sales of assets
and prohibit or limit the payment of dividends or the making of distributions,
loans or advances to stockholders and partners.
Liberty generally does not receive cash, in the form of dividends, loans,
advances or otherwise, from its business affiliates. In this regard, we do not
have voting control over most of our business affiliates and cannot cause those
companies to pay dividends or make other payments or advances to their partners
or shareholders (including us).
AT&T has no obligation to provide financing for our operations and we do not
expect AT&T to provide us with any financing during the term of the debentures.
In addition, AT&T does not guarantee any of our indebtedness, and it will have
no obligations to the holders of the debentures in the event of a payment
default or other default by Liberty.
We may secure future indebtedness of Liberty with the capital stock of our
subsidiaries or other securities, in which case that indebtedness will
effectively rank senior to the debentures. The indenture does not restrict the
ability of Liberty to pledge shares of capital stock or other securities that
it owns to secure indebtedness. To the extent Liberty pledges shares of capital
stock or other securities to secure indebtedness, the indebtedness so secured
will effectively rank senior to the debentures to the extent of the value of
the shares or other securities pledged. The indenture also does not restrict
the ability of Liberty's subsidiaries to pledge shares of capital stock or
other assets that they own to secure indebtedness.
We have entered into bank credit agreements that contain restrictions on how
we finance our operations and operate our business, which could impede our
ability to engage in transactions that would be beneficial for us. Liberty and
its subsidiaries are subject to significant financial and operating
restrictions contained in outstanding credit facilities. These restrictions
will affect, and in some cases significantly limit or prohibit, among other
things, our ability or the ability of our subsidiaries to:
. borrow more funds;
. pay dividends or make other distributions;
. make investments;
. engage in transactions with affiliates; or
. create liens.
The restrictions contained in these credit agreements could have the
following adverse effects on us, among others:
. we could be unable to obtain additional capital in the future to
. fund capital expenditures or acquisitions that could improve the
value of Liberty;
. permit us to meet our loan and capital commitments to our business
affiliates or allow us to help fund their operating losses or future
development; or
. allow us to conduct necessary corporate activities;
. we could be unable to access the net cash of our subsidiaries to help
meet our own financial obligations;
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. we could be unable to invest in companies in which we would otherwise
invest; and
. we could be unable to obtain lower borrowing costs that are available
from secured lenders or engage in advantageous transactions that
monetize our assets.
In addition, some of the credit agreements to which our subsidiaries are a
party require them to maintain financial ratios, including ratios of total debt
to operating cash flow and operating cash flow to interest expense. If Liberty
or its subsidiaries fail to comply with the covenant restrictions contained in
their credit agreements, that could result in a default which accelerates the
maturity of the indebtedness borrowed pursuant to those agreements. Such a
default could also result in indebtedness under other credit agreements and the
debentures becoming due and payable due to the existence of cross-default or
cross-acceleration provisions of our credit agreements and in the indenture
governing the debentures.
We have agreements with AT&T that restrict our ability to incur debt and
impede our ability to use AT&T Liberty Media Group tracking stock to effect
acquisitions or engage in other transactions. Liberty has entered into an
Inter-Group Agreement with AT&T that restricts the amount of indebtedness that
Liberty may incur as a member of the Liberty Media Group. Under the Inter-Group
Agreement, no subsidiary of AT&T that is attributed to the Liberty Media Group
may incur any debt, other than the refinancing of debt without any increase in
amount, that would cause the total indebtedness of all the subsidiaries of AT&T
that are attributed to the Liberty Media Group at any time to be in excess of
25% of the total market capitalization of the Class A and Class B Liberty Media
Group tracking stock, unless the excess would not adversely affect the credit
rating of AT&T. See "Relationship with AT&T and Certain Related Transactions--
Relationship with AT&T--Inter-Group Agreement." To the extent we are unable to
incur additional debt due to this restriction, the effects set forth in the
preceding risk factor arising out of restrictions on our ability to borrow
funds will be exacerbated. The AT&T Liberty Media Group tracking stock is a
common stock of AT&T, and we cannot use that stock to effect acquisitions or
for any other purpose without the prior approval of the AT&T board of directors
or of a three person capital stock committee of the AT&T board of directors.
Only one member of that committee, Dr. John C. Malone, is also a director of
Liberty. All of Liberty's common stock is owned by a subsidiary of AT&T.
We may make significant capital contributions and loans to our subsidiaries
and business affiliates to cover operating losses and fund development and
growth, which could limit the amount of cash available to pay Liberty's own
financial obligations. The development of video programming, communications,
technology and Internet businesses involves substantial costs and capital
expenditures. As a result, many of our business affiliates have incurred
operating and net losses to date and are expected to continue to incur
significant losses for the foreseeable future. Liberty's results of operations
include Liberty's and its consolidated subsidiaries' share of the net losses of
their affiliates. The share of net losses amounted to $785 million for 1997,
$1,002 million for 1998, $66 million for the two months ended February 28,
1999, $904 million for the ten months ended December 31, 1999, $80 million for
the one month ended March 31, 1999, and $311 million for the three months ended
March 31, 2000.
We may make significant capital contributions and loans to our existing and
future subsidiaries and business affiliates to help cover their operating
losses and fund the development and growth of their respective businesses and
assets. We have assisted, and may in the future assist, our subsidiaries and
business affiliates in their financing activities by guaranteeing bank and
other financial obligations. At March 31, 2000, we had guaranteed various
loans, notes payable, letters of credit and other obligations of certain of our
subsidiaries and business affiliates totaling $1,973 million. It is expected
that these commitments will be funded over the next two years.
To the extent Liberty makes loans and capital contributions to its
subsidiaries and business affiliates or Liberty is required to expend cash due
to a default by a subsidiary or business affiliate of any obligation guaranteed
by Liberty, there will be that much less cash available to Liberty with which
to pay its own financial obligations, including the debentures.
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If we fail to meet required capital calls to a subsidiary or business
affiliate, we could be forced to sell our interest in that company, our
interest in that company could be diluted or we could forfeit important
rights. We are parties to shareholder and partnership agreements that provide
for possible capital calls on shareholders and partners. Our failure to meet a
capital call, or other commitment to provide capital or loans to a particular
company, may have adverse consequences to us. These consequences may include,
among others, the dilution of our equity interest in that company, the
forfeiture of our right to vote or exercise other rights, the right of the
other shareholders or partners to force us to sell our interest at less than
fair value, the forced dissolution of the company to which we have made the
commitment or, in some instances, a breach of contract action for damages
against us. Our ability to meet capital calls or other capital or loan
commitments is subject to our ability to access cash. See "--We could be unable
in the future to obtain a sufficient amount of cash with which to service our
financial obligations" above.
We are a member of the Liberty Media Group of AT&T, and, as a result, we may
incur substantial financial obligations on behalf of other members of that
group. We have entered into agreements with AT&T pursuant to which we have
agreed, on a joint and several basis with each other member of the Liberty
Media Group, to indemnify AT&T against any liabilities arising from the
operations and businesses of any of the members of the Liberty Media Group.
Hence, we may be obligated to indemnify AT&T against liabilities incurred by
members of the Liberty Media Group other than Liberty Media Corporation and its
consolidated subsidiaries. Although we anticipate that if we were required to
indemnify AT&T against such a liability we would seek reimbursement or
contribution from the other members of the Liberty Media Group, we cannot
assure you that those members would be financially capable of making that
reimbursement or contribution or that any indemnification obligation that
Liberty ultimately is required to fund will not be substantial. Liberty is also
jointly and severally liable with the other members of the Liberty Media Group
for any amounts owed by members of the Liberty Media Group to AT&T under a tax
sharing agreement, and those amounts could be substantial. See "Relationship
with AT&T and Certain Related Transactions."
Some of our officers have managerial obligations to other members of the
Liberty Media Group, which may divert their attention from Liberty. Some of
the officers of Liberty Media Corporation are also officers of other members of
the Liberty Media Group. Hence, to the extent those officers devote attention
to the operations of the other members of the Liberty Media Group, that
attention may be diverted from the assets and businesses of Liberty Media
Corporation and its consolidated subsidiaries.
We may use our assets and management time to effect acquisitions that only
benefit other members of the Liberty Media Group. Although we anticipate that
acquisitions involving companies that are attributed to the Liberty Media Group
will be effected through Liberty Media Corporation or its consolidated
subsidiaries, it is possible that some of these acquisitions will be effected
through other members of the Liberty Media Group. In addition to the diversion
of management's attention from the assets and business of Liberty Media
Corporation, acquisitions outside of Liberty Media Corporation and its
consolidated subsidiaries could have important consequences to the holders of
the debentures, including the following:
. Liberty may provide cash or other assets with which to effect these
acquisitions; and
. Liberty may provide cash for the purpose of funding subsequent operating
losses or the development and growth of the businesses of the acquired
companies.
To the extent we use our cash or other assets for the foregoing purposes,
that cash and those assets, as well as the businesses acquired with them, will
not be available to satisfy our obligations under the debentures. Hence, in any
bankruptcy proceeding owners of the debentures will not have any claims against
those businesses or the cash or other assets used by Liberty to effect their
acquisition.
The liquidity and value of our interests in our business affiliates may be
adversely affected by shareholder agreements and similar agreements to which we
are a party. A significant portion of the equity securities we own is held
pursuant to shareholder agreements, partnership agreements and other
instruments and agreements that contain provisions that affect the liquidity,
and therefore the realizable value, of those
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securities. Most of these agreements subject the transfer of the stock,
partnership or other interests constituting the equity security to consent
rights or rights of first refusal of the other shareholders or partners. In
certain cases, a change in control of Liberty or of the subsidiary holding our
equity interest will give rise to rights or remedies exercisable by other
shareholders or partners, such as a right to initiate or require the initiation
of buy/sell procedures. Some of our subsidiaries and business affiliates are
parties to loan agreements that restrict changes in ownership of the borrower
without the consent of the lenders. All of these provisions will restrict our
ability to sell those equity securities and may adversely affect the price at
which those securities may be sold. For example, in the event buy/sell
procedures are initiated at a time when we are not in a financial position to
buy the initiating party's interest, we could be forced to sell our interest at
a price based on the value established by the initiating party, and that price
might be significantly less than what we might otherwise obtain.
We do not have the right to manage our business affiliates, which means we
cannot cause those affiliates to operate in a manner that is favorable to
Liberty. We do not have the right to manage the businesses or affairs of any of
our business affiliates in which we have less than a majority voting interest.
Rather, our rights, at most, may take the form of representation on the board
of directors or a partners' or similar committee that supervises management or
possession of veto rights over significant or extraordinary actions. The scope
of our veto rights varies from agreement to agreement. Although our board
representation and veto rights may enable us to prevent the sale by a business
affiliate in which we own less than a majority voting interest of assets or
prevent it from paying dividends or making distributions to its stockholders or
partners, they do not enable us to cause these actions to be taken.
Our business is subject to risks of adverse government regulation. In the
United States, the Federal Communications Commission regulates the providers of
satellite communications services and facilities for the transmission of
programming services, the cable television systems that carry such services,
and, to some extent, the availability of the programming services themselves
through its regulation of program licensing. Cable television systems and other
forms of video distribution in the United States are also regulated by
municipalities or other state and local government authorities. Cable
television companies are currently subject to federal rate regulation on the
provision of basic service, and continued rate regulation or other franchise
conditions could place downward pressure on the fees cable television companies
are willing or able to pay for programming services in which we have interests
and regulatory carriage requirements could adversely affect the number of
channels available to carry the programming services in which we have an
interest. In addition, Liberty's programming subsidiaries and business
affiliates may be limited in their ability to sell programming to AT&T's cable
television subsidiaries and affiliates as a result of federal regulations. See
"Business--Regulatory Matters."
The regulation of programming services, cable television systems, satellite
carriers, television stations and telephony providers is subject to the
political process and has been in constant flux over the past decade. Further
material changes in the law and regulatory requirements must be anticipated,
and there can be no assurance that our business will not be adversely affected
by future legislation, new regulation or deregulation. See "Business--
Regulatory Matters."
In addition, substantially every foreign country in which we have, or may in
the future make, an investment regulates, in varying degrees, the distribution
and content of programming services and foreign investment in programming
companies and wireline and wireless cable communications, satellite, telephony
and Internet services. Regulations or laws that exist at the time we make an
investment in a subsidiary or business affiliate may subsequently change, and
there can be no assurance that material and adverse changes in the regulation
of the services provided by our foreign subsidiaries and business affiliates
will not occur in the future. Regulation can take the form of price controls,
service requirements and programming and other content restrictions, among
others. Moreover, some countries where we have or may in the future acquire
interests in a cable television operator do not issue exclusive licenses or
franchises to provide multi-channel television services within a geographic
area, and in those instances we may be adversely affected by an overbuild by
one or more competing cable operators. In certain countries where multi-channel
television is less developed, there
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is minimal regulation of cable television and other forms of video
distribution, and, hence, the protections of the distributor's investment
available in the United States and other countries (such as rights to renewal
of licenses, franchises and pole attachment) may not be available in these
countries.
The Internet companies in which we have interests are subject, both directly
and indirectly, to various laws and governmental regulations relating to their
respective businesses. Due to the increasing popularity and use of commercial
online services and the Internet, it is possible that a number of laws and
regulations may be adopted with respect to commercial online services and the
Internet. The adoption of such laws or regulations in the future may decrease
the growth of such services and the Internet, which could in turn decrease the
demand for the services and products of the Internet companies in which we have
interests and increase such companies' costs of doing business or otherwise
have an adverse effect on their businesses, operating results and financial
conditions.
Our operations are subject to constraints imposed by the Investment Company
Act. Our operations are primarily conducted through subsidiaries and business
affiliates, and certain of our investments in those companies have been made
with strategic partners where we have a less than 50% voting interest. Under
the Investment Company Act of 1940, a company that is deemed to be an
"investment company," and which is not exempt from the provisions of the
Investment Company Act, is required to register as an investment company under
the Investment Company Act. Registered investment companies are subject to
extensive, restrictive and potentially adverse regulation relating to, among
other things, operating methods, management, capital structure, dividends and
transactions with affiliates. Registered investment companies are not permitted
to operate their business in the manner Liberty operates its business, nor are
registered investment companies permitted to have many of the relationships
that Liberty has with its affiliated companies.
Liberty's current holdings in its subsidiaries and business affiliates are
such that Liberty is not an "investment company" required to register under the
Investment Company Act, and Liberty intends to conduct its business in a manner
designed to avoid becoming subject to regulation under the Investment Company
Act. To avoid regulation under the Investment Company Act, Liberty's operations
will to an extent be limited by concerns that it acquire investments in
companies that assure to it majority ownership or primary control of a
magnitude sufficient to cause Liberty not to fall within the definition of an
investment company. These considerations could require Liberty to dispose of
otherwise desirable assets at disadvantageous prices, structure transactions in
a manner that assures Liberty has a majority interest or primary control,
irrespective of whether such a structure is the one that is most desirable, or
avoid otherwise economically desirable transactions, including the addition of
strategic partners in Liberty's current majority-owned subsidiaries and
business affiliates that it primarily controls. In addition, events beyond our
control, including significant appreciation in the market value of certain of
our publicly traded investments that may be deemed investment securities, could
result in our becoming an inadvertent investment company. If Liberty were to
become an inadvertent investment company, it would have one year to divest of a
sufficient amount of investment securities and/or acquire other assets
sufficient to cause Liberty to no longer be an investment company subject to
registration under the Investment Company Act.
If it were established that Liberty is an unregistered investment company,
there would be a risk, among other material adverse consequences, that we could
become subject to monetary penalties or injunctive relief, or both, in an
action brought by the SEC, that we would be unable to enforce contracts with
third parties or that third parties could seek to obtain rescission of
transactions with us undertaken during the period it was established that we
were an unregistered investment company.
We are dependent on a limited number of potential customers for carriage of
our programming services. The cable television and direct-to-home satellite
industries are currently undergoing a period of consolidation. As a result, the
number of potential buyers of our programming services and those of our
business affiliates is decreasing. AT&T's cable television subsidiaries and
affiliates, which as a group comprise one of the two largest operators of cable
television systems in the United States, are collectively the largest single
customer of Liberty's programming companies. With respect to some of our
programming services and
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those of our business affiliates, this is the case by a significant margin. The
existing agreements between AT&T's cable television subsidiaries and affiliates
and the program suppliers owned or affiliated with Liberty were entered into
prior to the AT&T merger. There can be no assurance that our owned and
affiliated program suppliers will be able to negotiate renewal agreements with
AT&T's cable television subsidiaries and affiliates. Although AT&T has agreed
to extend any existing affiliation agreement of Liberty and its affiliates that
expires on or before March 9, 2004 to a date not before March 9, 2009, that
agreement is conditioned on mutual most favored nation terms being offered and
the arrangements being consistent with industry practice. For more information
about our relationship with AT&T, see "Relationship with AT&T and Certain
Related Transactions."
This prospectus contains forward looking statements concerning future events
that are subject to risks, uncertainties and assumptions. Certain statements
made in this prospectus under the captions entitled "Prospectus Summary," "Risk
Factors," "Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this prospectus are
forward-looking statements. These forward-looking statements are based on our
current expectations and projections about future events. When used in this
prospectus, the words "believe," "anticipate," "intend," "estimate," "expect"
and similar expressions are intended to identify forward-looking statements,
although not all forward-looking statements contain such words. These forward-
looking statements are subject to risks, uncertainties and assumptions about us
and our subsidiaries and business affiliates, including, among other things,
the following:
. general economic and business conditions and industry trends;
. the continued strength of the industries in which we are involved;
. uncertainties inherent in our proposed business strategies;
. our future financial performance, including availability, terms and
deployment of capital;
. availability of qualified personnel;
. changes in, or our failure or inability to comply with, government
regulations and adverse outcomes from regulatory proceedings;
. changes in the nature of key strategic relationships with partners and
business affiliates;
. uncertainties inherent in the change over to the year 2000;
. rapid technological changes;
. our inability to obtain regulatory or other necessary approvals of any
strategic transactions; and
. social, political and economic situations in foreign countries where we
do business.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this prospectus. In light of
these risks, uncertainties and other assumptions, the forward-looking events
discussed in this prospectus might not occur.
17
<PAGE>
SPRINT CORPORATION
We refer to Sprint's PCS Common Stock--Series 1, par value $1.00 per share,
as Sprint PCS stock. In describing the debentures, the Sprint PCS stock will
initially comprise the reference shares. As of the date of this prospectus,
16.7764 shares of Sprint PCS stock are attributable to each debenture. The
reference shares will also include any other publicly traded common equity
securities that may be distributed on or in respect of the Sprint PCS stock, or
on or with respect to any publicly traded common equity security into which any
of those securities may be converted or exchanged. In describing the
debentures, we refer to Sprint and any other company which may in the future
become an issuer of reference shares as a reference company.
According to publicly available documents, Sprint is a domestic and
international long distance communications provider through its FON Group and a
domestic wireless mobile phone services provider through its PCS Group. Sprint
operates the only 100% digital PCS wireless network in the United States with
licenses to provide service nationwide utilizing a single frequency band and a
single technology. Sprint owns licenses to provide service to the entire United
States population, including Puerto Rico and the U.S. Virgin Islands. At
December 31, 1998, Sprint, together with certain affiliates, operated PCS
systems in 45 of the 50 largest U.S. metropolitan areas. Since the end of 1997,
the number of metropolitan markets served by Sprint has doubled to 280 and the
number of its customers has more than tripled to 3.35 million. Sprint's PCS
stock is a "tracking stock" intended to reflect the performance of Sprint's
domestic wireless personal communications services operations, while its FON
stock is a "tracking stock" intended to reflect the performance of all of
Sprint's other operations. The value of the debentures is based on the Sprint
PCS stock and not on the Sprint FON Group stock. Sprint is required to file
reports and other information with the SEC. Copies of these reports and other
information may be inspected and copied at the SEC offices specified under
"Where to Find More Information."
This prospectus relates only to the debentures being offered and does not
relate to the Sprint PCS stock or other securities of Sprint. Sprint has no
obligations whatsoever under the debentures. All disclosures contained in this
prospectus regarding Sprint are derived from the publicly available documents
referred to in the preceding paragraph. We have not participated in the
preparation of Sprint's documents nor made any due diligence inquiry with
respect to the information provided in those documents. The selling security
holders did not make any due diligence inquiry with respect to the information
provided in Sprint's documents in connection with the offering of the
debentures. Neither we nor the selling security holders represent that Sprint's
publicly available documents or any other publicly available information
regarding Sprint is accurate or complete. We cannot provide you with any
assurance that all events occurring prior to the date of this prospectus,
including events that would affect the accuracy or completeness of the publicly
available documents referred to in the preceding paragraph that would affect
the trading price of the Sprint PCS stock, and therefore the trading price of
the debentures, have been publicly disclosed. Subsequent disclosure of any such
events or the disclosure of or failure to disclose material future events
concerning Sprint could affect the trading price of the debentures.
We and our affiliates make no representation to you as to the performance of
Sprint, the Sprint PCS stock or any other securities of Sprint.
According to available public information, pursuant to a merger agreement
between MCI WorldCom, Inc. and Sprint, Sprint would be merged with and into MCI
WorldCom, Inc. Under this planned merger, holders of Sprint PCS stock would
receive one new share of MCI WorldCom PCS tracking stock and 0.116025 of a
share of MCI WorldCom common stock for each share of Sprint PCS stock. If the
merger occurs, the MCI WorldCom PCS stock and MCI WorldCom common stock will
become the reference shares. This merger is subject to many conditions,
including regulatory approvals, and may never occur. Even if it does occur, the
ratio by which holders of Sprint PCS stock would receive new stock may be
different from the ratio currently contemplated in that agreement.
18
<PAGE>
PRICE RANGE AND DIVIDEND HISTORY OF THE SPRINT PCS STOCK
The Sprint PCS stock is listed and traded on the NYSE under the symbol "PCS."
The following table sets forth, for the calendar quarters indicated (ended
March 31, June 30, September 30 and December 31), the range of high and low
sale prices of the Sprint PCS stock as reported on the NYSE Composite Tape
since its listing on November 23, 1998. To date, Sprint has never paid a cash
dividend on its Sprint PCS stock. Sprint paid a 2-for-1 stock dividend on the
Sprint PCS stock on February 4, 2000; the prices in the table below prior to
the date of the stock split have not been adjusted to reflect this stock
dividend.
<TABLE>
<CAPTION>
Sprint PCS Stock
------------------
High Low
--------- --------
<S> <C> <C>
1998:
Fourth quarter (beginning November 23)................. $ 23 3/8 $14 1/16
1999:
First quarter.......................................... 48 5/16 20 7/8
Second quarter......................................... 60 3/4 41 1/2
Third quarter.......................................... 78 1/4 52 15/16
Fourth quarter ........................................ 114 7/16 66 13/16
2000:
First quarter (through February 3)..................... 113 90 1/2
First quarter (February 4 through March 31)............ 66 1/16 42 9/16
Second quarter (through June 22)....................... 66 44 1/16
</TABLE>
The last reported sale price on the NYSE of one share of Sprint PCS stock on
June 22, 2000 was $61 13/16 (post-stock divided).
USE OF PROCEEDS
We will not receive any of the proceeds from the sale of the debentures by
the selling security holders. We have filed, and have caused to become
effective, the registration statement of which this prospectus is a part solely
to satisfy our obligation to register the debentures pursuant to the terms of a
registration rights agreement with the initial purchaser of the debentures.
19
<PAGE>
CAPITALIZATION
The following table sets forth our consolidated capitalization as of March
31, 2000. This table should be read in conjunction with Liberty's consolidated
financial statements and the related notes included elsewhere in this
prospectus. See "Index to Financial Statements."
<TABLE>
<CAPTION>
As of
March 31, 2000
--------------
<S> <C>
Cash and cash equivalents........................................ $ 2,177
=======
Short-term investments........................................... $ 525
=======
Cash collateral under securities lending agreement(a)............ $ 1,013
=======
Long-term debt (including current portion):
Bank credit facilities......................................... $ 1,058
Other debt..................................................... 213
7 7/8% Senior Notes due 2009................................... 741
8 1/2% Senior Debentures due 2029.............................. 494
4% Senior Exchangeable Debentures due 2029..................... 1,306
8 1/4% Senior Debentures due 2030.............................. 992
3 3/4% Senior Exchangeable Debentures due 2030................. 890
Obligations under securities lending agreement................. 1,116
-------
Total debt................................................... 6,810
-------
Stockholder's equity:
Common stock................................................... --
Additional paid-in capital..................................... 33,868
Accumulated other comprehensive earnings, net of taxes......... 8,267
Retained earnings (deficit).................................... (998)
-------
41,137
-------
Due to related parties......................................... (16)
-------
Total stockholder's equity................................... 41,121
-------
Total capitalization......................................... $47,931
=======
</TABLE>
--------
(a) The cash collateral under securities lending agreement is maintained in a
collateral account for our benefit by a third party. On March 31, 2000, we
could have drawn up to $790 million from this collateral account on demand.
The remaining $223 million would have been required to remain in the
collateral account. See "Management's Discussion and Analyses of Financial
Condition and Results of Operation--Liquidity and Capital Resources."
20
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
In the table below we provide you with selected historical consolidated
financial data of Liberty. We derived the historical consolidated financial
data from our consolidated financial statements included elsewhere in this
prospectus.
Liberty has been a wholly owned subsidiary of TCI since August 1994. On March
9, 1999, AT&T acquired TCI in a merger transaction. For financial reporting
purposes, the merger of AT&T and TCI is deemed to have occurred on March 1,
1999. In connection with the merger, the assets and liabilities of Liberty were
adjusted to their respective fair values pursuant to the purchase method of
accounting. For periods prior to March 1, 1999, the assets and liabilities of
Liberty and the related consolidated results of operations are referred to
below as "Old Liberty," and for periods subsequent to February 28, 1999, the
assets and liabilities of Liberty and the related consolidated results of
operations are referred to as "New Liberty." In connection with the merger, TCI
effected an internal restructuring as a result of which certain assets and
approximately $5.5 billion in cash were contributed to Liberty.
The financial data presented below are not necessarily comparable from period
to period as a result of several transactions, including acquisitions and
dispositions of consolidated subsidiaries. For this and other reasons, you
should read the selected historical financial data provided below in
conjunction with our consolidated financial statements and accompanying notes
beginning on page F-1 and the discussion under "Management's Discussion and
Analysis of Financial Condition and Results of Operations" beginning on
page 22.
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------------------------------- ----------------------------------------------------------
Three months One month Ten months Two months
ended ended ended ended Year ended December 31,
March 31, March 31, December 31, February 28, ------------------------------------------
2000 1999 1999 1999 1998 1997 1996 1995
------------ --------- ------------ --------------------------- ---------- ----- -----
(in millions, except ratios)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Revenue................. $ 235 71 729 235 1,359 1,225 2,208 1,821
Operating loss.......... (83) 3 (2,214) (158) (431) (260) (66) (214)
Interest expense........ (439) (13) (287) (25) (104) (40) (53) (34)
Share of losses of
affiliates, net........ (311) (80) (904) (66) (1,002) (785) (332) (190)
Gain on dispositions,
net.................... 2,441 -- 4 14 2,449 406 1,558 (78)
Net income (loss)....... 977 (58) (1,975) (70) 622 (470) 741 (56)
Balance Sheet Data (at
period end):
Cash and cash
equivalents............ $ 2,177 1,973 1,714 31 228 100 434 179
Short-term investments.. 525 3,217 378 125 159 248 59 --
Investments in
affiliates............. 15,723 17,093 15,922 3,971 3,079 2,359 1,519 1,932
Investment in Time
Warner, Inc............ 10,975 8,072 8,202 7,361 7,083 3,538 2,017 945
Investment in Sprint
Corporation............ 12,513 4,663 10,186 3,381 2,446 -- -- --
Total assets............ 66,889 48,524 58,650 16,886 15,783 7,735 6,722 5,605
Debt including current
portion................ 6,810 2,495 3,277 2,087 2,096 785 555 516
Stockholder's equity.... 41,121 34,451 38,408 9,449 9,230 4,721 4,519 3,731
Other Data:
Ratio of earnings to
fixed charges (a)...... 5.02x -- -- 5.12x 11.03x 2.06x 21.36x 3.86x
</TABLE>
--------
(a) The ratio of earnings to fixed charges of Liberty was less than 1.00x for
the one-month period ended March 31, 1999 and for the ten month period
ended December 31, 1999. Thus, earnings available for fixed charges were
inadequate to cover fixed charges for such period. The amount of the
coverage deficiencies for the one-month period ended March 31, 1999, and
for the ten month period ended December 31, 1999 were $59 million and
$2,797 million, respectively. For the ratio calculations, earnings
available for fixed charges consist of earnings (losses) before income
taxes plus fixed charges, distributions from and losses of less than 50%-
owned affiliates with debt not guaranteed by Liberty (net of earnings not
distributed of less than 50%-owned affiliates) and minority interests in
(earnings) losses of consolidated subsidiaries. Fixed charges consist of:
. interest on debt, including interest related to debt guaranteed by
Liberty of less than 50%-owned affiliates where the investment in such
affiliates results in the recognition of a loss;
. Liberty's proportionate share of interest of 50%-owned affiliates;
. that portion of rental expense which Liberty believes to be
representative of interest (one-third of rental expense); and
. amortization of debt issuance costs.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information concerning our
results of operations and financial condition. This discussion should be read
in conjunction with our consolidated financial statements and accompanying
notes beginning on page F-1.
Liberty's domestic subsidiaries generally operate or hold interests in
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. In
addition, certain of Liberty's subsidiaries hold interests in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services, infomercials and
transaction processing. Liberty also has significant interests in foreign
affiliates, which operate in cable television, programming and satellite
distribution.
Liberty's consolidated subsidiaries at March 31, 2000, included Starz Encore
Group (formerly named Encore Media Group), Liberty Digital, Inc. (formerly
named TCI Music, Inc.), Pramer S.C.A. and Liberty Cablevision of Puerto Rico.
These businesses are majority or wholly owned and, accordingly, the results of
operations of these businesses are included in the consolidated results of
Liberty for the periods in which they were majority or wholly owned.
A significant portion of Liberty's operations are conducted through entities
in which Liberty holds a 20%-50% ownership interest. These businesses are
accounted for using the equity method of accounting and, accordingly, are not
included in the consolidated results of Liberty except as they affect Liberty's
interest in earnings or losses of affiliates for the period in which they were
accounted for using the equity method. Included in Liberty's investments in
affiliates at March 31, 2000, were USA Networks, Inc., Discovery
Communications, Inc., TV Guide, Inc. (formerly named United Video Satellite
Group, Inc.), QVC Inc., United GlobalCom, Inc. and Telewest Communications plc.
Liberty holds interests in companies that are neither consolidated
subsidiaries nor affiliates accounted for using the equity method. The most
significant of these include Time Warner, Sprint Corporation and Motorola Inc.
(successor to General Instrument Corporation). The Time Warner stock, Sprint
Corporation tracking stock and Motorola stock that Liberty holds are classified
as available-for-sale securities and are carried at fair value. Unrealized
holding gains and losses on these securities are carried net of taxes as a
component of accumulated other comprehensive earnings in stockholder's equity.
Realized gains and losses are determined on a specific-identification basis.
As a result of AT&T's acquisition of TCI by merger on March 9, 1999, the
shares of each series of TCI common stock were converted into shares of a class
of AT&T common stock, subject to applicable exchange ratios. The AT&T merger
has been accounted for using the purchase method. Accordingly, Liberty's assets
and liabilities have been recorded at their respective fair values therefore
creating a new cost basis. For financial reporting purposes the AT&T merger is
deemed to have occurred on March 1, 1999. Accordingly, for periods prior to
March 1, 1999, the assets and liabilities of Liberty and the related
consolidated financial statements are sometimes referred to herein as "Old
Liberty," and for periods subsequent to February 28, 1999, the assets and
liabilities of Liberty and the related consolidated financial statements are
sometimes referred to herein as "New Liberty." "Liberty" refers to both New
Liberty and Old Liberty.
Summary Of Operations
Liberty's programming businesses include Starz Encore Group, which provides
premium programming distributed by cable, direct-to-home satellite and other
distribution media throughout the United States. Additionally, Liberty Digital
is included in Liberty's financial results. Liberty Digital, through its
subsidiaries and affiliates, is principally engaged in programming,
distributing and marketing digital and analog music services to homes,
businesses and over the Internet. Also included in Liberty's financial results
through
22
<PAGE>
March 1, 1999, are those of TV Guide which, during the period it was
consolidated, was engaged in the business of providing satellite-delivered
video, audio, data, and program promotion services to cable television systems,
direct-to-home satellite dish users, radio stations and private network users
throughout the United States. Effective March 1, 1999, Liberty began accounting
for its investment in TV Guide under the equity method of accounting. To
enhance the reader's understanding, separate financial data has been provided
below for the periods in which they were consolidated for Starz Encore Group,
Liberty Digital and TV Guide due to the significance of those operations. The
table sets forth, for the periods indicated, certain financial information and
the percentage relationship that certain items bear to revenue. Liberty holds
significant equity investments, the results of which are not a component of
operating income, but are discussed below under "--Investments in Affiliates
Accounted for Under the Equity Method." Other items of significance are
discussed separately below.
General Information
Due to the consummation of the AT&T merger, Liberty's 1999 statements of
operations include information reflecting the ten month period ended December
31, 1999, and the two month period ended February 28, 1999. Also, prior to
March 1, 1999, Liberty consolidated the operations of TV Guide, and subsequent
to February 28, 1999, Liberty accounted for its ownership interests in TV Guide
under the equity method. (See note 7 to the accompanying consolidated financial
statements.) The following discussion of Liberty's results of operations
includes a section that addresses the combined operating results of "Old
Liberty" and "New Liberty," collectively "Combined Liberty."
<TABLE>
<CAPTION>
New Liberty Old Liberty
---------------------------------------- --------------------
Three months One month Two months
ended % of ended % of ended % of
March 31, total March 31, total February 28, total
2000 revenue 1999 revenue 1999 revenue
------------ ------- --------- ------- ------------ -------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Starz Encore Group
Revenue....................................................... $ 176 100% $ 52 100% $ 101 100%
Operating, selling, general and administrative................ 113 64 38 73 60 59
Stock compensation............................................ -- -- -- -- 3 3
Depreciation and amortization................................. 41 23 12 23 1 1
----- ---- ---- ---- ----- ----
Operating income.............................................. $ 22 13% $ 2 4% $ 37 37%
===== ==== ==== ==== ===== ====
Liberty Digital
Revenue....................................................... $ 17 100% $ 8 100% $ 15 100%
Operating, selling, general and administrative................ 17 100 7 88 14 93
Stock compensation............................................ (132) (776) -- -- --
Depreciation and amortization................................. 14 82 4 50 4 27
----- ---- ---- ---- ----- ----
Operating income (loss)....................................... $ 118 694% $ (3) (38)% $ (3) (20)%
===== ==== ==== ==== ===== ====
TV Guide
Revenue....................................................... $ -- $-- $ 97 100%
Operating, selling, general and administrative................ -- -- 76 78
Depreciation and amortization................................. -- -- 10 10
----- ---- ---- ---- ----- ----
Operating income.............................................. $ -- $-- $ 11 12%
===== ==== ==== ==== ===== ====
Other
Revenue....................................................... $ 42 (a) $ 11 (a) $ 22 (a)
Operating, selling, general and administrative................ 44 11 38
Stock compensation............................................ 109 (41) 180
Depreciation and amortization................................. 112 37 7
----- ---- -----
Operating income (loss)....................................... $(223) $ 4 $(203)
--------------------------------------------------
===== ==== =====
</TABLE>
--------
(a) Not meaningful.
23
<PAGE>
In order to provide a meaningful basis for comparing the quarters ended March
31, 2000 and 1999 for purposes of the following table and discussion, the
operating results of Combined Liberty for the one month ended March 31, 1999
have been combined with the operating results of Combined Liberty for the two
months ended February 28, 1999, and the resulting three-month operating results
are compared to the operating results for the three months ended March 31,
2000. Depreciation, amortization and certain other line items included in the
operating results of Combined Liberty are not comparable between periods as the
two-month predecessor period ended February 28, 1999 does not include the
effects of purchase accounting adjustments related to the AT&T merger, and
subsequent periods do include the effects of purchase accounting adjustments
related to the AT&T merger. The combining of predecessor and successor
accounting periods is not acceptable under generally accepted accounting
principles.
<TABLE>
<CAPTION>
Combined Liberty
-------------------------------------------
Three months Three months
ended % of ended % of
March 31, total March 31, total
2000 revenue 1999 revenue
------------ ------- ------------ -------
(dollar amounts in millions)
<S> <C> <C> <C> <C>
Starz Encore Group
Revenue.......................... $ 176 100% $ 153 100%
Operating, selling, general and
administrative.................. 113 64 98 64
Stock compensation............... -- -- 3 2
Depreciation and amortization.... 41 23 13 9
----- ---- ----- ----
Operating income............... $ 22 13% $ 39 25%
===== ==== ===== ====
Liberty Digital
Revenue.......................... $ 17 100% $ 23 100%
Operating, selling, general and
administrative.................. 17 100 21 91
Stock compensation............... (132) (776) -- --
Depreciation and amortization.... 14 82 8 35
----- ---- ----- ----
Operating income (loss)........ $ 118 694% $ (6) (26)%
===== ==== ===== ====
TV Guide
Revenue.......................... $ -- -- $ 97 100%
Operating, selling, general and
administrative.................. -- -- 76 78
Depreciation and amortization.... -- -- 10 10
----- ---- ----- ----
Operating income............... $ -- -- $ 11 12%
===== ==== ===== ====
Other
Revenue.......................... $ 42 (a) $ 33 (a)
Operating, selling, general and
administrative.................. 44 49
Stock compensation............... 109 139
Depreciation and amortization.... 112 44
----- -----
Operating loss................. $(223) $(199)
===== =====
</TABLE>
--------
(a) Not meaningful.
24
<PAGE>
Quarter ended March 31, 2000, compared to quarter ended March 31, 1999
Consolidated Subsidiaries
Starz Encore Group. The majority of Starz Encore Group's revenue is derived
from the delivery of movies to subscribers under affiliation agreements between
Starz Encore Group and cable operators and satellite direct-to-home
distributors. Starz Encore Group entered into a 25-year affiliation agreement
in 1997 with TCI. TCI cable systems subsequently acquired by AT&T in the AT&T
merger operate under the name AT&T Broadband. Under this affiliation agreement
with AT&T Broadband, Starz Encore Group receives fixed monthly payments in
exchange for unlimited access to all of the existing Encore and STARZ!
services. The payment from AT&T Broadband is adjusted, in certain instances, if
AT&T acquires or disposes of cable systems or if Starz Encore Group's
programming costs increase above certain specified levels. Starz Encore Group's
other affiliation agreements generally provide for payments based on the number
of subscribers that receive Starz Encore Group's services.
Revenue increased to $176 million for the three months ended March 31, 2000
from $153 million for the corresponding period of 1999, primarily due to
increases in subscription units from all forms of distribution. These increases
are due to subscription unit increases of 6% for Encore, 48% for Thematic
Multiplex, and 15% for STARZ!
Operating expenses increased by 15% for the three months ended March 31, 2000
as compared to the corresponding period of 1999, primarily due to higher
programming license fees and an increase in spending on affiliate marketing
efforts related to higher revenue, partially offset by a decrease in national
branding efforts.
Depreciation and amortization increased from $13 million for the three months
ended March 31, 1999 to $41 million for the corresponding period in 2000. The
increase was a direct result of the effects of purchase accounting adjustments
related to the AT&T merger.
Liberty Digital. Liberty Digital's revenue is derived from its audio
business, which is engaged in programming, distributing and marketing a digital
and analog music service, Digital Music Express(R) (DMX Service). This service
provides continuous, commercial free, CD-quality music programming to homes and
businesses. Liberty Digital's results of operations also include its
interactive media business, which is engaged in the development of interactive
television businesses and the management of investments in interactive
programming content and interactive television businesses.
Revenue decreased 26% to $17 million for the three months ended March 31,
2000 from $23 million for the corresponding period in 1999. The decrease in
revenue was primarily caused by reduced revenue due to the sale of Liberty
Digital's video business and certain Internet businesses offset by increased
residential and commercial subscribers in its audio business. Additionally,
revenue for the three months ended March 31, 1999 included $1 million in
revenue from PRIMESTAR, Inc., a provider of digital satellite television
programming services. The DMX Service was terminated from distribution to
PRIMESTAR customers on April 28, 1999, as a result of the acquisition of
PRIMESTAR by Hughes Electronic Corp.
Operating, selling, general and administrative expenses decreased 19% to $17
million for the three months ended March 31, 2000, from $21 million for the
corresponding period in 1999. The decrease in expenses was primarily due to the
sale of Liberty Digital's video and certain Internet businesses, which was
partially offset by increased affiliation fees and selling, general and
administrative expenses due to the audio business' expansion.
Depreciation and amortization increased 75% to $14 million for the three
months ended March 31, 2000, from $8 million for the corresponding period in
1999. The increase was a result of the effects of purchase accounting
adjustments related to the AT&T merger.
25
<PAGE>
The amount of expense associated with stock compensation is generally based
on the vesting of the related stock options and stock appreciation rights and
the market price of the underlying common stock. The expense reflected in the
table is based on the market price of the underlying stock as of March 31,
2000, and is subject to future adjustment based on market price fluctuations
and, ultimately, on the final determination of market value when the rights are
exercised.
TV Guide. On March 1, 1999, United Video Satellite Group and News Corp.
completed a transaction whereby United Video Satellite Group acquired News
Corp.'s TV Guide properties in exchange for stock of United Video Satellite
Group and cash, creating a broader platform for offering television guide
services to consumers and advertisers. United Video Satellite Group was renamed
TV Guide. Upon consummation, Liberty began accounting for its interest in TV
Guide using the equity method of accounting and, accordingly, the results of
operations of TV Guide were no longer included in the consolidated financial
results of Liberty as of that date.
Other. Included in this information are the results of Liberty Media
International, Inc.'s consolidated subsidiaries, Liberty Cablevision of Puerto
Rico and Pramer, and corporate expenses of Liberty. Revenue increased 27% from
$33 million for the three months ended March 31, 1999, to $42 million for the
corresponding period in 2000. The increase in revenue was due to Liberty
Cablevision of Puerto Rico's revenue for the quarter ended March 31, 1999 being
affected by hurricane Georges, which struck in the fall of 1998, while revenue
for the corresponding quarter in 2000 returned to pre-hurricane levels. The
increase in revenue is also partially attributable to Liberty Media
International's purchase of Cable Management Ireland Limited during November
1999.
Operating, selling, general and administrative expenses decreased 10% to $44
million for the three months ended March 31, 2000, from $49 million for the
corresponding period in 1999. The decrease in expenses was primarily due to
additional corporate expenses of $12 million in 1999 associated with the AT&T
merger offset by the effect of the Cable Management Ireland acquisition as well
as the effect of the inclusion of True Position, Inc. beginning in January
2000. See note 5 to the accompanying consolidated financial statements.
Depreciation and amortization increased $68 million to $112 million for the
three months ended March 31, 2000 from $44 million for the corresponding period
in 1999. The increase was a result of the effects of purchase accounting
adjustments related to the AT&T merger.
The amount of expense associated with stock compensation is generally based
on the vesting of the related stock options and stock appreciation rights and
the market price of the underlying common stock. The expense reflected in the
table is based on the market price of the underlying common stock as of the
date of the financial statements and is subject to future adjustment based on
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised.
Other Income and Expense. Interest expense was $439 million, $13 million and
$26 million for the three month period ending March 31, 2000, the one month
period ending March 31, 1999 and the two month period ending February 28, 1999,
respectively. The increase in interest expense is due to increased borrowings
during 1999 and the first quarter of 2000 as well as additional interest
expense recorded on the debentures and the 4% Senior Exchangeable Debentures
due 2029. The carrying amount of the exchangeable debentures in excess of the
principal amount (contingent portion) is based on the fair value of the
underlying Sprint PCS Group stock. The increase or decrease in the contingent
portion is recorded as an increase or decrease to interest expense in the
combined statement of operations and comprehensive earnings. Included in
interest expense for the three months ended March 31, 2000 was $364 million of
noncash interest related to the contingent portion.
Dividend and interest income was $79 million, $24 million and $10 million for
the three month period ending March 31, 2000, the one month period ended March
31, 1999 and the two month period ending February 28, 1999, respectively. The
increase in dividend and interest income during 2000 primarily represents
dividends and interest income from the investment of the $5.5 billion received
in connection with the AT&T merger.
26
<PAGE>
Aggregate gains from dispositions and issuance of equity by affiliates and
subsidiaries during the three month period ended March 31, 2000, the one month
period ended March 31, 1999 and the two month period ended February 28, 1999
were $2,441 million, less than $1 million and $386 million, respectively.
Liberty recognized a gain of $2.2 billion (before deducting deferred income tax
expense of $883 million) during the three months ended March 31, 2000, in
connection with the acquisition of General Instrument by Motorola. See note 4
to the accompanying consolidated financial statements. Liberty also recognized
a $211 million gain (before deducting deferred income taxes of $84 million)
during the three months ended March 31, 2000, in connection with the TCI
Satellite Entertainment (TSAT) transaction. See note 5 to the accompanying
consolidated financial statements. The gain was calculated based on the
difference between the cost basis and fair value of the Sprint PCS Group stock
exchanged for two series of TSAT preferred stock. Liberty recognized a gain of
$372 million (before deducting deferred income taxes of $147 million) during
the two months ended February 28, 1999, in connection with the acquisition by
United Video Satellite Group of the TV Guide properties. See note 3 to the
accompanying consolidated financial statements.
Investments in Affiliates Accounted for Under the Equity Method
Liberty's share of losses of affiliates was $311 million, $80 million and $66
million during the three month period ending March 31, 2000, the one month
period ended March 31, 1999 and the two month period ending February 28, 1999,
respectively.
Discovery. Discovery's revenue increased $70 million or 23% from $298 million
for the three months ended March 31, 1999, to $368 million for the three months
ended March 31, 2000. The increase in revenue resulted from increases in rates
charged to affiliates and increases in advertising rates due to higher ratings
and a generally strong advertising sales market. Subscriber growth at
Discovery's international and developing networks also contributed to the
increase in revenue. Earnings before interest, taxes, depreciation and
amortization (Operating Cash Flow) increased by $4 million or 11% from $35
million for the three months ended March 31, 1999, to $39 million for the three
months ended March 31, 2000. The increase in Operating Cash Flow was due to
increases in revenue offset by increased programming and marketing expenses.
Marketing expenses have increased as Discovery continued the rollout of Travel
Channel and launched other developing networks. Discovery's net loss increased
$53 million or 294% from $18 million for the three months ended March 31, 1999,
to $71 million for the three months ended March 31, 2000. The increase in the
net loss is due to increased interest expense and launch amortization due to
the company's efforts to increase launch support related to developing
networks. Liberty's share of Discovery's net loss was approximately $63
million, $16 million and $8 million for the three month period ended March 31,
2000, the one month period ended March 31, 1999 and the two month period ended
February 28, 1999, respectively. Liberty's share of losses for the three month
period ended March 31, 2000, included $47 million in amortization related to
purchase accounting adjustments associated with Liberty's investment in
Discovery in connection with the AT&T merger.
USA Networks, Inc. Revenue increased $274 million or 38% from $729 million
for the three months ended March 31, 1999, to $1,003 million for the three
months ended March 31, 2000. The increase was due to increased advertising
revenue from the networks and studio businesses of USA Networks, increased
revenue from The Hotel Reservation Network acquisition, increased international
electronic retailing revenue due to the Home Order Television acquisition,
increased online ticketing revenue and increased domestic electronic retailing
revenue due to increased sales volume. Operating Cash Flow increased $44
million or 32% from $138 million for the three months ended March 31, 1999, to
$182 million for the three months ended March 31, 2000. The increase in
Operating Cash Flow was largely due to the increase in revenue offset by
increased cost of goods sold at the domestic and international electronic
retailing units due to the increased sales and increased expenses associated
with USA Networks continued development of new businesses. Net income decreased
from $7 million for the three months ended March 31, 1999, to a net loss of $19
million for the three months ended March 31, 2000, representing a decrease of
$26 million. The decrease in net income is primarily due to an increase in
amortization of goodwill resulting from acquisitions. Liberty's share of USA
Networks,
27
<PAGE>
Inc.'s net earnings (loss) was approximately $(7) million, $3 million and $10
million for the three month period ended March 31, 2000, the one month period
ended March 31, 1999 and the two month period ended February 28, 1999,
respectively. Liberty's share of losses for the three month period ended March
31, 2000, included $16 million in amortization related to purchase accounting
adjustments associated with Liberty's investment in USA Networks in connection
with the AT&T merger.
QVC. Revenue increased by $91 million or 14% from $650 million for the three
months ended March 31, 1999, to $741 million for the three months ended March
31, 2000. The increase in revenue is due to increased subscribers for each of
QVC's domestic, U.K. and German operations, as well as an increase in sales per
home at QVC's domestic operations. Operating Cash Flow increased by 11% or $14
million from $131 million for the three months ended March 31, 1999 to $145
million for the three months ended March 31, 2000, due to the revenue increase
and the corresponding increase in cost of goods sold, offset further by higher
variable costs and additional costs associated with QVC's expansion in the UK
and Germany. Net income increased by $12 million or 24% to $62 million for the
three months ended March 31, 2000, as compared to $50 million for the three
months ended March 31, 1999. The increase in net income was due to the increase
in Operating Cash Flow offset by increased income tax expense. Liberty's share
of QVC's net earnings (loss) was approximately $(1) million, $(1) million and
$13 million for the three month period ended March 31, 2000, the one month
period ended March 31, 1999 and the two month period ended February 28, 1999,
respectively. Liberty's share of losses for the three month period ended March
31, 2000 included $28 million in amortization related to purchase accounting
adjustments associated with Liberty's investment in QVC in connection with the
AT&T merger.
UnitedGlobalCom, Inc. Liberty's share of UnitedGlobalCom's net loss was $50
million for the three month period ended March 31, 2000. On September 30, 1999
Liberty purchased 9.9 million class B shares of UnitedGlobalCom for
approximately $493 million in cash. Liberty's ownership in UnitedGlobalCom is
approximately 10% on an economic basis and 36% on voting basis.
Telewest. Revenue increased $77 million or 25%, from $308 million for the
three months ended March 31, 1999, to $385 million for the three months ended
March 31, 2000. The increase was primarily due to the acquisition of the
remaining 50% of Cable London plc during the fourth quarter of 1999 and
increased cable penetration due to the continued success of Telewest's low-cost
bundled television and telephony services. Operating Cash Flow increased $10
million or 12% from $82 million for the three months ended March 31, 1999, to
$92 million for the three months ended March 31, 2000. The decrease in the
Operating Cash Flow margin resulted from increased costs in the first quarter
of 2000 due to the launch of digital services which commenced in the last
quarter of 1999. Telewest's net loss increased $35 million or 14% from $251
million for the three months ended March 31, 1999, to $286 million for the
three months ended March 31, 2000. The increase in net loss was primarily due
to increased interest expense, and increased depreciation and amortization
expense resulting from acquisitions. Telewest experiences unrealized foreign
currency transaction losses on its U.S. dollar denominated debentures resulting
from the translation of those debentures into UK pounds sterling and the
adjustment of a related foreign currency option contract to market value.
Liberty's share of Telewest's net losses was approximately $87 million, $25
million and $38 million for the three month period ended March 31, 2000, the
one month period ended March 31, 1999 and the two month period ended February
28, 1999, respectively. Liberty's share of losses for the three month period
ended March 31, 2000, included $22 million in amortization related to purchase
accounting adjustments associated with Liberty's investment in Telewest in
connection with the AT&T merger.
General Information
Due to the consummation of the AT&T merger, Liberty's 1999 statements of
operations include information reflecting the ten month period ended December
31, 1999, and the two month period ended February 28, 1999. Also, prior to
March 1, 1999, Liberty consolidated the operations of TV Guide, and subsequent
to February 28, 1999, Liberty accounted for its ownership interests in TV Guide
under the equity
28
<PAGE>
method. See note 7 to the accompanying consolidated financial statements. The
following discussion of Liberty's results of operations includes a section that
addresses the combined operating results of "Old Liberty" and "New Liberty,"
collectively "Combined Liberty."
<TABLE>
<CAPTION>
New Liberty Old Liberty
-------------------- --------------------------------------------------------------
Ten months Two months Year Year
ended % of ended % of ended % of ended % of
December 31, total February 28, total December 31, total December 31, total
1999 revenue 1999 revenue 1998 revenue 1997 revenue
------------ ------- ------------ ------- ------------ ------- ------------ -------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Starz Encore Group
Revenue................ $ 539 100% $ 101 100% $ 541 100% $ 350 100%
Operating, selling,
general and
administrative........ 415 77 60 59 445 82 382 109
Stock compensation..... 283 53 3 3 58 11 60 17
Depreciation and
amortization.......... 148 27 1 1 8 1 4 1
------- ------ ----- --- ----- --- ----- ---
Operating income
(loss)................ $ (307) (57)% $ 37 37% $ 30 6% $ (96) (27)%
======= ====== ===== === ===== === ===== ===
Liberty Digital
Revenue................ $ 66 100% $ 15 100% $ 86 100% $ 23 100%
Operating, selling,
general and
administrative........ 62 94 14 93 85 99 14 61
Stock compensation..... 703 1,065 -- -- -- -- 1 4
Depreciation and
amortization.......... 30 45 4 27 25 29 6 26
------- ------ ----- --- ----- --- ----- ---
Operating income
(loss)................ $ (729) (1,104)% $ (3) (20)% $ (24) (28)% $ 2 9%
======= ====== ===== === ===== === ===== ===
TV Guide
Revenue................ $ -- -- $ 97 100% $ 598 100% $ 508 100%
Operating, selling,
general and
administrative........ -- -- 76 78 475 79 404 79
Depreciation and
amortization.......... -- -- 10 10 28 5 19 4
------- ------ ----- --- ----- --- ----- ---
Operating income....... $ -- -- $ 11 12% $ 95 16% $ 85 17%
======= ====== ===== === ===== === ===== ===
Other
Revenue................ $ 124 (a) $ 22 (a) $ 134 (a) $ 344 (a)
Operating, selling,
general and
administrative........ 119 38 138 266
Stock compensation..... 799 180 460 235
Depreciation and
amortization.......... 384 7 68 94
------- ----- ----- -----
Operating loss......... $(1,178) $(203) $(532) $(251)
======= ===== ===== =====
</TABLE>
--------
(a) Not meaningful.
In order to provide a meaningful basis for comparing the years ended December
31, 1999 and 1998 for purposes of the following table and discussion, the
operating results of Combined Liberty for the ten months ended December 31,
1999 have been combined with the operating results of Combined Liberty for the
two months ended February 28, 1999. Depreciation, amortization and certain
other line items included in the operating results of Combined Liberty are not
comparable between periods as the ten month successor period ended December 31,
1999, includes the effects of purchase accounting adjustments related to the
AT&T merger, and prior periods do not. The combining of predecessor and
successor accounting periods is not permitted by generally accepted accounting
principles.
29
<PAGE>
<TABLE>
<CAPTION>
Combined Liberty
---------------------------------------------------------------
Year Year Year
ended % of ended % of ended % of
December 31, total December 31, total December 31, total
1999 revenue 1998 revenue 1997 revenue
------------ ------- ------------ ------- ------------ -------
(dollar amounts in millions)
<S> <C> <C> <C> <C> <C> <C>
Starz Encore Group
Revenue................ $ 640 100% $ 541 100% $ 350 100%
Operating, selling,
general and
administrative........ 475 74 445 82 382 109
Stock compensation..... 286 45 58 11 60 17
Depreciation and
amortization.......... 149 23 8 1 4 1
------- ---- ----- --- ----- ---
Operating income
(loss)................ $ (270) (42)% $ 30 6% $ (96) (27)%
======= ==== ===== === ===== ===
Liberty Digital
Revenue................ $ 81 100% $ 86 100% $ 23 100%
Operating, selling,
general and
administrative........ 76 94 85 99 14 61
Stock compensation..... 703 868 -- -- 1 4
Depreciation and
amortization.......... 34 42 25 29 6 26
------- ---- ----- --- ----- ---
Operating income
(loss)................ $ (732) (904)% $ (24) (28)% $ 2 9%
======= ==== ===== === ===== ===
TV Guide
Revenue................ $ 97 100% $ 598 100% $ 508 100%
Operating, selling,
general and
administrative........ 76 78 475 79 404 79
Depreciation and
amortization.......... 10 10 28 5 19 4
------- ---- ----- --- ----- ---
Operating income....... $ 11 12% $ 95 16% $ 85 17%
======= ==== ===== === ===== ===
Other
Revenue................ $ 146 (a) $ 134 (a) $ 344 (a)
Operating, selling,
general and
administrative........ 157 138 266
Stock compensation..... 979 460 235
Depreciation and
amortization.......... 391 68 94
------- ----- -----
Operating loss......... $(1,381) $(532) $(251)
======= ===== =====
</TABLE>
--------
(a) Not meaningful.
Year ended December 31, 1999, compared to December 31, 1998
Consolidated Subsidiaries
Starz Encore Group. The majority of Starz Encore Group's revenue is derived
from the delivery of movies to subscribers under affiliation agreements between
Starz Encore Group and cable operators and satellite direct-to-home
distributors. Starz Encore Group entered into a 25-year affiliation agreement
in 1997 with TCI. TCI cable systems, subsequently acquired by AT&T in the AT&T
merger, operate under the name AT&T Broadband. Under this affiliation agreement
with AT&T Broadband, Starz Encore Group receives fixed monthly payments in
exchange for unlimited access to all of the existing Encore and STARZ!
services. The payment from AT&T Broadband is adjusted, in certain instances, if
AT&T acquires or disposes of cable systems or if Starz Encore Group's
programming costs increase above certain specified levels. Starz Encore Group's
other affiliation agreements generally provide for payments based on the number
of subscribers that receive Starz Encore Group's services.
Revenue increased to $640 million in 1999 from $541 million in 1998. Revenue
from AT&T Broadband increased 13% during 1999, compared to 1998, pursuant to
the terms of the AT&T/Starz Encore Group affiliation agreement. Under this
agreement, the amount paid by AT&T Broadband does not vary with the number of
subscription units from AT&T Broadband. This category also includes revenue
from cable systems that have been contributed by AT&T to joint ventures and are
subject to the AT&T/Starz Encore Group affiliation agreement. Revenue from
cable affiliates other than AT&T Broadband increased 33% during 1999, compared
to 1998 mainly due to increases in subscription units for Encore and STARZ!
services, combined with small increases in rates charged. MOVIEplex and
Thematic Multiplex subscribers from cable affiliates
30
<PAGE>
other than AT&T Broadband increased by 42% and 414%, respectively, during 1999
compared to 1998, contributing to the increase in revenue. Revenue from
satellite providers and other distribution technologies increased 21% during
1999, due to 17%, 15% and 26% increases in STARZ!, Encore and Thematic
Multiplex subscription units, respectively, partially offset by subscriber
volume and penetration discounts.
Programming and other operating expenses increased by 12% during 1999,
compared to 1998, primarily due to increased first run exhibitions on Encore
and the Thematic Multiplex channels. Sales and marketing expenses increased by
6% during 1999, compared to 1998, due to the "New Encore" national awareness
campaign during 1999. The "New Encore" campaign is branding Encore as a first-
run premium pay service.
Depreciation and amortization increased from $8 million during 1998 to $149
million during 1999. The increase was a direct result of the effects of
purchase accounting adjustments related to the AT&T merger.
Starz Encore Group has granted phantom stock appreciation rights to certain
of its officers. Estimates of compensation relating to the phantom stock
appreciation rights have been recorded in Starz Encore Group's financial
statements based upon third-party appraisals, but are subject to future
adjustments based upon the appraised value of Starz Encore Group.
Liberty Digital. Liberty Digital's revenue is derived from its audio
business, which is engaged in programming, distributing and marketing a digital
music service, Digital Music Express(R) (DMX Service). This service provides
continuous, commercial free, CD-quality music programming to homes and
businesses. Liberty Digital's results of operations also include its
interactive media business, which is engaged in the development of interactive
television businesses and the management of investments in interactive
programming content and interactive television businesses.
Revenue decreased 6% to $81 million for 1999 from $86 million for 1998. The
decrease in revenue was primarily caused by reduced revenue due to the sale of
Liberty Digital's video business and certain Internet businesses offset by
increased residential and commercial subscribers in its audio business.
Additionally, revenue for 1999 included a $3 million settlement from PRIMESTAR,
Inc., a provider of digital satellite television programming services, for the
loss of future revenue after the DMX Service was terminated from distribution
to PRIMESTAR customers on April 28, 1999, as a result of the acquisition of
PRIMESTAR by Hughes Electronic Corp.
Operating, selling, general and administrative expenses decreased 11% to $76
million for 1999, from $85 million for 1998. The decrease in expenses was
primarily due to the sale of Liberty Digital's video and Internet businesses,
which was partially offset by increased affiliation fees and selling, general
and administrative expenses due to the audio business's expansion.
Depreciation and amortization increased 36% to $34 million for 1999, from $25
million for 1998. The increase was a result of the effects of purchase
accounting adjustments related to the AT&T merger.
The amount of expense associated with stock compensation is generally based
on the vesting of the related stock options and stock appreciation rights and
the market price of the underlying common stock. The expense reflected in the
table is based on the market price of the underlying stock as of December 31,
1999, and is subject to future adjustment based on market price fluctuations
and, ultimately, on the final determination of market value when the rights are
exercised.
TV Guide. On March 1, 1999, United Video Satellite Group and News Corp.
completed a transaction whereby United Video Satellite Group acquired News
Corp.'s TV Guide properties in exchange for stock of United Video Satellite
Group and cash, creating a broader platform for offering television guide
services to consumers and advertisers. United Video Satellite Group was renamed
TV Guide. Upon consummation, Liberty began accounting for its interest in TV
Guide using the equity method of accounting and, accordingly, the results of
operations of TV Guide were no longer included in the consolidated financial
results of Liberty as of that date.
31
<PAGE>
Other. Included in this information are the results of Liberty Media
International, Inc.'s consolidated subsidiaries, Liberty Cablevision of Puerto
Rico and Pramer, and corporate expenses of Liberty. Revenue increased 9% from
$134 million for 1998, to $146 million for 1999. The acquisition of Pramer in
August 1998 accounted for a $47 million increase in revenue in 1999. This
increase was partially offset by a decrease in revenue from the sale of Netlink
Wholesale, Inc. during January 1999 and the sale in February 1999 of
CareerTrack, Inc., a subsidiary that provided business and educational seminars
and related publications.
Operating, selling, general and administrative expenses increased 14% to $157
million for 1999, from $138 million for 1998. The increase in expenses was
primarily due to additional corporate expenses of $12 million in 1999
associated with the AT&T merger. The increase in expenses due to the
acquisition of Pramer was offset by the decrease in expenses as a result of the
sales of Netlink and CareerTrack.
Depreciation and amortization increased $323 million to $391 million for 1999
from $68 million during 1998. The increase was a result of the effects of
purchase accounting adjustments related to the AT&T merger.
The amount of expense associated with stock compensation is generally based
on the vesting of the related stock options and stock appreciation rights and
the market price of the underlying common stock. The expense reflected in the
table is based on the market price of the underlying common stock as of the
date of the financial statements and is subject to future adjustment based on
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised.
Other Income and Expense. Interest expense was $287 million, $25 million and
$104 million for the ten month period ending December 31, 1999, the two month
period ending February 28, 1999, and the year ended December 31, 1998,
respectively. The increase in interest expense during the 1999 periods was a
result of increased borrowings by Liberty during 1999.
Dividend and interest income was $242 million, $10 million and $65 million
for the ten month period ending December 31, 1999, the two month period ending
February 28, 1999 and the year ending December 31, 1998, respectively. The
increase in dividend and interest income during 1999 primarily represents
dividends and interest income from the investment of the $5.5 billion received
in connection with the AT&T merger.
Aggregate gains from dispositions and issuance of equity by affiliates and
subsidiaries during the ten month period ended December 31, 1999, the two month
period ended February 28, 1999, and the year ended December 31, 1998 were $4
million, $386 million and $2,554 million, respectively. Liberty recognized a
gain of $372 million (before deducting deferred income taxes of $147 million)
during the two months ended February 28, 1999, in connection with the
acquisition by United Video Satellite Group of the TV Guide properties. Liberty
recorded a non-cash gain of $1.9 billion (before deducting deferred income tax
expenses of $647 million) during 1998 as a result of the exchange of its
interest in Sprint PCS and PhillieCo Partnership I, L.P. for shares of Sprint
PCS Group stock. Effective January 1, 1998, Time Warner acquired the business
of Southern Satellite from Liberty for $213 million in cash resulting in a $515
million pre-tax gain.
Investments in Affiliates Accounted for Under the Equity Method
Liberty's share of losses of affiliates was $904 million, $66 million and
$1,002 million during the ten month period ending December 31, 1999, the two
month period ending February 28, 1999, and the year ending December 31, 1998,
respectively.
Discovery. Discovery's revenue increased $302 million or 28% from $1,094
million for 1998, to $1,396 million for 1999. The increase in revenue resulted
from increases in rates charged to affiliates and increases in advertising
rates due to higher ratings and a generally strong advertising sales market.
Subscriber growth at Discovery's international and developing networks also
contributed to the increase in revenue. Earnings before interest, taxes,
depreciation and amortization decreased by $2 million or 2% from $110 million
for 1998, to $108 million for 1999. The decrease in Operating Cash Flow was due
to increases in programming and marketing expenses offset by the increase in
revenue. Marketing expenses have increased as Discovery continued the rollout
of Animal Planet and launched other developing networks. Discovery's net loss
increased
32
<PAGE>
$175 million or 243% from $72 million for 1998, to $247 million for 1999. The
increase in the net loss is due to increased interest expense and launch
amortization due to the company's efforts to increase launch support related to
developing networks. Liberty's share of Discovery's net loss was approximately
$269 million, $8 million and $39 million for the ten month period ended
December 31, 1999, the two month period ended February 28, 1999 and the year
ended December 31, 1998, respectively. Liberty's share of losses for the ten
month period ended December 31, 1999, included $155 million in amortization
related to purchase accounting adjustments associated with Liberty's investment
in Discovery in connection with the AT&T merger.
USA Networks, Inc. Revenue increased $602 million or 23% from $2,634 million
for 1998, to $3,236 million for 1999. The increase was due to increased
advertising revenue from the Networks and Television Production businesses of
USA Networks and higher continuity (off-air) sales, as well as the launch of
Home Shopping en Espanol in the electronic retailing sector. The inclusion of
revenue from the Hotel Reservations Network since its acquisition on May 10,
1999, also contributed to the increase in revenue. Operating Cash Flow
increased $109 million or 23% from $464 million for 1998, to $573 million for
1999. The increase in Operating Cash Flow was largely due to the increase in
revenue offset by increased cost of goods sold at the electronic retailing unit
due to the increased sales and increased Internet services expenses as USA
Networks continued to rollout new web sites. Net income decreased from $77
million for 1998, to a net loss of $28 million for 1999, representing a
decrease of $105 million. The decrease in net income is primarily due to an
increase in minority interests in earnings of subsidiaries due to ownership
changes at USA Networks, Inc. Liberty's share of USA Networks, Inc.'s net
earnings (loss) was approximately $(20) million, $10 million and $30 million
for the ten month period ended December 31, 1999, the two month period ended
February 28, 1999 and the year ended December 31, 1998, respectively. Liberty's
share of losses for the ten month period ended December 31, 1999, included $53
million in amortization related to purchase accounting adjustments associated
with Liberty's investment in USA Networks in connection with the AT&T merger.
QVC. Revenue increased by $444 million or 18% from $2,403 million for 1998,
to $2,847 million for 1999. The increase in revenue is due to increased
subscribers as well as increases in the average sales per home for each of
QVC's domestic, U.K. and German operations. Operating Cash Flow increased by
24% or $105 million from $434 million for 1998 to $539 million for 1999, due to
the revenue increase and the corresponding increase in cost of goods sold,
offset further by higher variable costs and additional costs associated with
QVC's expansion in the UK and Germany. Net income increased by $72 million or
48% to $221 million for 1999, as compared to $149 million for 1998. The
increase in net income was due to the increase in Operating Cash Flow offset by
increased income tax expense. Liberty's share of QVC's net earnings (loss) was
approximately $(11) million, $13 million and $64 million for the ten month
period ended December 31, 1999, the two month period ended February 28, 1999,
and the year ended December 31, 1998, respectively. Liberty's share of losses
for the ten month period ended December 31, 1999 included $92 million in
amortization related to purchase accounting adjustments associated with
Liberty's investment in QVC in connection with the AT&T merger.
Fox/Liberty Networks. Liberty's share of Fox/Liberty Networks' net loss was
approximately $48 million, $1 million and $83 million for the ten month period
ended December 31, 1999, the two month period ended February 28, 1999 and the
year ended December 31, 1998, respectively. Liberty's share of losses for 1998
includes previously unrecognized losses of Fox/Liberty Networks of
approximately $64 million. Losses of Fox/Liberty Networks were not recognized
in prior periods due to the fact that Liberty's investment in
Fox/Liberty Networks was less than zero. On July 15, 1999, News Corp. acquired
Liberty's 50% interest in Fox/Liberty Networks. See note 6 to the accompanying
consolidated financial statements.
Telewest. Revenue increased $375 million or 42%, from $896 million for 1998,
to $1,271 million for 1999. The increase was primarily due to the acquisition
of General Cable plc and Birmingham Cable Corporation Limited in September 1998
and increased cable penetration due to the success of Telewest's low-cost
bundled television and telephony services introduced during 1998. Operating
Cash Flow increased $96 million or 40% from $243 million for 1998, to $339
million for 1999. The increase in Operating Cash Flow was largely due to the
increase in revenue and economies of scale resulting from the enlarged
operations. Telewest's net loss increased $308 million or 56% from $553 million
for 1998, to $861 million for 1999. The
33
<PAGE>
increase in net loss was due to increased interest expense, increased
depreciation and amortization expense resulting from acquisitions and increased
foreign currency transaction losses. Telewest experiences unrealized foreign
currency transaction losses on its U.S. dollar denominated debentures resulting
from the translation of the debentures into UK pounds sterling and the
adjustment of a related foreign currency option contract to market value.
Liberty's share of Telewest's net losses was approximately $222 million, $38
million and $134 million for the ten month period ended December 31, 1999, the
two month period ended February 28, 1999, and the year ended December 31, 1998,
respectively. Liberty's share of losses for the ten month period ended December
31, 1999, included $73 million in amortization related to purchase accounting
adjustments associated with Liberty's investment in Telewest in connection with
the AT&T merger.
PCS Ventures. Liberty's share of losses from its investment in the PCS
Ventures was $629 million during 1998. At that time, the PCS Ventures included
Sprint Spectrum Holding Company, L.P. and MinorCo, L.P. (collectively, "Sprint
PCS") and PhillieCo Partnership I, L.P. The partners of each of the Sprint PCS
partnerships were subsidiaries of Sprint, Comcast Corporation, Cox
Communications, Inc. and Liberty. The partners of PhillieCo were subsidiaries
of Sprint, Cox and Liberty. Liberty had a 30% partnership interest in each of
the Sprint PCS partnerships and a 35% partnership interest in PhillieCo.
On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective
interests in Sprint PCS and PhillieCo for shares of Sprint PCS Group stock,
which tracks the performance of Sprint's PCS Group (consisting initially of the
PCS Ventures and certain PCS licenses which were separately owned by Sprint).
Through November 23, 1998, Liberty accounted for its interest in the PCS
Ventures using the equity method of accounting; however, as a result of the
foregoing exchange, Liberty's less than 1% voting interest in Sprint and the
transfer of its Sprint securities to a trust prior to the AT&T merger, Liberty
no longer exercises significant influence with respect to its investment in the
PCS Ventures. Accordingly, Liberty accounts for its investment in the Sprint
securities as an available-for-sale security. See note 6 to the accompanying
consolidated financial statements.
Year Ended December 31, 1998, compared to December 31, 1997
Consolidated Subsidiaries
Starz Encore Group. Revenue generated from Starz Encore Group increased to
$541 million in 1998 from $350 million in 1997. This increase of $191 million,
or 55%, was primarily attributable to higher revenue from AT&T Broadband,
consistent with the terms of the affiliation agreement with AT&T Broadband, and
the increases in the distribution of Encore and STARZ! services to cable
operators other than AT&T Broadband and direct-to-home satellite providers
combined with increases in rates charged.
Operating, selling, general and administrative expenses increased to $445
million in 1998 from $382 million in 1997. The increase of $63 million, or 16%,
is the result of an increase in the first run program license fees during 1998
compared to 1997.
Liberty Digital. Revenue increased 274% to $86 million in 1998 from $23
million in 1997. The increase in revenue was due to the acquisition of DMX in
July of 1997. Effective July 11, 1997, a subsidiary of Liberty
Digital was merged with and into DMX, Inc. As a result of the DMX merger, DMX's
results of operations have been included in the consolidated financial results
of Liberty as of the date of the merger. See note 8 to the accompanying
consolidated financial statements.
Operating, selling and general administrative expenses increased 507% to $85
million in 1998 from $14 million in 1997. The increase in expenses was due to
the inclusion of the operations of DMX since July of 1997.
Depreciation and amortization increased $19 million to $25 million in 1998
from $6 million in 1997. The increase was primarily attributable to increased
amortization of intangibles resulting from the acquisition of DMX.
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TV Guide. Revenue increased 18% to $598 million in 1998 from $508 million in
1997. The increase in revenue was primarily due to the acquisition of Turner-
Vision's retail C-band operations and increased advertising and service fee
revenue. Effective February 1, 1998, Turner-Vision, Inc. contributed the
assets, obligations and operations of its retail C-band satellite business to
Superstar/Netlink Group LLC, a consolidated subsidiary of TV Guide, in exchange
for an approximate 20% ownership interest in Superstar/Netlink. As a result of
this transaction, Turner-Vision's results of operations have been included in
the consolidated financial results of TV Guide, and therefore the consolidated
results of Liberty, as of February 1, 1998. These increases were partially
offset by a decrease in commission revenue from Superstar/Netlink acting as a
service agent in the direct broadcast satellite market.
Operating, selling and general and administrative expenses consist primarily
of costs for programming content for the C-band operations and personnel costs.
Operating, selling, general and administrative expenses increased 18% to $475
million in 1998 from $404 million in 1997. The increase was primarily
attributable to additional expenses due to the inclusion of Turner-Vision,
increased personnel costs due to internal growth and increased legal fees
related to litigation and periodic filings with the SEC, and increased costs
associated with Prevue Channel's new format under the TV Guide Brand.
Depreciation and amortization increased $9 million to $28 million in 1998
from $19 million in 1997. The increase was attributable to the amortization of
intangibles resulting from the acquisition of Turner-Vision and increased
depreciation resulting from the acquisition of certain equipment to support the
various Prevue products.
Other. Included in this information are the results of Liberty Media
International, Southern Satellite Systems, Inc. and corporate expenses of
Liberty. Revenue decreased to $134 million in 1998 from $344 million in 1997.
Liberty Media International's revenue decreased from $220 million in 1997 to
$65 million in 1998. This $155 million decrease was attributable to the
deconsolidation of Cablevision in October 1997. Cablevision represented $173
million in revenue during 1997. Additionally, revenue decreased as a result of
the sale of the business of Southern Satellite. Effective January 1, 1998, Time
Warner exercised an option to acquire the business of Southern Satellite and
accordingly the results of operations of that business were no longer included
in the consolidated financial results of Liberty as of that date. The business
of Southern Satellite contributed $31 million to revenue during 1997. In August
1998, Liberty Media International purchased Pramer, which contributed an
additional $17 million in revenue from the date of acquisition to December 31,
1998.
Operating, selling, general and administrative expenses decreased to $138
million in 1998 from $266 million in 1997. The primary reason for this decrease
is the deconsolidation of Cablevision in October 1997. Cablevision accounted
for approximately $105 million of operating expenses in 1997.
The amount of expense associated with stock compensation is based on the
vesting of the related stock options and stock appreciation rights and the
market price of the underlying common stock as of the date of the financial
statements. The expense is subject to future adjustment based on vesting and
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised.
Other Income and Expense. Interest expense was $104 million and $40 million
for 1998 and 1997, respectively. The increase in interest expense of $64
million was a result of additional borrowing on Liberty's credit facilities
during 1998.
Dividend and interest income was $65 million and $59 million for 1998 and
1997, respectively. Dividend and interest income for 1998 primarily represents
dividends received of approximately $21 million on a series of Time Warner
common stock designated as Series LMCN-V Common Stock and $31 million in
dividends received on a series of 30 year non-convertible 9% preferred stock of
Fox Kids Worldwide, Inc. During 1997 dividends received from the Time Warner
Series LMCN-V Common Stock and the Fox Kids Worldwide preferred stock amounted
to $19 million and $14 million, respectively. During 1997, Liberty also
recognized an additional $14 million in interest income relating to short-term
investments.
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Aggregate gains from dispositions and issuance of equity by affiliates and
subsidiaries during 1998 and 1997 were $2,554 million and $406 million,
respectively. As a result of the exchange by Liberty of its investment in the
PCS Ventures for shares of Sprint PCS Group stock, Liberty recorded a non-cash
gain of $1.9 billion (before deducting deferred income tax expense of $647
million) during 1998. Additionally, Liberty recognized a $515 million pre-tax
gain in connection with the sale of Southern Satellite in 1998. Effective
September 1, 1998, Telewest and General Cable PLC consummated a merger in which
holders of General Cable received Telewest shares and cash for each share of
General Cable held. As a result of the merger, Liberty recognized a non-cash
gain of $60 million (excluding related tax expense of $21 million) during 1998.
Liberty recognized a gain of $38 million in 1998 from the increase in
Superstar/Netlink's equity, net of the dilution of its interest in
Superstar/Netlink, that resulted from the above described transaction with
Turner-Vision.
On August 1, 1997, Liberty IFE, Inc., a wholly owned subsidiary of Liberty,
which held non-voting Class C common stock of International Family
Entertainment, Inc. and $23 million of International Family Entertainment 6%
convertible secured notes due 2004, convertible into International Family
Entertainment Class C common stock, contributed its International Family
Entertainment Class C common stock and International Family Entertainment 6%
convertible secured notes to Fox Kids Worldwide in exchange for the Fox Kids
Worldwide preferred stock. As a result of the exchange, Liberty recognized a
pre-tax gain of approximately $304 million during 1997.
Investments in Affiliates Accounted for Under the Equity Method
Liberty's share of losses of affiliates was $1,002 million and $785 million
during 1998 and 1997, respectively.
Discovery. Revenue increased $234 million or 27% to $1,094 million in 1998
from $860 million in 1997. The increase in revenue was due to increases in the
number of subscribers at Discovery's various networks along with an increase in
the average per subscriber affiliate fee. Advertising revenue also contributed
to the increases due to the increase in subscribers combined with an increase
in ratings. Operating Cash Flow increased $80 million or 267% to $110 million
in 1998 from $30 million in 1997. The increase in Operating Cash Flow from 1998
to 1997 was due to the revenue growth at the developed domestic and
international networks offset by a smaller corresponding increase in operating
expenses at those networks. Discovery's net loss increased by $19 million or
36% to $72 million in 1998 from $53 million in 1997. The increase in the net
loss from 1997 to 1998 was due to the improvement in Operating Cash Flow offset
by an increase in interest expense, launch amortization and stock compensation
as well as the write off of Your Choice TV. Liberty's share of losses was $39
million and $29 million, for each of 1998 and 1997, respectively.
USA Networks, Inc. Revenue increased $1,372 million or 109% to $2,634 million
in 1998 from $1,262 million in 1997. The increase in revenue from 1997 to 1998
was due to the Universal and Ticketmaster transactions being completed by USA
Networks during 1998. See note 5 to the accompanying consolidated financial
statements. Operating Cash Flow increased $272 million to $464 million in 1998
from $192 million in
1997. The increase in Operating Cash Flow from 1997 to 1998 was due to the
Universal and Ticketmaster transactions. Net income increased by $64 million to
$77 million in 1998 from $13 million in 1997. The increase in net income from
1997 to 1998 was due to the increase in Operating Cash Flow along with one-time
transactional gains offset by significant increases in depreciation,
amortization, interest and income tax expenses. Liberty's share of earnings
(loss) of USA Networks and related investments was $30 million and $5 million
for 1998 and 1997, respectively.
QVC Inc. Revenue increased $321 million or 15% to $2,403 million in 1998 from
$2,082 million in 1997. The increase in revenue for 1998 was primarily
attributable to the effects of a 5.6% increase in the average number of homes
receiving QVC services in the U.S. and an 11.8% increase in the average number
of homes receiving QVC services in the United Kingdom. Operating Cash Flow
increased $96 million or 28% to $434 million in 1998 from $338 million in 1997.
The increase in Operating Cash Flow was caused by the increase in revenue
offset by increased cost of goods sold and variable costs associated with the
increased sales.
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Start-up costs of QVC Germany also contributed $3 million to the increase in
offsetting costs for 1998. Net income increased 110% or $78 million to $149
million in 1998 from $71 million in 1997. The increases in net income were due
to the increases in Operating Cash Flow offset by increases in depreciation,
amortization and income tax expenses in each of the respective periods
presented. Liberty's share of earnings was $64 million and $30 million for 1998
and 1997, respectively.
Fox/Liberty Networks. Revenue increased 39% or $183 million to $655 million
in 1998 from $472 million in 1997. A large portion of the increase in revenue
was due to the acquisition of Affiliated Regional Communications by Fox/Liberty
Networks on March 13, 1997 which increased the number of consolidated
subsidiaries and their respective operations. Had the acquisition of Affiliated
Regional Communications been completed for all periods presented, revenue would
have increased $128 million for 1998. The increase in revenue was attributable
to continued subscriber growth at the regional sports networks and the FX
network along with increased advertising revenue due to increased subscribers
and ratings. Operating Cash Flow increased $94 million to $79 million in 1998
from a deficit of $15 million in 1997. The increase in Operating Cash Flow was
caused by the revenue growth coupled with an increase in operating expenses.
The increase in operating expenses was due to an increase in the number of
professional events, primarily Major League Baseball games, as well as
increased programming rights fees of regional sports networks due to
renegotiated and newly entered into sports rights agreements. Fox/Liberty
Networks net loss decreased by $16 million or 21% to $62 million in 1998 from
$78 million in 1997. The decrease in the net loss was due to the improvement in
Operating Cash Flow offset primarily by interest expense. In 1998, interest
expense increased to $113 million from $49 million in 1997 due to additional
indebtedness that was entered into in the latter half of 1997. Liberty's share
of losses was $83 million for 1998 and zero for 1997, as Liberty's basis in the
investment was less than zero. See note 5 to the accompanying consolidated
financial statements.
PCS Ventures. Liberty's share of losses from its investment in the PCS
Ventures was $629 million and $493 million in 1998 and 1997, respectively. The
increase in the share of losses is attributed primarily to increases in:
. selling, general and administrative costs associated with Sprint PCS's
efforts to increase its customer base;
. depreciation expense resulting from capital expenditures made to expand
its PCS network; and
. interest expense associated with higher amounts of outstanding debt.
Telewest. Telewest accounted for $134 million and $145 million of Liberty's
share of its affiliates' losses during 1998 and 1997, respectively. The
increase in the share of losses was primarily attributable to the net effects
of:
. changes in foreign currency transaction losses;
. an increase in Operating Cash Flow resulting from revenue growth; and
. an increase in interest expense.
Telewest issued debentures in connection with a previous merger transaction.
Changes in the exchange rate used to translate the Telewest debentures into
U.K. pounds sterling and the adjustment of a foreign currency option contract
to market value caused Telewest to experience foreign currency transaction
gains/losses that affected Liberty's share of Telewest's losses.
Liquidity and Capital Resources
Liberty's sources of funds include its available cash balances, net cash from
operating activities, dividend and interest receipts, proceeds from asset sales
and proceeds from financing activities. Liberty is a holding company and as
such is generally not entitled to the cash resources or cash generated by
operations of its subsidiaries and business affiliates. Liberty is primarily
dependent upon its financing activities to generate sufficient cash resources
to meet its cash requirements.
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In connection with the AT&T merger and other related transactions, Liberty
received approximately $5.5 billion in cash. Also, upon consummation of the
AT&T merger, through a new tax sharing agreement between Liberty and AT&T,
Liberty became entitled to the benefit of all of the net operating loss
carryforwards available to the entities included in TCI's consolidated income
tax return as of the date of the AT&T merger. In addition, under the tax
sharing agreement, Liberty will receive a cash payment from AT&T in periods
when it generates taxable losses and those taxable losses are utilized by AT&T
to reduce the consolidated income tax liability. Additionally, certain warrants
held by TCI were transferred to Liberty in exchange for $176 million in cash.
At March 31, 2000, Liberty and its consolidated subsidiaries had bank credit
facilities which provided for borrowings of up to $1.2 billion. Borrowings
under these facilities of $1.1 billion were outstanding at March 31, 2000.
Certain assets of Liberty's consolidated subsidiaries serve as collateral for
borrowings under these bank credit facilities. Also, these bank credit
facilities contain provisions which limit additional indebtedness, sale of
assets, liens, guarantees and distributions by the borrowers.
On January 7, 2000, a trust, which holds Liberty's investment in Sprint,
entered into agreements to loan 18 million shares of Sprint PCS Group stock (as
adjusted for a two-for-one stock split) to a third party, as Agent, in exchange
for 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 has the use of 80% of the
cash collateral plus any interest earned thereon during the term of the loan,
and is required to pay a rebate fee equal to the Federal funds rate less 30
basis points to the borrower of the loaned shares. The cash collateral of
$1,013 million at March 31, 2000, included $223 million of restricted cash. At
March 31, 2000, Liberty had utilized $103 million of the cash collateral under
the securities lending agreement.
On February 2, 2000, Liberty received net cash proceeds of $983 million from
the issuance of its 8 1/4% Senior Debentures due 2030.
On February 10, 2000, Liberty received net cash proceeds of $735 million from
the issuance of the debentures. On March 8, 2000, Liberty received net cash
proceeds of $59 million, including accrued interest from February 10, 2000,
from the issuance of an additional $60 million principal amount of the
debentures.
There are restrictions on incurrence of debt of Liberty Media Group, and
therefore on Liberty, through an Inter-Group Agreement with AT&T. Liberty Media
Group may not incur any debt that would cause the total indebtedness of Liberty
Media Group at any time to be in excess of 25% of the total market
capitalization of the Liberty Media Group tracking stock ($20 billion at March
31, 2000), if the excess would adversely affect the credit rating of AT&T.
Various partnerships and other affiliates of Liberty accounted for under the
equity method finance a substantial portion of their acquisitions and capital
expenditures through borrowings under their own credit facilities and net cash
provided by their operating activities.
Subsequent to March 31, 2000, Liberty has made investments in and loans to
affiliates and others aggregating approximately $1.1 billion.
Liberty holds shares of Time Warner Series LMCN-V common stock, which are
convertible into 114 million shares of Time Warner common stock. Holders of
Time Warner Series LMCN-V common stock are entitled to receive dividends
ratably with Time Warner common stock. Liberty has received approximately $5
million in cash dividends quarterly from Time Warner. It is anticipated that
Time Warner will continue to pay dividends on its common stock and consequently
that Liberty will receive dividends on the Time Warner Series LMCN-V common
stock it holds. However, there can be no assurance that such dividends will
continue to be paid.
Liberty receives approximately $8 million in cash dividends quarterly on the
Fox Kids Worldwide preferred stock. This preferred stock pays quarterly
dividends at the annual rate of 9% of the liquidation value of $1,000 per
share. If Fox Kids Worldwide does not declare or pay a quarterly dividend, that
dividend will be
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added to the liquidation value and the dividend rate will increase to 11.5% per
annum until all accrued and unpaid dividends are paid. News Corp. has
undertaken to fund all amounts needed by Fox Kids Worldwide to pay any amounts
it is required to pay under the certificate of designations for the Fox Kids
Worldwide preferred stock, including payment of the liquidation value of that
stock upon any optional or mandatory redemption of that stock.
Liberty owns approximately 81.7 million ADRs representing preferred limited
voting shares of News Corp. News Corp. has historically paid cash dividends on
its common stock and it is anticipated that it will continue to do so. Holders
of the ADRs are entitled to receive dividends ratably with News Corp. common
stock, and, consequently, Liberty receives cash dividends on the ADRs that it
holds. However, there can be no assurance that such dividends will continue to
be paid.
On January 5, 2000, Motorola, Inc. completed the acquisition of General
Instrument Corporation through a merger of General Instrument with a wholly
owned subsidiary of Motorola. In the merger, each outstanding share of General
Instrument common stock was converted into the right to receive 0.575 shares of
Motorola common stock. In connection with the merger Liberty received 18
million shares and warrants to purchase 12 million shares of Motorola common
stock in exchange for its holdings in General Instrument. Motorola has
historically paid cash dividends on its common stock and it is anticipated that
it will continue to do so. Consequently, Liberty expects to receive cash
dividends on its shares of Motorola common stock. However, there can be no
assurance that such dividends will continue to be paid.
Pursuant to a proposed final judgment agreed to by TCI, AT&T and the United
States Department of Justice on December 30, 1998, Liberty transferred all of
its beneficially owned securities of Sprint to a trust 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 held
by the trust sufficient to cause Liberty to own beneficially no more than 10%
of the outstanding Sprint PCS stock that would be outstanding on a fully
diluted basis on such date. On or before May 23, 2004, the trustee must divest
the remainder of the Sprint securities held by the trust. The final judgment
requires the trustee to vote the Sprint securities beneficially owned by
Liberty in the same proportion as other holders of Sprint PCS stock so long as
such securities are held by the trust. The final judgment also prohibits the
acquisition by Liberty of additional Sprint securities, with certain
exceptions, without the prior written consent of the Department of Justice.
As of March 31, 2000, the unrealized appreciation, net of taxes, of the fair
value of Liberty's shares of Time Warner Series LMCN-V common stock was $1.9
billion, based upon the market value of the Time Warner common stock into which
the Time Warner Series LMCN-V common stock is convertible. As of March 31,
2000, the unrealized appreciation, net of taxes, of the fair value of the
Sprint PCS Group stock held by Liberty was $5.2 billion based upon the market
value of such shares.
Liberty has guaranteed notes payable and other obligations of certain
affiliates. At March 31, 2000, the U.S. dollar equivalent of the amounts
borrowed pursuant to these guaranteed obligations aggregated approximately $679
million.
Telewest (as successor to Flextech) has undertaken to finance the working
capital requirements of a joint venture that it has formed with BBC Worldwide
Limited, and is obligated to provide this joint venture with a primary credit
facility of (Pounds)88 million and, subject to certain restrictions, a standby
credit facility of (Pounds)30 million. As of March 31, 2000, this joint venture
had borrowed (Pounds)59 million under the primary credit facility. If Telewest
defaults in its funding obligation to the joint venture and fails to cure the
default within 42 days after receipt of notice from BBC Worldwide, BBC
Worldwide is entitled, within the following 90 days, to require that Liberty
assume all of Telewest's funding obligations to the joint venture.
Liberty intends to continue to develop its entertainment and information
programming services and has made certain financial commitments related to the
acquisition of programming. As of March 31, 2000, Starz Encore Group's future
minimum obligation related to certain film licensing agreements was $1.2
billion. The amount of the total obligation is not currently estimable because
such amount is dependent upon the number of
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qualifying films released theatrically by certain motion picture studios as
well as the domestic theatrical exhibition receipts upon the release of such
qualifying films. Continued development may require additional financing and it
cannot be predicted whether Starz Encore Group will obtain such financing. If
additional financing cannot be obtained by Starz Encore Group, Starz Encore
Group or Liberty could attempt to sell assets but there can be no assurance
that asset sales, if any, can be consummated at a price and on terms acceptable
to Liberty.
Cash Flows from Operating Activities
Cash flows used in operating activities for the three months ended March 31,
2000, the one month ended March 31, 1999 and the two months ended February 28,
1999 were $163 million, $11 million and $107 million, respectively. Cash used
during the three months ended March 31, 2000 and the two months ended February
28, 1999 included payments related to stock appreciation rights of $183 million
and $126 million, respectively.
Cash Flows from Investing Activities
Cash flows used in investing activities were $975 million, $3,302 million and
$79 million for the three months ended March 31, 2000, the one month ended
March 31, 1999 and the two months ended February 28, 1999, respectively.
Liberty is a holding company and as such it uses investing cash flows to make
contributions and investments in entities in which Liberty holds a 50% or less
ownership interest. Cash flows from investing activities were used for
investments in and loans to affiliates amounting to $808 million, $88 million
and $51 million during the three months ended March 31, 2000, the one month
ended March 31, 1999 and the two months ended February 28, 1999, respectively.
Investing cash flows were primarily used in the purchase of marketable
securities during the one month period ended March 31, 1999. Liberty made
purchases of marketable securities of $3.2 billion during the one month period
ended March 31, 1999. Additionally, Liberty invested $344 million in
acquisitions during the three moth period ended March 31, 2000.
Cash Flows from Financing Activities
Liberty is primarily dependent on financing activities to generate sufficient
cash resources to meet its cash requirements. Financing cash flows consist
primarily of borrowings and repayments of debt. Liberty had borrowings of $2.4
billion, $495 million and $155 million and repayments of $772 million, $448
million and $145 million during the three months ended March 31, 2000, the one
month ended March 31, 1999 and the two months ended February 28, 1999,
respectively.
Accounting Standards
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("Statement 133"), which is effective for all fiscal
years beginning after June 15, 2000. Statement 133 establishes accounting and
reporting standards for derivative instruments and hedging activities by
requiring that all derivative instruments be reported as assets or liabilities
and measured at their fair values. Under Statement 133, changes in the fair
values of derivative instruments are recognized immediately in earnings unless
those instruments qualify as hedges of the:
. fair values of existing assets, liabilities or firm commitments;
. variability of cash flows of forecasted transactions; or
. foreign currency exposures of net investments in foreign operations.
Although our management has not completed its assessment of the impact of
Statement 133 on Liberty's consolidated results of operations and financial
position, management does not expect that the impact of Statement 133 will be
significant, however, no assurances can be given that it will not be
significant.
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Market Risk
Liberty is exposed to market risk in the normal course of its business
operations due to its investments in different foreign countries and ongoing
investing and financial activities. Market risk refers to the risk of loss
arising from adverse changes in foreign currency exchange rates, interest rates
and stock prices. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings. Liberty has
established policies, procedures and internal processes governing its
management of market risks and the use of financial instruments to manage its
exposure to such risks.
Contributions to Liberty's foreign affiliates are denominated in foreign
currency. Liberty therefore is exposed to changes in foreign currency exchange
rates. Currently, Liberty does not hedge any foreign currency exchange risk
because of the long-term nature of its interests in foreign affiliates. Liberty
continually evaluates its foreign currency exposure (primarily the Argentine
Peso, British Pound Sterling, Japanese Yen and French Franc) based on current
market conditions and the business environment.
Liberty is exposed to changes in interest rates primarily as a result of its
borrowing and investment activities, which include fixed and floating rate
investments and borrowings used to maintain liquidity and fund its business
operations. The nature and amount of Liberty's long-term and short-term debt
are expected to vary as a result of future requirements, market conditions and
other factors. As of March 31, 2000, the majority of Liberty's debt was
composed of fixed rate debt resulting from the 1999 and 2000 issuances of notes
and debentures for net proceeds of approximately $3.9 billion. The proceeds
were used to repay floating rate debt, which reduced Liberty's exposure to
interest rate risk associated with rising variable interest rates. Had market
interest rates been 1% higher throughout the quarters ended March 31, 2000 and
1999, Liberty would have recorded approximately $2 million and $5 million of
additional interest expense for the quarters ended March 31, 2000 and 1999,
respectively. At March 31, 2000, the aggregate fair value of all of Liberty's
outstanding notes and debentures was $4.7 billion.
Liberty is exposed to changes in stock prices primarily as a result of its
significant holdings in publicly traded securities. Liberty continually
monitors changes in stock markets, in general, and changes in the stock prices
of its significant holdings, specifically. Changes in stock prices can be
expected to vary as a result of general market conditions, technological
changes, specific industry changes and other factors. Equity collars and equity
swaps are used to hedge investment positions subject to fluctuations in stock
prices.
In order to illustrate the effect of changes in stock prices on Liberty we
provide the following sensitivity analysis. Had the stock price of our
investments accounted for as available-for-sale securities been 10% lower at
March 31, 2000 and December 31, 1999, the value of such securities would have
been lower by $3.1 billion and $2.4 billion, respectively. Our unrealized
gains, net of taxes would have also been lower by $1.9 billion and $1.5
billion, respectively. Had the stock price of our publicly traded investments
accounted for using the equity method been 10% lower at March 31, 2000 and
December 31, 1999, there would have been no impact on the carrying value of
such investments. Had the stock price of the Sprint PCS Group stock underlying
Liberty's 4% Senior Exchangeable Debentures due 2029 been 10% higher at March
31, 2000, Liberty's total debt and correspondingly, Liberty's interest expense
would have been higher by $220 million. Liberty's cash collateral account under
the securities lending agreement would be reduced by $112 million if the
underlying shares of Sprint PCS Group stock had decreased in value by 10% at
March 31, 2000.
Liberty measures the market risk of its derivative financial instruments
through comparison of the blended rates achieved by those derivative financial
instruments to the historical trends in the underlying market risk hedged. With
regard to interest rate swaps, Liberty monitors the fair value of interest rate
swaps as well as the effective interest rate the interest rate swap yields, in
comparison to historical interest rate trends. Liberty believes that any losses
incurred with regard to interest rate swaps would be offset by the effects of
interest rate movements on the underlying hedged facilities. With regard to
equity collars and hedges, Liberty monitors historical market trends relative
to values currently present in the market. Liberty believes that any unrealized
losses incurred with regard to equity collars and swaps would be offset by the
effects of fair value changes on the underlying hedged assets. These measures
allow Liberty's management to measure the success of its use of derivative
instruments and to determine when to enter into or exit from derivative
instruments.
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CORPORATE HISTORY
Liberty's former parent, TCI, began acquiring interests in programming
businesses in the late 1970s in an effort to ensure quality content for
distribution on its cable television systems. TCI's early programming interests
included those in Black Entertainment Television (since renamed BET Network),
Turner Broadcasting System (since acquired by Time Warner), Cable Educational
Network (since renamed Discovery Communications, Inc.), QVC Network, Inc.,
International Family Entertainment, Inc. (since reorganized as Fox Kids
Worldwide) and several regional sports networks.
TCI formed Liberty's predecessor, which we refer to as "LMC," for the purpose
of spinning off to TCI's shareholders, by means of an exchange offer, TCI's
interests in most of its cable television programming businesses and certain of
its affiliated cable television systems. TCI retained a significant interest in
LMC through its ownership of preferred stock. The spinoff was effected due to
concerns over proposals that were then pending before Congress that, if
enacted, would impose horizontal limits on the number of subscribers that could
be served by a single cable operator and vertical limits on the ownership by
cable operators of interests in cable programming services.
LMC began trading on March 28, 1991, with a fully diluted equity market
capitalization of approximately $190 million. At that time, its assets included
interests in cable television systems serving approximately 1.6 million
subscribers, regional sports networks and eight national programming services,
including QVC, Black Entertainment Television and The Family Channel. Over the
next three years LMC increased its programming assets by acquiring interests in
and developing companies that produced branded programming content, including
Encore Media Corporation, the Home Shopping Network and two national and
several regional sports networks.
On August 4, 1994, TCI reacquired the public's interest in LMC by means of a
merger, and LMC again became a wholly owned subsidiary of TCI. TCI reacquired
LMC largely because of the FCC's adoption in 1994 of vertical and horizontal
cable and programming regulations, which a combined TCI and LMC fit within. At
the time LMC was reacquired by TCI, LMC's fully diluted equity market
capitalization had grown to approximately $3.2 billion. At that time, Liberty
had interests in cable television systems serving approximately 3.2 million
subscribers, 11 national programming services, including Encore, STARZ! and QVC
and two national and 13 regional sports networks.
In the fourth quarter of 1994, TCI reorganized its businesses into four
divisions: (1) Domestic Cable and Communications, (2) Programming, (3)
International Cable and Programming and (4) Technology/Venture Capital. This
business-line reorganization was effected in an effort to better focus
management expertise in the various areas into which TCI had evolved, and to
gain greater market recognition of the value of TCI's four lines of businesses.
In an effort to further gain market recognition of what TCI believed to be
hidden values in its asset base, in August 1995, TCI divided its common stock
into two tracking stocks, with one series of tracking stock intended to reflect
the separate performance of a newly created "Liberty Media Group." The assets
attributed to the Liberty Media Group were comprised primarily of the assets of
TCI's Programming division. The other series of tracking stock was intended to
reflect the separate performance of the "TCI Group," which was comprised of the
three other divisions of TCI.
The Liberty Media Group tracking stock began trading on August 10, 1995, with
a fully diluted equity market capitalization of approximately $4.5 billion. At
that time, Liberty's assets included interests in more than 30 national cable
programming services, three national and 15 regional sports networks and
various other businesses involved in television programming production and
distribution. Over the course of the next three years, Liberty continued to
expand its interests in programming services and leveraged several of its
interests to obtain the benefits of scale and liquidity. This included
Liberty's acquisition of an approximately 9% interest in Time Warner in
exchange for its interest in Turner Broadcasting System and the exchange of its
shares in International Family Entertainment for a preferred stock interest in
Fox Kids Worldwide.
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In August 1997, TCI created a third class of tracking stock intended to track
the separate performance of the "TCI Ventures Group," which was comprised of
the International Cable and Programming division and the Technology/Venture
Capital division of TCI.
On March 9, 1999, TCI was acquired by AT&T in a merger transaction in which
the holders of TCI Group tracking stock received AT&T common stock and holders
of Liberty Media Group tracking stock and TCI Ventures Group tracking stock
received shares of AT&T's Liberty Media Group tracking stock. In the merger
with AT&T, the holders of TCI's Liberty Media Group and TCI Ventures Group
tracking stocks received shares of AT&T's Liberty Media Group tracking stock
with a value of approximately $24 billion and $13 billion, respectively, based
on the closing price of AT&T's Liberty Media Group tracking stock on the NYSE
on March 10, 1999 (which was the first day of trading). At the time of the
merger, Liberty's assets included interests in more than 50 national cable
programming services, six national, 25 regional and six international sports
networks, 23 digital networks, ten Internet businesses, over 65 international
programming services, and cable and cable telephony systems in Europe, Latin
America and Japan.
As a result of the merger with AT&T, TCI and Liberty became subsidiaries of
AT&T. In connection with the merger, most of the assets formerly attributed to
the TCI Ventures Group were transferred to Liberty. Other assets that had been
attributed to the TCI Ventures Group were transferred to TCI in exchange for a
cash contribution of approximately $5.5 billion to Liberty. As a result of
these asset transfers, Liberty obtained interests in foreign distribution
companies, interests in certain foreign programming businesses and interests in
Internet and technology companies as well as approximately $5.5 billion cash
and the right to the U.S. federal income tax benefits of a net operating tax
loss carryforward possessed by TCI at the time of its merger with AT&T. In
addition, certain transaction agreements were entered into in connection with
the merger which provide Liberty with a level of financial and operational
separation from AT&T and certain programming rights with respect to AT&T's
cable systems. See "Relationship with AT&T and Certain Related Transactions."
On March 10, 2000, TCI was converted into a Delaware limited liability
company, of which AT&T is the sole member, and renamed AT&T Broadband LLC.
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BUSINESS
Overview
We are a leading media, entertainment and communications company with
interests in a diverse group of public and private companies that are market
leaders in their respective industries. Our subsidiaries and business
affiliates are engaged in a broad range of programming, communications,
technology and Internet businesses and have some of the most recognized and
respected brands. These brands include Encore, STARZ!, Discovery, TV Guide,
Fox, USA, QVC, CNN, TBS, Motorola and Sprint PCS.
Our management team, led by Dr. John C. Malone, our Chairman, and Mr. Robert
R. Bennett, our President and Chief Executive Officer, has extensive expertise
in creating and developing new businesses and opportunities for our
subsidiaries and business affiliates and in building scale, brand power and
market leadership. This expertise dates back to the mid-1980s when members of
our management were instrumental in identifying and executing strategic
transactions to provide TCI, our former parent, with quality programming for
its cable television systems. Today, our management team continues to leverage
its expertise and industry relationships on behalf of our subsidiaries and
business affiliates to identify and execute strategic transactions that improve
the value of their businesses and that allow us to take full advantage of new
developments in consumer and technological trends.
The media, entertainment and communications industries are currently
undergoing tremendous changes due in part to the growth of new distribution
technologies, led by the Internet and the implementation of digital
compression. The growth in distribution technologies has, in turn, created
strong demand for an ever increasing array of multimedia products and services.
Liberty is working with its subsidiaries and business affiliates to extend
their established brands, quality content and networks across multiple
distribution platforms to keep them at the forefront of these ongoing changes.
Business Strategy
Our business strategy is to maximize the value of Liberty by (1) working with
the management teams of our existing subsidiaries and business affiliates to
grow their established businesses and create new businesses and (2) identifying
and executing strategic transactions that improve the value or optimize the
efficiency of Liberty's assets. Key elements of our business strategy include
the following:
Promoting the internal growth of our subsidiaries and business affiliates. We
actively seek to foster the internal growth of our subsidiaries and business
affiliates by working with their management teams to expand their established
businesses and create new businesses, often by extending their existing brands
across multiple distribution platforms or effecting transactions that enhance
the scale of their operations. Our emphasis is on the creation and development
of multiple sources of revenue that enhance cash flow. We also seek to use our
extensive industry experience and relationships to provide our subsidiaries and
business affiliates with strategic alliances, greater visibility and improved
positioning in their respective markets. While the form of our participation in
our subsidiaries and business affiliates may change over time as a result of
acquisitions, mergers and other strategic transactions, we generally seek to
retain a significant long-term interest in their successors.
Maintaining significant involvement in governance. We seek to add
considerable value to our subsidiaries and business affiliates through our
strategic, operational and financial advice. To ensure Liberty can exert
significant influence over management where we own less than a majority voting
interest in a business affiliate, we often seek representation at the board of
directors level and contractual rights that assure our participation in
material decision making. These contractual rights will typically include
participation in budget decisions, veto rights over significant corporate
actions and rights of first refusal with respect to significant dispositions of
stock by management or strategic partners.
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<PAGE>
Participating with experienced management and strategic partners. We seek to
participate in companies with experienced management teams that are led by
strong entrepreneurs, and partner with strategic investors that are engaged in
complementary businesses with a demand for the products and services of our
subsidiaries and business affiliates. Our existing business affiliates are led
by such entrepreneurs as Barry Diller of USA Networks, Inc., Rupert Murdoch of
News Corp. and John Hendricks of Discovery Communications, Inc., while our
existing strategic partners include Comcast Corporation, News Corp. and Time
Warner.
Executing strategic transactions that optimize the efficiency of our
assets. We seek to identify and execute acquisitions, consolidations and other
strategic transactions that rationalize our participation in the businesses of
our subsidiaries and business affiliates. We often undertake transactions of
this nature to obtain the benefits of scale and liquidity as well as to further
diversify Liberty's businesses. In pursuing new acquisition opportunities, we
focus on businesses that have attractive growth characteristics and offer
strategic benefits to our existing subsidiaries and business affiliates. We
employ a conservative capital structure in managing our assets and
rationalizing our businesses. We also seek to enhance our financial flexibility
by utilizing multiple sources of capital and preserving liquidity through our
ownership of a mix of public and private assets.
Business Operations
Liberty is engaged principally in three fundamental areas of business:
. Programming, consisting principally of interests in video programming
services;
. Communications, consisting principally of interests in cable television
systems and other communications systems; and
. Internet services and technology.
Recent Developments
On June 9, 2000, Liberty Media Group acquired a controlling interest in The
Todd-AO Corporation, consisting of approximately 6.5 million shares of Class B
Common Stock of Todd-AO, in exchange for the issuance of approximately 5.4
million shares of AT&T Class A Liberty Media Group tracking stock. The Class B
Common Stock of Todd-AO acquired by Liberty Media Group in that transaction
represented 60% of the equity and approximately 94% of the voting power of
Todd-AO outstanding immediately prior to the closing. 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 contributed to
Todd-AO 100% of the capital stock of Four Media Company, in exchange for
approximately 16.6 million shares of the Class B Common Stock of Todd-AO. As a
result of that transaction, the Liberty Media Group increased its 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. Four
Media Company provides technical and creative services to owners, producers and
distributors of television programming, feature films and other entertainment
products both domestically and internationally.
Following Liberty Media Group's acquisition of Todd-AO, and the contribution
by Liberty to Todd-AO of Liberty's ownership in Four Media Company, Todd-AO
changed its name to Liberty Livewire Corporation.
On December 30, 1999, Liberty entered into an agreement with SounDelux
Entertainment Group, Inc., with respect to a transaction pursuant to which the
Liberty Media Group would have acquired approximately 55% of the outstanding
equity and 92% of the voting power of SounDelux in exchange for approximately 4
million shares of AT&T Class A Liberty Media Group tracking stock. On June 9,
2000, Liberty Media Group
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announced that it was in discussions with SounDelux regarding a transaction
that would supersede the December 1999 agreement. Under the proposed new
transaction, which is subject to corporate approvals, definitive documentation
and other conditions, Liberty Media Group would acquire 100% of the post-
production, sound and related businesses of SounDelux for approximately $90
million in cash. SounDelux would retain its location based entertainment and
theatre design businesses. Liberty expects that, if Liberty Media Group does
acquire assets of SounDelux pursuant to the revised transaction, such assets
would probably be combined with Liberty Livewire Corporation, on terms to be
agreed. However, there can be no assurances that any such transaction will be
consummated. Pending negotiations regarding the revised transaction, the
original transaction between Liberty Media Group and SounDelux has been
postponed indefinitely.
On January 14, 2000, Liberty Media Group acquired The Associated Group, Inc.
pursuant to a merger agreement among AT&T, Liberty 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
2.41722 shares of AT&T Class A Liberty Media Group tracking stock (adjusted to
reflect a recent 2-for-1 stock split). 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, Inc., a full-
service, facilities-based communications company, and (5) all of the
outstanding shares of common stock of TruePosition, Inc., which provides
location services for wireless carriers and users designed to determine the
location of any wireless transmitters, including cellular and PCS telephones.
Immediately following the completion of the merger, all of the assets and
businesses of Associated Group, other than its interest in Teligent, were
transferred to Liberty. Associated Group's interest in Teligent is held by a
member of the Liberty Media Group other than Liberty. 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.
On February 7, 2000, Liberty purchased 18 million shares of Cendant
Corporation common stock and a warrant to purchase up to an additional
approximate 29 million shares of common stock at an exercise price of $23.00
per share (subject to anti-dilution adjustments), which resulted in Liberty
having an approximate 6.5% ownership interest in Cendant. Liberty paid $300
million in cash for the common stock and $100 million in cash for the warrant.
Cendant is primarily engaged in the consumer and business services industries,
with its principal operations in travel related services, real estate related
services and alliance marketing related services.
On March 16, 2000, Liberty purchased shares of cumulative preferred stock in
TCI Satellite Entertainment, Inc. (TSAT) in exchange for Liberty's economic
interest in 5,084,745 shares of Sprint Corporation PCS common stock, valued at
$300 million. Liberty 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 approximately 85% of
the voting power of TSAT. Liberty and TSAT also formed a joint venture named
Liberty Satellite, LLC to hold and manage interests in entities engaged
globally in the distribution of internet data and other content via satellite
and related businesses. As part of this transaction, Liberty contributed its
interests in XM Satellite Radio Holdings, Inc., iSKY, Inc., Astrolink
International LLC and Sky Latin America in exchange for an approximately 89%
interest in the joint venture. TSAT contributed its interest in JATO
Communications Corp. and General Motors Class H Common Stock in exchange for an
approximately 11% interest in the joint venture which will be managed by TSAT.
In a related transaction, TSAT paid Liberty $60 million in the form of an
unsecured promissory note in exchange for an approximately 14% interest in a
limited liability company with holdings in Astrolink International LLC. The
remaining 86% of the limited liability company is held by Liberty Satellite,
LLC.
On March 31, 2000, Liberty acquired 7,125,000 shares of Class B non-voting
common stock of Corus Entertainment Inc. at a purchase price of Canadian $28.05
per share, which resulted in Liberty having an
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approximate 19.9% ownership interest in Corus. Corus is one of Canada's leading
media companies with interests in 14 radio stations, including The Edge, FOX
and Country 105, and specialty television networks, including YTV, CMT,
Teletoon, Telelatino and The Comedy Network.
On April 11, 2000, Liberty purchased for $500 million in cash (a) 500,000
shares of ICG Communications, Inc. convertible preferred stock, which are
initially convertible into 17,857,142 shares of ICG Communications common
stock, and (b) warrants to purchase 6,666,667 shares of ICG Communications
common stock at an initial exercise price of $34.00 per share. ICG
Communications is a telecommunications company with a nationwide voice and data
network serving more than 700 U.S. cities. It also is a competitive local
exchange carrier and broadband data communications company and a provider of
network infrastructure, facilities and management.
On April 19, 2000, Liberty purchased 8 million shares of common stock of
Primedia Inc. (representing an approximate 5% ownership interest in Primedia)
and warrants to purchase an additional 1.5 million shares of common stock of
Primedia at an exercise price of $25 per share, in exchange for $200 million in
cash. At the same time, Primedia acquired 625,000 shares of Liberty Digital
Series A common stock at a purchase price of $40 per share. In connection with
these transactions, Primedia has granted to Liberty an option, which Liberty
may transfer to Liberty Digital, to acquire a 12.5% ownership interest in
PRIMEDIA Broadband Video, LLC, which can be exercised in exchange for cash,
shares of AT&T Liberty Media Group tracking stock or shares of Liberty Digital
Series A common stock, on terms to be negotiated by the parties. Primedia is a
targeted media company, reaching consumer and business-to-business audiences
through print, Internet, live events, video and radio. PRIMEDIA Broadband
Video, LLC was recently established to exploit, for purposes of the consumer
marketplace, broadband distribution and interactive applications of Primedia's
video resources.
On June 2, 2000, Liberty purchased 3,728,949 shares of common stock of IDT
Corporation at a cash price of $34.50 per share. As a result of this
transaction, Liberty owns an approximately 9.9% equity interest in IDT and has
the right to nominate a director for election to IDT's board of directors. IDT
is a leading facilities-based, multinational carrier that combines its position
as an international telecommunications operator with its experience as an
Internet service provider to provide a broad range of telecommunications
services to its wholesale and retail customers worldwide.
On June 8, 2000, Liberty completed its acquisition of Ascent Entertainment
Group, Inc. for an aggregate purchase price of approximately $436 million.
Ascent's principal business is providing pay-per-view entertainment and
information services through its majority owned subsidiary, On Command
Corporation. Ascent also provides satellite service to the NBC television
network and owns the National Basketball Association's Denver Nuggets, the
National Hockey League's Colorado Avalanche and the Pepsi Center, Denver's new
entertainment facility which is home to both the Nuggets and the Avalanche.
Ascent has agreed to sell its interests in the Nuggets, the Avalanche and the
Pepsi Center for approximately $268 million in cash and the assumption of
approximately $136 million in debt. The closing of this sale is subject to
customary closing conditions, including regulatory approvals. This sale will
not affect Liberty's 6.5% profits' interests in each of the Nuggets and the
Avalanche and its 6.5% interest in the Pepsi Center. As a result of Liberty's
acquisition of Ascent, Liberty has assumed approximately $489 million of
Ascent's outstanding indebtedness, including approximately $136 million which
will be assumed by the purchaser of the Nuggets, the Avalanche and the Pepsi
Center.
On June 26, 2000, Liberty announced that it had entered into an agreement
with UnitedGlobalCom, Inc. and a majority-owned subsidiary of UGC, United Pan-
Europe Communications, N.V., pursuant to which UGC would acquire from Liberty
interests in various international broadband distribution and programming
assets, including Telewest Communications plc, Cablevision S.A., Pramer S.C.A.
and Crown Media Holdings, in exchange for $200 million in cash and 75.3 million
shares of UGC's Class B common stock. UGC and UPC have agreed that UPC will
acquire from UGC the interest in Telewest that UGC will acquire from Liberty in
exchange for UPC shares that would increase UGC's ownership interest in UPC to
61%.
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The UGC shares to be acquired by Liberty represent a 38% economic interest
and a 72% voting interest in UGC and, when added to Liberty's existing UGC
holdings, will result in Liberty having a 45% economic interest and an 82%
voting interest in UGC. Liberty will be bound by voting and standstill
agreements with UGC and certain of its founding shareholders. Until the third
anniversary of the closing, Liberty will have the right to nominate four of the
12 members of UGC's board of directors and the founding shareholders will have
the right to appoint eight. Thereafter, Liberty and the founding shareholders
each will have the right to nominate four directors, and the board will
nominate the other four candidates. The provisions of the voting agreement
regarding the nomination and election of directors will terminate on the tenth
anniversary of the closing, subject to earlier termination upon the occurrence
of specified events.
The closing of the transaction is subject to various closing conditions,
including approval by shareholders of UGC and UPC and governmental and other
third party approvals. UGC is the largest broadband communications provider of
video, voice and data services outside the U.S. with operations in 23 countries
and networks that reach more than 18 million homes and businesses and serve
more than 9.5 million video customers.
Programming
Programming networks distribute their services through a number of
distribution technologies, including cable television, direct-to-home
satellite, broadcast television and the Internet. Programming services may be
delivered to subscribers as part of a video distributor's basic package of
programming services for a fixed monthly fee, or may be delivered as a
"premium" programming service for an additional monthly charge. Whether a
programming service is on a basic or premium tier, the programmer generally
enters into separate
multi-year agreements, known as "affiliation agreements," with those
distributors that agree to carry the service. Basic programming services derive
their revenues principally from the sale of advertising time on their networks
and from per subscriber license fees received from distributors. Premium
services do not sell advertising and primarily generate their revenues from
subscriber fees.
Consolidated Subsidiaries
Starz Encore Group LLC
Starz Encore Group LLC is a leading provider of cable and satellite-delivered
premium movie networks in the United States. It currently owns and operates 13
full-time domestic movie channels, including Encore, which airs first-run
movies and classic contemporary movies, STARZ!, a first-run premium movie
service, and MOVIEplex, a "theme by day" channel featuring a different Encore
or Encore Thematic Multiplex channel each day, on a weekly rotation. Through
the use of thematic multiplexing--that is, the creation of multiple channels of
programming by reorganizing the movies by theme--Starz Encore Group is well
positioned to take advantage of the increasing channel capacities created by
compressed digital distribution systems. In addition, Starz Encore Group
currently has agreements in place with most of the major program distributors
and many smaller distributors to carry its Encore Thematic Multiplex services
in digital packages. As digital service becomes more widely available, these
services will be available to most cable homes.
Starz Encore Group currently has access to approximately 5,700 movies through
long-term licensing agreements. In addition, it has licensed the exclusive
rights to first-run output from Disney's Hollywood Pictures, Touchstone and
Miramax, Universal Studios, New Line and Fine Line, Sony's Columbia Pictures
and Sony Classics and other major studios. Starz Encore Group also has
exclusive rights to first run output from four independent studios. The output
agreements expire between 2003 and 2011. Unlike vertically integrated
programmers, Starz Encore Group is not committed to or dependent on any one
source of film productions. As a result, it has affiliations with every major
Hollywood studio, either through long-term output agreements or library access
arrangements. Starz Encore Group also engages in original programming
production.
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The table below sets forth certain information about each of Starz Encore
Group's domestic programming services.
<TABLE>
<CAPTION>
Liberty's
Subscribers/Units/1/ Attributed
at 3/31/99 Year Ownership %
Entity (000's) Launched at 5/15/00
------------------------------------- -------------------- -------- -----------
<S> <C> <C> <C>
Starz Encore Group LLC............... 100%
Encore............................. 14,023 1991
MOVIEplex.......................... 6,850 1995
Thematic Multiplex (aggregate
units)............................ 30,762 1994
Love Stories
Westerns
Mystery
Action
True Stories
WAM! America's Kidz Network
STARZ!............................. 10,415 1994
STARZ! Theater................... /2/ 1996
STARZ! Family.................... /2/ 1999
STARZ! Cinema.................... /2/ 1999
BET Movies/STARZ!3............... /2/ 1997 88%
</TABLE>
--------
(1) Each premium service to which a household subscribes is counted as one
"unit." For example, one household subscribing to four services would be
counted as four "units."
(2) Digital services.
Starz Encore Group's business objective is to be the premier provider of
movie services. Its strategies for achieving its objective include: (1)
continuing to strengthen its core business assets in an effort to promote the
premium television category and increase cash flow from operations, (2) driving
demand for digital services to enable cable operators and direct broadcast
satellite providers to position themselves as a viable alternative to video
stores through a combination of pay-per-view channels, thematic multiplexing
and multiple time scheduled feeds, and (3) leveraging the strength of its brand
by extending its franchises into other forms of media, including online
applications, such as e-commerce.
Ownership Interest. Liberty owns 100% of Starz Encore Group. Liberty's
ownership in Starz Encore Group began with an investment in its predecessor in
1991 when Encore was launched as a low-priced movie channel that cable
operators could offer individually or packaged with higher-priced services such
as HBO and Showtime. Since December 31, 1992, Encore's subscribers have grown
from approximately 3.5 million to almost 14.0 million at March 31, 2000, and
Starz Encore Group's program offerings have grown from one movie channel in
1991 to its current slate of 13 full-time movie channels.
Pramer S.C.A.
Pramer S.C.A. is the largest owner and distributor of cable television
programming services in Argentina. Pramer currently owns eight programming
services and distributes them throughout Argentina. Pramer also distributes
eight additional programming services, including two of Argentina's four
terrestrial broadcast stations, throughout Argentina. Of the 16 programming
services owned and/or distributed by Pramer, nine of them are distributed
throughout Latin America. Pramer intends to continue to develop and acquire
branded programming services and to further expand the carriage of its
programming to distribution networks outside Argentina. The table below sets
forth certain information about each of Pramer's owned programming services.
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<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 3/31/00 Year Ownership %
Entity (000's) Launched at 5/15/00
----------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
Pramer S.C.A. (Argentina)...................... 100%
America Sports............................... 2,350 1990
Big Channel.................................. 2,345 1992
Canal a...................................... 2,258 1996
Cineplaneta.................................. 2,028 1997
Rio de la Plata.............................. 9 2000
Magic Kids................................... 3,848 1995
P&E.......................................... 771 1996
Plus Satelital (fka CVSAT)................... 3,915 1988
</TABLE>
Ownership Interest. Liberty's ownership in Pramer evolved out of a 1995
transaction in which Liberty Media International, Inc., a wholly owned
subsidiary of Liberty, acquired an equity interest in Cablevision S.A. from its
founding stockholders. As part of the transaction, Liberty Media International
was granted a right of first refusal to purchase the programming assets of
Pramer, which at that time were owned by the former Cablevision stockholders.
In August 1998, Liberty Media International exercised this right and purchased
100% of Pramer's issued and outstanding common stock for $32 million in cash
and $65 million in notes payable. Liberty made an $11 million payment on the
notes on October 1, 1998 and the remainder is due in 20 equal monthly
installments beginning October 15, 1998.
Business Affiliates
Discovery Communications, Inc.
Discovery Communications, Inc. is the largest originator of documentary,
nonfiction programming in the world. Since the 1985 launch of its flagship
domestic cable service and brand, Discovery Channel, Discovery has grown into a
global media enterprise with 1999 revenues exceeding $1.4 billion. It currently
operates programming services reaching more than 160 million people across six
continents.
Discovery's programming, products and services derive from the following four
business units:
. Discovery Networks, U.S., which is comprised of Discovery Channel, The
Learning Channel, Animal Planet, The Travel Channel and a package of six
digital services;
. Discovery Networks, International, which extends Discovery's programming
globally and currently reaches more than 85 million subscribers in 147
foreign countries in 24 languages; and
. Discovery Enterprises Worldwide, which includes Discovery's brand
extension business in retail, online, video, multimedia, publishing,
licensing and education.
. Discovery.com, which extends the reach of Discovery's content services
onto the internet combined with ecommerce.
. Discovery Health Media, Inc., which is a multimedia business comprised
of Discovery Health Channel, discoveryhealth.com, a consumer health
portal interactive services, videos for home and professional markets,
publishing and other media resources.
Discovery's business objective is to be the premier global creator and
distributor of nonfiction entertainment content, including products, programs
and destination experiences, across all significant media platforms. Its
strategies for achieving its objective include:
. leveraging the strength of its brand by exploiting it over several
platforms, including television, retail and the Internet,
. capitalizing on the global reach of its programming business through the
introduction of additional branded products and services in foreign
markets,
. developing universally distributed networks that appeal strongly to
significant advertising categories (such as travel, health and youth),
and
. continuing to preserve and strengthen its core business assets.
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The table below sets forth certain information about Discovery's programming
services.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 3/31/00 Year Ownership %
Entity (000's) Launched at 5/15/00
--------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
Discovery Communications, Inc................ 49%
Discovery Channel.......................... 77,760 1985
The Learning Channel....................... 72,546 1980
Animal Planet.............................. 57,063 1996
Travel Channel............................. 38,826 1987
Discovery Digital Services................. 15,442(/1/)
Discovery Civilization................... 1996
Discovery Health......................... 1998
Discovery Home & Leisure................. 1996
Discovery Kids........................... 1996
Discovery Science........................ 1996
Discovery Wings.......................... 1998
Discovery en Espanol..................... 1998
Animal Planet Asia......................... 8,449 1998 25%
Animal Planet Europe....................... 7,354 1998
Animal Planet Latin America................ 7,251 1998 25%
Discovery Asia............................. 38,608 1994
Discovery India............................ 16,350 1996
Discovery Japan............................ 1,702 1996
Discovery Europe........................... 20,674 1989
Discovery Turkey........................... 600 1997
Discovery Germany.......................... 1,256 1996 25%
Discovery Italy/Africa..................... 1,637 1996
Discovery Latin America.................... 12,627 1996
Discovery Latin America Kids Network....... 8,931 1996
People & Arts (Latin America).............. 9,490 1995 25%
Discovery.com, Inc......................... Online 1995
Discovery Home & Leisure (Europe).......... 6,048 -- --
Discovery Health Media, Inc. .............. N/A -- --
</TABLE>
--------
(1) Digital services.
Ownership Interest. Liberty holds a 49.3% interest in Discovery with Cox
Communications, Inc., Advance/Newhouse Communications and Discovery's founder
and Chairman, John S. Hendricks, holding interests of 24.65%, 24.65% and 1.4%,
respectively. Liberty's involvement in Discovery dates back to 1986, when TCI
provided Discovery with $25 million of capital in furtherance of TCI's strategy
of supporting quality, cable-exclusive programming companies.
Terms of Ownership. Discovery is organized as a close corporation managed by
its stockholders rather than a board of directors. Generally, all actions to be
taken by Discovery require the approval of the holders of a majority of
Discovery's shares, subject to certain exceptions, including certain
fundamental actions, which require the approval of the holders of at least 80%
of Discovery's shares. The stockholders of Discovery have agreed that they will
not be required to make additional capital contributions to Discovery unless
they all consent. They have also agreed not to own another basic programming
service carried by domestic cable systems that consists primarily of
documentary, science and nature programming, subject to certain exceptions.
Each stockholder has been granted preemptive rights on share issuances by
Discovery. Any proposed transfer of Discovery shares by a stockholder will be
subject to rights of first refusal in favor of the other stockholders, subject
to certain exceptions, with Liberty's right of first refusal being secondary
under certain circumstances. In addition, Liberty is not permitted to hold in
excess of 50% of Discovery's stock unless its increased ownership results from
exercises of its preemptive rights or rights of first refusal.
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Flextech, plc (a wholly owned subsidiary of Telewest Communications plc)
Flextech, through its subsidiaries and affiliates, creates, packages and
markets entertainment and information programming for distribution on cable
television, direct-to-home satellite and digital terrestrial television
providers throughout the United Kingdom and parts of continental Europe.
Flextech has interests in 14 cable and satellite channels, 13 of which are
distributed in the United Kingdom market. In addition to managing its five
wholly owned programming services, Flextech currently provides management
services to two joint ventures that it has formed with BBC Worldwide Limited,
which operate several subscription television channels, and to Discovery
Europe, Animal Planet Europe, Discovery Home and Leisure (formerly The Learning
Channel) and HSN Direct International Limited. For its management and
consultancy services, Flextech receives a management fee and, in some cases, a
percentage of the programming company's gross revenues. Flextech also holds
interests in programming production and distribution companies and a
terrestrial broadcast network.
The table below sets forth certain information about each of Flextech's
programming services.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 3/31/00 Year Ownership %
Entity (000's) Launched at 5/15/00
----------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
Flextech plc................................... 25%
Bravo........................................ 5,395 1985 25%
Challenge TV................................. 5,536 1993 25%
HSN Direct International..................... N/A 1994 31%
KinderNet.................................... 5,751 1988 8%
Living....................................... 6,315 1993 25%
SMG.......................................... N/A 1957 5%
Trouble...................................... 5,363 1984 25%
TV Travel Shop............................... 7,273 1998 12%
UK Arena (UKTV).............................. 3,690 1997 12%
UK Gold (UKTV)............................... 6,415 1992 12%
UK Gold Classics (UKTV)...................... 2,779 1999 12%
UK Horizons (UKTV)........................... 5,438 1997 12%
UK Style (UKTV).............................. 3,835 1997 12%
UK Play (UKTV)............................... 3,683 1998 12%
</TABLE>
Flextech's business objective is to develop, package and market regionally
appealing television programming at the lowest practicable cost. To achieve its
objective, Flextech's strategy has been to spread production costs over
multiple revenue sources. Through co-management of several thematic programming
services, Flextech's programming channels have been able to share operating
costs, including those associated
with marketing, administration, affiliate relations, financial services and
technical operations. In addition, by acquiring interests in and creating
alliances with established content producers, Flextech has been able to secure
a steady supply of programming capable of being distributed over various
distribution platforms.
Ownership Interest. Prior to Telewest's recent acquisition of Flextech,
Liberty held a 37% equity interest in Flextech, representing a 50% voting
interest. Liberty's involvement with Flextech developed out of programming
investments made by TCI in the United Kingdom and continental Europe beginning
in 1988. TCI found that the United Kingdom, like other parts of Europe, lacked
the size necessary to sustain a large number of niche-oriented programming
services. Attracted by Flextech's business model of co-managing several
programming services to achieve economies of scale, TCI chose Flextech as the
vehicle to pursue its European programming strategy in 1994 by consolidating
its U.K. and European programming investments and merging those investments
into Flextech.
In April 2000, Telewest acquired Flextech at a purchase price of
approximately (Pounds)2.76 billion. As a result, each share of Flextech was
exchanged for 3.78 new Telewest shares, and Liberty now owns approximately a
24.6% equity interest in Telewest. See "--Communications--Telewest
Communications plc."
52
<PAGE>
The News Corporation Limited
News Corp. is a diversified international communications company principally
engaged in:
. the production and distribution of motion pictures and television
programming;
. television, satellite and cable broadcasting;
. publication of newspapers, magazines and books;
. production and distribution of promotional and advertising products and
services;
. development of digital broadcasting;
. development of conditional access and subscriber management systems; and
. the provision of computer information services.
News Corp.'s operations, are located in the United States, Canada, the United
Kingdom, Australia, Latin America and the Pacific Basin. News Corp.'s preferred
limited voting ordinary shares trade on the Australian Stock Exchange under the
symbol "NCPDP," and are represented on the NYSE by ADRs under the symbol
"NWS.A."
Ownership Interest. In July 1999, Liberty sold to News Corp. its 50% interest
in their jointly owned Fox/Liberty Networks programming venture, in exchange
for 51.8 million News Corp. ADRs representing preferred limited voting ordinary
shares of News Corp., valued at approximately $1.425 billion, or approximately
$27.52 per ADR. In a related transaction, Liberty acquired from News Corp. 28.1
million additional ADRs representing preferred limited voting ordinary shares
of News Corp. for approximately $695 million, or approximately $24.74 per ADR.
As a result of these transactions and subsequent open market purchases, Liberty
owns approximately 81.7 million ADRs representing preferred limited voting
ordinary shares of News Corp. or approximately 8% of News Corp.'s ordinary
shares on a fully diluted basis.
Liberty's involvement in sports programming originated in 1988 when TCI began
to pursue a strategy of creating regional sports networks. In April 1996,
Liberty and News Corp. formed Fox/Liberty Networks, a joint venture to hold
Liberty's national and regional sports networks and News Corp.'s FX, a general
entertainment
network which also carries various sporting events. Also in 1996, Liberty and
News Corp. formed an alliance to hold their respective international sports
interests. These include Fox Sports World Espanol, a Spanish language sports
network, distributed in the United States and in Latin America, as well as Fox
Sports Americas (Latin America) and Fox Sports Middle East. As part of their
agreement relating to the acquisition by News Corp. of Liberty's interest in
Fox/Liberty Networks, Liberty and News Corp. agreed that, during a specified
period following the second anniversary of the closing date of this
transaction, each will have the right to cause News Corp. to acquire and
Liberty to sell to News Corp. the international interests in exchange for News
Corp. ADRs with an aggregate value at April 1, 1999 of approximately $100
million plus an additional number of ADRs representing the aggregate number of
News Corp. shares which could have been purchased by reinvesting in ADRs each
cash dividend declared on such number of shares between the closing of the sale
of Liberty's interest in Fox/Liberty Networks and the sale of the international
interests. Between the closing of the sale of Liberty's interest in Fox/Liberty
Networks and the sale of the international interests, Liberty has further
agreed to make capital contributions in respect of the international interests
in the amount of $100 million, as and when requested by News Corp.
Terms of Ownership. In connection with the acquisition by News Corp. of
Liberty's interest in Fox/Liberty Networks, certain agreements were entered
into regarding Liberty's ability to transfer News Corp. shares and other
matters. Under these agreements, the ADRs and the underlying News Corp. shares
issued to Liberty are subject to a lock-up of either two years (as to 51.8
million ADRs) or nine months (as to 28.1 million ADRs), subject to certain
exceptions. Liberty is entitled to certain registration rights with respect to
its News Corp. shares. In addition, Liberty has agreed that it will not engage,
directly or indirectly, in any sports programming service in the United States
and its territories (excluding Puerto Rico) or in Canada, subject to certain
exceptions, until July 2004.
53
<PAGE>
QVC Inc.
QVC Inc. is one of the two largest home shopping companies in the United
States. QVC markets and sells a wide variety of consumer products and
accessories primarily by means of televised shopping programs on the QVC
network and via the Internet through iQVC. QVC also operates shopping networks
in Germany, the United Kingdom and Ireland. QVC purchases, or obtains on
consignment, products from domestic and foreign manufacturers and wholesalers,
often on favorable terms based on the volume of the transactions. QVC does not
depend upon any one particular supplier for any significant portion of its
inventory.
QVC distributes its television programs, via satellite, to affiliated video
program distributors for retransmission to subscribers. In return for carrying
QVC, each domestic programming distributor receives an allocated portion, based
upon market share, of up to 5% of the net sales of merchandise sold to
customers located in the programming distributor's service area.
QVC has stated that it intends to continue introducing new products and
product lines and to recruit additional programming distributors in an effort
to enlarge both its audience and its sales.
The table below sets forth certain information about QVC's programming
interests.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 3/31/00 Year Ownership %
Entity (000's) Launched at 5/15/00
---------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
QVC Inc....................................... 43%
QVC Network.................................. 67,732 1986
QVC-The Shopping Channel (U.K.).............. 8,217 1993 34%
QVC-Germany.................................. 20,159 1996
iQVC......................................... Online 1995
</TABLE>
Ownership Interest. Liberty owns approximately 43% of QVC, and Comcast owns
the remaining 57%. Liberty's involvement in the televised home shopping
business originated in 1986 when TCI began acquiring ownership interests in QVC
Networks, Inc. in exchange for agreeing to carry QVC's programming to a
specified number of subscribers. During the same period, TCI also invested in
another home shopping channel, CVN Companies, Inc. In October 1989, CVN and QVC
merged which resulted in TCI owning approximately 34% of the combined company.
In August 1994, Liberty and Comcast purchased all of the remaining equity
interests in QVC not owned by them, resulting in their current ownership
interests.
Terms of Ownership. QVC is managed on a day-to-day basis by Comcast and
Comcast has the right to appoint all of the members of the QVC board of
directors. Liberty's interests are represented by two members on QVC's five-
member management committee. Generally, QVC's management committee votes on
every matter submitted, or required to be submitted, to a vote of the QVC
board, and Liberty and Comcast are required to use their best efforts to cause
QVC to follow the direction of any resolution of the management committee.
Liberty also has veto rights with respect to certain fundamental actions
proposed to be taken by QVC.
Liberty has been granted a tag-along right that will apply if Comcast
proposes to transfer control of QVC and Comcast may require Liberty to sell its
QVC stock as part of the transaction, under certain circumstances and subject
to certain conditions. In addition, Liberty has the right to initiate a
put/call procedure with Comcast in respect of Liberty's interest in QVC.
54
<PAGE>
Liberty and Comcast have certain mutual rights of first refusal and mutual
rights to purchase the other party's QVC stock following certain events,
including change of control events affecting them. Both also have registration
rights.
Time Warner Inc.
Time Warner is one of the largest media and entertainment companies in the
world. Time Warner classifies its business interests into four fundamental
areas:
. Cable Networks, consisting principally of interests in cable television
programming, including the following networks: CNN, Cartoon Network,
Headline News, TNT, Turner Classic Movies, TBS Superstation, CNNfn, HBO,
Cinemax, Comedy Central and TVKO;
. Publishing, consisting principally of interests in magazine publishing,
book publishing and direct marketing;
. Entertainment, consisting principally of interests in filmed
entertainment, television production, television broadcasting, recorded
music and music publishing; and
. Cable, consisting principally of interests in cable television systems
which, as of December 31, 1999, reached approximately 12.6 million
subscribers.
Time Warner's common stock trades on the NYSE under the symbol "TWX."
Ownership Interest. Liberty currently owns an approximate 9% interest in Time
Warner. Liberty's interest in Time Warner evolved from a 1987 transaction in
which TCI led a consortium of cable operators in providing Turner Broadcasting
System with an aggregate cash infusion of approximately $560 million. Motivated
by its belief that the continued development of quality cable programming was a
critical element in driving its cable distribution business, TCI invested
approximately $250 million in Turner Broadcasting System in exchange for two
series of preferred stock. The terms of the preferred stock and agreements
entered into in connection with the investment provided the holders with
significant control rights, including representation on the Turner Broadcasting
System board and veto rights over extraordinary transactions, and with rights
of first refusal on certain dispositions of Turner Broadcasting System stock
held by Ted Turner. In 1996, Time Warner acquired Turner Broadcasting System in
a merger transaction.
In connection with the Turner Broadcasting System/Time Warner merger, Time
Warner, Turner Broadcasting System, TCI and Liberty entered into an Agreement
Containing Consent Order (the FTC Consent Decree) with the Federal Trade
Commission. The FTC Consent Decree effectively prohibits Liberty and its
affiliates from owning voting securities of Time Warner other than securities
that have limited voting rights. Pursuant to the FTC Consent Decree, among
other things, Liberty agreed to exchange the shares of Time Warner common stock
it was to receive in the Turner Broadcasting System/Time Warner combination for
shares of a separate series of Time Warner common stock with limited voting
rights designated as Series LMCN-V common stock. The Series LMCN-V common stock
entitles the holder to one one-hundredth (1/100th) of a vote for each share
with respect to the election of directors. Liberty holds approximately
114 million shares of such stock, which represent less than 1% of the voting
power of Time Warner's outstanding common stock. The Series LMCN-V common stock
is not transferable, except in limited circumstances, and is not listed on any
securities exchange. Each share of the Series LMCN-V common stock is
convertible at Liberty's option into one share of ordinary Time Warner common
stock, at any time when such conversion would not violate the federal
communications laws, subject to the FTC Consent Decree, and is mandatorily
convertible into ordinary Time Warner common stock upon transfer to a non-
affiliate of Liberty. Further, while shares of ordinary Time Warner common
stock are redeemable by action of the Time Warner board of directors under
certain circumstances, to the extent necessary to prevent the loss of certain
types of governmental licenses or franchises, shares of Series LMCN-V common
stock are not redeemable under these circumstances.
55
<PAGE>
In March 1999, Liberty entered into a seven-year "cashless collar" with a
financial institution with respect to 15 million shares of Time Warner common
stock, secured by 15 million shares of its approximately 114 million shares of
Time Warner Series LMCN-V common stock. In effect, Liberty purchased a put
option that gives it the right to require its counterparty to buy 15 million
Time Warner shares from Liberty in approximately seven years for $67.45 per
share. Liberty simultaneously sold a call option giving the counterparty the
right to buy the same shares from Liberty in approximately seven years for
$158.33 per share. Since the purchase price of the put option was equal to the
proceeds from the sale of the call option, the collar transaction had no cash
cost to Liberty. As a result of this transaction, Liberty has effectively
locked in the value of these 15 million Time Warner shares at between $1
billion and $2.4 billion in the future, regardless of potential fluctuations in
the stock price.
On January 10, 2000, Time Warner and America Online, Inc. announced that they
had entered into an Agreement and Plan of Merger relating to the combination of
their businesses. Pursuant to this Agreement and Plan of Merger, Time Warner
and America Online would each merge with, and become wholly-owned subsidiaries
of, a newly-formed holding company called "AOL Time Warner Inc." According to
publicly available information, in this transaction each share of Series LMCN-V
common stock of Time Warner held by Liberty would be converted into 1.5 shares
of Series LMCN-V common stock, par value $0.01 per share, of AOL Time Warner
Inc. These securities of AOL Time Warner Inc. would have substantially the same
terms as the Series LMCN-V common stock of Time Warner currently held by
Liberty. This transaction is subject to several conditions, including the
approval of Time Warner's and America Online's stockholders, as well as
regulatory approvals.
TV Guide, Inc.
TV Guide, Inc., formerly known as United Video Satellite Group, Inc., is a
media and communications company and the market leader in the program listings
guide business. TV Guide is engaged predominantly in providing print, passive
and interactive program listings guides to households, distributing programming
to cable television systems and direct-to-home satellite providers, and
marketing satellite-delivered programming to C-band satellite dish owners. TV
Guide's Class A common stock trades on the National Market tier of The Nasdaq
Stock Market under the symbol "TVGIA."
TV Guide is organized into three primary business units:
. TV Guide Magazine Group;
. TV Guide Entertainment Group; and
. United Video Group.
The TV Guide Magazine Group publishes and distributes TV Guide magazine, the
most widely circulated paid weekly magazine in the United States, to households
and newsstands. In addition, the TV Guide Magazine Group provides customized
monthly television programming guides for cable and satellite operators in the
United States and internationally. The TV Guide Entertainment Group supplies
satellite-delivered on-screen program promotion and guide services, including
TV Guide Channel and Sneak Prevue, to cable television systems and other multi-
channel video programming distributors, both nationally and internationally.
The TV Guide Entertainment Group also offers interactive television technology
that allows television viewers to retrieve on demand continuously updated
program guide information through their cable television systems and provides
TV Guide Online, an Internet-based program listings guide. The United Video
Group provides direct-to-home satellite services, satellite distribution of
video entertainment services, software development and systems integration
services and satellite transmission services for private networks. This group
owns TV Guide's 80% interest in Superstar/Netlink Group LLC, which markets
satellite entertainment programming packages to C-band satellite dish owners in
North America. Its retail subscriber base was approximately 857,000 at March
31, 2000. The United Video Group also markets and distributes three independent
superstations--WGN (Chicago), KTLA (Los Angeles) and WPIX (New York)--and six
Denver-based
56
<PAGE>
broadcast television stations to cable television systems and other multi-
channel video programming distributors, and offers programming packages to
satellite master antenna television systems.
TV Guide's business objective is, among other things, to be the dominant
provider of program listings guides for traditional and emerging distribution
platforms. Its strategies for achieving its objective include:
. extending its brand by exploiting it over several platforms, including
home shopping, e-commerce and database marketing;
. capitalizing on the success of TV Guide Channel, TV Guide Interactive
and TV Guide Sneak Prevue through the introduction of customized
programming and service promotion on a localized platform;
. capitalizing on cross-platform advertising and promotion opportunities
by taking advantage of audience exposure across multiple platforms
(print, cable, satellite and Internet); and
. continuing to develop product and brand extensions that will leverage
its distribution footprint, including interactive services, home
shopping, e-commerce and data base marketing.
In October 1999, TV Guide announced that it had entered into a definitive
merger agreement with Gemstar International Group Limited, pursuant to which TV
Guide would become a wholly owned subsidiary of Gemstar. Under the merger
agreement, TV Guide shareholders would receive 0.6573 shares of Gemstar common
stock for each share of TV Guide common stock. TV Guide shareholders would, in
the aggregate, receive approximately 45% of the fully diluted shares of the
combined company. Consummation of the transaction is subject to limited
conditions, including approval by the shareholders of each company (which was
received on March 17, 2000) and the satisfaction of regulatory requirements. It
is anticipated that the transaction will close in the first half of 2000. Upon
consummation of the transaction, the company is expected to be renamed TV Guide
International Inc. and the board of directors will be expanded to twelve
members, of which 6 members will be persons designated by the board of
directors of TV Guide prior to the merger.
Gemstar develops, markets and licenses proprietary technologies and systems
that simplify and enhance consumers' interaction with electronics products and
other platforms that deliver video, programming information and other data.
Gemstar seeks to have its technologies widely licensed, incorporated and
accepted as the technologies and systems of choice by:
. consumer electronics manufacturers;
. service providers such as owners or operators of cable systems,
telephone networks, Internet service providers, direct broadcast
satellite providers, wireless systems and other multi-channel video
programming distributors;
. software developers; and
. consumers.
Gemstar's first proprietary system, VCR Plus+, was introduced in 1990 and is
widely accepted as an industry standard for programming VCRs. VCR Plus+ enables
consumers to record a television program simply by entering a number--the
PlusCode number--into a VCR or television equipped with the VCR Plus+
technology. Gemstar is also a leading provider of interactive program guide
services, which allow a user to view a television program guide on screen,
obtain details about a program, sort programs by themes or categories, and
select programs for tuning or recording, all through the remote control.
Gemstar's common stock trades on the National Market tier of The Nasdaq Stock
Market under the symbol "GMST."
57
<PAGE>
The table below sets forth certain information about TV Guide's programming
services and other assets.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 3/31/00 Year Ownership %
Entity (000's) Launched at 5/15/00
--------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
TV Guide, Inc................................ 44%
TV Guide Channel........................... 50,273 1988
TV Guide Interactive....................... 3,500/1/ 1998/2/
TV Guide Sneak Prevue...................... 33,484 1991 32%
UVTV....................................... 58,520/3/ N/A
Superstar/Netlink.......................... 857 N/A 35%
TV Guide Magazine.......................... 11,000/4/ N/A
TV Guide Online............................ Online
The Television Games Network............... 3,252 1999 43%
Infomedia S.A.............................. N/A 1991 33%
</TABLE>
--------
(1) Digital service.
(2) TV Guide's original interactive service was launched in the early 1990s,
followed by the current digital version.
(3) Aggregate number of units. UVTV uplinks three superstations (WGN, KTLA, and
WPIX) and six Denver broadcast stations. One household subscribing to six
services would be counted as six "units."
(4) Magazine circulation--includes subscription and newsstand distribution.
Ownership Interest. TV Guide is jointly controlled by Liberty and News Corp.,
with each owning approximately 44% of its equity and 49% of its voting power.
Liberty's interest in TV Guide began in January 1996 when TCI acquired a
controlling interest in United Video Satellite Group, Inc. ("UVSG"), a provider
of satellite-delivered video, audio, data and program promotion services to
cable television systems, satellite dish owners, radio stations and private
network users primarily throughout North America. TCI believed that the
availability of electronic program guide services was becoming an increasingly
important element of video programming delivery due to developments in digital
and other technologies that were increasing the volume and variety of video
programming. As a result of the transaction, UVSG became a majority-controlled
subsidiary of TCI. In January 1998, TCI increased its equity interest in UVSG
to approximately 73% and its voting interest to approximately 93%. On March 1,
1999, UVSG acquired Liberty's 40% interest in Superstar/Netlink Group and its
100% interest in Netlink USA, which uplinks the signals of six Denver-based
broadcast television stations, in exchange for shares of UVSG common stock. On
the same date, UVSG acquired News Corp.'s TV Guide properties in exchange for
cash and shares of UVSG common stock. By
combining UVSG's passive and interactive electronic program listing guides with
TV Guide's well-recognized magazine and brand name, UVSG became a leading
provider of program listing guides. Following this transaction, UVSG changed
its name to TV Guide, Inc.
Terms of Ownership. Pursuant to a stockholders agreement between Liberty and
News Corp., each of them is entitled to designate one director to the ten-
member TV Guide board for each 12.5% of the outstanding shares of TV Guide
Class B common stock owned by such party, with the remaining directors being
designated by the TV Guide board. So long as Liberty or News Corp., as the case
may be, is entitled to designate at least one director to TV Guide's board of
directors, the other party is subject to certain restrictions on its ability to
sell any of its shares of TV Guide common stock or to convert any of its shares
of TV Guide Class B common stock (10 votes per share) into shares of TV Guide
Class A common stock (one vote per share) unless it first offers to sell the
stock to the other party. In addition, Liberty and News Corp. have mutual
rights of first refusal, tag-along rights on transfers of significant interests
and registration rights. Liberty and News Corp. have further agreed that, for
so long as they both are entitled to appoint at least one of TV Guide's
directors, TV Guide will be the exclusive vehicle through which they will each
conduct program guide businesses worldwide, subject to certain limited
exceptions.
58
<PAGE>
USA Networks, Inc.
USA Networks is a diversified media and electronic commerce company that is
engaged in seven principal areas of business:
. Networks and Television Production, which operates the USA Network, a
general entertainment basic cable television network, Sci-Fi Channel,
which features science fiction, horror, fantasy and science-fact
oriented programming, and Studios USA, which produces and distributes
television programming;
. Electronic Retailing, which primarily consists of Home Shopping Network
and America's Store, which are engaged in the electronic retailing
business;
. Broadcasting, which owns and operates television stations;
. Ticketing Operations, which includes Ticketmaster, the leading provider
of automated ticketing services in the United States, and Ticketmaster
Online, Ticketmaster's exclusive agent for online ticket sales;
. Hotel Reservations, consisting of Hotel Reservations Network, a leading
consolidator of hotel rooms for resale in the consumer market in the
United States;
. Internet Services, which represents USA Networks' online retailing
networks business and local city guide business; and
. Filmed Entertainment, which primarily represents USA Networks' domestic
theatrical film distribution and production businesses.
USA Networks' common stock trades on the National Market tier of The Nasdaq
Stock Market under the symbol "USAI."
The table below sets forth certain information about USA Networks' assets.
Liberty's attributed ownership interest in USA Networks assumes the conversion
or exchange by Liberty of direct and indirect interests in various USA Networks
and HSN securities for USA Networks common stock, and the conversion or
exchange of certain securities owned by Universal Studios, Inc. and certain of
its affiliates for USA Networks common stock.
<TABLE>
<CAPTION>
Liberty's
Subscribers Attributed
at 3/31/00 Year Ownership %
Entity (000's) Launched at 5/15/00
---------------------------------------------- ----------- -------- -----------
<S> <C> <C> <C>
USA Networks, Inc. ........................... 21%
HSN......................................... 75,200/1/ 1985
America's Store............................. 7,630/1/ 1986
ISN......................................... Online 1995
HSN en Espanol.............................. 2,700 1998 11%
HOT (Germany)............................... 30,700 1996 9%
Shop Channel (Japan)........................ 7,200 1996 50%
SciFi Channel............................... 60,500 1992
USA Network................................. 77,400 1980
USA Broadcasting............................ 37,700/2/ 1986
Ticketmaster................................ N/A
Studios USA................................. N/A
USA Films................................... N/A
Hotel Reservations Network.................. Online 1991 21%
Ticketmaster Online-CitySearch.............. Online 1998 11%/3/
</TABLE>
--------
(1) Includes broadcast households and cable subscribers.
59
<PAGE>
(2) A group of UHF and low power television stations which operate in 12 of the
top 22 broadcast markets in the United States, including 7 of the top 10
markets which reach approximately 31% of television households in the
United States.
(3) Assumes consummation of pending transactions.
Ownership Interest. Liberty's interest in USA Networks consists of shares of
USA Networks common stock held by Liberty and its subsidiaries, shares of USA
Networks common stock held by certain entities in which Liberty has an equity
interest but only limited voting rights, and securities of certain subsidiaries
of USA Networks which are exchangeable for shares of USA Networks common stock.
Assuming the exchange of these securities and the conversion or exchange of
certain securities owned by Universal Studios, Inc. ("Universal") and certain
of its affiliates for USA Networks common stock, Liberty and Universal would
own approximately 21% and 45%, respectively, of USA Networks. In general, until
the occurrence of certain events and with the exception of certain negative
controls, Mr. Barry Diller has voting power over Liberty's interest in USA
Networks, as more fully described below under "--Terms of Ownership."
Liberty's ownership in USA Networks began in 1993 when it purchased a
controlling stake in Home Shopping Network, Inc., which at the time was
principally engaged in the sale of merchandise to viewers of its home shopping
programming. In connection with that acquisition, Liberty also obtained an
option to acquire a controlling interest in Silver King Communications, Inc.,
an owner and operator of broadcast television stations. In August 1995, Liberty
formed an alliance with Mr. Barry Diller that resulted in a significant shift
in Liberty's strategy for Home Shopping Network and Silver King. As part of
this alliance, Liberty contributed its control option relating to Silver King
to a new corporation in which it retained substantially all of the equity
interests and ceded control over the voting securities of Silver King held by
the corporation to Mr. Diller, except with respect to certain fundamental
matters. At the same time, Mr. Diller agreed to join Home Shopping Networks'
board of directors. In December 1996, Silver King and Home Shopping Network
were combined to form HSN, Inc., which also acquired Savoy Pictures
Entertainment, Inc., a television broadcasting and filmed entertainment
company, and Ticketmaster Group, Inc., a leading provider of automated
ticketing services. In
February 1998, HSN, Inc. acquired certain assets from Universal USA Networks,
consisting of USA Network and Sci-Fi Channel, and the domestic television
production and distribution business of Universal. Following this transaction,
HSN, Inc. changed its name to USA Networks, Inc. In connection with this
transaction, Liberty contributed $300 million in cash to a subsidiary of USA
Networks (the "LLC") in exchange for equity shares of that subsidiary ("LLC
Shares") (which are generally exchangeable for USA Networks common stock on a
one-for-one basis). The LLC holds all of the assets acquired from Universal and
all of the businesses of HSN, Inc. and its subsidiaries, other than the
broadcasting business.
Terms of Ownership. In connection with the Universal transaction, USA
Networks, Universal, Liberty and Mr. Diller entered into several agreements
involving governance matters relating to USA Networks and stockholder
arrangements. With respect to governance matters, Mr. Diller generally has full
authority to operate the day-to-day business affairs of USA Networks and has an
irrevocable proxy over all USA Networks securities owned by Universal, Liberty
and certain of their affiliates for all matters except for certain fundamental
changes. However, each of Liberty, Universal and Mr. Diller has veto rights
with respect to certain fundamental changes relating to USA Networks and its
subsidiaries (including the LLC). If Mr. Diller and Universal agree to certain
fundamental changes that Liberty does not agree to, Universal will be entitled
to purchase Liberty's entire equity interest in USA Networks, subject to
certain conditions, at a price determined by an independent appraiser taking
into account a number of agreed upon factors.
Pursuant to FCC law and regulations, Liberty is not currently permitted to
have a designee on the board of directors of USA Networks. However, at such
time as Liberty is no longer subject to such prohibition, Liberty will have the
right to designate up to two directors if its stock ownership in USA Networks
remains at certain levels. Liberty currently has the right to designate up to
two directors to the LLC board and will continue to have that right for so long
as it is not permitted to designate directors of USA Networks and continues to
maintain certain ownership levels.
60
<PAGE>
Each of Universal and Liberty has a preemptive right with respect to future
issuances of USA Networks's capital stock, subject to certain limitations.
Liberty has agreed with Universal that Liberty will not beneficially own more
than approximately 21% of the equity of USA Networks until the earlier of such
time as Liberty beneficially owns less than 5% of the shares of USA Networks
securities or the date that Universal beneficially owns fewer shares than
Liberty beneficially owns. Also, Liberty has agreed not to propose to the board
of directors of USA Networks the acquisition by Liberty of the outstanding USA
Networks securities or to otherwise influence the management of USA Networks,
including by proposing or supporting certain transactions relating to USA
Networks that are not supported by USA Networks' board of directors.
Liberty is subject to a number of agreements that limit or control its
ability to transfer its USA Network securities. As long as Mr. Diller is Chief
Executive Officer of USA Networks, Liberty generally cannot transfer shares of
USA Networks stock prior to August 24, 2000, subject to certain exceptions.
Each of Universal and Mr. Diller has a right of first refusal with respect to
certain sales of USA Networks securities by the other party. Liberty's rights
in this regard are secondary to any Universal right of refusal on transfers by
Mr. Diller. Each of Liberty and Mr. Diller also generally has a right of first
refusal with respect to certain transfers by the other party and tag-along sale
rights on certain sales of USA Networks stock by the transferring stockholder
and in the event Universal transfers a substantial amount of its USA Networks
stock. Liberty, Universal and Mr. Diller are each entitled to registration
rights relating to their USA Networks securities and have agreed to certain put
and call arrangements, pursuant to which one party has the right to sell (or
the other party has the right to acquire) shares of USA Networks stock held by
another party, at a price determined by an independent appraiser taking into
account a number of agreed upon factors.
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<PAGE>
Other Programming Assets
The table below sets forth certain information about some of Liberty's other
programming interests.
<TABLE>
<CAPTION>
Liberty's
Attributed
Subscribers Ownership
at 3/31/00 Year % at
Entity (000's) Launched 5/15/00 Partner(s)
------------------------ ----------- -------- ---------- ------------------------------
<S> <C> <C> <C> <C>
BET Holdings II, Inc.... 35% Robert Johnson
BET Cable Network...... 59,390 1980
BET Action Pay-Per-
View.................. 10,790/1/ 1990
BET on Jazz............ 8,500 1996
BET.com................ Online 1999 23%
Canales n............... 17/2/ 1998 100% --
Corus Entertainment
Inc. /3/............... 20%
Court TV................ 40,918 1991 50% Time Warner Inc.
Crown Media Holdings,
Inc. .................. 16%
E! Entertainment
Television............. 58,517 1990 10% Comcast Corporation, The Walt
Style.................. 4,930 1998 Disney Company, MediaOne
Group, Inc.
Fox Kids Worldwide,
Inc.................... N/A N/A /4/ The News Corporation Limited,
former stockholders of Saban
Entertainment, Inc.
International
Channel /5/............ 8,879 1990 90% JJS II Communications, LLC
Jupiter Programming Co.,
Ltd. (Japan)........... 50% Sumitomo Corporation
Cable Soft Network..... 2,589 1989 50%
CNBC Japan/Nikkei...... N/A 1997 10%
Golf Network........... 2,253 1996 45%
Discovery Japan........ 1,784 1996 49%
J-Sports............... 793 1998 66%
Shop Channel........... 7,345 1996 41%
MultiThematiques,
S.A. .................. 30% Canal + S.A., Havas Images,
Canal Jimmy (France)... 2,322 1991 Part'Com
Canal Jimmy (Italy).... 696 1997
Cine Cinemas (France).. 763 1991
Cine Cinemas (Italy)... 142 1997
Cine Classics
(France).............. 654 1991
Cine Classics (Spain).. 232 1995 15%
Cine Classics (Italy).. 142 1997
Planete (France)....... 4,136 1988
Planete (Poland)....... 1,952 1996
Planete (Germany)...... 1,232 1997
Planete (Italy)........ 696 1997
Seasons (France)....... 111 1996
Seasons (Spain)........ 37 1997
Seasons (Germany)...... 40 1997
Seasons (Italy)........ 49 1997
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Liberty's
Attributed
Subscribers Ownership
at 3/31/00 Year % at
Entity (000's) Launched 5/15/00 Partner(s)
------------------------ ----------- -------- ---------- ------------------------------
<S> <C> <C> <C> <C>
Premium Movie
Partnership
(Australia)............ 900 1995 20% Twentieth Century Fox Films,
Universal Studios, Paramount
Pictures, Columbia TriStar
Telemundo
Network /6/............ N/A N/A 50% Sony Pictures Entertainment
Inc.
Telemundo Station
Group /7/.............. N/A N/A 25% Sony Pictures Entertainment
Inc., Station Partners, LLC
Torneos y Competencias,
S.A.
(Argentina) /8/........ N/A N/A 40% CEI CitiCorp Holdings S.A.
</TABLE>
--------
(1) Number of subscribers to whom service is available.
(2) Digital services.
(3) Corus is one of Canada's leading media companies with interests in 14 radio
stations, including The Edge, FOX and Country 105, and specialty television
networks, including YTV, CMT, Teletoon, Telelatino and The Comedy Network.
(4) Liberty's interest consists of shares of 30-year 9% preferred stock which
have a stated aggregate value of $345 million and are not convertible into
common stock.
(5) International Channel provides news, sports, music, movies and general
entertainment programming from around the world in more than 20 different
languages.
(6) Telemundo Network is a 24-hour broadcast network serving 61 markets in the
United States, including the 37 largest Hispanic markets.
(7) Telemundo Station Group, Inc. owns and operates eight full power UHF
broadcast stations and 15 low power television stations serving some of the
largest Hispanic markets in the United States and Puerto Rico. Although
Liberty has an approximately 25% equity interest in Telemundo Station
Group, Inc., its voting power is less than 5% to meet certain regulatory
requirements.
(8) Torneos y Competencias, S.A. is Argentina's dominant sports programming
service. It also owns a minority interest in Telefe and Canal Azul, general
entertainment broadcast channels in Buenos Aires, Argentina. Canal Azul has
also become an international superchannel, providing programming to the
United States and, via cable, to outlying areas of Argentina.
Communications
Cable television systems deliver multiple channels of television programming
to subscribers who pay a monthly fee for the service. Video, audio and data
signals are received over-the-air or via satellite delivery by antennas,
microwave relay stations and satellite earth stations and are modulated,
amplified and distributed over a network of coaxial and fiber optic cable to
the subscribers' television sets. Cable television providers in most markets
are currently upgrading their cable systems to deliver new technologies,
products and services to their customers. These upgraded systems allow cable
operators to expand channel offerings, add new digital video services, offer
high-speed data services and, where permitted, provide telephony services. The
implementation
of digital technology significantly enhances the quantity and quality of
channel offerings, allows the cable operator to offer video-on-demand,
additional pay-per-view offerings, premium services and incremental niche
63
<PAGE>
programming. Upgraded systems also enable cable networks to transmit data and
gain access to the Internet at significantly faster speeds, up to 100 times
faster, than data can be transmitted over conventional dial-up connections.
Lastly, cable providers have been developing the capability to provide
telephony services to residential and commercial users at rates well below
those offered by incumbent telephone providers. Each of these businesses
represents a significant opportunity for cable providers to increase their
revenue and operating cash flow from the traditional pay television services
currently offered today.
Telephony providers offer local, long distance, switched services, private
line and advanced networking features to customers who pay a monthly fee for
the service, generally based on usage. Wireless telecommunications networks use
a variety of radio frequencies to transmit voice and data in place of, or in
addition to, standard landline telephone networks. Wireless telecommunications
technologies include two-way radio applications, such as cellular, personal
communications services, specialized mobile radio and enhanced specialized
mobile radio networks, and one-way radio applications, such as paging services.
Each application operates within a distinct radio frequency block. As a result
of advances in digital technology, digital-based wireless system operators are
able to offer enhanced services, such as integrated voicemail, enhanced custom-
calling and short-messaging, high-speed data transmissions to and from
computers, advanced paging services, facsimile services and Internet access
service. Wireless subscribers generally are charged for service activation,
monthly access, air time, long distance calls and custom-calling features.
Wireless system operators pay fees to local exchange companies for access to
their networks and toll charges based on standard or negotiated rates. When
wireless operators provide service to roamers from other systems, they
generally charge roamer air time usage rates, which usually are higher than
standard air time usage rates for their own subscribers, and additionally may
charge daily access fees.
Consolidated Subsidiaries
Liberty Cablevision of Puerto Rico, Inc.
Liberty Cablevision of Puerto Rico, Inc. is one of the largest providers of
cable television services in Puerto Rico. It owns and operates cable television
franchises, serving the communities of Luquillo, Arecibo, Florida, Caguas,
Humacao, Cayey and Barranquitas.
On September 21, 1998, hurricane Georges struck Puerto Rico and caused
considerable property damage to the area in general, including Liberty
Cablevision of Puerto Rico's cable television systems. However, all of Liberty
Cablevision of Puerto Rico's systems have been rebuilt, and as of December 31,
1999, all of its pre-hurricane basic customers were receiving cable television
services.
At March 31, 2000, approximately 85% of Liberty Cablevision of Puerto Rico's
network had been rebuilt utilizing 550 MHz bandwidth capacity, with the
remainder consisting of 450 MHz. At March 31, 2000, Liberty Cablevision of
Puerto Rico operated from five headends, and provided subscribers with 63
channels.
A significant portion of Liberty Cablevision of Puerto Rico's cable network
consists of fiber-optic and coaxial cable. This infrastructure allows Liberty
Cablevision of Puerto Rico to offer enhanced entertainment information and
telecommunications services and, when and to the extent permitted by law, cable
telephony services. Liberty Cablevision of Puerto Rico currently offers its
subscribers pay-per-view events and premium movies and as it introduces new
revenue generating products and services, such as interactive services, Liberty
Cablevision of Puerto Rico expects to aggressively market those products and
services to its subscribers in areas with sufficient bandwidth capacity.
Liberty Cablevision of Puerto Rico expects to begin offering high speed data
transmission services and Internet access using high speed cable modems to its
subscribers during the first half of 2001.
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<PAGE>
Business Affiliates
Sprint PCS Group
Sprint Corporation operates the only 100% digital PCS wireless network in the
United States with licenses to provide service nationwide utilizing a single
frequency band and a single technology. Sprint owns licenses to provide service
to the entire United States population, including Puerto Rico and the U.S.
Virgin Islands. At December 31, 1999, Sprint, together with certain affiliates,
operated PCS systems in the majority of the metropolitan areas in the U.S.
Sprint attributes this business and its assets to Sprint's "Sprint PCS Group."
The Sprint PCS stock is a tracking stock intended to reflect the performance of
the Sprint PCS Group. The Sprint PCS stock trades on the NYSE under the symbol
"PCS."
The business objective of the Sprint PCS Group is to expand network coverage
and increase market penetration by aggressively marketing competitively priced
PCS products and services under the "Sprint" and "Sprint PCS" brand names.
On October 5, 1999, Sprint announced that it had entered into a definitive
merger agreement with MCI WorldCom, Inc. Under the merger agreement, each share
of Sprint's FON common stock would be exchanged for $76.00 of MCI WorldCom
common stock, subject to a collar, and each share of Series 1 Sprint PCS stock,
Series 2 Sprint PCS stock and Series 3 Sprint PCS stock would be exchanged for
one share of a new MCI WorldCom PCS tracking stock of the corresponding series
and 0.116025 shares of MCI WorldCom common stock. The terms of each series of
MCI WorldCom PCS tracking stock would be equivalent to those of the
corresponding Sprint security and would track the performance of the PCS
business of the surviving company. The merger would be tax free to stockholders
of Sprint and accounted for as a purchase. Consummation of the merger is
subject to the approvals of the stockholders of Sprint and MCI WorldCom as well
as customary regulatory approvals. Upon consummation of the merger, the company
is expected to be renamed WorldCom and its board of directors will have 16
members, 10 from MCI WorldCom and 6 from Sprint.
Ownership Interest. Liberty owns approximately 23% (on a fully diluted basis)
of the Sprint PCS stock through its ownership of shares of Series 2 Sprint PCS
stock (which have limited voting rights) and certain warrants and shares of
convertible preferred stock exercisable for or convertible into these shares.
Liberty's interest in the business that makes up the Sprint PCS Group began
in 1994 when TCI, Comcast Corporation, Cox Communications, Inc. and Sprint
Corporation determined to engage in the wireless communications business
through a series of limited partnerships known collectively as "Sprint PCS." In
November 1998, Sprint Corporation assumed ownership and management control of
Sprint PCS and issued a new class of Sprint stock, the "Sprint PCS Common
Stock," which was issued in three series, to track the performance of Sprint's
combined wireless operations. In exchange for its approximate 30% limited
partnership interest in Sprint PCS, TCI received shares of Series 2 Sprint PCS
stock, shares of Sprint PCS preferred stock and warrants to purchase shares of
Series 2 Sprint PCS stock.
Pursuant to a final judgment agreed to by TCI, AT&T and the United States
Department of Justice in connection with the AT&T merger, all of the Sprint
securities held by TCI were deposited in a trust with an independent trustee,
pursuant to a trust agreement approved by the Department of Justice and the
FCC. Liberty holds trust certificates evidencing its beneficial interest in the
assets of the trust. 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 held by the trust sufficient to cause Liberty to own beneficially no
more than 10% of the Sprint PCS stock that would be outstanding on a fully
diluted basis on such date. On or before May 23, 2004, the trustee is required
to divest the remainder of the Sprint securities held by the trust.
The trust agreement grants the trustee the sole right to sell the Sprint
securities beneficially owned by Liberty and provides that all decisions
regarding such divestiture will be made by the trustee without discussion or
consultation with AT&T or Liberty; however, the trustee is required to consult
with the board of directors of
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<PAGE>
Liberty (other than AT&T representatives and John C. Malone) regarding such
divestiture. The trustee has the power and authority to accomplish such
divestiture only in a manner reasonably calculated to maximize the value of the
Sprint securities beneficially owned by Liberty.
The trust agreement provides for the trustee to vote the Sprint securities
beneficially owned by Liberty in the same proportion as other holders of Sprint
PCS stock so long as such securities are held by the trust. The final judgment
also prohibits the acquisition by Liberty of additional Sprint securities
without the prior written consent of the Department of Justice, subject to
limited exceptions.
Terms of Ownership. Liberty was granted registration rights with respect to
its Sprint PCS holdings. These registration rights are currently exercisable by
the trustee. If Liberty's shares of Series 2 Sprint PCS stock are transferred,
the transferred shares become shares of full voting Series 1 Sprint PCS stock.
Telewest Communications plc
Telewest is a leading provider of cable television and residential and
business cable telephony services in the United Kingdom. Telewest provides
cable television services over a broadband network and uses its network,
together with twisted-pair copper wire connections for final delivery to the
customer premises, to provide telephony services to its customers. The
broadband network enables Telewest to deliver a wide variety of both television
and telephony services to its customers and to provide customers with a wide
range of interactive and integrated entertainment, telecommunications and
information services as they become more widely available in the future.
Telewest has installed its own telephone switches, which permits it to minimize
fees otherwise charged by public telephone companies and to offer a variety of
value-added services without relying on public telephone operators for
implementation. Telewest also offers home access to the Internet in all of its
franchises. Telewest's ordinary shares trade on the London Stock Exchange under
the symbol "TWT.L," and are represented by ADRs in the United States, where
they trade on the National Market tier of The Nasdaq Stock Market under the
symbol "TWSTY."
Telewest owns and operates 41 cable franchises and has a minority equity
interest in an affiliated company which owns and operates four affiliated
franchises. At March 31, 2000, these owned and operated and affiliated
franchises covered approximately 34% of the homes in the United Kingdom in
areas for which cable franchises have been awarded. At that date, these
franchises together included approximately 6.1 million homes and over 400,000
businesses. At March 31, 2000, the network in these franchises passed
approximately 4.7 million homes (approximately 4.4 million of which had been
passed and marketed) and Telewest had approximately 1.2 million cable
television customers, 1.6 million residential telephone lines and 306,000
business telephone lines. According to Telewest, approximately 62% of its
customers subscribe for both cable television and cable telephony services.
Telewest believes that it is well positioned in key growth markets and will
benefit from the growing demand for voice, video, data and Internet services.
Telewest's business objective is to be the premier provider of telephony,
television, multimedia, data, Internet and e-commerce services in the United
Kingdom. Its strategies for achieving its objective include:
. leveraging the scale and scope of its business to provide new content
and services,
. increasing market share and generating additional revenue from existing
customers through the development of innovative and targeted products
and the launch of digital services and high-speed Internet service
delivered via cable modem technology, and
. capitalizing on the growing demand for advanced business voice and data
services, digital television and high-speed Internet access through its
high capacity local networks and its national backbone network.
In April 2000, Telewest acquired Flextech at a purchase price of
approximately (Pounds)2.76 billion. As a result, each share of Flextech was
exchanged for 3.78 new Telewest shares. Prior to the acquisition, Liberty owned
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<PAGE>
approximately a 37% equity interest in Flextech and a 22% equity interest in
Telewest. As a result of the acquisition, the business of Flextech described
under "--Programming--Business Affiliates--Flextech plc" above has become part
of Telewest's business.
Ownership Interest. As a result of Telewest's recent acquisition of Flextech,
Liberty now owns approximately a 24.6% interest in Telewest, a portion of which
is attributed to a limited liability company owned 50% by Liberty and 50% by
MediaOne Group, Inc., and MediaOne now owns approximately a 23% interest in
Telewest.
Liberty's involvement with Telewest developed out of investments in the cable
business made by TCI in the United Kingdom beginning in 1986. In April 1992, U
S WEST, Inc. and TCI contributed substantially all of their respective U.K.
cable interests to a joint venture in which each held a 50% interest. TCI and U
S WEST combined substantially all of their respective U.K. cable interests in
an effort to obtain cost and other efficiencies inherent in a larger network,
as well as to gain greater access to the capital markets. The combination also
permitted TCI to gain the benefits of U S WEST's telephony experience, and U S
WEST to gain the benefits of TCI's cable television experience. Telewest was
formed in anticipation of its initial public offering (which was effected in
November 1994) to acquire the assets of the TCI/U S WEST joint venture.
Subsequent to Telewest's initial public offering, TCI contributed its interests
in Telewest to Liberty Media International, and Liberty Media International and
U S WEST contributed all of their respective equity ownership interests in
Telewest to the limited liability company referred to above. In June 1998,
MediaOne separated from U S WEST and, in connection with that transaction,
succeeded to all of U S WEST's rights and obligations relating to its Telewest
investment.
Terms of Ownership. Liberty and MediaOne have been granted preemptive rights
on share issuances by Telewest which enable them to collectively maintain a
majority of the voting rights in Telewest. Liberty and MediaOne have agreements
with respect to the voting of shares of Telewest beneficially owned by them and
the manner in which they will cause their designees to the Telewest board of
directors to vote. In general, Liberty and MediaOne have agreed that, on any
matter requiring shareholder approval, they will vote their Telewest shares
together in such manner as may be agreed by them. As a result, Liberty and
MediaOne together generally will be able to influence materially the outcome of
any matter requiring shareholder approval, provided that they are not
disqualified from voting on a particular matter due to conflicts of interest.
In addition, each of Liberty and MediaOne has veto rights with respect to
certain fundamental matters affecting Telewest for so long as each holds 15% or
more of the outstanding Telewest ordinary shares. Further, for so long as each
of them beneficially owns at least 15% of the outstanding Telewest ordinary
shares, each is entitled to appoint three members to the 16-member Telewest
board of directors, and they have agreed that on any matter requiring board
approval, they will cause the directors designated by them to vote together as
agreed by them.
Each of Liberty and MediaOne has agreed that any proposed transfer of its
Telewest shares will be subject to rights of first refusal in favor of the
other party, in each case subject to certain exceptions. In addition, each of
Liberty and MediaOne has the right to trigger a put/call procedure in the event
the other is deemed to undergo a change of control.
Telewest has agreed to certain restrictions on its ability to engage in
businesses in the United Kingdom outside of cable television, cable telephony
and wireless telephony.
In May 1999, as part of a series of agreements entered into with AT&T in
connection with AT&T's proposed acquisition of MediaOne, Microsoft Corporation
agreed to purchase MediaOne's interest in Telewest through a tax-free exchange
of Microsoft shares, subject to certain conditions, including the closing of
the proposed business combination between AT&T and MediaOne. It is expected
that if this purchase is completed, Microsoft will succeed to all of MediaOne's
rights and obligations set forth above, subject to certain modifications agreed
to in connection with Telewest's acquisition of Flextech.
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<PAGE>
Other Communications Assets
The table below sets forth certain information about Liberty's other
communications assets. In the table below:
. ""Homes in Service Area" refers to the number of homes to which the
relevant operating company is permitted by law to offer its services.
Not all service areas are granted exclusively to the respective
operating company.
. ""Homes Passed" refers to the homes that can be connected to a cable
distribution system without further extension of the distribution
network.
. ""Basic Subscribers" refers to subscribers to a cable or other
television distribution system who receive the basic television service
and who are usually charged a flat monthly rate for a specific number of
channels.
<TABLE>
<CAPTION>
Homes in Liberty's
Service Homes Basic Attributed
Area at Passed at Subscribers Ownership
3/31/00 3/31/00 at 3/31/00 % at
Entity (000's) (000's) (000's) 5/15/00 Partner(s)
----------------------------------- -------- --------- ----------- ---------- --------------------------------
<S> <C> <C> <C> <C> <C>
Metropolis-Intercom, S.A. (Chile).. 1,600 1,096 266 30% Cordillera Communicaciones,
Ltda, Compania de
Telecomunicaciones de Chile S.A.
Cable Management Ireland........... 130 97 68 100%
Cablevision S.A. (Argentina)....... 4,000 3,406 1,448 28%/1/ CEI CitiCorp Holdings S.A.,
Telefonica Internacional S.A.
Jupiter Telecommunications
Co., Ltd. (Japan)................. 4,830 3,845 581 50% Sumitomo Corporation
Princes Holdings Limited
(Ireland)......................... 497 387 185 50% Independent Newspapers plc
Sky Latin America LLC/2/........... N/A N/A 761 10% Organizacoes Globo, Grupo
Televisa, S.A., News Corp.
</TABLE>
--------
(1) Liberty Media International, Hicks, Muse, Tate & Furst, Incorporated,
which controls CEI CitiCorp Holdings S.A., and Telefonica Internacional
S.A. have entered into certain agreements that, if consummated in
accordance with their terms, would result in Telefonica ceasing to be a
shareholder of CableVision and each of Liberty Media International and
Hicks, Muse indirectly owning a 50% interest in CableVision.
(2) Satellite-delivered television platform currently serving Mexico, Brazil,
Chile and Columbia.
Internet Services and Technology
The Internet has emerged as a significant global communications and commerce
medium, enabling millions of people worldwide to share information, create
community among individuals with similar interests and conduct business
electronically. In addition to its emergence as a significant global
communications medium, the Internet has features and functions that are
unavailable in traditional media, which enable online merchants to communicate
effectively with customers and advertisers to target users with specific needs
and interests. As a result, the Internet has emerged as an attractive medium
for advertising and electronic commerce.
Consolidated Subsidiaries
Liberty Digital, Inc.
Liberty Digital, Inc. (formerly known as TCI Music, Inc.) is a diversified
new media company with investments in Internet content and interactive
television businesses, as well as music services delivered to commercial and
residential customers via cable, satellite, the Internet and other platforms.
Liberty Digital's Series A common stock trades on the National Market tier of
The Nasdaq Stock Market under the symbol "LDIG."
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As of May 15, 2000, the assets of Liberty Digital consisted primarily of the
following:
<TABLE>
<CAPTION>
Liberty
Digital's
Ownership
Entity % Business
-------------------------------- ---------- -------------------------------------------------
<S> <C> <C>
AT&T Access Agreement........... N/A Certain programming rights with respect to AT&T's
cable systems
ACTV, Inc.
(Nasdaq: IATV).................. 16%/1/ Producer of tools for interactive programming for
television and Internet platforms
Alloy Online, Inc.
(Nasdaq: ALOY).................. 20% Web site providing content targeted to Generation
Y (boys and girls between the ages of 10 and 24)
BET.com......................... 5% Web site with content directed towards African
Americans
CarsDirect.com, Inc. ........... 1% Online car retailer
DMX, Inc. ...................... 100% Programs, markets and distributes the premium
digital audio service, Digital Music Express
Drugstore.com, Inc.
(Nasdaq: DSCM).................. 1% Online pharmacy and sundries
Food.com........................ 2% Restaurant food ordering via the Internet for
delivery, with additional content
HomeGrocer.com, Inc.
(Nasdaq: HOMG).................. 1% Online grocery store
iBeam Broadcasting Corporation
(Nasdaq: IBEM).................. 3% Satellite delivery of streaming media from
programmers to Internet service providers
iFilm, Inc. .................... 1% Metamediary for making, distributing and
consuming film entertainment
Interactive Pictures Corporation
4% Interactive photographic technology for the
(Nasdaq: IPIX).................. Internet
iVillage, Inc.
(Nasdaq: IVIL).................. 3% Internet and on-line provider of branded
communications and information services for adult
women
Kaleidoscope Interactive, LLC... 50% Online provider of information and services
related to health concerns and disabilities
Kaleidoscope Network, Inc....... 12% 24-hour cable network that provides video
programming related to health concerns and
disabilities
KOZMO.com....................... 1% E-commerce fulfillment of entertainment and
convenience items delivered directly to customers
within an hour.
KPCB Java Fund, L.P. ........... 6% Investor in Java application development
Lifescape, LLC.................. 15% Online provider of information concerning
substance abuse, addictions and health problems
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Liberty
Digital's
Ownership
Entity % Business
--------------------------------- ---------- -------------------------------------------------
<S> <C> <C>
The Lightspan Partnership, Inc.
(Nasdaq: LSPN)................... 10% Developer of educational programming
MedScholar Digital Network, LLC.. 50% Provider of continuous medical education services
to healthcare professionals
MOVE.com......................... 6% Conduit corporation's online relocation real
estate and home-related service
MTVN Online L.P. ................ 10% Online music venture with MTV Networks
netLibrary, Inc. ................ 2% Electronic library
Online Retail Partners........... 21% Create e-commerce partnerships with brick-and-
mortar retailers
OpenTV Inc.
(Nasdaq: OPTV)................... 4% Provider of software to enable interactive
television
OrderTrust, Inc. ................ 9% Provider of total order life cycle management
services
OurHouse.com..................... 3% Ace Hardware co-branded vertical portal for
online home improvement products, services and
information
pogo.com, Inc.................... 19% Online game service targeting family Internet
game players
priceline.com Incorporated
(Nasdaq: PCLN)................... 2% E-commerce service allowing consumers to make
offers on products and services
Quokka Sports, Inc.
(Nasdaq: QKKA)................... 3% Internet provider of live digital sports
entertainment
ReplayTV, Inc. .................. 1%/2/ Producer of technology that allows customers to
customize television viewing
Sportsline USA, Inc.
(Nasdaq: SPLN)................... 2% Internet provider of branded interactive sports
information, programming and merchandise
TiVo Inc.
(Nasdaq: TIVO)................... 1% Producer of technology that allows customers to
customize television viewing
UGO Networks, Inc. .............. 4% Online provider of underground entertainment news
and video games
</TABLE>
--------
(1) Liberty Digital also holds warrants to purchase additional shares of ACTV,
Inc. common stock, which it may exercise over a period of one to five
years. Exercise of these warrants would increase Liberty Digital's
ownership to approximately 24%.
(2) Discovery, Starz Encore Group and TV Guide each owns an additional 1% of
Replay.
Ownership Interest. Liberty owns an approximately 86% interest in Liberty
Digital, and a member of the Liberty Media Group that is not part of Liberty
Media Corporation or its consolidated subsidiaries owns an additional
approximately 8% interest in Liberty Digital.
Liberty's interest in Liberty Digital began in 1997 when TCI Music was formed
as a wholly owned subsidiary of TCI for the purpose of entering into a business
combination with DMX, LLC. DMX currently programs, markets and distributes the
premium digital audio music service known as Digital Music Express, to
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<PAGE>
more than 29 million subscribers in the United States. In December of 1997, TCI
Music acquired The Box Worldwide, Inc., which programs and distributes an
interactive music video television programming service to cable and broadcast
television systems via satellite delivery, and SonicNet, Inc., a leading
Internet music network consisting of a group of music web sites. TCI Music
acquired The Box to serve as the platform for music video and acquired SonicNet
to provide music-related content to DMX and The Box and to position itself to
take advantage of developments in music distribution through the Internet.
In July 1999, TCI Music entered into a joint venture with MTV Networks, a
division of Viacom, Inc., to form and operate an online music venture, MTVN
Online L.P. As part of that transaction, TCI Music contributed to MTVN Online
substantially all of the assets and business of The Box and SonicNet, subject
to certain exceptions. In return, TCI Music received a 10% interest in MTVN
Online. In connection with this transaction, TCI Music and Liberty each agreed
not to compete with MTVN Online in its online music video business until July
15, 2002 or in the music video business generally until July 15, 2004, subject
to certain exceptions.
In September 1999, TCI Music and Liberty completed a transaction pursuant to
which Liberty and certain of its affiliates contributed to TCI Music
substantially all of their respective Internet content and interactive
television assets, certain rights with respect to access to AT&T cable systems
for the provision of interactive video services, and a combination of cash and
notes receivable equal to $150 million, in exchange for preferred and common
stock of TCI Music. Following this transaction, TCI Music changed its name to
Liberty Digital, Inc. In addition, Liberty adopted a policy that Liberty
Digital would be its primary (but not exclusive) vehicle to pursue corporate
opportunities relating to interactive programming and content related services
in the United States and Canada, subject to certain exceptions.
Other Assets
In connection with our acquisition of Ascent Entertainment Group, Inc.,
Liberty acquired an approximate 57% ownership interest in On Command
Corporation, a leading provider of in-room interactive entertainment, Internet
access, business information and guest services for the lodging industry. On
Command's common stock trades on the National Market tier of The Nasdaq Stock
Market under the symbol "ONCO."
Business Affiliates
Motorola Inc. (successor to General Instrument Corporation)
Liberty's interest in Motorola Inc. derives from its former interest in
General Instrument Corporation. GI merged with Motorola on January 5, 2000.
Prior to its merger with Motorola, General Instrument Corporation was a leading
worldwide provider of integrated and interactive broadband access solutions
and, with its strategic partners and customers, GI sought to advance the
convergence of the Internet, telecommunications and video entertainment
industries. To that end, GI made products that allow video, voice and data to
be delivered over cable, digital satellite and telephony networks. GI was a
leading supplier of digital and analog set-top terminals and systems for wired
and wireless cable television networks, as well as hybrid fiber/coaxial network
transmission systems used by cable television operators. GI also provided
digital satellite television systems for programmers, direct-to-home satellite
networks and private networks for business communications. Through its limited
partnership interest in Next Level Communications L.P., GI provided next-
generation broadband access solutions for local telephone companies. GI also
had audio and Internet/data-delivery systems among its product lines.
In the Motorola merger, each share of GI common stock was exchanged for 0.575
shares of Motorola common stock. In connection with the merger, Liberty entered
into an agreement with Motorola, pursuant to which Liberty agreed to vote its
shares of GI common stock in favor of the transaction and Motorola granted to
Liberty certain registration rights with respect to the shares of Motorola
common stock acquired by Liberty in the merger. Immediately following the
merger, GI stockholders owned approximately 17% of Motorola.
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Motorola is a global leader in providing integrated communications solutions
and embedded electronic solutions. These include:
. software-enhanced wireless telephone, two-way radio, messaging and
satellite communications products and systems, as well as networking and
Internet access products, for consumers, network operators, and
commercial, government and industrial customers,
. embedded semiconductor solutions for customers in networking,
transportation, wireless communications and imaging and entertainment
markets, and
. embedded electronic systems for automotive, communications, imaging,
manufacturing systems, computer and consumer markets.
Motorola's common stock trades on the NYSE under the symbol "MOT."
Ownership Interest. Liberty currently holds a 2.5% interest in Motorola,
excluding vested warrants to purchase common stock in Motorola. Liberty also
holds warrants to purchase approximately 36.9 million additional shares of
Motorola common stock at $8.26 per share. The warrants vest at specified dates,
with the number of warrants vesting on each such date relating to the number of
advanced digital set-top terminals purchased by AT&T and certain of its
affiliates. If the warrants do not vest on the specified date, the warrants
will terminate. If any warrants terminate solely because AT&T fails to purchase
the required number of advanced digital set-top terminals, AT&T will pay to
Liberty an amount equal to $4.78 for each warrant terminated, adjusted as
appropriate for any changes in the capitalization of Motorola. Warrants to
purchase 18.3 million shares are currently vested, and assuming Liberty's
exercise of such vested warrants, its ownership interest in Motorola would
increase to 3.3%.
Liberty's relationship with GI began in December 1997 when National Digital
Television Center, Inc., a wholly owned subsidiary of TCI ("NDTC"), entered
into an agreement with GI to purchase advanced digital set-top terminals. In
connection with NDTC's purchase commitment, GI granted the warrants specified
above. In July 1998, TCI acquired 21.4 million restricted shares of GI common
stock in exchange for:
. certain of the assets of NDTC's set-top authorization business;
. the license of certain related software to GI;
. a $50 million promissory note from TCI to GI; and
. a nine year revenue guarantee from TCI in favor of GI.
In connection with the AT&T merger, the shares of GI common stock and the note
payable were contributed to Liberty. In April 1999, Liberty acquired an
additional 10 million shares of GI from Forstmann Little & Co. for $280
million. This purchase by Liberty increased Liberty's ownership in GI to
approximately 18% and made Liberty the largest stockholder of GI.
Other Assets
Liberty also holds an approximately 19% interest in Antec Corporation, an
international communications technology company specializing in the design and
engineering of hybrid fiber/coaxial broadband networks and the development and
distribution of products for these broadband networks. Antec provides its
customers, primarily cable system operators, with products and services that
enable reliable, high-speed, two-way broadband transmission of video,
telephony, and data. In addition, Antec has developed a full line of
technologically advanced fiber optic products to capitalize on current and
future upgrades of cable systems employing hybrid fiber/coaxial technology
capable of providing state-of-the-art video, voice and data services. Antec's
common stock trades on the National Market tier of The Nasdaq Stock Market
under the symbol "ANTC."
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Regulatory Matters
Domestic Programming
In the United States, the FCC regulates the providers of satellite
communications services and facilities for the transmission of programming
services, the cable television systems that carry such services, and, to some
extent, the availability of the programming services themselves through its
regulation of program licensing. Cable television systems in the United States
are also regulated by municipalities or other state and local government
authorities. Cable television companies are currently subject to federal rate
regulation on the
provision of basic service, and continued rate regulation or other franchise
conditions could place downward pressure on the fees cable television companies
are willing or able to pay for programming services in which Liberty has
interests and regulatory carriage requirements could adversely affect the
number of channels available to carry the programming services in which we have
an interest.
Regulation of Program Licensing. The Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Cable Act") directed the FCC to promulgate
regulations regarding the sale and acquisition of cable programming between
multi-channel video programming distributors (including cable operators) and
satellite-delivered programming services in which a cable operator has an
attributable interest. The legislation and the implementing regulations adopted
by the FCC preclude virtually all exclusive programming contracts between cable
operators and satellite programmers affiliated with any cable operator (unless
the FCC first determines the contract serves the public interest) and generally
prohibit a cable operator that has an attributable interest in a satellite
programmer from improperly influencing the terms and conditions of sale to
unaffiliated multi-channel video programming distributors. Further, the 1992
Cable Act requires that such affiliated programmers make their programming
services available to cable operators and competing multi-channel video
programming distributors such as multi-channel multi-point distribution systems
and direct broadcast satellite distributors on terms and conditions that do not
unfairly discriminate among distributors. The Telecommunications Act of 1996
has extended these rules to programming services in which telephone companies
and other common carriers have attributable ownership interests. The FCC
revised its program licensing rules, by implementing a damages remedy in
situations where the defendant knowingly violates the regulations and by
establishing a timeline for the resolution of such complaints, among other
things.
Regulation of Carriage of Programming. Under the 1992 Cable Act, the FCC has
adopted regulations prohibiting cable operators from requiring a financial
interest in a programming service as a condition to carriage of such service,
coercing exclusive rights in a programming service or favoring affiliated
programmers so as to restrain unreasonably the ability of unaffiliated
programmers to compete.
Regulation of Ownership. The 1992 Cable Act required the FCC, among other
things, (a) to prescribe rules and regulations establishing reasonable limits
on the number of channels on a cable system that will be allowed to carry
programming in which the owner of such cable system has an attributable
interest and (b) to consider the necessity and appropriateness of imposing
limitations on the degree to which multi-channel video programming distributors
(including cable operators) may engage in the creation or production of video
programming. In 1993, the FCC adopted regulations limiting carriage by a cable
operator of national programming services in which that operator holds an
attributable interest to 40% of the first 75 activated channels on each of the
cable operator's systems. The rules provide for the use of two additional
channels or a 45% limit, whichever is greater, provided that the additional
channels carry minority-controlled programming services. The regulations also
grandfather existing carriage arrangements that exceed the channel limits, but
require new channel capacity to be devoted to unaffiliated programming services
until the system achieves compliance with the regulations. These channel
occupancy limits apply only up to 75 activated channels on the cable system,
and the rules do not apply to local or regional programming services. These
rules may limit carriage of the programming companies in which Liberty has
interests on certain systems of affiliated cable operators. In the same
rulemaking, the FCC concluded that additional restrictions on the ability of
multi-channel distributors to engage in the creation or production of video
programming were then unwarranted.
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The FCC's rules also generally prohibit common ownership of a cable system
and broadcast television stations or multichannel multi-point distribution
systems ("MMDS") with overlapping service areas. In August 1999, the FCC
revised the attribution standards, which are used to implement these ownership
rules, and adopted new attribution standards based upon a combination of
equity, debt and other indicia of influence. The new attribution criteria could
limit Liberty's ability to engage in certain transactions involving broadcast
stations and MMDS systems. The ownership attribution standards used to enforce
other rules, including the horizontal cable system ownership, channel occupancy
limits, program access and program carriage rules, also were revised in October
1999.
Regulation of Carriage of Broadcast Stations. The 1992 Cable Act granted
broadcasters a choice of must carry rights or retransmission consent rights.
The rules adopted by the FCC generally provided for mandatory carriage by cable
systems of all local full-power commercial television broadcast signals
selecting must carry rights and, depending on a cable system's channel
capacity, non-commercial television broadcast signals. Such statutorily
mandated carriage of broadcast stations coupled with the provisions of the
Cable Communications Policy Act of 1984, which require cable television systems
with 36 or more "activated" channels to reserve a percentage of such channels
for commercial use by unaffiliated third parties and permit franchise
authorities to require the cable operator to provide channel capacity,
equipment and facilities for public, educational and government access
channels, could adversely affect some or substantially all of the programming
companies in which Liberty has interests by limiting the carriage of such
services in cable systems with limited channel capacity. The FCC recently
initiated a proceeding asking to what extent cable operators must carry all
digital signals transmitted by broadcasters. The imposition of such additional
must carry regulation, in conjunction with the current limited cable system
channel capacity, would make it likely that cable operators will be forced to
drop cable programming services, which may have an adverse impact on the
programming companies in which Liberty has interests.
Closed Captioning and Video Description Regulation. The Telecommunications
Act of 1996 also required the FCC to establish rules and an implementation
schedule to ensure that video programming is fully accessible to the hearing
impaired through closed captioning. The rules adopted by the FCC will require
substantial closed captioning over an eight to ten year phase-in period with
only limited exemptions. As a result, the programming companies in which
Liberty has interests are expected to incur significant additional costs for
closed captioning. In November 1999, the FCC also issued a notice of proposed
rulemaking that would require certain broadcasters and the largest national
video programming services to begin to provide audio descriptions of visual
events for the visually impaired on the secondary audio program. Depending upon
the final requirements of any rule, increased costs for programmers may result.
Copyright Regulation. Satellite carriers, such as TV Guide's UVTV division,
retransmit the broadcast signals of "superstations," such as KWGN and WGN, and
of network stations to home satellite dish owners for private home viewing
under statutory license pursuant to the Satellite Home Viewer Act of 1994 (the
"SHV Act"). The Intellectual Property and Communications Omnibus Reform Act of
1999 ("IPCORA"), enacted into law in November 1999, extends the SHV Act license
until December 31, 2004. Under the SHV Act, satellite carriers previously paid
a monthly fee of 27 cents per subscriber for the secondary transmission of
distant superstations and distant network stations. However, IPCORA has
decreased the royalty fee for distant superstations by 30% and distant network
stations by 45%. To the extent that satellite carriers transmit superstation or
network station signals to cable operators, such cable operators pay the
copyright fee under the separate compulsory license. Satellite carriers may
only distribute the signals of network broadcast stations, as distinguished
from superstations, to "unserved households" that are outside the Grade B
contours of a station affiliated with such network. IPCORA requires the FCC to
conduct a number of rulemaking proceedings that may ultimately subject
superstations and distant network stations delivered by satellite directly to
dish owners to new program exclusivity rules (similar to those imposed on cable
operators), including syndicated exclusivity, network non-duplication and
sports blackout rules. The FCC also will commence rule makings to review the
signal strength measurement and subscriber eligibility standards. The new
legislation provides a copyright liability moratorium for all satellite
carriers distributing distant network signals to existing (as of
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October 31, 1999) and recently terminated (after July 1, 1998) subscribers who
are within Grade B contours of local network affiliates. Moreover, the entire
C-band satellite industry is exempt from all restrictions on delivering distant
network signals to subscribers who received C-band service before October 31,
1999. IPCORA and rulemakings, exemptions, and regulatory requirements adopted
under it will substantially impact the C-band and DBS industry, potentially
affecting the economics of uplinking and distributing distant network stations
and superstations to dish owners. A subsidiary of TV Guide entered into an
agreement with the National Association of Broadcasters, the ABC, CBS, FOX and
NBC networks, their affiliate associations, and several hundred broadcast
stations to identify by zip code those geographic areas which are "unserved" by
network affiliated stations in May 1998. With the passage of IPCORA, that
subsidiary has opted to discontinue
that agreement. The broadcasters have, however, objected to such termination
and have asserted claims for liquidated damages and other damages as a result
of the failure to terminate distant network signal subscribers during the
period from September, 1999 through the passage of IPCORA and the termination
of the agreement.
Satellites and Uplink. In general, authorization from the FCC must be
obtained for the construction and operation of a communications satellite. The
FCC authorizes utilization of satellite orbital slots assigned to the United
States by the World Administrative Radio Conference. Such slots are finite in
number, thus limiting the number of carriers that can provide satellite
transponders and the number of transponders available for transmission of
programming services. At present, however, there are numerous competing
satellite service providers that make transponders available for video services
to the cable industry.
Proposed Changes in Regulation. The regulation of programming services, cable
television systems, satellite carriers and television stations is subject to
the political process and has been in constant flux over the past decade.
Further material changes in the law and regulatory requirements must be
anticipated and there can be no assurance that Liberty's business will not be
adversely affected by future legislation, new regulation or deregulation.
Domestic Telephony and Satellite Systems
The FCC regulates the licensing, construction, operation, acquisition, resale
and interconnection arrangements of domestic wireless telecommunications
systems. The activities of wireless service providers, such as the Sprint PCS
Group, are subject to regulation in varying degrees, depending on the
jurisdiction, by state and local regulatory agencies as well. The FCC, in
conjunction with the U.S. Federal Aviation Administration, also regulates tower
marking and lighting, and FCC environmental rules may cause certain PCS network
facilities to become subject to regulation under the National Environmental
Policy Act and the National Historic Preservation Act.
Liberty also holds interests in various entities that provide domestic
interstate and intrastate telephony services, including competitive local
exchange, exchange access and interexchange services. Interstate telephone
services are regulated at the federal level pursuant to the Communications Act
and the rules of the FCC. Intrastate telephone services are regulated to
varying degrees by the public utility commissions of the respective states.
Liberty also has investments in domestic satellite systems that are licensed
and regulated by the FCC. Among other things, the FCC issues authorizations to
construct, launch and operate communications satellites utilizing orbital
locations assigned to the United States by the World Administrative Radio
Conference and monitors the progress of construction and launch of such
satellites.
International Cable, Telephony and Programming
Some of the foreign countries in which Liberty has, or proposes to make, an
investment regulate, in varying degrees, (a) the granting of cable and
telephony franchises, the construction of cable and telephony systems and the
operations of cable, other multi-channel television operators and telephony
operators and service providers, as well as the acquisition of, and foreign
investments in, such operators and service
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providers, and (b) the distribution and content of programming and Internet
services and foreign investment in programming companies. Regulations or laws
may cover wireline and wireless telephony, satellite and cable communications
and Internet services, among others. Regulations or laws that exist at the time
Liberty makes an investment in a foreign subsidiary or business affiliate may
thereafter change, and there can be no assurance that material and adverse
changes in the regulation of the services provided by Liberty's subsidiaries
and business affiliates will not occur in the future. Regulation can take the
form of price controls, service requirements and programming and other content
restrictions, among others. Moreover, some countries do not issue exclusive
licenses to provide multi-channel television services within a geographic area,
and in those instances Liberty may be adversely affected by an overbuild by one
or more competing cable operators. In
certain countries where multi-channel television is less developed, there is
minimal regulation of cable television, and, hence, the protections of the
cable operator's investment available in the United States and other countries
(such as rights to renewal of franchises and utility pole attachment) may not
be available in these countries.
Internet Services
The Internet companies in which we have interests are subject, both directly
and indirectly, to various laws and governmental regulations relating to their
respective businesses. There are currently few laws or regulations directly
applicable to access to or commerce on commercial online services or the
Internet. For example, the Digital Millennium Copyright Act, enacted into law
in 1998, protects certain qualifying online service
providers from copyright infringement liability, the Internet Tax Freedom Act,
also enacted in 1998, placed a three year moratorium on new state and local
taxes on Internet access and commerce, and under the Communications Decency
Act, an Internet service provider will not be treated as the publisher or
speaker of any information provided by another information content provider.
However, due to the increasing popularity and use of commercial online services
and the Internet, it is possible that a number of laws and regulations may be
adopted with respect to commercial online services and the Internet. Such laws
and regulations may cover issues such as user privacy, defamatory speech,
copyright infringement, pricing and characteristics and quality of products and
services. The adoption of such laws or regulations in the future may slow the
growth of commercial online services and the Internet, which could in turn
cause a decline in the demand for the services and products of the Internet
companies in which we have interests and increase such companies' costs of
doing business or otherwise have an adverse effect on their businesses,
operating results and financial conditions. Moreover, the applicability to
commercial online services and the Internet of existing laws governing issues
such as property ownership, libel, personal privacy and taxation is uncertain
and could expose these companies to substantial liability.
Broadcasters
Liberty also has nonattributable minority ownership interests in group owners
of broadcast television and radio stations. The FCC extensively regulates the
ownership and operation of such stations through a variety of rules.
Competition
Programming. The business of distributing programming for cable and satellite
television is highly competitive, both in the United States and in foreign
countries. The programming companies in which we have interests directly
compete with other programmers for distribution on a limited number of
channels. Once distribution is obtained, our programming services and our
business affiliates' programming services compete, in varying degrees, for
viewers and advertisers with other cable and off-air broadcast television
programming services as well as with other entertainment media, including home
video (generally video rentals), pay-per-view services, online activities,
movies and other forms of news, information and entertainment. The programming
companies in which we have interests also compete, to varying degrees, for
creative talent and programming content. Our management believes that important
competitive factors include the prices charged for programming, the quantity,
quality and variety of the programming offered and the effectiveness of
marketing efforts. In addition, HSN and QVC operate in direct competition with
businesses that are engaged in retail merchandising.
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Communications. The cable television systems and other forms of media
distribution in which we have interests directly compete for viewer attention
and subscriptions in local markets with other providers of entertainment, news
and information, including other cable television systems in those countries
that do not grant exclusive franchises, broadcast television stations, direct-
to-home satellite companies, satellite master antenna television systems,
multi-channel multi-point distribution systems and telephone companies, other
sources of video programs (such as videocassettes) and additional sources for
entertainment news and
information, including the Internet. Cable television systems also face strong
competition from all media for advertising dollars. Our management believes
that important competitive factors include fees charged for basic and premium
services, the quantity, quality and variety of the programming offered, the
quality of signal reception, customer service and the effectiveness of
marketing efforts.
In addition, there is substantial competition in the domestic wireless
telecommunications industry, and it is expected that such competition will
intensify as a result of the entrance of new competitors and the increasing
pace of development of new technologies, products and services. Each of the
markets in which the Sprint PCS Group competes is served by other two-way
wireless service providers, including cellular and PCS operators and resellers.
A majority of the markets will have five or more commercial mobile radio
service providers and each of the top 50 metropolitan markets have at least one
other PCS competitor in addition to two cellular incumbents. Many of these
competitors have been operating for a number of years and currently service a
significant subscriber base.
Internet Services and Technology. The markets for Internet services, online
content and products are relatively new, intensely competitive and rapidly
changing. Since the Internet's commercialization in the early 1990s, the number
of Internet companies and web sites competing for consumers' attention and
spending has proliferated with no substantial barriers to entry, and we expect
that competition will continue to intensify in the future. The Internet
companies and web sites in which we have interests compete, directly and
indirectly, for members, visitors, advertisers, content providers and
merchandise sales with many categories of companies, including:
. other Internet companies and web sites targeted to the respective
audiences of the Internet companies and web sites in which we have
interests;
. publishers and distributors of traditional off-line media (such as
television, radio and print), including those targeted to the respective
audiences of the Internet companies and web sites in which we have
interests, many of which have made, or may in the future make,
significant acquisitions of or investments in Internet companies and/or
have established, or may in the future establish, web sites;
. general purpose consumer online services such as America Online and
Microsoft Network, each of which provides access to content and services
targeted to the respective audiences of the Internet companies and web
sites in which we have interests;
. vendors of information, merchandise, products and services distributed
through other means, including retail stores, mail, facsimile and
private bulletin board services; and
. web search and retrieval services and other high-traffic web sites.
Liberty anticipates that the number of such competitors will increase in the
future.
The technology companies in which we have interests compete with a
substantial number of foreign and domestic companies, and the rapid
technological changes occurring in such companies' markets are expected to lead
to the entry of new competitors. The ability of the technology companies in
which we have interests to anticipate technological changes and introduce
enhanced products on a timely basis will be a significant factor in their
ability to expand and remain competitive. Existing competitors' actions and new
entrants may have an adverse impact on these companies' sales and
profitability.
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Employees
As of March 31, 2000, Liberty had approximately 40 employees and Liberty's
consolidated subsidiaries had an aggregate of approximately 2,680 employees.
None of our employees are represented by a labor union or covered by a
collective bargaining agreement. We believe that our employee relations are
good.
Properties
With the exception of its corporate offices in Englewood, Colorado (which
Liberty leases), Liberty does not own or lease any real or personal property
other than through its interests in its subsidiaries and business affiliates.
Liberty's subsidiaries and business affiliates own or lease the fixed assets
necessary for the operation of their respective businesses, including office
space, transponder space, headends, cable television and telecommunications
distribution equipment, telecommunications switches and customer equipment
(including converter boxes). Liberty's management believes that its current
facilities are suitable and adequate for its business operations for the
foreseeable future.
Legal Proceedings
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to Liberty's business, to which Liberty or any of its
subsidiaries is a party or of which any of their property is subject.
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MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information concerning our directors
and executive officers.
<TABLE>
<CAPTION>
Date of
Name Birth Position
---- --------- --------
<S> <C> <C>
John C. Malone.......... 3/7/41 Chairman of the Board and Director
Robert R. Bennett....... 4/19/58 President, Chief Executive Officer and Director
Gary S. Howard.......... 2/22/51 Executive Vice President, Chief Operating Officer and Director
David B. Koff........... 12/26/58 Senior Vice President
Charles Y. Tanabe....... 11/27/51 Senior Vice President and General Counsel
Carl E. Vogel........... 10/18/57 Senior Vice President
Peter N. Zolintakis..... 7/10/57 Senior Vice President
Vivian J. Carr.......... 12/13/47 Vice President and Secretary
Kathryn Scherff......... 3/5/65 Vice President and Controller
David J.A. Flowers...... 5/17/54 Vice President and Treasurer
Paul A. Gould........... 9/27/45 Director
Jerome H. Kern.......... 6/1/37 Director
John C. Petrillo........ 4/30/49 Director
Larry E. Romrell........ 12/30/39 Director
Daniel E. Somers........ 12/9/47 Director
John D. Zeglis.......... 5/2/47 Director
</TABLE>
The following is a five-year employment history for our directors and
executive officers, including any directorships held in public companies.
John C. Malone has served as Chairman of the Board and one of our directors
since 1990. Dr. Malone has also served, since December 1996, as Chairman of the
Board and a director of TCI Satellite Entertainment, Inc. Dr. Malone served as
Chairman of the Board of TCI from November 1996 to March 1999, as Chief
Executive Officer of TCI from January 1994 to March 1999, and as President of
TCI from January 1994 to March 1997. Dr. Malone served as Chief Executive
Officer of TCI Communications, Inc., the domestic cable subsidiary of TCI prior
to the AT&T merger ("TCIC"), from March 1992 to October 1994, and as President
of TCIC from 1973 to October 1994. Dr. Malone is also a director of AT&T, The
Bank of New York, TCI Satellite Entertainment, Inc., USANi LLC, At Home
Corporation, United GlobalCom, Inc. and Cendant Corporation.
Robert R. Bennett has served as our President and Chief Executive Officer and
one of our directors since April 1997. Mr. Bennett served as Executive Vice
President of TCI from April 1997 to March 1999. Mr. Bennett served as our
Executive Vice President and Chief Financial Officer, Secretary and Treasurer
from June 1995 through March 1997, and as our Senior Vice President from
September 1991 to June 1995. Mr. Bennett also served as acting Chief Financial
Officer of Liberty Digital, Inc. from June 1997 to July 1997. Mr. Bennett is a
director of TV Guide, Inc., USANi LLC, Teligent, Inc., Telewest Communications
plc and Chairman of the Board of Liberty Digital, Inc.
Gary S. Howard has served as our Executive Vice President, Chief Operating
Officer and one of our directors since July 1998. Mr. Howard has also served as
Chief Executive Officer of TCI Satellite
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Entertainment, Inc. since December 1996. Mr. Howard served as Executive Vice
President of TCI from December 1997 to March 1999; as Chief Executive Officer,
Chairman of the Board and a director of TV Guide, Inc. from June 1997 to March
1999; and as President and Chief Executive Officer of TCI Ventures Group, LLC
from December 1997 to March 1999. Mr. Howard served as President of TV Guide,
Inc. from June 1997 to September 1997; as President of TCI Satellite
Entertainment, Inc. from February 1995 through August 1997; as Senior Vice
President of TCIC from October 1994 to December 1996; and as Vice President of
TCIC from December 1991 through October 1994. Mr. Howard is a director of TV
Guide, Inc., Liberty Digital, Inc., TCI Satellite Entertainment, Inc.,
Teligent, Inc. and ICG Communications.
David B. Koff has served as a Senior Vice President of Liberty since February
1998. Mr. Koff has also served as Vice President and Assistant Secretary of
Liberty Digital, Inc. since January 1998. Mr. Koff served as Vice President--
Corporate Development of Liberty from August 1994 to February 1998, and as
special counsel to Liberty from March 1993 to August 1994. Mr. Koff also served
as interim President and Chief Executive Officer of Liberty Digital, Inc. from
May 1997 to January 1998. Mr. Koff is a director of Liberty Digital, Inc.
Charles Y. Tanabe has served as a Senior Vice President and General Counsel
of Liberty since January 1999. Prior to joining Liberty, Mr. Tanabe was a
member of Sherman & Howard L.L.C., a law firm based in Denver, Colorado, for
more than five years.
Carl E. Vogel has served as Senior Vice President of Liberty since December
1999. Mr. Vogel served as Executive Vice President/Chief Operating Officer of
Field Operations for AT&T Broadband from June 1999 until joining Liberty. He
served as Chairman and Chief Executive Officer of Primestar, Inc. from June
1998 to June 1999. From October 1997 to June 1998, Mr. Vogel was Chief
Executive Officer of Star Choice Communications. From March 1994 to March 1997,
he served first as Executive Vice President and Chief Operating Officer and
later as President of EchoStar Communications Corporation. Mr. Vogel began his
career at Arthur Andersen & Co. and subsequently held several senior financial
and operating positions at Jones Intercable, Inc. Mr. Vogel is a director of
Canadian Satellite Communications and ICG Communications.
Peter N. Zolintakis has served as Senior Vice President of Tax Strategy of
Liberty since November 1998. Prior to joining Liberty, Mr. Zolintakis was a
partner of PricewaterhouseCoopers, where he specialized, for more than five
years, in the tax issues relating to corporate mergers, acquisitions,
divestitures and restructurings for clients primarily in the cable television
and high technology industries.
Vivian J. Carr has served as a Vice President of Liberty since June 1993 and
was appointed Secretary of Liberty in August 1994. Ms. Carr served as Director
of Investor Relations of Liberty from March 1991 to June 1993.
Kathryn Scherff has served as a Vice President of Liberty since September
1997 and as Controller of Liberty since September 1993. Ms. Scherff served as
Accounting Manager of Liberty from October 1991 to September 1993.
David J.A. Flowers has served as a Vice President and Treasurer of Liberty
since April 1997. Mr. Flowers served as Vice President--Portfolio Manager of
Liberty from June 1995 to April 1997. Prior to joining Liberty, Mr. Flowers
held several positions at Toronto Dominion Bank from August 1989 to June 1995,
including Managing Director in its Media Finance Group.
Paul A. Gould has served as one of our directors since March 1999. Mr. Gould
has also served as a Managing Director and Executive Vice President of Allen &
Company Incorporated, an investment banking services company, for more than the
last five years. Mr. Gould served as a director of TCI from December 1996 to
March 1999 and of Liberty from November 1992 to August 1994. Mr. Gould is a
director of Ascent Entertainment Group, Inc. and Sunburst Hospitality
Corporation.
Jerome H. Kern has served as one of our directors since March 1999. Mr. Kern
served as Vice Chairman and as a consultant of TCI from June 1998 to March
1999. Prior to joining TCI, Mr. Kern was Special Counsel
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<PAGE>
with the law firm of Baker Botts L.L.P. from July 1996 to June 1998, and a
senior partner of Baker Botts L.L.P. from September 1992 to July 1996. Mr. Kern
served as a director of TCIC from December 1993 to August 1994. Mr. Kern is the
Chief Executive Officer and Chairman of the board of directors of On Command
Corporation. He is also a director of TCI Pacific Communications Inc.
John C. Petrillo has served as one of our directors since March 1999. Mr.
Petrillo has served as Executive Vice President of Corporate Strategy and
Business Development for AT&T since May 1996. Mr. Petrillo was the President of
AT&T's Business Communications Services from 1993 to 1995 and also served as
AT&T Vice President of Strategic Planning from 1991 to 1993, AT&T Vice
President of Business Communications Services in 1990, AT&T Services Vice
President in 1987 and AT&T Director of Personnel in 1986. Mr. Petrillo is a
director of At Home Corporation.
Larry E. Romrell has served as one of our directors since March 1999. Mr.
Romrell has also served as a consultant to Liberty since March 1999. Mr.
Romrell served as Executive Vice President of TCI from January 1994 to March
1999 and since March 1999 has served as a consultant to AT&T Broadband. Mr.
Romrell also served, from December 1997 to March 1999, as Executive Vice
President and Chief Executive Officer of TCI Business Alliance and Technology
Co., a subsidiary of TCI prior to the AT&T merger that oversaw and developed
TCI's technology activities; from December 1997 to March 1999, as Senior Vice
President of TCI Ventures Group, LLC; and, from September 1994 to October 1997,
as President of TCI Technology Ventures, Inc., a subsidiary of TCI prior to the
AT&T merger that invested in and developed companies engaged in advancing
telecommunications technology. Mr. Romrell served as Senior Vice President of
TCIC from 1991 to October 1994. Mr. Romrell is a director of TV Guide, Inc. and
General Communication, Inc.
Daniel E. Somers has served as one of our directors since March 1999. Mr.
Somers has also served as Acting Co-Chief Executive Officer of AT&T Broadband
since October 6, 1999 and as Senior Executive Vice President and Chief
Financial Officer of AT&T since May 1997. Prior to joining AT&T, Mr. Somers
served as Chairman and Chief Executive Officer of Bell Cablemedia, plc from
1995 to 1997, and as Executive Vice President and Chief Financial Officer of
Bell Canada International, Inc. from 1992 to 1995. Mr. Somers is a member of
AT&T's Executive Council and Operations Group. He is also a director of
Lubrizol Corporation, Cablevision, Inc. and Chase Manhattan Advisory Board.
John D. Zeglis has served as one of our directors since October 11, 1999. Mr.
Zeglis has also served as Chairman and Chief Executive Officer of AT&T Wireless
Group since December 1999 and as President of AT&T since November 1997. Mr.
Zeglis served as Vice Chairman of AT&T from June to November 1997, General
Counsel and Senior Executive Vice President of AT&T from 1996 to 1997, and
Senior Vice President and General Counsel of AT&T from 1986 to 1996. He is also
a director of AT&T, Helmerich and Payne Corporation, Sara Lee Corporation and
Illinova Corporation.
The executive officers named above will serve in such capacities until the
next annual meeting of our board of directors, or until their respective
successors have been duly elected and have been qualified, or until their
earlier death, resignation, disqualification or removal from office. There is
no family relationship between any of the directors.
Board Composition
Our certificate of incorporation (the "Liberty Charter") provides for a
classified board of directors of not less than three members, with the exact
number of directors to be fixed by resolution of our board. The Liberty Charter
further provides for the number of directors to always be a multiple of three,
divided evenly among three classes. The number of directors on our board is
currently nine. Of the nine members of our board, three are elected by the
holders of our Class A common stock, voting as a separate class (the "Class A
Directors"), three are elected by the holders of our Class B common stock,
voting as a separate class (the "Class B Directors"), and three are elected by
the holders of our Class C common stock, voting as a separate class (the "Class
C Directors"). Currently, all of our common stock is owned by AT&T; however,
the Class B Directors and the Class C Directors were designated by TCI prior to
the AT&T merger.
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<PAGE>
The Class A Directors, whose terms expire at the annual meeting of
stockholders in 2000, are John D. Zeglis, Daniel E. Somers and John C.
Petrillo. The Class B Directors, whose terms expire at the annual meeting of
stockholders in 2006, are Larry E. Romrell, Jerome H. Kern and Gary S. Howard.
The Class C Directors, whose terms expire at the annual meeting of stockholders
in 2009, are John C. Malone, Paul A. Gould and Robert R. Bennett. At each
annual meeting of our stockholders, the successors of that class or classes of
directors whose term(s) expire at that meeting shall be elected to hold office
for a term expiring at the annual meeting of stockholders held, in the case of
the Class A Directors, in the following year, in the case of the Class B
Directors, in the seventh year following the year of such election and, in the
case of the Class C Directors, in the tenth year following the year of such
election. The directors of each class will hold office until their respective
death, resignation or removal and until their respective successors are elected
and qualified.
Committees of the Board
Our board of directors has established an Executive Committee, whose members
are the Class C Directors. The Executive Committee has been granted and may
exercise all the powers and authority of the board in the management of our
business and affairs, except as specifically prohibited by the General
Corporation Law of the State of Delaware (the "DGCL"), the Liberty Charter or
Liberty's bylaws. The Executive Committee does not have power or authority to:
(1) approve or adopt, or recommend to the stockholders, any action or matter
expressly required by the DGCL to be submitted to stockholders for approval, or
(2) adopt, amend or repeal any of Liberty's bylaws.
The board, by resolution passed by a majority of the whole board present at
any meeting at which a quorum is present (provided that any such majority must
include a majority of the Class B Directors and Class C Directors) may from
time to time establish certain other committees of the board, consisting of one
or more directors of Liberty. Any committee so established will have the powers
delegated to it by resolution of the board, subject to applicable law and the
Liberty Charter.
Compensation of Directors
No member of our board of directors receives any compensation for serving on
our board. However, all members of our board are reimbursed for travel expenses
incurred to attend any meetings of our board or any committee thereof.
Compensation of Executive Officers
The following tables set forth information relating to compensation,
including grants of stock options and stock appreciation rights ("SARs") in
respect of securities of AT&T, for:
. our Chief Executive Officer;
. our four other most highly compensated executive officers for the fiscal
year ended December 31, 1999; and
. one additional executive officer who would have been included above but
for the fact that he was not serving as an executive officer of Liberty
for the full fiscal year ended December 31, 1999.
These executive officers are collectively referred to as our "named executive
officers."
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Summary Compensation Table. The following table sets forth information
concerning the compensation paid to the named executive officers by Liberty for
the two years ended December 31, 1999. Compensation for Mr. Vogel reflects the
annual compensation that would have been paid to him had he been serving as an
executive officer of Liberty since the beginning of 1999 based on his 2000
annual compensation. Mr. Vogel became an executive officer of Liberty on
December 4, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual
Compensation Long-Term Compensation
--------------- ---------------------------------------------
Securities
Restricted Underlying
Stock Award Options/SARs All Other
Name and Principal Bonus ($ in (# in Compensation
Position with Liberty Year Salary ($) ($) thousands) thousands) ($)
------------------------ ---- ---------- ------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Robert R. Bennett....... 1999 $1,000,000 $ -- $ -- -- $47,013(5)(6)
President and Chief 1998 $ 559,354 $ -- $7,738(1) 12,000(3) $36,540(5)(6)
Executive Officer
Gary S. Howard.......... 1999 $ 750,000 $23,210 $ -- -- $15,000(6)
Executive Vice President 1998 $ 533,769 $ -- $ -- 10,000(3) $15,000(6)
and Chief Operating
Officer
Charles Y. Tanabe....... 1999 $ 492,308 $ -- $ -- -- $15,000(6)
Senior Vice President 1998 $ -- $ -- $ -- 2,400(3) $ --
and General Counsel
Peter N. Zolintakis..... 1999 $ 496,865 $ -- $ -- -- $15,000(6)
Senior Vice President 1998 $ 76,946 $ -- $1,978(2) 2,400(3) $ --
David B. Koff........... 1999 $ 375,000 $ -- $ -- -- $15,000(6)
Senior Vice President 1998 $ 275,000 $ -- $ -- 2,400(3) $14,985(6)
Carl E. Vogel........... 1999 $ 500,000 $ -- $ -- 1,000(4) $15,000(6)
Senior Vice President 1998 $ -- $ -- $ -- -- $ --
</TABLE>
--------
(1) On June 23, 1998, pursuant to the Tele-Communications, Inc. 1998 Incentive
Plan (the "1998 Incentive Plan"), Mr. Bennett was granted 200,000
restricted shares of Series A TCI Group tracking stock. These restricted
shares, as adjusted for the AT&T merger and a subsequent AT&T stock split,
became 232,710 restricted shares of AT&T common stock. The restricted
shares vest as to 50% of the shares in June 2002 and as to the remaining
50% in June 2003. At the end of 1999, the restricted shares had an
aggregate value of $11,824,577, based upon the closing sales price per
share of AT&T common stock on the New York Stock Exchange (the "NYSE") on
December 31, 1999. Cash dividends on the restricted shares of AT&T common
stock are paid to Mr. Bennett.
(2) On November 15, 1998, pursuant to the 1998 Incentive Plan, Mr. Zolintakis
was granted 50,000 restricted shares of Series A TCI Group tracking stock.
These restricted shares, as adjusted for the AT&T merger and a subsequent
AT&T stock split, became 58,177 restricted shares of AT&T common stock. All
of the restricted shares vest in November 2000. At the end of 1999, the
restricted shares had an aggregate value of $2,956,119, based upon the
closing sales price per share of AT&T common stock on the NYSE on December
31, 1999. Cash dividends on the restricted shares of AT&T common stock are
paid to Mr. Zolintakis.
(3) On December 29, 1998, pursuant to the 1998 Incentive Plan, these executive
officers were granted options in tandem with SARs to acquire shares of
TCI's Series A Liberty Media Group tracking stock. In the AT&T merger,
those options and tandem SARs were converted into options and rights with
respect to AT&T Class A Liberty Media Group tracking stock at an exercise
price of $10.81 per share, as adjusted for subsequent two-for-one stock
splits. The options and tandem SARs vest evenly over five years on each
anniversary of the date of grant. The options and tandem SARs expire on
December 29, 2008, subject to earlier termination in certain events.
Notwithstanding the vesting schedule as set forth in the option agreements,
the options and SARs will immediately vest and become exercisable if the
grantee's employment with Liberty terminates by reason of disability or the
grantee dies while employed by Liberty.
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<PAGE>
(4) Consists of SARs granted to Mr. Vogel on November 2, 1999, which vest and
become exercisable ratably over a five-year term, commencing on each
anniversary of the date of the grant. The SARs expire on November 2, 2009,
subject to earlier termination in certain events. Upon the valid exercise
of SARs, Mr. Vogel shall be entitled to receive from Liberty cash equal to
the excess of the fair value of each share of AT&T Class A Liberty Media
Group tracking stock with respect to which such SARs have been exercised
over $18.62 per share, as adjusted for a subsequent stock split.
Notwithstanding the vesting schedule as set forth in the option
agreements, the SARs will immediately vest and become exercisable if the
grantee's employment with Liberty terminates by reason of disability or
the grantee dies while employed by Liberty.
(5) Includes $32,013 and $21,540 which consists of the amounts of premiums
paid by Liberty in fiscal 1999 and 1998, respectively, pursuant to split
dollar, whole life insurance policies for the insured executive officer.
Liberty will pay a portion of the premiums annually until the first to
occur of:
. 10 years from the date of the policy;
. the insured executive's death;
. the premiums are waived under a waiver of premium provision;
. the policy is terminated as set forth below; and
. premiums are prepaid in full for the 10-year period as set forth
below.
The insured executive has granted an assignment of policy benefits in favor
of Liberty in the amounts of the premiums paid by Liberty. At the end of
such 10-year period or upon acceleration of premiums as described below, the
entire policy vests to the sole benefit of the insured executive and Liberty
will remove or cancel the assignment in its favor against the policy. In the
event of a change of control of Liberty, liquidation of Liberty or sale of
substantially all of the assets of Liberty, the policy will immediately be
prepaid in full through the tenth year, prior to such event. Similarly, if
the insured executive is dismissed for any reason (except for conviction of
a felony class miscarriage of responsibilities as a Liberty officer),
Liberty will immediately prepay and fully fund the policy through the tenth
year. Upon any of the foregoing events, the policy will vest to the sole
benefit of the insured executive. If, however, the insured executive
voluntarily chooses to terminate employment (and that decision is not a
result of pressure from Liberty to resign or a resignation related to an
adverse change in Liberty or its affiliates) without cause, Liberty will
have no further obligation to fund premiums, but the policy will vest to the
sole benefit of the insured executive.
(6) Amounts represent contributions to the Liberty Media 401(k) Savings Plan
(the "Liberty Savings Plan"), formerly the TCI 401(k) Stock Plan. The
Liberty Savings Plan provides employees with an opportunity to save for
retirement. The Liberty Savings Plan participants may contribute up to 10%
of their compensation and Liberty contributes a matching contribution of
100% of the participants' contributions. Participant contributions to the
Liberty Savings Plan are fully vested upon contribution.
Generally, participants acquire a vested right in Liberty contributions as
follows:
<TABLE>
<CAPTION>
Years of service Vesting Percentage
---------------- ------------------
<S> <C>
Less than 1................... 0%
1-2........................... 33%
2-3........................... 66%
3 or more..................... 100%
</TABLE>
With respect to Liberty contributions made to the Liberty Savings Plan in
1999 and 1998, Messrs. Bennett, Howard and Koff are fully vested.
Directors who are not employees of Liberty are ineligible to participate in
the Liberty Savings Plan. Under the terms of the Liberty Savings Plan,
employees are eligible to participate after three months of service.
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<PAGE>
Option and SAR Grants in Last Fiscal Year. The following table sets forth
information regarding free-standing SARs granted to the executive officer
named in the table below during the year ended December 31, 1999 (numbers of
underlying securities and dollar amounts present value in thousands). No other
named executive officer was granted stock options or SARs during the year
ended December 31, 1999.
Option and SAR Grants in the Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base Grant
Options Employees in Price Expiration Date Present
Name Granted (1) 1998 ($/Sh)(2) Date Value (3)
---- ----------- ------------ --------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Carl E. Vogel....... 1,000 90% $18.62 11/02/09 $21,765
</TABLE>
--------
(1) Consists of SARs granted to Mr. Vogel on November 2, 1999, which vest and
become exercisable ratably over a five-year term, commencing on each
anniversary of the date of the grant. The SARs expire on November 2, 2009,
subject to earlier termination in certain events. Upon the valid exercise of
SARs, Mr. Vogel shall be entitled to receive from Liberty cash equal to the
excess of the fair value of each share of AT&T Class A Liberty Media Group
tracking stock with respect to which such SARs have been exercised over
$18.62 per share, as adjusted for a subsequent stock split. Notwithstanding
the vesting schedule as set forth in the option agreements, the SARs will
immediately vest and become exercisable if the grantee's employment with
Liberty terminates by reason of disability or the grantee dies while
employed by Liberty.
(2) Liberty used the low sales price per share of AT&T Class A Liberty Media
Group tracking stock on the NYSE on the date of the grant in determining
the grant-date market price of the security underlying the free-standing
SARs.
(3) The value shown is based on the Black-Scholes model and is stated in
current annualized dollars on a present value basis. The key assumptions
used in the model for purposes of this calculation include the following:
. a 6.73% discount rate;
. a volatility factor based upon the historical trading pattern of
AT&T Class A Liberty Media Group tracking stock;
. the 10-year option term; and
. the closing price of AT&T Class A Liberty Media Group tracking
stock on December 31, 1999.
The actual value the executive may realize will depend upon the extent to
which the stock price exceeds the exercise price on the date the option is
exercised. Accordingly, the value, if any, realized by the executive would
not necessarily be the value determined by the model.
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<PAGE>
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Values. The
following table sets forth information concerning exercises of stock options
and SARs by the named executive officers during the year ended December 31,
1999 (numbers of securities and dollar amounts in thousands).
Aggregated Option/SAR Exercises in the Last Fiscal Year and
Fiscal Year-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Value December 31, 1999 (#) December 31, 1999
on Exercise Realized Exercisable/ ($) Exercisable/
Name (#)(1) ($) Unexercisable Unexercisable
---- ----------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Robert R. Bennett
Exercisable
AT&T Class A Liberty
Media Group .......... 935 $43,081 3,091 $130,861
AT&T common stock...... -- -- 25 $ 941
TCI Group Series A
(2)................... 191 $10,985 -- --
Unexercisable
AT&T Class A Liberty
Media Group .......... -- -- 6,006 $228,723
AT&T common stock...... -- -- 45 $ 1,685
Gary S. Howard
Exercisable
AT&T Class A Liberty
Media Group .......... 256 $13,017 1,014 $ 29,876
AT&T common stock...... 39 $ 1,604 47 $ 1,797
TCI Group Series A
(2)................... 116 $ 5,852 -- --
Unexercisable
AT&T Class A Liberty
Media Group .......... -- -- 4,019 $141,702
AT&T common stock...... -- -- 23 $ 895
Charles Y. Tanabe
Exercisable
AT&T Class A Liberty
Media Group .......... 240 $ 8,011 -- --
Unexercisable
AT&T Class A Liberty
Media Group .......... -- -- 960 $ 33,785
Peter N. Zolintakis
Exercisable
AT&T Class A Liberty
Media Group .......... 240 $ 7,861 -- --
Unexercisable
AT&T Class A Liberty
Media Group .......... -- -- 960 $ 33,785
David B. Koff
Exercisable
AT&T Class A Liberty
Media Group .......... -- -- 623 $ 26,517
AT&T common stock...... -- -- 4 $ 157
TCI Group Series A
(2)................... 4 $ 187 -- --
Unexercisable
AT&T Class A Liberty
Media Group .......... -- -- 1,131 $ 42,315
Carl E. Vogel
Unexercisable
AT&T Class A Liberty
Media Group .......... -- -- 500 $ 9,781
</TABLE>
--------
(1) Represents the number of shares underlying SARs which were exercised in
1999.
(2) Represents the number of shares of TCI Group Series A tracking stock
exercised and value realized prior to the AT&T merger.
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<PAGE>
Employment Contracts
In connection with the AT&T merger, an employment agreement between Dr.
Malone and TCI was assigned to Liberty. The term of Dr. Malone's employment
agreement is extended daily so that the remainder of the employment term is
five years. The employment agreement was amended in June 1999 to provide for,
among other things, an annual salary of $2,600, subject to increase upon
approval of Liberty's board. Additionally, the employment agreement provides
for personal use of Liberty's aircraft and flight crew, limited to an aggregate
value of $200,000 per year, and payment or reimbursement of professional fees
and expenses incurred by Dr. Malone for estate and tax planning services.
Dr. Malone's employment agreement provides, among other things, for deferral
of a portion (not in excess of 40%) of the monthly compensation payable to him.
The deferred amounts will be payable in monthly installments over a 20-year
period commencing on the termination of Dr. Malone's employment, together with
interest thereon at the rate of 8% per annum compounded annually from the date
of deferral to the date of payment.
Dr. Malone's employment agreement also provides that, upon termination of his
employment by Liberty (other than for cause, as defined in the agreement) or if
Dr. Malone elects to terminate the agreement because of a change in control of
Liberty, all remaining compensation due under the agreement for the balance of
the employment term shall be immediately due and payable.
Dr. Malone's agreement provides that, during his employment with Liberty and
for a period of two years following the effective date of his termination of
employment with Liberty, unless termination results from a change in control of
Liberty, he will not be connected with any entity in any manner specified in
the agreement, which competes in a material respect with the business of
Liberty. The agreement provides, however, that Dr. Malone may own securities of
any corporation listed on a national securities exchange or quoted in The
Nasdaq Stock Market to the extent of an aggregate of 5% of the amount of such
securities outstanding.
For a period of 12 months following a change in control, as defined in Dr.
Malone's employment agreement, Liberty's ability to terminate Dr. Malone's
employment for cause will be limited to situations in which Dr. Malone has
entered a plea of guilty to, or has been convicted of, the commission of a
felony offense.
Dr. Malone's agreement also provides that in the event of termination of his
employment with Liberty, he will be entitled to receive 240 consecutive monthly
payments of $15,000 (increased at the rate of 12% per annum compounded annually
from January 1, 1988 to the date payment commences), the first of which will be
payable on the first day of the month succeeding the termination of Dr.
Malone's employment. In the event of Dr. Malone's death, his beneficiaries will
be entitled to receive the foregoing monthly payments.
Liberty pays a portion of the annual premiums on three whole-life insurance
policies of which Dr. Malone is the insured and trusts for the benefit of
members of his family are the owners. The portion that Liberty pays is equal to
the "PS-58" costs, which represent the costs to buy one-year term insurance
coverage as set forth in IRS Pension Service Table No. 58. For the quarter
ending March 31, 2000, such amount will be $111,983. Liberty is the designated
beneficiary of the proceeds of such policies less an amount equal to the
greater of the cash surrender value thereof at the time of Dr. Malone's death
and the amounts of the premiums paid by the policy owners.
Dr. Malone deferred a portion of his monthly compensation under his previous
employment agreement. The obligation to pay that deferred compensation was
assumed by Liberty in connection with the AT&T merger. The compensation that he
deferred (together with interest on that compensation at the rate of 13% per
annum compounded annually from the date of deferral to the date of payment)
will continue to be payable under the terms of the previous agreement. The rate
at which interest accrues on the previously deferred compensation was
established in 1983 pursuant to the previous agreement.
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Liberty Media 401(k) Savings Plan
Liberty maintains an employee benefit plan known as the Liberty Media 401(k)
Savings Plan. This plan is intended to be a qualified employee plan under
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986. An employee
must be an employee of Liberty or of an employer owned 80% or more by Liberty
(a "Participating Employer") and must complete three months of continuous
employment and be at least 18 years of age to participate in the plan. Credit
will be given for service with TCI, Liberty and their affiliates for
eligibility and vesting service under the plan. The employee will commence
participation as of the first payroll period following the employee's
completion of the eligibility requirements and his or her enrollment in the
plan.
Upon commencing participation, the participant may elect to make pre-tax
contributions, after-tax contributions, or both to the plan. All participant
contributions are made by payroll deduction and all participant contributions
may not exceed 10% of the participant's wages from the Participating Employer.
Pre-tax participant contributions are not subject to income tax when
contributed to the plan, but will be subject to FICA taxes when contributed to
the plan. Those pre-tax participant contributions (and earnings) will be taxed
to the participant when the participant receives a distribution from the plan.
Pre-tax participant contributions are limited to $10,000 for each year (as
adjusted for cost of living increases). After-tax participant contributions are
subject to income taxes and FICA taxes when contributed to the plan, but
earnings on those contributions will not be taxed to the participant until the
participant receives a distribution from the plan.
A participant may change the amount of his or her participant contributions
as of any prospective payroll period. Participant contributions always are 100%
vested. The participant may direct the investment of his or her participant
contributions, and earnings on those amounts, into a variety of investment
options, including the AT&T Class A Liberty Media Group Common Stock Fund and
the AT&T Common Stock Fund (the "Employer Stock Funds").
Only the first $160,000 (as adjusted in 2000 and thereafter for cost of
living increases) of any participant's wages is taken into account for all
purposes under the plan, as required by law.
Generally, Liberty will make a matching contribution to the plan for each
plan year equal to 100% of each participant's participant contributions to the
plan, unless Liberty, in its discretion, decides upon a different percentage
for the matching contribution. All Liberty contributions to the plan are
invested solely in the AT&T Class A Liberty Media Group Common Stock Fund.
Liberty contributions to the plan become 33% vested after one year of
service, 66% vested after two years of service, and 100% vested after three
years of service. Generally, a year of service will be credited for each
twelve-month period of employment completed by the participant. In addition, a
participant will be 100% vested in his or her Liberty contributions upon
attaining normal retirement age (age 65), upon becoming totally disabled, or
upon the participant's death while employed with a Participating Employer.
Liberty contributions to the plan (and earnings on those contributions) on
behalf of a participant are not taxable to the participant until those amounts
are distributed from the plan. Liberty receives a deduction for the amounts it
contributes to the plan.
A participant can withdraw his or her participant contributions and Liberty
contributions while he or she remains employed only in the following limited
circumstances: upon attaining age 59 1/2, the participant may request a
withdrawal of all or any portion of his or her Liberty contributions account
(including earnings on such contributions) and his or her pre-tax participant
contributions account (including earnings on such contributions). A participant
may withdraw any portion of his or her after-tax participant contributions at
any time. Upon experiencing a financial hardship, a participant may request a
withdrawal of his or her pre-tax participant contributions (but not the
earnings on such contributions) in an amount necessary to meet the financial
need. A participant who takes a hardship withdrawal may not contribute to the
plan for 12 months
88
<PAGE>
after the withdrawal, and there are limitations on the maximum salary reduction
amounts that may be made in the year following the year of the hardship
withdrawal.
Upon terminating employment with Liberty, the participant may receive a
distribution of his or her entire vested account in the plan. If the vested
account equals $5,000 or less, the distribution will be made as soon as
administratively reasonable after the participant's termination of employment
occurs. If the participant's vested account exceeds $5,000, the participant
must consent to the distribution and such distribution will be made as soon as
administratively reasonable after the participant's consent to the distribution
is received. The participant must commence distributions from the plan by April
1 of the year following the year in which occurs the later of the participant's
attainment of age 70 1/2 or the participant's retirement.
Distributions will be made in cash, however, the participant may elect to
receive that portion of his or her vested account which is invested in the
Employer Stock Funds in whole shares of those Employer Stocks. Any qualified
distribution from the plan may be rolled over to an IRA or other qualified plan
upon the election of the participant.
A 10% federal penalty tax may be imposed on the taxable amount of certain
early distributions from the plan. The early distribution penalty tax does not
apply to distributions made on account of: the death or disability of the
participant, the participant's attainment of age 55 and separation from
service, the participant's payment of certain medical expenses, payment to an
alternate payee under a qualified domestic relations order, or the
participant's attainment of age 59 1/2.
Security Ownership of Management
The following table sets forth information with respect to the ownership by
each director and each of the named executive officers of Liberty and by all
directors and executive officers of Liberty as a group of shares of AT&T common
stock and Class A and Class B Liberty Media Group tracking stock, all of which
are equity securities of AT&T Corp., which is the sole member of AT&T Broadband
LLC, which in turn indirectly owns 100% of the outstanding common stock of
Liberty. The table also sets forth information with respect to the ownership by
each director and each of the named executive officers of Liberty and by all
directors and executive officers of Liberty as a group of shares of Series A
common stock of Liberty Digital, Inc., a subsidiary of Liberty. Shares of Class
B 6% Cumulative Redeemable Exchangeable Junior Preferred Stock of the former
TCI owned by certain directors and named executive officers of Liberty at
December 31, 1999, were redeemed on February 22, 2000, and have, therefore,
been excluded from the following table. The AT&T Liberty Media Group tracking
stock is intended to reflect the separate performance of the businesses and
assets attributed to the Liberty Media Group. Liberty is included in the
Liberty Media Group, and the businesses and assets of Liberty and its
subsidiaries constitute substantially all of the businesses and assets of the
Liberty Media Group. See "Relationship with AT&T and Certain Related
Transactions--Relationship with AT&T."
The AT&T charter provides that, except as otherwise required by New York law
or any special voting rights of AT&T preferred stock, the holders of AT&T
common stock, AT&T Liberty Media Group tracking stock and AT&T preferred stock,
if any, entitled to vote with the common shareholders, vote together as one
class. No separate class vote is required for the approval of any matter except
as described in the next sentence. The following circumstances require the
separate class approval of the AT&T Liberty Media Group tracking stock:
. any amendment to the AT&T charter that would change the total number of
authorized shares or the par value of AT&T Liberty Media Group tracking
stock or that would adversely change the rights of AT&T Liberty Media
Group tracking stock;
. a Covered Disposition, which generally includes a sale or transfer by
AT&T of its equity interest in Liberty or Liberty Media Group LLC or a
grant of a pledge or other security interest in the equity interest of
AT&T in Liberty or Liberty Media Group LLC; and
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<PAGE>
. any merger or similar transaction in which AT&T Liberty Media Group
tracking stock is converted, reclassified or changed into or otherwise
exchanged for any consideration unless specified requirements are met
that are generally intended to ensure that the rights of the holders are
not materially altered and the composition of the holders is not
changed.
In a separate shareholder vote with respect to any of the foregoing matters,
the ownership of AT&T Class A Liberty Media Group and AT&T Class B Liberty
Media Group tracking stock indicated in the table below as beneficially owned
by (1) Dr. Malone would entitle him to cast 43.38% of the votes on such matter
and (2) by all directors and executive officers as a group would entitle them
to cast, in the aggregate, 43.72% of the votes on such matter. No other person
named in the table below had the right, at December 31, 1999, to cast 1% or
more of the votes on any such matter.
In June 2000, the AT&T Liberty Media Group Class A and Class B tracking stock
split two-for-one. The information in this prospectus, including the
information in the following table, gives effect to the stock split. The
following information is given as of December 31, 1999, and, in the case of
percentage ownership information, is based on 3,196,524,356 shares of AT&T
common stock, 2,313,557,460 shares of AT&T Class A Liberty Media Group tracking
stock, 216,842,228 shares of AT&T Class B Liberty Media Group tracking stock
and 26,507,489 shares of Liberty Digital Series A common stock outstanding on
that date. Shares of AT&T common stock, AT&T Class A and Class B Liberty Media
Group tracking stock and Liberty Digital, Inc. Series A common stock issuable
upon exercise or conversion of convertible securities are deemed to be
outstanding for the purpose of computing the percentage ownership and overall
voting power of persons beneficially owning such convertible securities, but
have not been deemed to be outstanding for the purpose of computing the
percentage ownership or overall voting power of any other person. So far as is
known to Liberty, the persons indicated below have sole voting power with
respect to the shares indicated as owned by them except as otherwise stated in
the notes to the table.
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Ownership of Voting
Name of Beneficial Owner Title of Class (in thousands) Class Power
------------------------ -------------- -------------- ------- ------
<S> <C> <C> <C> <C>
John C. Malone.......... AT&T common stock 32,625(/1/)(/2/) 1.02% 3.11%
Class A Liberty Media Group 6,440(/1/)(/2/) *
Class B Liberty Media Group 195,092(/1/)(/2/)(/3/) 89.01%
Liberty Digital Series A 0
Robert R. Bennett....... AT&T common stock 273(/4/)(/5/) * *
Class A Liberty Media Group 6,267(/4/) *
Class B Liberty Media Group 0
Liberty Digital Series A 60(/6/) * *
Gary S. Howard.......... AT&T common stock 61(/7/)(/8/) * *
Class A Liberty Media Group 2,125(/7/)(/8/) *
Class B Liberty Media Group 0
Liberty Digital Series A 20(/9/) * *
Paul A. Gould........... AT&T common stock 0 *
Class A Liberty Media Group 1,529(/10/) *
Class B Liberty Media Group 428 *
Liberty Digital Series A 0
Jerome H. Kern.......... AT&T common stock 906(/11/)(/12/)(/13/) * *
Class A Liberty Media Group 2,357(/11/)(/12/)(/13/) *
Class B Liberty Media Group 0
Liberty Digital Series A 0
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Amount and
Nature of
Beneficial Percent
Ownership of Voting
Name of Beneficial Owner Title of Class (in thousands) Class Power
------------------------ -------------- -------------- ------- ------
<S> <C> <C> <C> <C>
John C. Petrillo........ AT&T common stock 378(/14/) * *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
Liberty Digital Series A 0
Larry E. Romrell........ AT&T common stock 325(/15/)(/16/) * *
Class A Liberty Media Group 2,501(/15/)(/16/) *
Class B Liberty Media Group 2 *
Liberty Digital Series A 0
Daniel E. Somers........ AT&T common stock 176(/17/) * *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
Liberty Digital Series A 0
David B. Koff........... AT&T common stock 4 * *
Class A Liberty Media Group 1,237(/18/) *
Class B Liberty Media Group 0
Liberty Digital Series A 0
Charles Y. Tanabe....... AT&T common stock 1 * *
Class A Liberty Media Group 4 *
Class B Liberty Media Group 0
Liberty Digital Series A 0
Carl E. Vogel........... AT&T common stock 0 *
Class A Liberty Media Group 18 *
Class B Liberty Media Group 0
Liberty Digital Series A 0
Peter N. Zolintakis..... AT&T common stock 58(/19/) * *
Class A Liberty Media Group 16 *
Class B Liberty Media Group 0
Liberty Digital Series A 0
TCI Class B Preferred 0
John D. Zeglis.......... AT&T common stock 1,162(/20/) * *
Class A Liberty Media Group 0
Class B Liberty Media Group 0
Liberty Digital Series A 0
All directors and
executive officers as a
group (16 persons)..... AT&T common stock 35,970(/21/)(/22/) 1.12% 3.23%
Class A Liberty Media Group 23,324(/3/)(/21/)(/22/) *
Class B Liberty Media Group 195,524(/21/) 89.21%
Liberty Digital Series A 80(/23/) * *
</TABLE>
--------
*Less than one percent
(1) Includes beneficial ownership of the following shares which could be
acquired within 60 days after December 31, 1999, pursuant to stock options
granted in tandem with stock appreciation rights: (a) 162,897 shares of
AT&T common stock; (b) 6,389,200 shares of AT&T Class A Liberty Media
Group tracking stock; and (c) 2,329,600 shares of AT&T Class B Liberty
Media Group tracking stock.
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<PAGE>
(2) Includes 1,004,622 shares of AT&T common stock, 50,904 shares of AT&T
Class A Liberty Media Group tracking stock and 3,409,436 shares of AT&T
Class B Liberty Media Group tracking stock held by Dr. Malone's wife, Mrs.
Leslie Malone, as to which Dr. Malone has disclaimed beneficial ownership.
(3) In connection with the AT&T merger, TCI assigned to Liberty its rights
under a call agreement with Dr. Malone and Dr. Malone's wife (the
"Malones") and a call agreement with the Estate of Bob Magness, the Estate
of Betsy Magness, Gary Magness (individually and in certain representative
capacities) and Kim Magness (individually and in certain representative
capacities) (collectively, the "Magness Group"). As a result, Liberty has
the right, under certain circumstances, to acquire the AT&T Class B
Liberty Media Group tracking stock owned by the Malones and the Magness
Group. Further, in connection with the AT&T merger, TCI assigned to
Liberty its rights under a shareholders agreement with the Magness Group
and the Malones, pursuant to which, among other things, Dr. Malone has an
irrevocable proxy, under certain circumstances, to vote the AT&T Class B
Liberty Media Group tracking stock or any super voting class of equity
securities issued by Liberty held by the Magness Group. See "Relationship
with AT&T and Certain Related Transactions--Other Related Party
Transactions--Certain Rights to Purchase Liberty Media Group Tracking
Stock," for additional information related to the call agreements and the
shareholders' agreement.
As a result of certain provisions of the shareholders' agreement referred
to above, Dr. Malone's beneficial ownership of AT&T Class B Liberty Media
Group tracking stock includes 95,582,332 shares held by the Magness Group.
(4) Includes beneficial ownership of the following shares which could be
acquired within 60 days, after December 31, 1999, pursuant to stock
options granted in tandem with stock appreciation rights: (a) 23,620
shares of AT&T common stock; and (b) 6,182,329 shares of AT&T Class A
Liberty Media Group tracking stock.
(5) Includes 232,710 restricted shares of AT&T common stock, none of which
were vested at December 31, 1999.
(6) Assumes the exercise in full of stock options to acquire 60,000 shares of
Liberty Digital Series A common stock, all of which are currently
exercisable.
(7) Includes beneficial ownership of the following shares which could be
acquired within 60 days, after December 31, 1999, pursuant to stock
options granted in tandem with stock appreciation rights: (a) 45,835
shares of AT&T common stock; and (b) 2,027,060 shares of AT&T Class A
Liberty Media Group tracking stock.
(8) Includes 5,551 restricted shares of AT&T common stock and 11,350
restricted shares of AT&T Class A Liberty Media Group tracking stock, none
of which were vested at December 31, 1999.
(9) Assumes the exercise in full of stock options to acquire 20,000 shares of
Liberty Digital Series A common stock, all of which are currently
exercisable.
(10) Includes beneficial ownership of 137,100 shares of AT&T Class A Liberty
Media Group tracking stock which may be acquired within 60 days, after
December 31, 1999, pursuant to stock options granted in tandem with stock
appreciation rights.
(11) Includes beneficial ownership of the following shares which could be
acquired within 60 days, after December 31, 1999, pursuant to stock
options granted in tandem with stock appreciation rights: (a) 383,972
shares of AT&T common stock; and (b) 1,595,152 shares of AT&T Class A
Liberty Media Group tracking stock.
(12) Includes 481,267 restricted shares of AT&T common stock and 151,340
restricted shares of AT&T Class A Liberty Media Group tracking stock, none
of which were vested at December 31, 1999.
(13) Includes 12,798 shares of AT&T common stock and 80,400 shares of AT&T
Class A Liberty Media Group tracking stock held by Mr. Kern's wife, Mary
Rossick Kern, as to which Mr. Kern has disclaimed beneficial ownership.
(14) Includes beneficial ownership of 376,047 shares of AT&T common stock which
could be acquired within 60 days, after December 31, 1999, pursuant to
stock options.
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<PAGE>
(15) Includes beneficial ownership of the following shares which could be
acquired within 60 days, after December 31, 1999, pursuant to stock
options granted in tandem with stock appreciation rights: (a) 169,412
shares of AT&T common stock; and (b) 2,148,504 shares of AT&T Class A
Liberty Media Group tracking stock.
(16) Includes 134,650 restricted shares of AT&T common stock and 75,268
restricted shares of AT&T Class A Liberty Media Group tracking stock, none
of which were vested at December 31, 1999.
(17) Includes beneficial ownership of 174,498 shares of AT&T common stock which
could be acquired within 60 days, after December 31, 1999, pursuant to
stock options.
(18) Includes beneficial ownership of the following shares which could be
acquired within 60 days' after December 31, 1999, pursuant to stock
options granted in tandem with stock appreciation rights: (a) 4,073 shares
of AT&T common stock; and (b) 1,227,448 shares of AT&T Class A Liberty
Media Group tracking stock.
(19) Includes 58,177 restricted shares of AT&T common stock, none of which were
vested at December 31, 1999.
(20) Includes beneficial ownership of 1,153,716 shares of AT&T common stock
which could be acquired within 60 days, after December 31, 1999, pursuant
to stock options granted in tandem with stock appreciation rights.
(21) Includes beneficial ownership of the following shares which could be
acquired within 60 days, after December 31, 1999, pursuant to stock
options granted in tandem with stock appreciation rights: (a) 2,494,070
shares of AT&T common stock; (b) 20,489,588 shares of AT&T Class A Liberty
Media Group tracking stock; and (c) 2,329,600 shares of AT&T Class B
Liberty Media Group tracking stock.
(22) Includes 912,355 restricted shares of AT&T common stock and 237,958
restricted shares of AT&T Class A Liberty Media Group tracking stock, none
of which were vested at December 31, 1999.
(23) Assumes the exercise in full of stock options to acquire 80,000 shares of
Liberty Digital Series A common stock, all of which are currently
exercisable.
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<PAGE>
SELLING SECURITY HOLDERS
We issued and sold the debentures in a private placement that was exempt from
the registration requirements of the Securities Act. We understand that the
initial purchaser of the debentures subsequently resold the debentures in
compliance with Rule 144A and Regulation S. Prior to the date of this
prospectus, the debentures were transferable in accordance with Rule 144A and
Regulation S and were eligible for trading in Nasdaq's Private Offerings,
Resales and Trading Through Automated Linkages (PORTAL) market. The selling
security holders listed below (including their transferees, pledgees, donees or
successors) may offer and sell pursuant to this prospectus any or all of the
debentures owned by them from time to time.
In accordance with the terms of a registration rights agreement that we
entered into with the initial purchaser of the debentures, we have made this
prospectus available to the selling security holders so that they may publicly
resell their debentures.
The following table sets forth information with respect to each selling
security holder and the principal amount of debentures owned by it, as of May
25, 2000. The entire principal amount of the debentures owned by each of the
selling security holders named in the table may be sold pursuant to this
prospectus. Because each selling security holder may sell all or some of its
debentures from time to time under this prospectus, no estimate can be given at
this time as to the principal amount of debentures that will be held by a
particular selling security holder following any sale of debentures by it. In
addition, some of the selling security holders named in the table may have
sold, transferred, loaned or otherwise disposed of all or a portion of their
debentures since the date they last advised us of their holdings. Hence, the
total principal amount of debentures included in the following table does not
equal the maximum aggregate principal amount of debentures to which this
prospectus relates. Changes in the information concerning the selling security
holders will be set forth in supplements to this prospectus, when and if
necessary.
<TABLE>
<CAPTION>
Principal
amount of
debentures Percentage of
that may be outstanding
Name sold ($) debentures
---- ----------- -------------
<S> <C> <C>
AL-BANK AL-SAUDI AL-ALAMI Limited................ 1,500,000 *
Allstate Life Insurance Company.................. 13,000,000 2%
Allstate Insurance Company....................... 2,500,000 *
Associated Electric & Gas Insurance Services
Limited......................................... 1,200,000 *
Banc of America Securities LLC................... 7,500,000/1/ *
Bancroft Convertible Fund, Inc................... 1,500,000 *
Bank Austria Cayman Island, Ltd.................. 3,000,000 *
Bear, Stearns & Co. Inc.......................... 7,500,000 *
Black Diamond Offshore, Ltd...................... 448,000 *
BNP Arbitrage SNC................................ 2,000,000 *
CA State Automobile ASSN Inter-Insurance......... 700,000 *
CALAMOS(R) Convertible Portfolio--CALAMOS(R)
Advisors Trust.................................. 50,000 *
CALAMOS(R) Convertible Fund--CALAMOS(R)
Investment Trust................................ 400,000 *
CALAMOS(R) Growth and Income Fund--CALAMOS(R)
Investment Trust................................ 350,000 *
CALAMOS(R) Market Neutral Fund--CALAMOS(R)
Investment Trust................................ 740,000 *
Capital Markets Transactions Inc................. 7,000,000 *
Consulting Group Capital Market Funds............ 280,000 *
Credit Suisse First Boston Corporation........... 31,000,000 4%
Credit Suisse First Boston division Credit Suisse
Asset Management................................ 2,750,000 *
Deutsche Bank Securities Inc..................... 90,050,000 11%
Donaldson, Lufkin & Jenrette Securities Corp..... 600,000 *
Double Black Diamond Offshore, LDC............... 1,438,000 *
</TABLE>
94
<PAGE>
<TABLE>
<CAPTION>
Principal
amount of
debentures Percentage of
that may be outstanding
Name sold ($) debentures
---- ----------- -------------
<S> <C> <C>
Ellsworth Convertible Growth and Income Fund,
Inc. ........................................... 1,500,000 *
Federated Equity Income Fund, Inc. .............. 8,700,000 1%
Federated Insurance Series, on behalf of its
Federated Equity Income Fund II................. 300,000 *
Fidelity Hastings Street Trust: Fidelity Fund.... 41,700,000 5%
Fidelity Financial Trust: Fidelity Equity-Income
II Fund......................................... 25,420,000 3%
Fidelity Destiny Portfolios: Destiny II.......... 16,020,000 2%
Fidelity Financial Trust: Fidelity Convertible
Securities Fund................................. 20,000,000 3%
Fidelity Advisor Series I: Fidelity Advisor
Growth & Income Fund............................ 7,390,000 *
Fidelity Advisor Series I: Fidelity Advisor
Balanced Fund................................... 4,309,000 *
Fidelity Management Trust Company on behalf of
accounts managed by it.......................... 11,764,000 2%
Forest Convertible Fund LP....................... 500,000 *
Forest Fulcrum Fund LP........................... 500,000 *
Forest Global Convertible Fund A-5............... 56,250,000 7%
Forest Performance Fund LP....................... 2,750,000 **
Goldman Sachs and Company........................ 8,250,000 1%
Granville Capital Corporation.................... 50,000,000 6%
Hamilton Partners Limited........................ 15,000,000 2%
HBK Master Fund L.P. ............................ 77,500,000 10%
Highbridge International LLC..................... 75,000,000 9%
Jefferies & Company.............................. 1,000,000 *
JMG Triton Offshore Fund, Ltd.................... 10,000,000 1%
JP Morgan Securities Inc......................... 130,000 *
KBC Financial Products........................... 800,000 *
Lazard Freres & CIE Paris........................ 2,000,000 *
LLT Limited...................................... 3,000,000 *
Lyxor Master Fund c/o Forest Investment
Management LLC.................................. 16,000,000 2%
Massachusetts Mutual Life Insurance Company...... 2,250,000 *
MassMutual High Yield Partners II LLC............ 1,300,000 *
MassMutual Corporate Value Partners Limited...... 875,000 *
Morgan Stanley & Co.............................. 7,690,000 *
Museum of Fine Arts, Boston...................... 50,000 *
Nationwide Family of Funds, on behalf of its
Nationwide Equity Income Fund................... 100,000 *
New Hampshire Retirement System.................. 270,000 *
Ohio National Equity Income Portfolio, on behalf
of its
Ohio National Fund, Inc......................... 20,000 *
Oppenheimer Convertible Securities Fund.......... 25,000,000/2/ 3%
OZ Master Fund, Ltd. ............................ 5,000,000 *
Pacific Specialty (Convertibles)................. 150,000 *
Parker-Hannifin Corporation...................... 50,000 *
Pensionskasse der EMS. Chemie AG PRP Performa.... 80,000 *
Pensionskasse der Ciba Spezialitatencherrie CSAM,
Basel........................................... 500,000 *
President and Fellows of Harvard College......... 10,000,000 1%
Provident Life and Accident Insurance Company.... 3,000,000 *
Putnam Asset Allocation Funds--Balanced
Portfolio....................................... 600,000 *
Putnam Asset Allocation Funds--Conservative
Portfolio....................................... 200,000 *
Putnam Balanced Retirement Fund.................. 90,000 *
Putnam Convertible Income--Growth Trust.......... 35,710,000 4%
Putnam Convertible Opportunities and Income
Trust........................................... 120,000 *
ProMutual........................................ 170,000 *
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
Principal
amount of
debentures Percentage of
that may be outstanding
Name sold ($) debentures
---- ----------- -------------
<S> <C> <C>
PVF Pensioenen................................... 4,500,000 *
Ramius Capital Group Holdings, Ltd............... 1,000,000 *
RBC Capital Services Inc. c/o Forest Investment
Management LLC.................................. 300,000 *
RET Pension Plan of the CA State Automobile...... 150,000 *
Sagamore Hill Hub Fund Ltd....................... 12,000,000/3/ 1%
Salomon Smith Barney............................. 32,723,000/4/ 4%
Sylvan IMA LTD c/o Forest Investment Management
LLC............................................. 8,000,000 1%
Teachers Insurance and Annuity Association of
America......................................... 11,200,000 1%
TOA Master Fund, Ltd............................. 5,700,000 *
TOA Master Plus Fund, Ltd. ...................... 4,000,000 *
Travelers: Travelers Equity Income............... 790,000 *
University of Rochester.......................... 40,000 *
Variable Insurance Products Fund III: Balanced
Portfolio....................................... 460,000 *
Worldwide Transactions, Ltd...................... 114,000 *
White River Securities L.L.C..................... 7,500,000 *
ZCM/HFR Index Management, L.L.C. ................ 90,000 *
Zurich HFR Master Hedge Fund Index Ltd. ......... 50,000 *
Zurich HFR Master Hedge Fund Index LTD c/o Forest
Investment Management LLC....................... 200,000 *
Any other holder of debentures as of the date of
this prospectus**............................... **
</TABLE>
--------
* Less than 1%
** Information concerning other selling security holders will be listed in
prospectus supplements from time to time, when and if required.
(1) As of June 22, 2000.
(2) As of June 23, 2000.
(3) As of June 15, 2000.
(4) As of June 23, 2000.
Donaldson, Lufkin & Jenrette Securities Corp. and Salomon Smith Barney,
which are selling security holders, have engaged in investment banking and
other commercial dealings in the ordinary course of business with us. Each
received customary fees and commissions for its services. The foregoing
entities, and other selling security holders or their affiliates, may in the
future engage in investment banking and other commercial dealings with us.
96
<PAGE>
RELATIONSHIP WITH AT&T AND CERTAIN RELATED TRANSACTIONS
Relationship with AT&T
Liberty is a wholly owned subsidiary of AT&T Broadband, LLC, of which AT&T is
the sole member. The businesses and assets of Liberty and its subsidiaries
constitute substantially all of the businesses and assets of AT&T's Liberty
Media Group, which was created in connection with the AT&T merger. The assets
attributed to the Liberty Media Group that are not also currently assets of
Liberty consist of approximately 21.4 million shares of common stock of
Teligent, Inc., which are held indirectly by AGI LLC, and interests in each of
the "Covered Entities" and their respective properties and assets. The Covered
Entities are the following subsidiaries of AT&T: Liberty AGI, Inc., Liberty SP,
Inc. and LMC Interactive, Inc. At such time as all of the equity in, or all of
the assets of, a company identified as a Covered Entity are held by Liberty,
that company will cease to be a Covered Entity.
The Liberty Media Group also includes any proceeds of issuances or sales of
AT&T's Liberty Media Group tracking stock and any dividends or distributions
from Liberty or a Covered Entity.
AT&T's Liberty Media Group tracking stock, which is intended to reflect the
separate performance of the Liberty Media Group, is capital stock of AT&T. It
is not stock of Liberty.
In connection with the AT&T merger, a number of agreements were entered into
and governance arrangements put in place that address the relationship between
AT&T and Liberty.
On April 27, 2000, AT&T effected the initial public offering of a new
tracking stock intended to reflect the performance of the new AT&T Wireless
Group. The relationship between the Liberty Media Group and the AT&T Wireless
Group will be substantially similar to the relationship between the Liberty
Media Group and the AT&T Common Stock Group described below.
Liberty Organizational Documents. The Liberty Charter provides that Liberty
will have three classes of directors, each of which is to have the same number
of directors, as follows:
. the Class A Directors, who are elected for a term of one year;
. the Class B Directors, who are elected for a term of seven years; and
. the Class C Directors, who are elected for a term of ten years.
The current Class B Directors and Class C Directors were designated by TCI
prior to the AT&T merger and, unless they resign, die or are otherwise removed,
will comprise two-thirds of the Liberty board until at least 2006. The members
of the Liberty board are only removable for cause (as defined in the Liberty
Charter) and, in the event of the death or resignation of a director in any
class, the remaining directors of that class are to choose a successor.
Under Delaware law, the Liberty board manages the business and affairs of
Liberty. In accordance with the Liberty Charter and bylaws, action by the
Liberty board generally requires the affirmative vote of a majority of the
directors present at a meeting at which a quorum is present, which majority
must include a majority of the Class B Directors and Class C Directors.
The officers of Liberty include the executive officers who were formerly in
charge of overseeing the businesses of TCI's former Liberty Media Group and TCI
Ventures Group. See "Management." The Liberty Charter provides that officers of
Liberty may only be removed by the Liberty board by the affirmative vote
described above. Similar governance arrangements were instituted with respect
to each of the Covered Entities.
Contribution Agreement. Liberty is a party to a Contribution Agreement
entered into immediately prior to the AT&T merger. The Contribution Agreement
provides that, in the event of a Triggering Event, Liberty will be obligated to
transfer all of its assets and liabilities to Liberty Media Group LLC, an
entity controlled by
97
<PAGE>
Liberty's current management through Liberty Management LLC, the managing
member, unless the Triggering Event is waived by Liberty Management LLC. The
subsidiary of AT&T that holds the stock of the Covered Entities and Liberty is
also a party to the Contribution Agreement and is obligated under the same
circumstances to contribute the Contributed Entities or their assets to Liberty
Media Group LLC. A Triggering Event will occur if the incumbent Class B and
Class C directors, and their successors, cease to constitute a majority of the
Liberty board, or Liberty Management LLC reasonably determines that such event
is reasonably likely to occur.
AT&T Tracking Stock Amendment. AT&T's certificate of incorporation was
amended in connection with the AT&T merger in order to authorize the AT&T
Liberty Media Group tracking stock. Of particular relevance to Liberty is a
provision that requires a separate class vote of the holders of Liberty Media
Group tracking stock to authorize a Covered Disposition, which generally
includes a sale or transfer by AT&T of its equity interest in Liberty or
Liberty Media Group LLC or a grant of a pledge or other security interest in
the equity interest of AT&T in Liberty or Liberty Media Group LLC. Such
separate approval would not be required in connection with a redemption
permitted by AT&T's amended certificate of incorporation of all of the
outstanding Liberty Media Group tracking stock in exchange for all of the
shares of common stock of a subsidiary of AT&T that holds all of the assets and
liabilities of the Liberty Media Group and satisfies certain other
requirements.
AT&T's amended certificate of incorporation also provides that neither the
Liberty Media Group nor the AT&T Common Stock Group will have any duty,
responsibility or obligation to refrain from any of the following:
. engaging in the same or similar activities or lines of business as any
member of the other group;
. doing business with any potential or actual supplier or customer of any
member of the other group; or
. engaging in, or refraining from, any other activities whatsoever
relating to any of the potential or actual suppliers or customers of any
member of the other group.
Further, neither the Liberty Media Group nor the AT&T Common Stock Group will
have any duty, responsibility or obligation:
. to communicate or offer any business or other corporate opportunity to
any other person (including any business or other corporate opportunity
that may arise that either group may be financially able to undertake,
and that are, from their nature, in the line of more than one group's
business and are of practical advantage to more than one group);
. to provide financial support to the other group (or any member thereof);
or
. otherwise to assist the other group.
The foregoing provisions of the AT&T certificate of incorporation do not
prevent any member of the Liberty Media Group (including Liberty) from entering
into written agreements with AT&T or any other member of the AT&T Common Stock
Group to define or restrict any aspect of the relationship between the groups.
Inter-Group Agreement. AT&T, for itself and on behalf of the members of the
AT&T Common Stock Group, on the one hand, and Liberty, Liberty Media Group LLC
and each Covered Entity, for themselves and on behalf of the members of the
Liberty Media Group, on the other hand, entered into the Inter-Group Agreement,
in connection with the AT&T merger. A summary of the material provisions of the
Inter-Group Agreement is set forth below.
Neither the AT&T Common Stock Group Nor the Liberty Media Group Is Required
to Offer Financial Support or Corporate Opportunities to the Other. In general,
neither the AT&T Common Stock Group nor
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the Liberty Media Group will have any obligation or responsibility to provide
financial support or offer corporate opportunities to the other group or to
otherwise assist the other group. Generally, neither group will have any rights
to the tradenames, trademarks or other intellectual property rights of the
other group.
There are Restrictions on the Incurrence of Debt and Other Financial
Obligations. Neither the Liberty Media Group nor the AT&T Common Stock Group
may incur any debt or other obligation, including any preferred equity
obligation, that has or purports to have recourse to any member, or to the
assets of any member, of the other group. In addition, unless otherwise
expressly agreed between the two groups, no member of the Liberty Media Group
or the AT&T Common Stock Group may enter into any agreement, or incur any other
liability or obligation, that binds or purports to bind or impose any
liabilities or obligation on any member of the other group. AT&T may not
attribute any debt or other obligation to, or create, authorize or issue any
AT&T preferred stock that is attributed to, the Liberty Media Group without the
consent of the Liberty board.
The Liberty Media Group may not incur any debt, other than the refinancing of
debt without any increase in amount, that would cause the total indebtedness of
the Liberty Media Group at any time to be in excess of 25% of the total market
capitalization of the Liberty Media Group tracking stock, if the excess debt
would adversely affect the credit rating of AT&T. Prior to incurring any debt
that would exceed the 25% threshold, the Liberty Media Group is required to
consult with AT&T and, if requested by AT&T, with two nationally recognized
credit rating agencies to be selected by each of Liberty and AT&T to determine
if the incurrence of the excess debt would adversely affect the credit rating
of AT&T.
Each Group is Solely Responsible for its Costs and Liabilities;
Indemnification. Each of the Liberty Media Group and the AT&T Common Stock
Group will be solely responsible for all claims, obligations, liabilities and
costs arising from that group's operations and businesses, whether arising
before or after the AT&T merger.
Each of the Liberty Media Group and the AT&T Common Stock Group is required
to indemnify the other group and to hold the other group harmless against all
claims, liabilities, losses and expenses, including attorneys' fees, allocated
to the indemnifying group in accordance with the previous paragraph.
AT&T May Generally Not Allocate Corporate Overhead Expenses to the Liberty
Media Group. The AT&T Common Stock Group may not allocate general overhead
expenses to the Liberty Media Group, except (1) to the extent that the Liberty
Media Group receives specific services pursuant to services agreements or
similar arrangements between the AT&T Common Stock Group and the Liberty Media
Group and (2) if the Liberty Media Group uses the same independent accounting
firm as AT&T, an allocable share of the fees and expenses of such firm for
AT&T's annual audits.
Liberty Has a Limited Ability to Issue its own Stock. Liberty may issue
shares of its common stock and may authorize and issue shares of its preferred
stock only if, after giving effect to the issuance, AT&T would still be able to
include Liberty on its consolidated federal income tax return and Liberty would
remain a "Qualified Subsidiary" for purposes of the tax-free distribution rules
of Section 355 of the Code. Currently, Liberty would deconsolidate from AT&T if
Liberty issued an amount of shares that would result in neither AT&T nor a
subsidiary of AT&T owning at least 80% of the total combined voting power of
all classes of stock of Liberty entitled to vote and 80% of the fair market
value of all classes of stock of Liberty. For purposes of the preceding
sentence, "stock" does not include stock which is not entitled to vote, which
is limited and preferred as to dividends and does not participate in corporate
growth to any significant extent, which has redemption and liquidation rights
which do not exceed the issue price of such stock (except for a reasonable
redemption or liquidation premium), and which is not convertible into another
class of stock.
Any Proceeds from the Issuance of AT&T Liberty Media Group Tracking Stock
will be Contributed to Liberty. The net proceeds of any issuance or sale of
AT&T Liberty Media Group tracking stock are generally required to be
contributed by AT&T to Liberty. The parties have entered into a supplement to
the Inter-Group Agreement to provide an exception to this requirement and to
make alternative arrangements for the acquisition of The Associated Group, Inc.
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AT&T will Include in its SEC Reports Combined Financial Statements of the
Liberty Media Group. For so long as AT&T Liberty Media Group tracking stock is
outstanding, AT&T will include in its filings with the SEC combined financial
statements of the Liberty Media Group.
AT&T will Not Take Any Actions Involving the Equity of Liberty. AT&T has
also agreed that it will not, and will not permit any member of the AT&T
Common Stock Group to, directly or indirectly:
. sell, transfer, dispose of or otherwise convey, whether by merger,
consolidation, sale or contribution of assets or stock, or otherwise,
any direct or indirect equity interest of AT&T in Liberty;
. incur any indebtedness secured by, or pledge or grant a lien, security
interest or other encumbrance on, any direct or indirect equity interest
of AT&T in Liberty; or
. create any derivative instrument whose value is based on any direct or
indirect equity interest of AT&T in Liberty;
except that the foregoing will not apply to:
. any of the foregoing approved by the Liberty board by the affirmative
vote described under "--Liberty Organizational Documents" above;
. AT&T's issuance or sale of its own securities, other than indebtedness
secured by any direct or indirect equity interest of AT&T in Liberty and
other than any security convertible into or exercisable or exchangeable
for, or any derivative instrument whose value is based on, any direct or
indirect equity interest of AT&T in Liberty; or
. AT&T's participation in any merger, consolidation, exchange of shares or
other business combination transaction in which AT&T, or its successors,
continues immediately following the transaction to hold the same
interest in the business, assets and liabilities comprising the Liberty
Media Group that it held immediately prior to the transaction, other
than as a result of any action by Liberty or any other person included
in the Liberty Media Group.
AT&T has also agreed that for so long as any AT&T Liberty Media Group
tracking stock is outstanding, AT&T will not, and will not permit any member
of the AT&T Common Stock Group to, intentionally take any action that AT&T
knows would have the effect of deconsolidating Liberty from the AT&T
consolidated group for federal income tax purposes. This restriction will not
apply to certain dispositions or redemptions expressly contemplated by AT&T's
amended certificate of incorporation or to a Covered Disposition approved by
the separate class vote of the holders of AT&T Liberty Media Group tracking
stock.
Intercompany Agreement. In connection with the AT&T merger, AT&T, on behalf
of itself and the members of the AT&T Common Stock Group, and Liberty, on
behalf of itself and the members of the Liberty Media Group, entered into an
Intercompany Agreement, the material provisions of which are described below.
Preferred Vendor Status. Liberty will be granted preferred vendor status
with respect to access, timing and placement of new programming services. This
means that AT&T will use its reasonable efforts to provide digital basic
distribution of new services created by Liberty and its affiliates, on mutual
"most favored nation" terms and conditions and otherwise consistent with
industry practices, subject to the programming meeting standards that are
consistent with the type, quality and character of AT&T's cable services as
they may evolve over time.
Extension of Term of Affiliation Agreements. AT&T will agree to extend any
existing affiliation agreement of Liberty and its affiliates that expires on
or before March 9, 2004, to a date not before March 9, 2009, if most favored
nation terms are offered and the arrangements are consistent with industry
practice.
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Interactive Video Services. AT&T will enter into arrangements with Liberty
for interactive video services under one of the following two arrangements,
which will be at the election of AT&T:
. Pursuant to a five-year arrangement, renewable for an additional four-
year period on then-current most favored nation terms, AT&T will make
available to Liberty capacity equal to one 6 megahertz channel (in
digital form and including interactive enablement, first screen access
and hot links to relevant web sites--all to the extent implemented by
AT&T cable systems) to be used for interactive, category-specific video
channels that will provide entertainment, information and merchandising
programming. The foregoing, however, will not compel AT&T to disrupt
other programming or other channel arrangements. The suite of services
are to be accessible through advanced set-top devices or boxes deployed
by AT&T, except that, unless specifically addressed in a mutually
acceptable manner, AT&T will have no obligation to deploy set-top
devices or boxes of a type, design or cost materially different from
that it would otherwise have deployed. The content categories may
include, among others, music, travel, health, sports, books, personal
finance, automotive, home video sales and games; or
. AT&T may enter into one or more mutually agreeable ventures with Liberty
for interactive, category-specific video channels that will provide
entertainment, information and merchandising programming. Each venture
will be structured as a 50/50 venture for a reasonable commercial term
and provide that AT&T and Liberty will not provide interactive services
in the category(s) of interactive video services provided through the
venture for the duration of such term other than the joint venture
services in the applicable categories. When the distribution of
interactive video services occurs through a venture arrangement, AT&T
will share in the revenue and expense of the provision of the
interactive services pro rata to its ownership interest in lieu of the
commercial arrangements described in the preceding paragraph. At the
third anniversary of the formation of any such venture, AT&T may elect
to purchase the ownership interest of Liberty in the venture at fair
market value. The parties will endeavor to make any such transaction tax
efficient to Liberty.
Tax Sharing Agreement. Liberty, for itself and each member of the Liberty
Media Group, is a party to a tax sharing agreement that provides, among other
things, that:
. to the extent that the inclusion of the Liberty Media Group within the
consolidated U.S. federal income tax return (or any combined,
consolidated or unitary tax return) filed by a member of the AT&T Common
Stock Group increases tax liability for any period, the Liberty Media
Group will be responsible for paying the AT&T Common Stock Group an
amount equal to the increased tax liability; and
. to the extent that the Liberty Media Group's inclusion within the
consolidated U.S. federal income tax return (or any combined,
consolidated or unitary tax return) filed by a member of the AT&T Common
Stock Group reduces tax liability for any period, the AT&T Common Stock
Group will be responsible for paying the Liberty Media Group an amount
equal to the reduced tax liability.
The net operating loss for U.S. federal income tax purposes of the affiliated
group of which TCI was the common parent at the time of the AT&T merger (the
"TCI Affiliated Group") will be allocated to the Liberty Media Group (the
"Allocated NOL") to offset any obligations it would otherwise incur under the
tax sharing agreement for periods subsequent to March 9, 1999 (the date of the
AT&T merger). If the Liberty Media Group is deconsolidated for U.S. federal
income tax purposes from the affiliated group of which AT&T is the parent
corporation, the AT&T Common Stock Group will be required to pay the Liberty
Media Group an amount equal to the product of (a) the amount of the Allocated
NOL that has not been used as an offset to the Liberty Media Group's
obligations under the tax sharing agreement, and that has been, or is
reasonably expected to be, utilized by the AT&T Common Stock Group and (b) 35%.
Certain other tax carryovers of the TCI Affiliated Group will be allocated to
the AT&T Common Stock Group to offset any obligations it would
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otherwise incur under the tax sharing agreement for periods subsequent to the
AT&T merger on March 9, 1999. In general, with respect to the TCI Affiliated
Group, for periods ending on or prior to March 9, 1999:
. the Liberty Media Group will pay the TCI Group any portion of regular
tax liability attributable to TCI's former Liberty Media Group or TCI
Ventures Group;
. any regular tax losses or other tax attributes may be used by the
Liberty Media Group or the TCI Group without compensation to any other
group; and
. if the TCI Affiliated Group has an alternative minimum tax liability,
the group, if any, generating alternative minimum tax losses will be
paid for such losses to the extent that such losses reduce alternative
minimum tax liability of the TCI Affiliated Group but the Liberty Media
Group will not otherwise be required to pay its share of such
alternative minimum tax liability.
Facilities and Services Agreement. TCI and Liberty entered into a facilities
and services agreement effective upon the consummation of the AT&T merger.
Pursuant to the agreement, AT&T Broadband (formerly TCI) provides Liberty with
administrative and operational services necessary for the conduct of its
business, including, but not limited to, such services as are generally
performed by AT&T Broadband's accounting, finance, corporate, legal and tax
departments. In addition, the agreement provides Liberty with office space at
AT&T Broadband's facilities, permits Liberty to obtain certain liability,
property and casualty insurance under AT&T Broadband's policies and allows for
the reciprocal use by AT&T Broadband and Liberty of each other's aircraft.
Pursuant to the agreement, Liberty reimburses AT&T Broadband for all direct
expenses incurred by AT&T Broadband in providing services thereunder and a pro
rata share of all indirect expenses incurred by AT&T Broadband in connection
with the rendering of such services, including a pro rata share of rental
expenses for the office space of AT&T Broadband used by Liberty. The
obligations of AT&T Broadband to provide services under the Agreement will
continue in effect (A) until terminated by Liberty at any time on not less than
180 days' notice to AT&T Broadband, or by AT&T Broadband at any time after
December 31, 2001, on not less than six months' notice to Liberty; or (B) until
December 31, 2001 with respect to all other services. Liberty was allocated
less than $1 million, $1 million, and $2 million, respectively, in corporate
and general and administrative costs by AT&T Broadband, for the three months
ended March 31, 2000, one month ended March 31, 1999, the two months ended
February 28, 1999.
Other Related Party Transactions
Affiliation Agreements. AT&T Broadband is party to affiliation agreements
pursuant to which it purchases programming from subsidiaries and affiliates of
Liberty. Certain of these agreements provide for penalties and charges in the
event the supplier's programming is not carried on AT&T Broadband's cable
systems or not delivered to a contractually specified number of customers.
Charges to AT&T Broadband for such programming is generally based on customary
rates and often provide for payments to AT&T Broadband by Liberty's
subsidiaries and business affiliates for marketing support. In July 1997, AT&T
Broadband's predecessor, TCI, entered into a 25 year affiliation agreement with
Starz Encore Group (formerly Encore Media Group) pursuant to which AT&T
Broadband is obligated to pay monthly fixed amounts in exchange for unlimited
access to Encore and STARZ! programming. Also in 1997, in connection with the
merger of Liberty Digital and DMX, AT&T Broadband's predecessor, TCI
transferred to Liberty Digital the right to receive all revenue from sales of
DMX music services to AT&T Broadband's residential and commercial subscribers,
net of an amount equal to 10% of revenue from such sales to residential
subscribers and net of the revenue otherwise payable to DMX as license fees
under AT&T Broadband's existing affiliation agreements. Liberty received $52
million, $18 million, and $43 million in revenue for programming services
provided to AT&T Broadband for the three months ended March 31, 2000, the one
month ended March 31, 1999, the two months ended February 28, 1999,
respectively.
Business Relationships with Directors. In connection with the AT&T merger,
Liberty paid Jerome H. Kern, a director of Liberty, the sum of $10 million for
his services in negotiating the merger agreement and completing the merger.
Liberty also paid Paul A. Gould, a director of Liberty, the sum of $1 million
for his
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services on the special committee of the board of directors of AT&T Broadband's
predecessor, TCI, in evaluating the AT&T merger and the consideration to be
received by TCI's stockholders.
From time to time, Liberty retains Peter Kern and/or Gemini Associates, Inc.,
a company controlled by Peter Kern, to act as an advisor on certain business
transactions. Peter Kern is the son of Jerome H. Kern, a director of Liberty.
In connection with these engagements, Peter Kern and Gemini Associates received
approximately $1.0 million from Liberty in each of 1998 and 1999, and
approximately $300,000 from TCI in 1998.
Mr. Kern was Special Counsel with the law firm of Baker Botts L.L.P. from
July 1996 to June 1998. Liberty has retained Baker Botts to perform various
legal services from time to time for Liberty and certain of its subsidiaries
and business affiliates during its last fiscal year as well as its current
fiscal year.
Indemnification of Certain of Our Employees. In connection with the AT&T
merger, certain employees (including directors and executive officers) of
Liberty who were officers or directors of TCI prior to the AT&T merger received
undertakings of indemnification from TCI with respect to the effects of U.S.
federal excise taxes that may become payable by them as a result of the AT&T
merger and the resulting change in control of TCI. Pursuant to the Inter-Group
Agreement, each of the Liberty Media Group and the AT&T Common Stock Group are
responsible for all obligations to their respective officers and employees.
Accordingly, following the AT&T merger, these tax protection undertakings to
Liberty Media Group officers and employees became Liberty's obligations.
Certain Rights to Purchase Liberty Media Group Tracking Stock. On February 9,
1998, in connection with the settlement of certain legal proceedings relative
to the Estate of Bob Magness (the "Magness Estate"), the late founder and
former Chairman of the Board of TCI, TCI entered into a call agreement with Dr.
Malone and Dr. Malone's wife (together with Dr. Malone, the "Malones"), and a
call agreement with the Estate of Bob Magness, the Estate of Betsy Magness,
Gary Magness (individually and in certain representative capacities) and Kim
Magness (individually and in certain representative capacities) (collectively,
the "Magness Group"). Under these call agreements, each of the Magness Group
and the Malones granted to TCI the right to acquire all of the shares of TCI's
common stock owned by them ("High Voting Shares") that entitle the holder to
cast more than one vote per share (the "High-Voting Stock") upon Dr. Malone's
death or upon a contemplated sale of the High-Voting Shares (other than a
minimal amount) to third parties. In either such event, TCI had the right to
acquire such shares at a price equal to the then market price of shares of
TCI's common stock of the corresponding series that entitled the holder to cast
no more than one vote per share (the "Low-Voting Stock"), plus a 10% premium,
or in the case of a sale, the lesser of such price and the price offered by the
third party. In addition, each call agreement provides that if TCI were ever to
be sold to a third party, then the maximum premium that the Magness Group or
the Malones would receive for their High-Voting Shares would be the price paid
for shares of the relevant series of Low-Voting Stock by the third party, plus
a 10% premium. Each call agreement also prohibits any member of the Magness
Group or the Malones from disposing of their High-Voting Shares, except for
certain exempt transfers (such as transfers to related parties or to the other
group or public sales of up to an aggregate of 5% of their High-Voting Shares
after conversion to the respective series of Low-Voting Stock) and except for a
transfer made in compliance with TCI's purchase right described above. TCI paid
$150 million to the Malones and $124 million to the Magness Group in
consideration of their entering into the call agreements, of which an aggregate
of $140 million was allocated to and paid by Liberty.
Also in February 1998, TCI, the Magness Group and the Malones entered into a
shareholders' agreement which provides for, among other things, certain
participation rights by the Magness Group with respect to transactions by Dr.
Malone, and certain "tag-along" rights in favor of the Magness Group and
certain "drag-along" rights in favor of the Malones, with respect to
transactions in the High-Voting Stock. Such agreement also provides that a
representative of Dr. Malone and a representative of the Magness Group will
consult with each other on all matters to be brought to a vote of TCI's
shareholders, but if a mutual agreement on how to vote cannot be reached, Dr.
Malone will vote the High-Voting Stock owned by the Magness Group pursuant to
an irrevocable proxy granted by the Magness Group.
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In connection with the AT&T merger, Liberty became entitled to exercise TCI's
rights and became subject to its obligations under the call agreement and the
shareholders' agreement with respect to the AT&T Liberty Media Group Class B
tracking stock acquired by the Malones and the Magness Group as a result of the
AT&T merger. If Liberty were to exercise its call right under the call
agreement with the Malones or the Magness Group, it may also be required to
purchase High-Voting Shares of the other group if such group exercises its
"tag-along" rights under the shareholders' agreement.
Other Transactions. National Digital Television Center, a subsidiary of AT&T
Broadband ("NDTC"), leases transponder facilities to certain Liberty
subsidiaries. Charges by NDTC for such arrangements were $5 million for the
three months ended March 31, 2000, $2 million for the one month ended March 31,
1999 and $4 million for the two months ended February 28, 1999.
In addition, effective as of December 16, 1997, NDTC, on behalf of TCI and
other cable operators that may be designated from time to time by NDTC, entered
into an agreement (the "Digital Terminal Purchase Agreement") with General
Instrument Corporation, which has since merged with Motorola Inc., to purchase
advanced digital set-top terminals during the calendar years 1998, 1999 and
2000. In connection with the Digital Terminal Purchase Agreement, GI granted to
NDTC warrants to purchase shares of GI common stock, a portion of which become
exercisable each year if a sufficient number of set-top terminals is purchased
during that year. The 1998 purchase commitment of 1.5 million set-top terminals
was met, resulting in warrants to purchase 4,928,000 shares of GI common stock
vesting on January 1, 1999. The 1999 purchase commitment of 1,750,000 set-top
terminals was met, resulting in warrants to purchase 5,750,000 shares of GI
common stock vesting on January 1, 2000. As a result of the merger of GI and
Motorola on January 5, 2000, and Motorola's June 1, 2000 stock split, Liberty's
vested warrants are exercisable for approximately 18.3 million shares of
Motorola common stock. The purchase commitment for 2000 is 3,250,000 set-top
terminals, which, if satisfied, will result in warrants to purchase
approximately 18.6 million shares of Motorola common stock vesting on January
1, 2001. In connection with the AT&T merger, these warrants were transferred to
Liberty in exchange for approximately $176 million in cash. The AT&T Common
Stock Group has agreed to pay the Liberty Media Group $14.35, adjusted as
appropriate for any change in the capitalization of Motorola, for each warrant
that does not vest as a result of any purchase commitment not having been met.
In addition, no member of the AT&T Common Stock Group may amend or modify the
Digital Terminal Purchase Agreement without the prior written consent of the
Liberty Media Group.
On January 14, 2000, the Liberty Media Group completed its acquisition of The
Associated Group, Inc. pursuant to an Amended and Restated Agreement and Plan
of Merger, dated October 28, 1999, among AT&T, A-Group Merger Corp., a wholly
owned subsidiary of AT&T, Liberty and Associated Group. In this transaction,
Associated Group was acquired by and became a member of the Liberty Media Group
through the merger of A-Group Merger Corp into Associated Group. In the merger,
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 was principally engaged in the ownership and operation of
interests in various communications-related businesses. Associated Group's
primary assets were:
. approximately 19.7 million shares of AT&T common stock;
. approximately 46.8 million shares of AT&T Class A Liberty Media Group
tracking stock;
. approximately 10.6 million shares of AT&T Class B Liberty Media Group
tracking stock;
. approximately 21.4 million shares of common stock, representing
approximately a 40% interest, of Teligent, Inc., a full-service,
facilities-based communications company; and
. all of the outstanding shares of common stock of TruePosition, Inc., a
wholly-owned subsidiary of Associated Group which provides location
services for wireless carriers and users designed to determine the
location of any wireless transmitters, including cellular and PCS
telephones.
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Immediately following the completion of the merger, all of the shares of AT&T
common stock, Class A Liberty Media Group tracking stock and Class B Liberty
Media Group tracking stock previously held by Associated Group were retired by
AT&T and all of the businesses and assets of Associated Group, other than its
interest in Teligent, were transferred to Liberty. A member of the Liberty
Media Group other than Liberty holds Associated Group's interest in Teligent.
Pursuant to an asset purchase agreement with CSG Systems International, Inc.,
a member of the former TCI Ventures Group acquired warrants to purchase shares
of common stock of CSG, related registration rights and a right to receive a
contingent cash payment of $12 million. In connection with the AT&T merger,
these warrants and rights were transferred to a subsidiary of Liberty. On April
13, 1999, the CSG warrants were exercisable for 3 million shares of common
stock of CSG, and AT&T purchased these warrants for $25.075 per share, or an
aggregate purchase price of $75.2 million. The related registration rights were
also assigned to AT&T on that date. The vesting of the CSG warrants is
contingent on AT&T meeting certain subscriber commitments to CSG. If any
warrants do not vest, a Liberty subsidiary must repurchase the unvested
warrants from AT&T, with interest at 6% from April 12, 1999. Liberty has
guaranteed the obligation of its subsidiary to repurchase any unvested
warrants.
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DESCRIPTION OF THE DEBENTURES
The debentures were issued under an indenture dated as of July 7, 1999,
between Liberty and The Bank of New York, as trustee, as supplemented by a
fourth supplemental indenture dated as of February 10, 2000, between Liberty
and the trustee. When we refer to the indenture, we mean the indenture as
supplemented by the fourth supplemental indenture. The terms of the debentures
include those stated in the indenture and those terms made part of the
indenture by reference to the Trust Indenture Act of 1939, as amended. A copy
of the indenture has been filed as an exhibit to the registration statement of
which this prospectus is a part. You can read the indenture, and obtain a copy
of it, at the locations described under "Where to Find More Information" on
page 141.
General
The indenture provides that senior debt securities may be issued by Liberty
thereunder from time to time in one or more series. The senior debt securities
that Liberty may issue under the indenture, including the debentures, are
collectively referred to in this section as the "senior debt securities." The
indenture does not limit the aggregate principal amount of senior debt
securities that may issued under it. Senior debt securities of each series
issued under the indenture, including the debentures, may be reopened at any
time and additional securities of that series may be issued.
The 3 3/4% senior exchangeable debentures due 2030 constitute a separate
series of senior debt securities under the indenture. The debentures are
unsecured senior obligations of Liberty and are initially limited to an
aggregate original principal amount of $810,000,000. They will mature on
February 15, 2030, unless earlier exchanged by the holders or redeemed by
Liberty. When we refer to a "debenture" in this section, we are referring to a
debenture in the original principal amount of $1,000.
The indenture does not contain any provision that restricts the ability of
Liberty to incur additional indebtedness. It also does not afford holders of
debentures any protection in the event of a decline in Liberty's credit quality
as a result of a takeover, recapitalization or similar transaction involving
Liberty. Subject to the limitations set forth under "--Successor Corporation"
below, Liberty may enter into transactions, including a sale of all or
substantially all of its assets, a merger or a consolidation, that could
substantially increase the amount of Liberty's indebtedness or substantially
reduce or eliminate its assets, and which may have an adverse effect on
Liberty's ability to service its indebtedness, including the debentures.
Liberty will make payments of principal, premium, if any, interest and
distributions on the debentures through the trustee to the depositary, as the
registered holder of the debentures. See "--Form, Denomination and
Registration" below. Liberty will not have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the global debentures registered in the name of the
depositary or its nominee, or for maintaining, supervising or reviewing any
records relating to those beneficial ownership interests.
If any payment or distribution on the debentures is to be made on a day that
is not a business day, that payment or distribution will be made on the next
business day, without interest or any other payment being made on account of
the delay. A business day means any day that is not a Saturday, Sunday or legal
holiday on which banking institutions or trust companies in The City of New
York are authorized or obligated by law or regulation to close.
If the debentures at some date are reissued in certificated form, Liberty
will make payments of principal, premium, if any, interest and distributions on
the debentures to the registered holders thereof. Liberty will make payments
due on the maturity date in immediately available funds upon presentation and
surrender by the holder of a certificated debenture at the office or agency
maintained by Liberty for this purpose in the Borough of Manhattan, The City of
New York, which is expected to be the office of the trustee at 101 Barclay
Street, New York, N.Y. 10286. Liberty will pay interest and additional
distributions attributable to regular cash dividends on the reference shares,
if any, due on a certificated debenture on any interest payment date other than
the maturity date by check mailed to the address of the holder entitled to the
payment as his address shall
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appear in the security register of Liberty. Notwithstanding the foregoing, a
holder of $10 million or more in aggregate original principal amount of
certificated debentures will be entitled to receive such payments, on any
interest payment date other than the maturity date, by wire transfer of
immediately available funds if appropriate wire transfer instructions have been
received in writing by the trustee not less than 15 calendar days prior to the
interest payment date. Any wire transfer instructions received by the trustee
will remain in effect until revoked by the holder. Any interest and any
additional distribution due and not punctually paid or duly provided for on a
certificated debenture on any interest payment date other than the maturity
date will cease to be payable to the holder of that debenture as of the close
of business on the related record date and may either be paid (1) to the person
in whose name the certificated debenture is registered at the close of business
on a special record date for the payment of the defaulted interest and any
additional distribution that is fixed by Liberty, written notice of which will
be given to the holders of the debentures not less than 30 calendar days prior
to the special record date, or (2) at any time in any other lawful manner.
Liberty will pay or distribute additional distributions, if any, due on a
certificated debenture to the holder of that debenture as of a special record
date which will be the 10th business day after the date the related
distribution is made on the reference shares, at the address shown for such
holder in the security register of Liberty.
All moneys or in-kind distributions paid or made by Liberty to the trustee or
any paying agent for the payment of principal, premium, if any, interest and/or
distributions on any certificated debenture which remain unclaimed for two
years after the payment or making thereof may be repaid or returned to Liberty
and, thereafter, the holder of the debenture may look only to Liberty for
payment.
Form, Denomination and Registration
The debentures have been issued in book-entry form only, and are represented
by global debentures registered in the name Cede & Co., as nominee of The
Depositary Trust Company. The debentures are transferrable on the books of DTC
in minimum denominations of $1,000 original principal amount and integral
multiples thereof.
So long as DTC, or its nominee or any successor depositary, is the registered
owner of the global debentures, the depositary or its nominee, as the case may
be, will be the sole holder of the debentures represented by the global
debentures for all purposes under the indenture. Except as otherwise provided
in this section, the beneficial owners of interests in the global debentures
will not be entitled to receive physical delivery of certificated debentures
and will not be considered the holders of the debentures for any purpose under
the indenture. Accordingly, each beneficial owner must rely on the procedures
of the depositary and, if the beneficial owner is not a participant of the
depositary, then the beneficial owner must rely on the procedures of the
participant through which the beneficial owner owns its interest, in order to
exercise any rights of a holder of debentures or under the indenture. The laws
of some jurisdictions may require that certain purchasers of securities take
physical delivery of those securities in certificated form. Such laws may
impair the ability of such a purchaser to transfer its beneficial interest in
the global debentures.
The global debentures representing the debentures will be exchangeable for
certificated debentures of like tenor and terms and of differing authorized
denominations aggregating a like principal amount, only if:
. the depositary notifies Liberty that it is unwilling or unable to
continue as depositary for the global debentures;
. the depositary ceases to be a clearing agency registered under the
Securities Exchange Act;
. Liberty, in its sole discretion, determines that the global debentures
shall be exchangeable for certificated securities; or
. there shall have occurred and be continuing an event of default under
the indenture with respect to the debentures.
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Upon any exchange of the global debentures for certificated debentures, the
certificated debentures shall be registered in the names of the beneficial
owners of interests in the global debentures, which names shall be provided by
the depositary's relevant participants, as identified by the depositary, to the
trustee.
Information Relating to DTC. The following is based on information furnished
by DTC, which is the initial depositary:
DTC will act as the depositary for the debentures. The debentures have been
issued as fully registered senior debt securities registered in the name of
Cede & Co., which is the depositary's partnership nominee. Fully registered
global debentures have been issued for the debentures, in the aggregate
principal amount of $810,000,000, and have been deposited with the depositary
or a custodian for its benefit.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code, and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds debentures that its participants deposit with it. DTC also facilitates
the settlement among participants of securities transactions, including
transfers and pledges, in deposited debentures through electronic computerized
book-entry changes to participants' accounts, thereby eliminating the need for
physical movement of certificates. Direct participants of DTC include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. DTC is owned by a number of its direct
participants, including the initial purchaser of the debentures and by the New
York Stock Exchange, Inc., the American Stock Exchange, Inc., and the National
Association of Securities Dealers, Inc. Access to DTC's system is also
available to indirect participants, which includes securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a direct participant, either directly or indirectly. The
rules applicable to DTC and its participants are on file with the SEC.
Purchases of debentures under DTC's system must be made by or through direct
participants, which will receive a credit for the debentures on DTC's records.
The ownership interest of each beneficial owner, which is the actual purchaser
of each debentures, represented by global debentures, is in turn to be recorded
on the direct and indirect participants' records. Beneficial owners will not
receive written confirmation from DTC of their purchase, but beneficial owners
are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the direct
or indirect participants through which the beneficial owner entered into the
transaction. Transfers of ownership interests in the global debentures
representing the debentures are to be accomplished by entries made on the books
of participants acting on behalf of beneficial owners. Beneficial owners of the
global debentures representing the debentures will not receive certificated
debentures representing their ownership interests therein, except in the event
that use of the book-entry system for the debentures is discontinued.
To facilitate subsequent transfers, all global debentures representing the
debentures which are deposited with, or on behalf of, DTC are registered in the
name of DTC's nominee, Cede & Co. The deposit of global debentures with, or on
behalf of, DTC and their registration in the name of Cede & Co. effect no
change in beneficial ownership. DTC has no knowledge of the actual beneficial
owners of the global debentures representing the debentures; DTC's records
reflect only the identity of the direct participants to whose accounts the
debentures are credited, which may or may not be the beneficial owners. The
participants will remain responsible for keeping account of their holdings on
behalf of their customers.
Conveyance of notices and other communications by DTC to direct participants,
by direct participants to indirect participants, and by direct and indirect
participants to beneficial owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements as may be in effect from
time to time.
Neither DTC nor Cede & Co. will consent or vote with respect to the global
debentures representing the debentures. Under its usual procedure, DTC mails an
omnibus proxy to Liberty as soon as possible after the
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applicable record date. The omnibus proxy assigns Cede & Co.'s consenting or
voting rights to those direct participants to whose accounts the debentures are
credited on the applicable record date (identified in a listing attached to the
omnibus proxy).
Principal, interest and/or distribution payments on the global debentures
representing the debentures will be made to DTC. DTC's practice is to credit
direct participants' accounts on the applicable payment date in accordance with
their respective holdings shown on DTC's records unless DTC has reason to
believe that it will not receive payment on the date. Payments by participants
to beneficial owners will be governed by standing instructions and customary
practices, as is the case with securities held for the accounts of customers in
bearer form or registered in "street name," and will be the responsibility of
the participant and not of DTC, the trustee or Liberty, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal, interest and/or distributions to DTC is the
responsibility of Liberty or the trustee, disbursement of the payments to
direct participants will be the responsibility of DTC, and disbursement of the
payments to the beneficial owners will be the responsibility of direct and
indirect participants.
DTC may discontinue providing its services as securities depositary with
respect to the debentures at any time by giving reasonable notice to Liberty or
the trustee. Under such circumstances, in the event that a successor securities
depositary is not obtained, certificated debentures are required to be printed
and delivered.
Liberty may decide to discontinue use of the system of book-entry transfers
through DTC or a successor securities depositary. In that event, certificated
debentures will be printed and delivered.
Although DTC has agreed to the procedures described above in order to
facilitate transfers of interests in the global debentures among participants
of DTC, it is under no obligation to perform or continue to perform these
procedures, and these procedures may be discontinued at any time. Neither the
trustee nor Liberty will have any responsibility for the performance by DTC or
its respective participants or indirect participants of its obligations under
the rules and procedures governing its operations.
Ranking and Holding Company Structure
The debentures, which constitute unsecured senior indebtedness of Liberty,
rank equally with Liberty's existing and future unsubordinated unsecured
indebtedness, and senior in right of payment to all subordinated indebtedness
of Liberty. As of March 31, 2000, we had outstanding $5.8 billion of unsecured
and unsubordinated indebtedness, all of which ranks equally with the
debentures. The debentures are effectively subordinated to all secured
indebtedness of Liberty, to the extent of the value of the assets securing that
indebtedness, and to all liabilities of Liberty's subsidiaries. As of March 31,
2000, we had no secured indebtedness and our consolidated subsidiaries had
outstanding $18.3 billion of liabilities, all of which effectively ranks senior
to the debentures. See "Risk Factors--Factors Relating to Liberty--Our holding
company structure could restrict access to funds of our subsidiaries that may
be needed to service the debentures. Creditors of those companies have a claim
on their assets that is senior to that of holders of the debentures."
Liberty is a holding company and is largely dependent on dividends,
distributions and other payments from its subsidiaries and business affiliates
and other investments to meet its financial obligations, and will be dependent
on those payments to meet its obligations under the debentures. Liberty's
subsidiaries and business affiliates, as well as AT&T and its subsidiaries
other than Liberty, have no obligation, contingent or otherwise, to pay any
amounts due under the debentures or to make any funds available for any of
those payments. See "Risk Factors--Factors Relating to Liberty--We could be
unable in the future to obtain a sufficient amount of cash with which to
service our financial obligations."
Interest
Liberty will pay interest on the debentures semi-annually on February 15 and
August 15, beginning August 15, 2000, at the per annum rate of 3 3/4% of the
original principal amount of each debenture. The
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debentures began to accrue interest on the date of original issuance of the
debentures, which was February 10, 2000. Interest will be paid to the persons
in whose names the debentures are registered at the close of business on the
February 1 and August 1 preceding the interest payment date. We refer to these
dates as the regular payment dates. Changes in the adjusted principal amount
will not affect the amount of the semi-annual interest payments received by
holders of the debentures, which is calculated based solely on the original
principal amount. See "--Adjusted Principal Amount" below. Interest payable at
maturity, or upon any earlier date of redemption, will be payable to the person
to whom principal shall be payable on that date. Interest on the debentures is
calculated on the basis of a 360-day year of twelve 30-day months.
Until a debenture can be transferred in compliance with Rule 144(k) under the
Securities Act, the interest rate on that debenture is subject to increase in
the event this prospectus becomes unusable by the selling security holders for
more than 30 days in any twelve-month period. Beginning on the 31st day, the
interest rate will increase by one quarter of one percent (0.25%) of the
original principal amount of the debenture for the first 90-day period
thereafter, and will increase by an additional one quarter of one percent of
the original principal amount of the debenture at the beginning of each
subsequent 90-day period during which the prospectus remains unusable. However,
the maximum interest rate that may be borne by the debentures is 4 3/4%. Upon
the prospectus again becoming useable, the interest rate borne by the
debentures will return to the original interest rate of 3 3/4%.
We may make special interest payments on the debentures under the
circumstances described in "--Adjustment for Excess Borrow Costs" below.
Exchange Option
The holder of a debenture may at any time, except during the periods
described below under "--Payment at Stated Maturity" and "--Redemption,"
exchange the debenture for the exchange market value of the reference shares
attributable to that debenture. Liberty will pay the exchange market value of
each debenture tendered for exchange only in cash until the reference shares
eligibility date. From and after the reference shares eligibility date, Liberty
may pay the exchange market value of each debenture tendered for exchange as
follows:
. in cash;
. by delivering, or causing to be delivered, the reference shares
attributable to the debenture; or
. in a combination of cash and reference shares.
Under the circumstances described below under "--Adjustment for Excess Borrow
Costs," Liberty may pay more than 100% of the exchange market value of each
debenture tendered for exchange.
The reference shares eligibility date means the later of February 15, 2002,
and the date on which we notify the trustee that Liberty and the Trust, taken
together, no longer beneficially own 10% or more of the outstanding shares of
any class or series of reference shares that are registered under the
Securities Exchange Act. In making this determination, Liberty will assume the
exercise, conversion or exchange of all securities beneficially owned by
Liberty or the Trust (but not by anyone else) that are convertible into, or
exercisable or exchangeable for, shares of any class or series of reference
shares, without regard to any restriction or limitation on the convertibilty,
exchangeability or exercisability of those securities. We will issue a press
release announcing the occurrence of the reference shares eligibility date, and
will provide that notice to DTC for dissemination through the DTC broadcast
facility.
For so long as the debentures are represented by global debentures registered
in the name of DTC or its nominee, exchanges may be effected only through DTC's
Automated Tender Offer Program, or ATOP. If the
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debentures at some date are reissued in certificated form, the exchange right
at that time will be exercisable as follows:
. by completing and manually signing an exchange notice in the form
available from the exchange agent, which is initially the trustee, and
delivering the exchange notice to the exchange agent at the office it
maintains for this purpose;
. by surrendering the debentures to be exchanged to the exchange agent;
. if required, by furnishing appropriate endorsement and transfer
documents; and
. if required, by paying all transfer or similar taxes.
If an exchange is made during the period between a regular record date and
the next succeeding interest payment date, the exchanging holder will be
required to tender funds equal to the interest and any additional distribution
that is payable to the holders of debentures on that interest payment date.
We refer to the date on which all of the foregoing requirements for exchange
of a particular debenture are satisfied as the exchange date for that
debenture. The transmission of an agent's message requesting an exchange
through ATOP, or delivery of an exchange notice to the exchange agent, shall be
irrevocable. If a holder tenders debentures for exchange on or after the
reference shares eligibility date, the holder will be notified by 10:00 a.m.,
New York City time, on the next trading day after the exchange date of
Liberty's choice as to the manner in which it will pay the exchange market
value of those debentures.
If more than $1,000,000 aggregate original principal amount of debentures are
tendered for exchange on any day, notice of that event will be given to DTC for
dissemination through the DTC broadcast facility. Our failure to provide this
notice, however, will not affect the determination of the exchange market value
of the debentures tendered for exchange.
At the date of this prospectus, the reference shares attributable to each
debenture consist of 16.7764 shares of Sprint PCS stock. If any other publicly
traded common equity securities, including additional shares of Sprint PCS
stock, are issued as a distribution in respect of the Sprint PCS stock or any
other reference shares, or if any reference shares are exchanged for publicly
traded common equity securities of a different issuer in an exchange offer,
merger or other extraordinary transaction, then the reference shares will
include the shares so issued, or be replaced by the shares issued in the
exchange offer, merger or other transaction. See "-- Changes to the Reference
Shares" below.
We will pay the consideration due upon an exchange of debentures as soon as
reasonably practicable after the determination of the exchange market value,
but in no event later than 10 trading days thereafter. The calculation of the
exchange market value of a debenture will depend on when the notice of exchange
for that debenture is delivered to the exchange agent. If the notice is
delivered before February 15, 2001, the exchange market value will be the
closing price of the reference shares attributable to that debenture on the
twentieth trading day following its exchange date, unless the exchange agent
receives notices of exchange for more than $1,000,000 aggregate original
principal amount of debentures on the same day, in which case the exchange
market value of those debentures will be the average of the closing prices of
the reference shares on the five trading days ending on the twentieth trading
day following the exchange date.
If the notice of exchange for a debenture is delivered on or after February
15, 2001, the exchange market value will be the closing price of the reference
shares attributable to that debenture on the trading day following its exchange
date, unless the exchange agent receives notices of exchange for more than
$1,000,000 aggregate original principal amount of debentures on the same day,
in which case the exchange market value of those debentures will be the average
of the closing prices of the reference shares on the five trading days
following the exchange date.
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The closing price of a security on any date means:
. the closing sale price or, if no closing sale price is reported, the
last reported sale price, of that security (regular way) on the NYSE; or
. if the security is not listed for trading on the NYSE, as reported in
the composite transactions for the principal United States national or
regional securities exchange on which it is listed; or
. if the security is not listed on a United States national or regional
securities exchange, as reported by the Nasdaq National Market, or if
the security is not so reported, the last quoted bid price for the
security in the over-the-counter market as reported by the National
Quotation Bureau or a similar organization.
If the closing price of a security cannot be determined by any of the
foregoing methods on a particular trading day, our board of directors will be
entitled to determine the closing price on the basis of those quotations that
it, in good faith, considers appropriate. However, a nationally recognized
investment banking or appraisal firm retained by us will make that
determination if the securities at issue are to be distributed to holders of
the debentures and the aggregate value of those securities is expected to
exceed $100,000,000. With respect to options, warrants, and other rights to
purchase a security, the closing price of the option, warrant or other right
will be deemed to be the closing price of the underlying security, minus the
exercise price. With respect to securities exchangeable for or convertible into
another security, the closing price of the exchangeable or convertible security
will be the closing price of that security determined as aforesaid or, if its
closing price cannot be so determined, then the closing price will be deemed to
be the fully exchanged or converted value based upon the closing price of the
underlying security. If an "ex-dividend" date for a security occurs during the
period used in determining that security's closing price, the closing price of
the security on any day prior to the "ex-dividend" date used in calculating the
closing price shall be reduced by the amount of the dividend. For this purpose,
the amount of a non-cash dividend will be equal to the value of that dividend
as determined by a nationally recognized investment banking firm that we retain
for this purpose.
Additional Distributions
If a reference company pays or makes a dividend or distribution on its
reference shares, we may pay or make an additional distribution to holders of
the debentures based on that dividend or distribution. At the date of this
prospectus, the reference shares attributable to each debenture consist of
16.7764 shares of Sprint PCS stock, and Sprint is the initial reference
company. The reference shares and the reference company are subject to change
as described under "-- Changes to the Reference Shares" below.
If a regular cash dividend is paid on any reference shares, we will pay to
holders of the debentures, as an additional distribution on each debenture, the
amount of the cash dividend paid to a holder of the number of reference shares
attributable to a debenture. We will pay this additional distribution on the
next semi-annual interest payment date for the debentures. The additional
distribution will be paid to holders of the debentures as of 5:00 p.m., New
York City time, on the regular record date for that interest payment date. We
will treat as a regular cash dividend any cash dividend that is paid by a
reference company in accordance with its publicly announced regular common
equity dividend policy. We refer to any dividend or distribution by a reference
company on its reference shares that is not a regular cash dividend as an
extraordinary distribution.
Whether and what we pay or make by way of an additional distribution
following an extraordinary distribution by a reference company on its reference
shares will depend on the nature of the extraordinary distribution. If an
extraordinary distribution consists of cash, we will pay to holders of the
debentures, as an additional distribution on each debenture, the amount of the
cash distribution received by a holder of the number of reference shares
attributable to a debenture.
If an extraordinary distribution consists of publicly traded common equity
securities, we will not make an additional distribution to holders of the
debentures. Rather, the number of publicly traded common equity
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securities (including fractions thereof) distributed to a holder of the number
of reference shares attributable to a debenture will be treated as reference
shares that are also attributable to that debenture.
If an extraordinary distribution consists of publicly traded securities other
than common equity securities, including options, warrants or similar rights to
acquire reference shares, we will cause to be delivered to the holders of the
debentures, as an additional distribution on each debenture, those securities
received by a holder of the number of reference shares attributable to a
debenture. We will not, however, deliver fractional securities. Instead, we
will pay cash in an amount equal to the product of the fractional interest
times the closing price of the security as of the special record date we set
for the additional distribution. If Liberty is unable to distribute any
securities as an additional distribution because necessary qualifications or
registrations under applicable state or federal laws cannot be obtained on a
timely basis, then the additional distribution may instead consist of cash. The
cash payment will be based on the average, over the five trading days ending on
the trading day next preceding the date the additional distribution is paid, of
the closing prices of the security that would have otherwise been delivered.
If an extraordinary distribution consists of assets or property other than
cash or publicly traded securities, we will pay to holders of the debentures,
as an additional distribution on each debenture, an amount of cash equal to the
fair market value of the assets or properties distributed to a holder of the
number of reference shares attributable to a debenture. That fair market value
will be determined, in good faith, by our board of directors. However, a
nationally recognized investment banking or appraisal firm retained by us will
make that determination if we expect the aggregate fair market value of the
assets or properties distributed on the number of reference shares attributable
to all of the outstanding debentures to exceed $100,000,000.
We will treat as an extraordinary distribution any consideration that is
distributed in connection with a merger, consolidation, share exchange,
liquidation or dissolution involving a reference company, except to the extent
it consists of publicly traded common equity securities. Publicly traded common
equity securities that are issued in connection with a merger, consolidation,
share exchange, liquidation or dissolution involving a reference company will
themselves become reference shares. See "--Changes to the Reference Shares"
below.
We will make an additional distribution that is attributable to an
extraordinary distribution on the twentieth business day after such
extraordinary distribution is made by the applicable reference company or
successor reference company. The additional distribution will be paid to
holders of the debentures as of a special record date that will be the tenth
business day prior to the date we pay the additional distribution.
Liberty will issue a press release setting forth the amount and composition,
per debenture, of any additional distribution to be made by it that is
attributable to an extraordinary distribution, and will deliver such release to
DTC for dissemination through the DTC broadcast facility. All additional
distributions that are paid or made in respect of regular cash dividends or
extraordinary distributions will be paid or made without any interest or other
payment in respect of such amounts.
Adjusted Principal Amount
Original Principal Amount. The principal amount of the debentures initially
is equal to their original principal amount, which is $1,000 for each
debenture.
Adjustments to Principal Amount. The principal amount of the debentures will
be adjusted downward to reflect any additional distributions that we make to
holders of the debentures that are attributable to extraordinary distributions
made on the reference shares. No adjustment will be made to the principal
amount, however, for additional distributions that are attributable to regular
cash dividends paid on the reference shares or for any special payment
adjustment made by Liberty due to excess borrow costs. Because the principal
amount of the debentures is subject to reduction, we refer to the principal
amount of a debenture at any time as its adjusted principal amount. In no event
will the adjusted principal amount of a debenture be less than zero.
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On any date that we pay or make an additional distribution to the holders of
the debentures that is attributable to an extraordinary distribution on the
reference shares, the original principal amount of each debenture (or, if such
principal amount has previously been reduced, the adjusted principal amount of
the debenture) will be reduced by the amount of the additional distribution
that is paid or made with respect to that debenture. Thereafter, the adjusted
principal amount will be further reduced on each successive semi-annual
interest payment date to the extent necessary to cause the semi-annual interest
payment on that date (exclusive of any special payment adjustment) to represent
the payment by Liberty, in arrears, of an annualized yield of 3 3/4% of the
adjusted principal amount of the debentures. An adjustment for purposes of
ensuring that Liberty does not pay an annualized yield of more than 3 3/4% of
the adjusted principal amount (exclusive of any special payment adjustment) of
the debentures that is necessitated by the payment of an additional
distribution to holders of the debentures will take effect on the second
succeeding interest payment date after the payment of that distribution. We
will issue a press release, and provide the release to DTC for dissemination
through the DTC broadcast facility, each time an adjustment is made to the
adjusted principal amount of the debentures.
The adjustments described above will not affect the amount of the semi-annual
interest payments received by holders of debentures, which will continue to be
a rate of interest equal to 3 3/4% per annum of the original principal amount
of the debentures plus any special payment adjustments due on the debentures.
Payment at Stated Maturity
The stated maturity of the debentures is February 15, 2030. The amount that
we will pay a holder of debentures at stated maturity will depend on whether we
notify holders, not less than 30 business days prior to the stated maturity
date:
. that we will cause reference shares to be delivered in payment of the
exchange market value of all debentures tendered for exchange up until
the close of business on the trading day preceding the stated maturity
date; or
. that we are terminating, as of the 30th business day prior to the stated
maturity date, the right of all holders to exchange their debentures for
the exchange market value thereof.
Continuation of Exchange Right. If we notify debenture holders that we will
cause reference shares to be delivered in payment of the exchange market value
of all debentures tendered for exchange up until the close of business on the
trading day preceding the stated maturity date, then we will pay, for each
debenture outstanding on the stated maturity date, an amount equal to the sum
of:
. the adjusted principal amount of the debenture; plus
. any accrued but unpaid interest on the debenture up to the stated
maturity date; plus
. any special payment adjustment due on the debenture; plus
. any final period distribution on the debenture.
Termination of Exchange Right. If we notify debenture holders that we are
terminating, as of the 30th business day prior to the stated maturity date,
their right to exchange their debentures for the exchange market value thereof,
then we will pay, for each debenture outstanding on the stated maturity date,
an amount equal to the sum of:
. the greater of:
-- the adjusted principal amount of the debenture; and
-- the current market value of the reference shares attributable to the
debenture; plus
. any accrued but unpaid interest on the debenture up to the stated
maturity date; plus
. any special payment adjustment due on the debenture; plus
. any final period distribution on the debenture.
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The current market value of the reference shares attributable to the
debentures for this purpose will be calculated based on the average closing
price for each reference share over the 20 trading day period immediately prior
to, but not including, the fifth business day preceding the stated maturity
date.
A final period distribution will be made if, as of the stated maturity date:
. a regular cash dividend or extraordinary dividend has been declared on
any of the reference shares;
. the ex-dividend date for that dividend or distribution has occurred; and
. the holders of such reference shares have not yet received the dividend
or distribution.
In the case of a regular cash dividend that has been declared on reference
shares as of the stated maturity date but not yet paid, the final period
distribution for each debenture will be equal to the amount of the regular cash
dividend that is payable to a holder of the number of reference shares
attributable to a debenture. This amount will be paid on the stated maturity
date with all other amounts then due. In the case of an extraordinary
distribution that has been declared on reference shares as of the stated
maturity date but not yet paid or made, the form and amount of the final period
distribution will be determined in the same manner as that for an additional
distribution that would have been attributable to that extraordinary
distribution, except that any publicly traded common equity securities to be
distributed on the reference shares will be part of any final period
distribution rather than treated as additional reference shares. Because any
additional distribution we make on a debenture that is attributable to an
extraordinary distribution on the reference shares is deducted from the
adjusted principal amount of that debenture, we will deduct from any final
period distribution that is attributable to an extraordinary distribution the
adjusted principal amount of the debenture, as of the stated maturity date, as
to which such final period distribution is paid. We will pay or make any final
period distribution that is attributable to an extraordinary distribution on
the 20th business day after the payment of that extraordinary dividend by the
applicable reference company.
The amount we pay for any debentures outstanding on the stated maturity date
will be payable in cash, except that any final period distribution included in
that amount which consists of publicly traded securities will be payable by
delivery of those securities.
Amount Payable upon Acceleration of the Debentures
If the maturity of the debentures is accelerated following an event of
default, the amount payable for each debenture will be determined in the same
manner as the amount payable at stated maturity under the circumstances in
which Liberty notifies debenture holders that it is terminating, as of the 30th
business day prior to the stated maturity date, their right to exchange their
debentures for the exchange market value thereof. See "--Payment at Stated
Maturity" above.
Adjustment for Excess Borrow Costs
If, between now and February 15, 2004 (the "Borrow Period"), the
determination agent determines that (1) the weighted average rebate paid on
cash collateral posted to borrow reference shares from the determination agent,
as principal or agent, is less than 200 basis points below the Federal Funds
Rate (an "Excess Borrow Cost") and (2) the determination agent is not able to
effectively lend reference shares to holders of the debentures for a rebate
that does not result in an Excess Borrow Cost for 20 or more trading days in
any quarter ended February 15, May 15, August 15 or November 15 (which we refer
to as an "Excess Borrow Cost Period"), then Liberty, at its election, with
respect to each quarter for which Excess Borrow Costs exist during the Borrow
Period, must either:
. effective as of the first day of the next succeeding quarter, increase
the exchange market value and the current market value of the reference
shares attributable to each debenture by 0.625% (a "premium
adjustment"); or
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. for the next succeeding quarter, pay a special interest payment on each
debenture in an amount equal to 0.625% of the original principal amount
of the debenture (a "special payment adjustment");
provided, however, that Liberty shall not be required to effect a premium
adjustment, a special payment adjustment or any combination of the two, more
than eight times.
Each premium adjustment shall be in addition to any premium adjustments in
respect of earlier Excess Borrow Cost Periods, but shall not be made in a
manner that results in a compounding increase to the exchange market value or
the current market value of the reference shares as a result of any prior
premium adjustments.
If Liberty elects to make a special payment adjustment, the amount payable as
a result of such adjustment shall be paid by Liberty on the next succeeding
interest payment date after (or on the last day of) the quarter in respect of
which such payment is made.
Liberty will issue a press release giving notice of its election to make a
premium adjustment or to pay a special payment adjustment and will deliver such
release to DTC for dissemination through the DTC broadcast facility.
The determination agent shall initially be Salomon Smith Barney Inc.
The term "Federal Funds Rate" means:
(1) the rate on the applicable date for United States dollar federal funds
as published in H.15(519) under the caption "Federal Funds
(Effective)," as displayed on Bridge Telerate, Inc. or any successor
service on page 120 or any other page as may replace the applicable
page on that service ("Telerate Page 120"); or
(2) if the rate referred to in clause (1) does not appear on Telerate Page
120 or is not so published by 3:00 P.M., New York City time, on the
applicable date, the rate on the applicable date for United States
dollar federal funds as published in H.15 Daily Update, or other
recognized electronic source used for the purpose of displaying the
applicable rate, under the caption "Federal Funds/Effective Rate;" or
(3) if the rate referred to in clause (2) is not published by 3:00 P.M.,
New York City time, on the applicable date, the rate on the applicable
date calculated by the determination agent as the arithmetic mean of
the rates for the last transaction in overnight United States dollar
federal funds arranged by three leading brokers of United States dollar
federal funds transactions in The City of New York, selected by the
determination agent before 9:00 A.M., New York City time, on the day
following the applicable date; or
(4) if the brokers selected by the determination agent are not quoting as
mentioned in clause (3), the rate in effect on the preceding date.
"H.15(519)" means the weekly statistical release designated as H.15(519), or
any successor publication, published by the Board of Governors of the Federal
Reserve System. "H.15 Daily Update" means the daily update of H.15(519),
available through the world-wide-web sit of the Board of Governors of the
Federal Reserve System at http://www.bog.frb.fed.us/releases/h15/update, or any
successor site or publication.
Redemption
Optional Redemption. Except as set forth under "Tax Event Redemption," "Share
Event Redemption" and "Excess Borrow Cost Event Redemption" below, the
debentures are not redeemable before February 15, 2004. At any time or from
time to time on or after February 15, 2004, Liberty may redeem all or some of
the debentures on not less than 30 business days prior notice. If Liberty
chooses to redeem only some of the debentures, there must remain outstanding,
immediately following any partial redemption, at least $100,000,000 original
principal amount of debentures.
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The redemption price we pay for a debenture on any redemption date will
depend on whether we notify holders of debentures called for redemption, not
less than 30 business days prior to the redemption date:
. that we will cause reference shares to be delivered in payment of the
exchange market value of all debentures called for redemption that are
tendered for exchange up until the close of business on the trading day
next preceding the redemption date; or
. that we are terminating, as of the 30th business day prior to the
redemption date, the right of all holders of debentures called for
redemption to exchange those debentures for the exchange market value
thereof.
Any termination of the exchange right in the event of a partial redemption
will only apply to the debentures called for redemption.
Continuation of Exchange Right. If we notify debenture holders that we will
cause reference shares to be delivered in payment of the exchange market value
of all debentures called for redemption that are tendered for exchange up until
the close of business on the trading day next preceding the redemption date,
then we will pay, for each debenture that we redeem on the redemption date, a
redemption price equal to the sum of:
. the adjusted principal amount of the debenture; plus
. any accrued but unpaid interest on the debenture up to the redemption
date; plus
. any special payment adjustment due on the debenture; plus
. any final period distribution on the debenture.
Termination of Exchange Right. If we notify holders of debentures called for
redemption that we are terminating, as of the 30th business day prior to the
redemption date, their right to exchange their debentures for the exchange
market value thereof, then we will pay, for each debenture that we redeem on
the redemption date, an amount equal to the sum of:
. the greater of:
-- the adjusted principal amount of the debenture; and
-- the current market value of the reference shares attributable to the
debenture; plus
. any accrued but unpaid interest on the debenture up to the redemption
date; plus
. any special payment adjustment due on the debenture; plus
. any final period distribution on the debenture.
Tax Event Redemption. If a tax event occurs and is continuing at any time on
or before May 15, 2000, we will have the right to redeem all of the debentures.
If we choose to redeem the debentures after a tax event, we must exercise our
right within 180 days after the tax event and provide debenture holders not
less than 25 business days notice of the redemption date. Your right to
exchange the debentures will terminate on the giving of such notice or, if
later, on the 25th business day prior to the redemption date.
On a redemption date attributable to a tax event, we will redeem each
debenture outstanding at that date for a redemption price equal to the sum of:
. the greater of:
-- 102% of the adjusted principal amount of the debenture, and
-- the current market value of the reference shares attributable to the
debenture; plus
. any accrued but unpaid interest on the debenture up to the redemption
date; plus
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. any special payment adjustment due on the debenture; plus
. any final period distribution on the debenture.
Share Event Redemption. If a share event occurs and is continuing at any time
on or before February 15, 2004, we will have the right to redeem all of the
debentures. If we choose to redeem the debentures after a share event, we must
exercise our right within 5 business days after the share event and provide
debenture holders not less than 25 business days notice of the redemption date.
Your right to exchange the debentures will terminate on the giving of such
notice or, if later, on the 25th business day prior to the redemption date.
On a redemption date attributable to a share event, we will redeem each
debenture outstanding at that date for a redemption price equal to the sum of:
. the greater of:
-- the adjusted principal amount of the debenture; and
-- the sum of the current market value of the reference shares
attributable to the debenture and $115.04; plus
. the remaining scheduled semi-annual interest payments on the debenture
through and including February 15, 2004; plus
. any special payment adjustment due on the debenture; plus
. any final period distribution on the debenture.
A share event will occur at such time as the Trust no longer holds the entire
pecuniary interest in:
. a number of shares of Sprint PCS stock, or other reference shares
received by the trustee of the Trust for shares of Sprint PCS stock; or
. securities convertible into or exercisable for that number of shares of
Sprint PCS stock or other reference shares,
free and clear of any rights or other claims of others, including rights or
claims relating to the market value of such securities, that are equal to or
greater than the aggregate number of reference shares attributable to all
debentures then outstanding. Before Liberty may effect a redemption due to the
occurrence of a share event it must deliver to the trustee an officers'
certificate certifying that a share event has occurred. See "Risk Factors--
Factors Relating to the Debentures--We do not own any shares of Sprint PCS
stock. We cannot control the sale of shares of Sprint PCS stock by a trust
established for our benefit, which could result in an early redemption of your
debentures." A share event cannot occur due to a transfer of securities from
the Trust to or upon the order of Liberty.
Excess Borrow Cost Event Redemption. If an Excess Borrow Cost Period occurs
at any time on or before February 15, 2004, we will have the right to redeem
all of the debentures. If we choose to redeem the debentures, we must exercise
our right within 180 days after an Excess Borrow Cost Period and provide to
debenture holders not less than 25 business days notice of the redemption date.
Your right to exchange the debentures will terminate on the giving of such
notice or, if later, the 25th business day prior to the redemption date.
On a redemption date attributable to an Excess Borrow Cost Period, we will
redeem each debenture outstanding at that date equal to the sum of:
. the greater of:
-- 102% of the adjusted principal amount of the debenture; and
-- the current market value of the reference shares attributable to the
debenture; plus
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. any accrued but unpaid interest on the debenture up to the redemption
date; plus
. any special payment adjustment due or accruing on the debenture (which
shall be not less than $6.25 per debenture); plus
. any final period distribution on the debenture.
Calculation of Current Market Value. If the current market value of the
reference shares attributable to a debenture needs to be calculated to
determine the amount of the redemption price, it will be calculated based on
the average closing price for each reference share over the 20 trading day
period immediately prior to, but not including, the fifth business day
preceding the redemption date plus any premium adjustment resulting from an
Excess Borrow Cost Period.
Definition and Timing of Final Period Distribution. A final period
distribution will be made with respect to each debenture we redeem if, as of
the redemption date:
. a regular cash dividend or extraordinary dividend has been declared on
any of the reference shares;
. the ex-dividend date for that dividend or distribution has occurred; and
. the holders of such reference shares have not yet received the dividend
or distribution.
The timing, amount and form of any final period distribution that we make in
connection with a redemption of debentures will be determined in the same
manner as that described under "--Payment at Stated Maturity" above for any
final distribution we may make in connection with the repayment of debentures
that are outstanding on the stated maturity date.
Payment of Redemption Price. The redemption price will be paid in cash,
except that any final period distribution included in the redemption price
which consists of publicly traded common equity securities will be payable by
delivery of those securities. On or prior to the redemption date, we will
irrevocably deposit with the trustee sufficient funds to pay the redemption
price for all debentures being redeemed at that date, other than any final
period distribution that is attributable to an extraordinary distribution on
the reference shares. A final period distribution that is attributable to an
extraordinary distribution will be paid on the 20th business day after the
extraordinary distribution is received by holders of reference shares. If the
redemption date is not a business day, then the redemption price will be
payable on the next business day, without any interest or other payment being
made in respect of the delay.
Additional distributions to be made after debentures have been called for
redemption and before the redemption date will be payable to the holders on the
record date for that distribution.
Once a notice of redemption is given and funds are irrevocably deposited,
interest on the debentures will cease to accrue on and after the date of
redemption and all rights of the holders of the debentures will cease, except
for the right of the holders to receive the redemption amount, including, if
applicable, any final period distribution (but without any interest or other
payment on that redemption amount).
If we improperly withhold or refuse to pay the redemption price for the
debentures, interest on the debentures will continue to accrue at an annual
rate of 3 3/4% from the original redemption date to the actual date of payment.
In this case, the actual payment date will be considered the redemption date
for purposes of calculating the redemption price. Any final period distribution
will be payable based on the original redemption date scheduled.
In compliance with applicable law (including the United States federal
securities laws), we and our affiliates may, at any time, purchase outstanding
debentures by tender, in the open market or by private agreement.
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Changes to the Reference Shares.
As of the date of this prospectus, Sprint is the reference company and one
share of Sprint PCS stock represents one reference share. The reference company
may change over the 30-year term of the debentures, or there may be one or more
additional reference companies. A change in, or the addition of, a reference
company will result in a change in, or the addition to, the reference shares
attributable to the debentures. One reference share attributable to each
debenture may, over time, consist of a basket of reference shares.
The initial reference shares attributable to each debenture were 8.3882
shares of Sprint PCS stock. As of February 4, 2000, the reference shares
attributable to each debenture became 16.7764 shares of Sprint PCS stock
effective upon the payment by Sprint of a 2-for-1 stock dividend.
The reference shares attributable to each debenture will be affected by the
following events, in the manner described below:
Dividends and Distributions. If a reference company makes a dividend or
distribution on its reference shares consisting of additional reference shares
of the same class, then the number of reference shares attributable to each
debenture will equal the sum of:
. the number of reference shares attributable to each debenture
immediately prior to the dividend or distribution; and
. the number of additional references shares that a holder of the number
of reference shares attributable to each debenture receives as a result
of the dividend or distribution.
If a reference company makes a distribution on its reference shares
consisting of publicly traded common equity securities of another class of that
reference company or of another issuer, then the reference shares attributable
to each debenture will consist of the following:
. the number of reference shares attributable to each debenture
immediately prior to the distribution; and
. the number and type of new common equity securities that a holder of the
number of reference shares attributable to each debenture receives as a
result of the distribution.
Any change in the reference shares attributable to a debenture that results
from a dividend or distribution by a reference company will be deemed to have
occurred on the date the dividend or distribution is made by the reference
company.
Combinations, Subdivisions and Reclassifications. If a reference company
combines or subdivides its reference shares or issues by reclassification of
its reference shares any shares of any other class of its publicly traded
common equity securities (including any reclassification that is effected in
connection with a merger in which the reference company is the continuing
corporation), the reference shares will be adjusted so that the reference
shares attributable to each debenture will become the number and kind of
reference shares that a holder of the reference shares attributable to each
debenture immediately prior to the combination, subdivision or reclassification
owns immediately following that action.
Any change in the reference shares attributable to a debenture that results
from a combination, split or reclassification by a reference company will be
deemed to have occurred immediately after the effective date of the
combination, subdivision or reclassification.
Mergers and Consolidations. If a reference company merges or consolidates
with another company where the reference shares are exchanged for other
publicly traded common equity securities, the reference shares will be adjusted
so that the reference shares attributable to each debenture will become the
number and kind of publicly traded common equity securities that a holder of
the number of reference shares attributable to each debenture immediately prior
to the merger or consolidation owns immediately following the merger or
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consolidation. To the extent the consideration received by the holders of
reference shares in a merger or consolidation consists of cash or assets other
than publicly traded common equity securities, the cash and assets so received
will be treated as though they were part of an extraordinary distribution by
the reference company or the successor reference company, and shall be the
object of an additional distribution by Liberty. See "--Additional
Distributions" above.
If an election is offered to holders of reference shares as to the form of
consideration they may receive in any merger or consolidation, such election
shall be deemed a reference share offer and treated in the manner described
under "Tender or Exchange Offer; Elections" below.
Any change in the reference shares attributable to a debenture that results
from a merger or consolidation will be deemed to have occurred immediately
after the effective date of the merger or consolidation.
For purposes of the foregoing, a conversion or redemption by Sprint of all
shares of Sprint PCS stock pursuant to Article Sixth, Section 7.1 of its
Articles of Incorporation shall be deemed a merger or consolidation.
According to available public information, Sprint has entered into a merger
agreement with MCI WorldCom, Inc. Under this agreement, holders of Sprint PCS
stock would receive one share of WorldCom PCS tracking stock and 0.116025
shares of MCI WorldCom common stock for each share of Sprint PCS
stock. If this merger occurs, the shares issued in the MCI WorldCom merger
would replace the Sprint PCS stock as the reference shares that are
attributable to the debentures and MCI WorldCom would become a successor
reference company. Using the foregoing exchange ratio, immediately after the
Sprint/MCI WorldCom merger the reference shares attributable to each debenture
would consist of 16.7764 shares of WorldCom PCS tracking stock and 1.9465
shares of MCI WorldCom common stock. However, the merger is subject to many
conditions, including regulatory approvals, and may never occur. Even if it
does occur, the exchange ratio for the shares to be received by holders of
Sprint PCS stock in the merger may change.
Statutory Share Exchange. If a reference company participates in a statutory
share exchange with another company where the reference shares are exchanged
for other publicly traded common equity securities, the reference shares will
be adjusted so that the reference shares attributable to each debenture will
become the number and kind of publicly traded common equity securities that a
holder of the number of reference shares attributable to each debenture
immediately prior to the share exchange owns immediately following the share
exchange. To the extent the consideration received by the holders of reference
shares in a share exchange consists of cash or assets other than publicly
traded common equity securities, the cash and assets so exchanged will be
treated as though they were part of an extraordinary distribution by the
reference company or the successor reference company, and shall be the object
of an additional distribution by Liberty. See "--Additional Distributions"
above.
If an election is offered to holders of reference shares as to the form of
consideration they may receive in any statutory exchange, such election shall
be deemed a reference share offer and treated in the manner described under
"Tender or Exchange Offer; Elections" below.
Any change in the reference shares attributable to a debenture that results
from a share exchange will be deemed to have occurred immediately after the
effective date of the share exchange.
For the foregoing purposes, a redemption by Sprint of all of the outstanding
shares of Sprint PCS stock, pursuant to Article Sixth, Section 7.2 of its
Articles of Incorporation, in exchange for common stock of one or more of its
wholly owned subsidiaries that collectively hold all of the assets and
liabilities attributed to its PCS Group shall be deemed a statutory exchange of
shares of Sprint PCS stock for shares of common stock of the relevant
subsidiary or subsidiaries.
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Liquidation or Dissolution. If a reference company liquidates or dissolves,
the reference shares will be adjusted so that the reference shares attributable
to each debenture will become the number and kind of publicly traded common
equity securities, if any, that a holder of the number of reference shares
attributable to each debenture immediately prior to the liquidation or
dissolution owns immediately thereafter. To the extent the consideration
received by the holders of reference shares in a liquidation or dissolution
consists of cash or assets other than publicly traded common equity securities,
the cash and assets so exchanged will be treated as though they were part of an
extraordinary distribution by the reference company, and shall be the subject
of an additional distribution by Liberty. See "--Additional Distributions"
above.
Any change in the reference shares attributable to a debenture that results
from the liquidation or dissolution of a reference company will be deemed to
have occurred immediately after the effective date of the liquidation or
dissolution.
Tender or Exchange Offer; Elections. The reference shares will be adjusted in
the event of any tender or exchange offer for 30% or more of the outstanding
reference shares of any reference company. In the event of such a tender offer,
or any consolidation, merger or statutory share exchange involving a reference
company in which an election is given to holders of reference shares as to the
consideration to be received in the transaction, a reference share offer shall
be deemed to have been made.
If a reference share offer is made, we will make a reference share offer
adjustment. This means the reference shares attributable to each debenture will
include, immediately after the closing of the reference share offer, the
portion of the average transaction consideration that consists of publicly
traded common equity securities. In addition, this means reducing the reference
shares attributable to each debenture immediately prior to the closing of such
reference share offer by the reference share proportionate reduction.
The term "average transaction consideration" means, as to each reference
share subject to the reference share offer, the quotient derived by dividing
(1) the aggregate amount of consideration actually distributed or paid to all
holders of reference shares that participated in the reference share offer, by
(2) the total number of reference shares outstanding immediately prior to the
closing of the reference share offer and entitled to participate in that
reference share offer.
The term "reference share proportionate reduction" means a proportionate
reduction in the number of reference shares attributable to each debenture that
are the subject of the reference share offer, calculated in accordance with the
following formula:
X
R = --
N
where:
R= the fraction by which the number of reference shares that are the
subject of the reference share offer and attributable to each debenture
will be reduced.
X= the aggregate number of such reference shares that are surrendered and
accepted in the reference share offer.
N= the aggregate number of reference shares, which are the subject of the
reference share offer, outstanding immediately prior to the closing of
the reference share offer.
Any portion of the average transaction consideration that does not consist of
publicly traded common equity securities will be treated as though it were part
of an extraordinary distribution by the reference company, and shall be the
object of an additional distribution by Liberty. See "--Additional
Distributions" above.
Any change in the reference shares attributable to a debenture that results
from a reference share offer will be deemed to have occurred immediately after
the closing of the tender or exchange offer or the effective date of the
merger, consolidation or statutory share exchange involving an election, as the
case may be.
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A conversion or redemption of less than all shares of Sprint PCS stock
pursuant to Article Sixth, Section 7.1 of Sprint's Articles of Incorporation
shall be treated as a reference share offer.
If following any merger, consolidation, liquidation, dissolution, exchange
offer or tender offer no reference shares were to remain outstanding, the
maturity of the debentures would not be accelerated and the debentures would
continue to remain outstanding until the stated maturity date, unless the
debentures were earlier redeemed by us. At the stated maturity or upon
redemption, holders of the debentures would only be entitled to receive the
adjusted principal amount of the debentures, plus any accrued but unpaid
interest, any special payment adjustment due on the debentures and any final
period distribution.
Calculations in Respect of the Debentures
We will be responsible for making all calculations called for under the
debentures. These calculations include determination of:
. the adjusted principal amount of the debentures;
. the current market value of the reference shares;
. the exchange market value of the reference shares;
. any final period distribution on the debentures;
. the cash value of any property distributed on the reference shares;
. the average transaction consideration in a reference share offer;
. the reference share proportionate reduction resulting from a reference
share offer;
. the number and composition of the reference shares attributable to a
debenture; and
. the amount of accrued interest payable upon redemption or at maturity of
the debentures.
We will make all these calculations in good faith and, absent manifest error,
our calculations will be final and binding on holders of the debentures. We
will provide a schedule of our calculations to the trustee, and the trustee is
entitled to rely upon the accuracy of our calculations without independent
verification.
Certain Covenants
The covenants set forth below are contained in the indenture and are
applicable to Liberty and its Subsidiaries.
Limitation on Liens. Liberty will not, and will not permit any Restricted
Subsidiary to, create, incur or assume any Lien, except for Permitted Liens, on
any Principal Property to secure the payment of Funded Indebtedness of Liberty
or any Restricted Subsidiary if, immediately after the creation, incurrence or
assumption of such Lien, the sum of (A) the aggregate outstanding principal
amount of all Funded Indebtedness of Liberty and the Restricted Subsidiaries
that is secured by Liens (other than Permitted Liens) on any Principal Property
and (B) the Attributable Debt relating to any Sale and Leaseback Transaction
which would otherwise be subject to the provisions of clause 2(A)(i) of the
"Limitation on Sale and Leaseback" covenant would exceed 15% of the
Consolidated Asset Value, unless effective provision is made whereby the
debentures (together with, if Liberty shall so determine, any other Funded
Indebtedness ranking equally with the debentures, whether then existing or
thereafter created) are secured equally and ratably with (or prior to) such
Funded Indebtedness (but only for so long as such Funded Indebtedness is so
secured).
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The foregoing limitation on Liens shall not apply to the creation, incurrence
or assumption of the following Liens ("Permitted Liens"):
(1) Any Lien which arises out of a judgment or award against Liberty or
any Restricted Subsidiary with respect to which Liberty or such Restricted
Subsidiary at the time shall be prosecuting an appeal or proceeding for
review (or with respect to which the period within which such appeal or
proceeding for review may be initiated shall not have expired) and with
respect to which it shall have secured a stay of execution pending such
appeal or proceedings for review or with respect to which Liberty or such
Restricted Subsidiary shall have posted a bond and established adequate
reserves (in accordance with generally accepted accounting principles) for
the payment of such judgment or award;
(2) Liens on assets or property of a person existing at the time such
person is merged into or consolidated with Liberty or any Restricted
Subsidiary or becomes a Restricted Subsidiary; provided, that such Liens
were in existence prior to the contemplation of such merger, consolidation
or acquisition and do not secure any property of Liberty or any Restricted
Subsidiary other than the property and assets subject to the Liens prior to
such merger, consolidation or acquisition;
(3) Liens existing on the date of original issuance of the debentures;
(4) Liens securing Funded Indebtedness (including in the form of
Capitalized Lease Obligations and purchase money indebtedness) incurred for
the purpose of financing the cost (including without limitation the cost of
design, development, site acquisition, construction, integration,
manufacture or acquisition) of real or personal property (tangible or
intangible) which is incurred contemporaneously therewith or within 60 days
thereafter; provided (i) such Liens secure Funded Indebtedness in an amount
not in excess of the cost of such property (plus an amount equal to the
reasonable fees and expenses incurred in connection with the incurrence of
such Funded Indebtedness) and (ii) such Liens do not extend to any property
of Liberty or any Restricted Subsidiary other than the property for which
such Funded Indebtedness was incurred;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(6) Liens to secure the debentures;
(7) Liens granted in favor of Liberty; and
(8) Any Lien in respect of Funded Indebtedness representing the
extension, refinancing, renewal or replacement (or successive extensions,
refinancings, renewals or replacements) of Funded Indebtedness secured by
Liens referred to in clauses (2), (3), (4), (5), (6) and (7) above,
provided that the principal of the Funded Indebtedness secured thereby does
not exceed the principal of the Funded Indebtedness secured thereby
immediately prior to such extension, renewal or replacement, plus any
accrued and unpaid interest or capitalized interest payable thereon,
reasonable fees and expenses incurred in connection therewith, and the
amount of any prepayment premium necessary to accomplish any refinancing;
provided, that such extension, renewal or replacement shall be limited to
all or a part of the property (or interest therein) subject to the Lien so
extended, renewed or replaced (plus improvements and construction on such
property).
Limitation on Sale and Leaseback. Liberty will not, and will not permit any
Restricted Subsidiary to, enter into any Sale and Leaseback Transaction;
provided, that Liberty or any Restricted Subsidiary may enter into a Sale and
Leaseback Transaction if:
(1) the gross cash proceeds of the Sale and Leaseback Transaction are at
least equal to the fair market value, as determined in good faith by the
Board of Directors and set forth in a board resolution delivered to the
trustee, of the Principal Property that is the subject of the Sale and
Leaseback Transaction, and
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(2) either
(A) Liberty or the Restricted Subsidiary, as applicable, either (i)
could have incurred a Lien to secure Funded Indebtedness in an amount
equal to the Attributable Debt relating to such Sale and Leaseback
Transaction pursuant to the "Limitation on Liens" covenant, or (ii)
makes effective provision whereby the debentures (together with, if
Liberty shall so determine, any other Funded Indebtedness ranking
equally with the debentures, whether then existing or thereafter
created) are secured equally and ratably with (or prior to) the
obligations of Liberty or the Restricted Subsidiary under the lease of
the Principal Property that is the subject of the Sale and Leaseback
Transaction, or
(B) within 180 days, Liberty or the Restricted Subsidiary either (i)
applies an amount equal to the fair market value of the Principal
Property that is the subject of the Sale and Leaseback Transaction to
purchase the debentures or to retire other Funded Indebtedness, or (ii)
enters into a bona fide commitment to expend for the acquisition or
improvement of a Principal Property an amount at least equal to the
fair market value of such Principal Property.
Designation of Restricted Subsidiaries. Liberty may designate an Unrestricted
Subsidiary as a Restricted Subsidiary or designate a Restricted Subsidiary as
an Unrestricted Subsidiary at any time, provided that (1) immediately after
giving effect to such designation, Liberty and its Restricted Subsidiaries
would have been permitted to incur at least $1.00 of additional Funded
Indebtedness secured by a Lien pursuant to the "Limitation on Liens" covenant,
(2) no default or event of default shall have occurred and be continuing, and
(3) an Officers' Certificate with respect to such designation is delivered to
the trustee within 75 days after the end of the fiscal quarter of Liberty in
which such designation is made (or, in the case of a designation made during
the last fiscal quarter of Liberty's fiscal year, within 120 days after the end
of such fiscal year), which Officers' Certificate shall state the effective
date of such designation; Liberty has made the initial designation of all of
its Subsidiaries as Restricted Subsidiaries and will deliver the required
Officers' Certificate with respect thereto to the trustee, on or prior to the
date of initial issuance of the debentures.
Successor Corporation
Liberty may not consolidate with or merge into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets
and the properties and assets of its Subsidiaries (taken as a whole) to, any
entity or entities (including limited liability companies) unless (1) the
successor entity or entities, each of which shall be organized under the laws
of the United States or a State thereof, shall assume by supplemental indenture
all the obligations of Liberty under the debentures and the indenture and (2)
immediately after giving effect to the transaction or series of transactions,
no default or event of default shall have occurred and be continuing.
Thereafter, all such obligations of Liberty shall terminate.
Events of Default
The term "event of default" means any one of the following events with
respect to any series of senior debt securities, including the debentures:
(1) default in the payment of any interest or distributions (including
any special payment adjustment) on any senior debt security of the series,
or any additional amounts payable with respect thereto, when the interest
or distributions becomes or the additional amounts become due and payable,
and continuance of the default for a period of 30 days;
(2) default in the payment of the principal of or any premium on any
senior debt security of the series, or any additional amounts payable with
respect thereto, when the principal or premium becomes or the additional
amounts become due and payable at their maturity;
(3) failure of Liberty to comply with its obligations to deliver cash or
reference shares in exchange for debentures as described above under "--
Exchange Option";
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(4) failure of Liberty to comply with any of its obligations described
above under "--Successor Corporation";
(5) default in the deposit of any sinking fund payment when and as due
by the terms of a senior debt security of the series;
(6) default in the performance, or breach, of any covenant or warranty
of Liberty in the indenture or the senior debt securities (other than a
covenant or warranty a default in the performance or the breach of which is
elsewhere in the indenture specifically dealt with or which has been
expressly included in the indenture solely for the benefit of a series of
senior debt securities other than the relevant series), and continuance of
the default or breach for a period of 60 days after there has been given,
by registered or certified mail, to Liberty by the trustee or to Liberty
and the trustee by the holders of at least 25% in principal amount of the
outstanding senior debt securities of the series, a written notice
specifying the default or breach and requiring it to be remedied and
stating that the notice is a "Notice of Default" under the indenture;
(7) if any event of default as defined in any mortgage, indenture or
instrument under which there may be issued, or by which there may be
secured or evidenced, any Indebtedness of Liberty, whether the Indebtedness
now exists or shall hereafter be created, shall happen and shall result in
Indebtedness in aggregate principal amount (or, if applicable, with an
issue price and accreted original issue discount) in excess of $100 million
becoming or being declared due and payable prior to the date on which it
would otherwise become due and payable, and (i) the acceleration shall not
be rescinded or annulled, (ii) such Indebtedness shall not have been paid
or (iii) Liberty shall not have contested such acceleration in good faith
by appropriate proceedings and have obtained and thereafter maintained a
stay of all consequences that would have a material adverse effect on
Liberty, in each case within a period of 30 days after there shall have
been given, by registered or certified mail, to Liberty by the trustee or
to Liberty and the trustee by the holders of at least 25% in principal
amount of the outstanding senior debt securities of the series then
outstanding, a written notice specifying the default or breaches and
requiring it to be remedied and stating that the notice is a "Notice of
Default" or other notice as prescribed in the indenture; provided, however,
that if after the expiration of such period, such event of default shall be
remedied or cured by Liberty or be waived by the holders of such
Indebtedness in any manner authorized by such mortgage, indenture or
instrument, then the event of default with respect to such series of senior
debt securities or by reason thereof shall, without further action by
Liberty, the trustee or any holder of senior debt securities of such
series, be deemed cured and not continuing;
(8) the entry by a court having competent jurisdiction of:
(a) a decree or order for relief in respect of Liberty or any
Material Subsidiary in an involuntary proceeding under any applicable
bankruptcy, insolvency, reorganization or other similar law and the
decree or order shall remain unstayed and in effect for a period of 60
consecutive days;
(b) a decree or order adjudging Liberty or any Material Subsidiary
to be insolvent, or approving a petition seeking reorganization,
arrangement, adjustment or composition of Liberty or any Material
Subsidiary and the decree or order shall remain unstayed and in effect
for a period of 60 consecutive days; or
(c) a final and non-appealable order appointing a custodian,
receiver, liquidator, assignee, trustee or other similar official of
Liberty or any Material Subsidiary or of any substantial part of the
property of Liberty or any Material Subsidiary or ordering the winding
up or liquidation of the affairs of Liberty;
(9) the commencement by Liberty or any Material Subsidiary of a
voluntary proceeding under any applicable bankruptcy, insolvency,
reorganization or other similar law or of a voluntary proceeding seeking to
be adjudicated insolvent or the consent by Liberty or any Material
Subsidiary to the entry of a decree or order for relief in an involuntary
proceeding under any applicable bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any insolvency proceedings
against it, or
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the filing by Liberty or any Material Subsidiary of a petition or answer or
consent seeking reorganization or relief under any applicable law, or the
consent by Liberty or any Material Subsidiary to the filing of the petition
or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee or similar official of Liberty or any
Material Subsidiary or any substantial part of the property of Liberty or
any Material Subsidiary or the making by Liberty or any Material Subsidiary
of an assignment for the benefit of creditors, or the taking of corporate
action by Liberty or any Material Subsidiary in furtherance of any such
action; or
(10) any other event of default provided in or pursuant to the indenture
with respect to senior debt securities of the series.
If an event of default with respect to senior debt securities of any series
at the time outstanding (other than an event of default specified in clause (8)
or (9) above) occurs and is continuing, then the trustee or the holders of not
less than 25% in principal amount of the outstanding senior debt securities of
the series may declare the principal of all the senior debt securities of the
series, or such lesser amount as may be provided for in the senior debt
securities of the series, to be due and payable immediately, by a notice in
writing to Liberty (and to the trustee if given by the holders), and upon any
declaration the principal or such lesser amount shall become immediately due
and payable. If an event of default specified in clause (8) or (9) above
occurs, all unpaid principal of and accrued interest (including any special
payment adjustment) on the outstanding senior debt securities of that series
(or such lesser amount as may be provided for in the senior debt securities of
the series) shall become and be immediately due and payable without any
declaration or other act on the part of the trustee or any holder of any senior
debt security of that series.
At any time after a declaration of acceleration or automatic acceleration
with respect to the senior debt securities of any series has been made and
before a judgment or decree for payment of the money due has been obtained by
the trustee, the holders of not less than a majority in principal amount of the
outstanding senior debt securities of the series, by written notice to Liberty
and the trustee, may rescind and annul the declaration and its consequences if:
(1) Liberty has paid or deposited with the trustee a sum of money
sufficient to pay all overdue installments of any interest and
distributions on all senior debt securities of the series and
additional amounts payable with respect thereto and the principal of
and any premium on any senior debt securities of the series which have
become due otherwise than by the declaration of acceleration and
interest on the senior debt securities; and
(2) all events of default with respect to senior debt securities of the
series, other than the non-payment of the principal of, any premium,
interest and distributions on, and any additional amounts with respect
to senior debt securities of the series which shall have become due
solely by the acceleration, shall have been cured or waived.
No rescission shall affect any subsequent default or impair any right
consequent thereon.
Certain Definitions
The following are certain of the terms defined in the indenture and used
under "--Certain Covenants" above:
"Attributable Debt" in respect of a Sale and Leaseback Transaction means, at
the time of determination, the present value of the obligation of the lessee
for net rental payments during the remaining term of the lease included in such
Sale and Leaseback Transaction including any period for which such lease has
been extended or may, at the option of the lessor, be extended. Such present
value shall be calculated using a discount rate equal to the rate of interest
implicit in such transaction, determined in accordance with generally accepted
accounting principles.
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"Capitalized Lease Obligation" of any person means any obligation of such
person to pay rent or other amounts under a lease with respect to any property
(whether real, personal or mixed) acquired or leased by such person and used in
its business that is required to be accounted for as a liability on the balance
sheet of such person in accordance with generally accepted accounting
principles and the amount of such Capitalized Lease Obligation shall be the
amount so required to be accounted for as a liability.
"Closing Price" means, with respect to any security on any date of
determination, the closing sale price (or, if no closing sale price is
reported, the last reported sale price) of such security on the NYSE on such
date or, if such security is not listed for trading on the NYSE on such date,
as reported in the composite transactions (or comparable system) for the
principal United States national or regional securities exchange on which such
security is so listed or a recognized international securities exchange, or, if
such security is not listed on a U.S. national or regional securities exchange
or on a recognized international securities exchange, as reported by the Nasdaq
Stock Market, or, if such security is not so reported, the last quoted bid
price for such security in the over-the-counter market as reported by the
National Quotation Bureau or similar organization, or, if such bid price is not
available, the market value of such security on such date as determined by a
nationally recognized independent investment banking firm retained for this
purpose by Liberty; provided that, (1) with respect to options, warrants and
other rights to purchase Marketable Securities, the Closing Price shall be the
value based on the Closing Price of the underlying Marketable Security minus
the exercise price and (2) with respect to securities exchangeable for or
convertible into Marketable Securities, the Closing Price shall be the Closing
Price of the exchangeable or convertible security or, if it has no Closing
Price, the fully converted value based upon the Closing Price of the underlying
Marketable Security.
"Consolidated Asset Value" shall mean, with respect to any date of
determination, the sum of:
(A) the amount of cash of Liberty and its Restricted Subsidiaries on the
last day of the preceding month, plus the following assets owned by Liberty
and its Restricted Subsidiaries on the last day of the preceding month that
have the indicated ratings and maturities no greater than 270 days:
. the aggregate principal amount of certificates of deposit and
bankers' acceptances rated A/2 or P/2 or higher by the Rating
Agencies,
. the aggregate principal amount of participations in loans with
obligors with short-term ratings of A/2 or P/2 or higher by the
Rating Agencies or long-term ratings of Baa1or BBB+ or higher by the
Rating Agencies,
. the aggregate principal amount of repurchase agreements of
securities issued by the U.S. government or any agency thereof with
counterparties with short-term ratings of A/2 or P/2 or higher by
the Rating Agencies or long-term ratings of Baa1or BBB+ or higher by
the Rating Agencies, and
. the aggregate principal amount at maturity of commercial paper rated
A/2 or P/2 or higher by the Rating Agencies,
(B) the aggregate value of all Marketable Securities owned by Liberty
and its Restricted Subsidiaries based upon the Closing Price of each
Marketable Security on the last day of the preceding month, or if such day
is not a Trading Day, on the immediately preceding Trading Day, and
(C) the arithmetic mean of the aggregate market values (or the midpoint
of a range of values) of the assets of Liberty and its Restricted
Subsidiaries having a value in excess of $200 million, other than the
assets referred to in clauses (A) and (B) above, as of a date within 90
days of the date of determination (or to the extent the research reports
referred to below have not been issued within such 90-day period, as of a
date within 180 days of the date of determination) as evidenced either:
. by research reports issued by three nationally recognized
independent investment banking firms selected by Liberty or
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. if three such research reports have not been issued within 180 days
prior to the date of determination, by an appraisal by two
nationally recognized independent investment banking or appraisal
firms retained by Liberty for this purpose.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length transaction, for cash, between an
informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair market value shall be determined
by the Board of Directors of Liberty acting in good faith evidenced by a board
resolution thereof delivered to the trustee.
"Funded Indebtedness" of any person means, as of the date as of which the
amount thereof is to be determined, without duplication, all Indebtedness of
such person and all Capitalized Lease Obligations of such person, which by the
terms thereof have a final maturity, duration or payment date more than one
year from the date of determination thereof (including, without limitation, any
balance of such Indebtedness or obligation which was Funded Indebtedness at the
time of its creation maturing within one year from such date of determination)
or which has a final maturity, duration or payment date within one year from
such date of determination but which by its terms may be renewed or extended at
the option of such person for more than one year from such date of
determination, whether or not theretofore renewed or extended; provided,
however, "Funded Indebtedness" shall not include (1) any Indebtedness of
Liberty or any Subsidiary to Liberty or another Subsidiary, (2) any guarantee
by Liberty or any Subsidiary of Indebtedness of Liberty or another Subsidiary,
provided that such guarantee is not secured by a Lien on any Principal
Property, (3) any guarantee by Liberty or any Subsidiary of the Indebtedness of
any person (including, without limitation, a business trust), if the obligation
of Liberty or such Subsidiary under such guaranty is limited in amount to the
amount of funds held by or on behalf of such person that are available for the
payment of such Indebtedness, (4) liabilities under interest rate swap,
exchange, collar or cap agreements and all other agreements or arrangements
designed to protect against fluctuations in interest rates or currency exchange
rates, and (5) liabilities under commodity hedge, commodity swap, exchange,
collar or cap agreements, fixed price agreements and all other agreements or
arrangements designed to protect against fluctuations in prices. For purposes
of determining the outstanding principal amount of Funded Indebtedness at any
date, the amount of Indebtedness issued at a price less than the principal
amount at maturity thereof shall be equal to the amount of the liability in
respect thereof at such date determined in accordance with generally accepted
accounting principles.
"Indebtedness" of any person means:
(1) any indebtedness of such person (i) for borrowed money or (ii)
evidenced by a note, debenture or similar instrument (including a purchase
money obligation) given in connection with the acquisition of any property
or assets, including securities;
(2) any guarantee by such person of any indebtedness of others described
in the preceding clause (1); and
(3) any amendment, renewal, extension or refunding of any such
indebtedness or guarantee.
"Liberty" means Liberty Media Corporation, a Delaware corporation, until a
successor replaces it pursuant to the applicable provisions of the indenture
and thereafter means the successor.
"Lien" means any mortgage, pledge, lien, security interest, or other similar
encumbrance.
"Marketable Securities" means any securities listed on a U.S. national
securities exchange or reported by the Nasdaq Stock Market or listed on a
recognized international securities exchange or traded in the over-the-counter
market and quoted by at least two broker-dealers as reported by the National
Quotation Bureau or similar organization, including as Marketable Securities
options, warrants and other rights to purchase, and securities exchangeable for
or convertible into, Marketable Securities.
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"Material Subsidiary" means, at any relevant time, any Subsidiary that meets
any of the following conditions:
(1) Liberty's and its other Subsidiaries' investments in and advances to
the Subsidiary exceed 10% of the total consolidated assets of Liberty and
its Subsidiaries; or
(2) Liberty's and its other Subsidiaries' proportionate share of the
total assets (after intercompany eliminations) of the Subsidiary exceeds
10% of the total consolidated assets of Liberty and its Subsidiaries; or
(3) Liberty's and its other Subsidiaries' proportionate share of the
total revenues (after intercompany eliminations) of the Subsidiary exceeds
10% of the total consolidated revenue of Liberty and its Subsidiaries; or
(4) Liberty's and its other Subsidiaries' equity in the income from
continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principle of the Subsidiary
exceeds 10% of such income of Liberty and its Subsidiaries;
all as calculated by reference to the then latest fiscal year-end accounts (or
consolidated fiscal year-end accounts, as the case may be) of such Subsidiary
and the then latest audited consolidated fiscal year-end accounts of Liberty
and its Subsidiaries. Based on the 1998 fiscal year-end accounts, as of the
date of this prospectus, the only Material Subsidiary of Liberty is Encore
Media Group LLC.
"Nasdaq Stock Market" means The Nasdaq Stock Market, a subsidiary of the
National Association of Securities Dealers, Inc.
"Principal Property" means, as of any date of determination, (a) any cable
system or manufacturing or production facility, including land and buildings
and other improvements thereon and equipment located therein, owned by Liberty
or a Restricted Subsidiary and used in the ordinary course of its business and
(b) any executive offices, administrative buildings, and research and
development facilities, including land and buildings and other improvements
thereon and equipment located therein, of Liberty or a Restricted Subsidiary,
other than any such property which, in the good faith opinion of the Board of
Directors, is not of material importance to the business conducted by Liberty
and its Restricted Subsidiaries taken as a whole.
"Rating Agencies" means (i) Standard & Poors, a division of The McGraw-Hill
Companies, Inc. and (ii) Moody's Investors Service, Inc. and (iii) if S&P or
Moody's or both shall not make a rating publicly available, a nationally
recognized United States securities rating agency or agencies, as the case may
be, selected by Liberty, which shall be substituted for S&P or Moody's or both,
as the case may be.
"Restricted Subsidiary" means, as of any date of determination, a corporation
a majority of whose voting stock is owned by Liberty and/or one or more
Restricted Subsidiaries, which corporation has been, or is then being,
designated a Restricted Subsidiary in accordance with the "Designation of
Restricted Subsidiaries" covenant, unless and until designated an Unrestricted
Subsidiary in accordance with such covenant.
"Sale and Leaseback Transaction" means any arrangement providing for the
leasing to Liberty or a Restricted Subsidiary of any Principal Property (except
for temporary leases for a term, including renewals, of not more than three
years) which has been or is to be sold by Liberty or such Restricted Subsidiary
to the lessor.
"Subsidiary" means any corporation, association, limited liability company,
partnership or other business entity of which a majority of the total voting
power of the capital stock or other interests (including partnership interests)
entitled (without regard to the incurrence of a contingency) to vote in the
election of directors, managers, or trustees thereof is at the time owned,
directly or indirectly, by (i) Liberty, (ii) Liberty and one or more of its
Subsidiaries or (iii) one or more Subsidiaries of Liberty.
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"Trading Day" means, with respect to any security the Closing Price of which
is being determined, a day on which there is trading on the principal United
States national or regional securities exchange or recognized international
securities exchange, in the Nasdaq Stock Market or in the over-the-counter
market used to determine such Closing Price.
"Unrestricted Subsidiary" means, as of any date of determination, any
Subsidiary of Liberty that is not a Restricted Subsidiary.
Modification and Waiver
Modification and amendments of the indenture may be made by Liberty and the
trustee with the consent of the holders of not less than a majority in
aggregate principal amount of the outstanding senior debt securities of each
series affected thereby; provided, however, that no modification or amendment
may, without the consent of the holder of each outstanding senior debt security
affected thereby,
(1) change the stated maturity of the principal of, or any premium or
installment of interest or distributions (including any special
payment adjustment) on, or any additional amounts with respect to,
any senior debt security;
(2) reduce the principal amount of, or the rate (or modify the
calculation of the rate) of interest or distributions on, or any
additional amounts with respect to, or any premium payable upon the
redemption of, any senior debt security;
(3) change the redemption provisions of any senior debt security or
adversely affect the right of repayment at the option of any holder
of any senior debt security;
(4) change the place of payment or the coin or currency in which the
principal of, any premium or installment of interest or distributions
on, or any additional amounts with respect to, any senior debt
security is payable;
(5) impair the right to institute suit for the enforcement of any payment
on or after the stated maturity of any senior debt security (or, in
the case of redemption, on or after the redemption date or, in the
case of repayment at the option of any holder, on or after the date
for repayment);
(6) reduce the percentage in principal amount of the outstanding senior
debt securities, the consent of whose holders is required in order to
take certain actions;
(7) reduce the requirements for quorum or voting by holders of senior
debt securities as provided in the indenture;
(8) modify any of the provisions in the indenture regarding the waiver of
past defaults and the waiver of certain covenants by the holders of
senior debt securities except to increase any percentage vote
required or to provide that certain other provisions of the indenture
cannot be modified or waived without the consent of the holder of
each senior debt security affected thereby;
(9) reduce the amount of cash or reference shares deliverable upon
exchange of the debentures; or
(10) modify any of the above provisions.
The holders of at least a majority in aggregate principal amount of the
senior debt securities of any series may, on behalf of the holders of all
senior debt securities of the series, waive compliance by Liberty with certain
restrictive provisions of the indenture. The holders of not less than a
majority in aggregate principal amount of the outstanding senior debt
securities of any series may, on behalf of the holders of all senior debt
securities of the series, waive any past default and its consequences under the
indenture with respect to the senior debt securities of the series, except a
default
. in the payment of principal (or premium, if any), or any interest or
distributions (including any special payment adjustments) on, or any
additional amounts with respect to, senior debt securities of the
series, or
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. in respect of a covenant or provision of the indenture that cannot be
modified or amended without the consent of the holder of each senior
debt security of any series.
Under the indenture, Liberty is required to furnish the trustee annually a
statement as to performance by Liberty of certain of its obligations under the
indenture and as to any default in the performance. Liberty is also required to
deliver to the trustee, within five days after becoming aware thereof, written
notice of any event of default or any event which after notice or lapse of time
or both would constitute an event of default.
Governing Law
The indenture and the debentures will be governed by, and construed in
accordance with, the laws of the State of New York.
Regarding the Trustee
The trustee is permitted to engage in other transactions with Liberty and its
subsidiaries from time to time, provided that if the trustee acquires any
conflicting interest it must eliminate the conflict upon the occurrence of an
event of default, or else resign.
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SUMMARY OF
REGISTRATION RIGHTS OF SELLING SECURITY HOLDERS
We entered into a registration rights agreement with the initial purchaser of
the debentures, pursuant to which we filed with the SEC and caused to become
effective a shelf registration statement of which this prospectus is a part.
Pursuant to the registration rights agreement, we are required to:
. use our reasonable best efforts to keep effective the shelf registration
statement until two years after the original issue date of the
debentures or until all of the debentures covered by the shelf
registration statement have been sold, exchanged or redeemed or
otherwise cease to be outstanding; and
. use our reasonable best efforts to ensure that
. the shelf registration statement and any amendment thereto and any
prospectus included therein comply in all material respects with the
Securities Act; and
. the shelf registration statement and any amendment thereto and any
prospectus included therein do not, when the shelf registration
statement or any amendment becomes effective, contain an untrue
statement of a material fact.
If the shelf registration statement is unusable by the holders for any reason
for more than 30 days in the aggregate in any consecutive 12-month period, then
the interest rate borne by the debentures will be increased by 0.25% per annum
of the principal amount of the debentures for the first 90-day period (or
portion thereof) beginning on the 31st day that the shelf registration
statement ceased to be usable. This interest rate will be increased by an
additional 0.25% per annum of the principal amount of the debentures at the
beginning of each subsequent 90-day period, provided that the maximum aggregate
increase in the interest rate will in no event exceed one percent (1%) per
annum. Upon the shelf registration statement once again becoming usable, the
interest rate borne by the debentures will be reduced to the original interest
rate. Additional interest shall be computed based on the actual number of days
elapsed in each 90-day period in which the shelf registration statement is
unusable.
Liberty shall notify the trustee within three business days of any event in
respect of which additional interest is required to be paid in accordance with
the registration rights agreement. Additional interest shall be paid by
depositing with the trustee, in trust, for the benefit of the holders of the
debentures, on or before the applicable semiannual interest payment date,
immediately available funds in sums sufficient to pay the additional interest
then due. The additional interest due shall be payable on each interest payment
date to the record holder of debentures entitled to receive the interest
payment to be paid on such date as set forth in the indenture. Each obligation
to pay additional interest shall be deemed to accrue from and including the
date following the applicable event date.
The registration rights agreement has been filed as an exhibit to the
registration statement of which this prospectus forms a part, and we refer you
to the registration rights agreement for a complete description of its terms.
See "Where to Find More Information." The registration rights agreement
requires us to pay substantially all of the expenses incident to the
registration, offering, and sale of the debentures to the public, other than
commissions, concessions and discounts of underwriters, dealers or agents, but
including the fees and disbursements of one counsel for the selling security
holders. We have agreed to indemnify the selling security holders and any
underwriters they may use against certain civil liabilities, including
liabilities under the Securities Act.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of the material United States federal income tax
consequences of the acquisition, ownership and disposition of the debentures
and of any shares of Sprint PCS stock that a holder of debentures may receive
upon an exchange of debentures for their exchange market value. This summary is
based upon the United States Internal Revenue Code of 1986, as amended (which
we refer to as the "Code"), administrative pronouncements, judicial decisions,
and existing and proposed Treasury Regulations, changes to any of which
subsequent to the date of this prospectus may affect the tax consequences
described in this prospectus, possibly with retroactive effect. This summary
deals only with holders that will hold the debentures and any Sprint PCS stock
for which the debentures may be exchanged as "capital assets" within the
meaning of Section 1221 of the Code, and does not address tax considerations
applicable to holders that may be subject to special tax rules, such as dealers
or traders in securities, financial institutions, tax-exempt entities, holders
that hold the debentures as a part of a hedging, straddle, conversion or other
integrated transaction, or U.S. Holders (as defined below) whose functional
currency is not the United States dollar. The following summary assumes that
any reference shares received upon maturity, exchange or redemption of the
debentures consist of Sprint PCS stock.
The discussion set out below is intended only as a summary of certain United
States federal income tax consequences of an investment in the debentures.
Prospective investors are urged to consult their tax advisors as to the tax
consequences of an investment in the debentures, including the application to
their particular situations of the tax considerations discussed below, as well
as the application of state, local or foreign tax laws.
"U.S. Holder" means a beneficial owner of the debentures or Sprint PCS
stock, as the case may be, that is, for United States federal income tax
purposes, (i) an individual citizen or resident of the United States, (ii) a
corporation, partnership, or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of its source or (iv) in general, a trust which is subject to the
primary supervision of a United States court and the control of one or more
United States fiduciaries. "Non-U.S. Holder" means any holder of the debentures
or Sprint PCS stock, as the case may be, that is not a U.S. Holder.
Tax Consequences to U.S. Holders
Interest Accrual on the Debentures. For United States federal income tax
purposes, the debentures will be subject to Treasury Regulations relating to
contingent payment debt instruments (which we refer to as the contingent
payment debt regulations). Under the contingent payment debt regulations, a
U.S. Holder will be required to accrue interest income on the debentures (in
amounts described in the next paragraph) regardless of whether such U.S. Holder
uses the cash or accrual method of tax accounting. As a result, a U.S. Holder
will be required to include interest in taxable income each year in excess of
the semi-annual interest payments received in that year.
Under the contingent payment debt regulations, for each accrual period prior
to and including the maturity date of the debentures, the amount of interest
that accrues, as original issue discount, on a debenture equals the product of
(a) the adjusted issue price (as defined below) as of the beginning of the
accrual period and (b) the comparable yield (as defined below) (adjusted for
the length of the accrual period). This amount is ratably allocated to each day
in the accrual period and is includable as ordinary interest income by a U.S.
Holder for each day in the accrual period on which the U.S. Holder holds the
debentures.
The "adjusted issue price" means the issue price of the debenture, which is
$1,000, increased by any interest previously accrued (determined without regard
to any adjustments to interest accruals described below) and decreased by the
amount of any projected payments (as defined below) with respect to the
debenture.
The "comparable yield" means the annual yield we would pay, as of the issue
date, on a fixed-rate debt security with no exchange right or other contingent
payments but with terms and conditions otherwise
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comparable to those of the debentures. Amounts treated as interest under the
contingent payment debt regulations are treated as original issue discount for
all purposes of the Code.
We have determined that the comparable yield is 9.43%, compounded semi-
annually. Under the contingent payment debt regulations, we are required,
solely for United States federal income tax purposes, to provide a schedule of
the projected amounts of payments (which we refer to as projected payments) on
the debentures. This schedule must produce the comparable yield. Based on our
determination of the comparable yield, the schedule of projected payments
(assuming a principal amount of $1,000 and an issue price of $1,000), consists
of (a) a payment of stated interest equal to $19.27 on August 15, 2000, (b)
payments of stated interest equal to $18.75 on all subsequent semi-annual
interest payment dates and (c) a payment of a projected amount at the maturity
date of the debentures (excluding the stated semi-annual interest on the
debentures payable on such date) equal to $9,967.71. For United States federal
income tax purposes, a U.S. Holder is required to use the comparable yield and
the schedule of projected payments in determining its interest accruals and
adjustments thereof in respect of the debentures, unless such U.S. Holder
timely discloses and justifies the use of other estimates to the IRS.
The comparable yield and the schedule of projected payments are not provided
for any purpose other than the determination of holders' interest accruals and
adjustments thereof in respect of the debentures for United States federal
income tax purposes and do not constitute a projection or representation
regarding the amounts that will actually be paid on the debentures.
Adjustments to Interest Accruals. If, during any taxable year, the sum of
any actual payments with respect to the debentures for that taxable year
(including extraordinary distributions and, in the case of the taxable year
which includes the maturity date of the debentures, the fair market value of
any Sprint PCS stock received by such holder, plus the fair market value of any
other property received, plus the amount of cash received) exceeds the total
amount of projected payments for that taxable year, the difference will produce
a "net positive adjustment" under the contingent payment debt regulations,
which will be treated as additional interest for the taxable year. For this
purpose, the payments in a taxable year include the fair market value of
property received in that year. If the actual amount received in a taxable year
is less than the amount of projected payments for that taxable year, the
difference will produce a "net negative adjustment" under the contingent
payment debt regulations, which will (a) reduce the U.S. Holder's interest
income on the debentures for that taxable year and (b) to the extent of any
excess after the application of (a), give rise to an ordinary loss to the
extent of the U.S. Holder's interest income on the debentures during prior
taxable years (reduced to the extent such interest was offset by prior net
negative adjustments).
Sale or Exchange of Debentures. Upon the sale, exchange or retirement of the
debentures (including, for instance, an exchange by the U.S. Holder or the
redemption of the debentures by us) prior to the stated maturity date, the U.S.
Holder will recognize gain or loss equal to the difference between the amount
realized and the U.S. Holder's adjusted basis. A U.S. holder will be treated as
receiving an amount equal to the fair market value of any Sprint PCS stock
received, plus the fair market value of any other property received, plus the
amount of any cash received. The adjusted basis will be the U.S. Holder's
original basis in the debentures, increased by the interest income previously
included by the U.S. Holder with respect to the debentures (determined without
regard to any adjustments to interest accruals described in the preceding
paragraph) and decreased by the projected amount of all prior payments with
respect to the debentures. (See below under Purchase for Premium or Discount
for additional adjustments made with respect to U.S. Holders who did not
purchase debentures in the initial offering.) Any gain upon the sale or
exchange of the debentures will be ordinary interest income; any loss will be
ordinary loss to the extent of the interest previously included in income by
the U.S. Holder with respect to the debentures, and thereafter, capital loss.
The distinction between capital loss and ordinary loss is potentially
significant in several respects. For example, limitations apply to a U.S.
Holder's ability to offset capital losses against ordinary income.
Purchase for Premium or Discount. A purchase of a debenture by a U.S. Holder
will cause the new U.S. Holder to have a basis in the debenture equal to the
amount paid for the debenture. A U.S. Holder is required
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to reasonably allocate any difference between the adjusted issue price of the
debenture and such U.S. Holder's basis in the debenture to daily portions of
interest or projected payments over the remaining term of debenture. If such
basis in the debenture exceeds the debenture's adjusted issue price, the amount
of the difference allocated to a daily portion of interest or to a projected
payment is treated as a negative adjustment on the date the daily portion
accrues or the payment is made. On the date of the adjustment, the U.S.
Holder's adjusted basis in the debenture is reduced by the amount the U.S.
Holder so treats as a negative adjustment. If the new U.S. Holder's basis in
the debenture is less than the debenture's adjusted issue price, the amount of
the difference allocated to a daily portion of interest or to a projected
payment is treated as a positive adjustment on the date the daily portion
accrues or the payment is made. On the date of the adjustment, the U.S.
Holder's adjusted basis in the debenture is increased by the amount the U.S.
Holder so treats as a positive adjustment.
Distributions on Sprint PCS Stock. If a U.S. Holder obtains Sprint PCS stock
in exchange for debentures, the gross amount of any distribution made by Sprint
to the U.S. Holder with respect to its Sprint PCS stock generally will be
includable in the income of the U.S. Holder as dividend income to the extent
that such distribution is paid out of Sprint's current or accumulated earnings
and profits as determined under U.S. federal income tax principles. Subject to
certain limitations, United States corporations holding Sprint PCS stock that
receive dividends thereon generally will be eligible for a dividends-received
deduction equal to 70% of the dividends received. If the amount of any
distribution exceeds Sprint's current and accumulated earnings and profits as
so computed, such excess first will be treated as a tax-free return of capital
to the extent of the U.S. Holder's tax basis in its Sprint PCS stock, and
thereafter as gain from the sale or exchange of property.
Dispositions of Sprint PCS Stock. A U.S. Holder generally will recognize
capital gain or loss for U.S. federal income tax purposes on the sale or other
disposition of Sprint PCS stock that it obtains in exchange for debentures, in
an amount equal to the difference between the amount realized on the sale or
other disposition and the U.S. Holder's tax basis in the Sprint PCS stock. Any
such gain or loss will be long-term gain or loss if the U.S. Holder held the
Sprint PCS stock for more than one year. A U.S. Holder that received Sprint PCS
stock from Liberty in exchange for a debenture either on or before the maturity
date will have a basis in that Sprint PCS stock equal to that stock's fair
market value on the date of such exchange. Additionally, the U.S. Holder's
holding period in the Sprint PCS stock will begin the day after such
disposition of the debenture.
Backup Withholding. Certain noncorporate U.S. Holders may be subject to
backup withholding at a rate of 31% on payments of principal and interest
(including original issue discount) on, or the proceeds of disposition of, the
debentures and dividends on the Sprint PCS stock. Backup withholding will apply
only if the U.S. Holder (a) fails to furnish its Taxpayer Identification Number
(which we refer to as TIN) which, for an individual, is his or her Social
Security number, (b) furnishes an incorrect TIN, (c) is notified by the IRS
that it has failed to properly report payments of interest and dividends or (d)
under certain circumstances, fails to certify, under penalties of perjury, that
it has furnished a correct TIN and has not been notified by the IRS that it is
subject to backup withholding for failure to report interest and dividend
payments. U.S. Holders should consult their tax advisors regarding their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption if applicable.
The amount of any backup withholding from a payment to a U.S. Holder will be
allowed as a credit against such U.S. Holder's United States federal income tax
liability and may entitle such U.S. Holder to a refund, provided that the
required information is furnished to the IRS.
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Tax Consequences to Non-U.S. Holders
Withholding. Under present United States federal income tax law, and subject
to the discussion below concerning backup withholding, payments of principal
and interest (including original issue discount) on the debentures by us or any
paying agent to any Non-U.S. Holder, and gain realized on the sale or exchange
of the debentures or Sprint PCS stock by a Non-U.S. Holder, will be exempt from
United States federal income or withholding tax, provided that:
. such Non-U.S. Holder does not own, actually or constructively, 10
percent or more of the total combined voting power of all classes of our
stock entitled to vote, is not a controlled foreign corporation related,
directly or indirectly, to us through stock ownership, and is not a bank
receiving interest described in Section 881(c)(3)(A) of the Code;
. the statement requirement set forth in Section 871(h) or Section 881(c)
of the Code has been fulfilled with respect to the beneficial owner, as
discussed below;
. such Non-U.S. Holder is not an individual who is present in the United
States for 183 days or more in the taxable year of disposition or who is
subject to special rules applicable to former citizens and residents of
the United States;
. such payments and gain are not effectively connected with the conduct by
such Non-U.S. Holder of a trade or business in the United States; and
. the Sprint PCS stock continues to be actively traded within the meaning
of Section 871(h)(4)(C)(v)(I) of the Code (which, for these purposes and
subject to certain exceptions, includes trading on the NYSE).
The statement requirement referred to in the preceding paragraph will be
fulfilled if the beneficial owner of a debenture certifies on an appropriate
form (generally IRS Form W-8BEN), under penalties of perjury, that it is not a
United States person and provides its name and address, and (a) the beneficial
owner files that form with the withholding agent or (b) a securities clearing
organization, bank or other financial institution holding customers' securities
in the ordinary course of its trade or business holds the debentures on behalf
of the beneficial owner, files with the withholding agent a statement that it
has received the Form W-8BEN from the beneficial owner and furnishes the
withholding agent with a copy thereof. With respect to any debentures held by a
foreign partnership, under current law, this certification may be provided by
the foreign partnership. However, unless a foreign partnership has entered into
a withholding agreement with the IRS, each partner that is a Non-U.S. Holder
will be required to supply this certification in order to avoid withholding
with respect to such partner's share of interest (including original issue
discount) and disposition proceeds paid with respect to debentures to the
foreign partnership after December 31, 2000. Prospective investors, including
foreign partnerships and their partners, should consult their tax advisors
regarding possible additional reporting requirements.
Distributions by Sprint with respect to Sprint PCS stock that are treated as
dividends paid, as described above under "--Tax Consequences to U.S. Holders--
Distributions on Sprint PCS Stock," to a Non-U.S. Holder (excluding dividends
that are effectively connected with the conduct of a trade or business in the
United States by such Holder and are taxable as described below) will be
subject to United States federal withholding tax at a 30% rate (or lower rate
provided under any applicable income tax treaty).
If a Non-U.S. Holder of the debentures or Sprint PCS stock is engaged in a
trade or business in the United States, and if interest on the debentures,
dividends on the Sprint PCS stock, or gain from the sale or exchange of the
debentures or Sprint PCS stock are effectively connected with the conduct of
such trade or business, the Non-U.S. Holder, although exempt from the
withholding tax discussed in the preceding paragraphs, will generally be
subject to regular United States federal income tax on such interest,
dividends, or gain realized on the sale or exchange of the debentures or Sprint
PCS stock in the same manner as if it were a U.S. Holder. In lieu of the
certificate described in the preceding paragraph, such a Non-U.S. Holder will
be required to provide
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to the withholding agent a properly executed IRS Form W-8ECI (or successor
form) in order to claim an exemption from withholding tax. In addition, if such
a Non-U.S. Holder is a foreign corporation, it may be subject to a branch
profits tax equal to 30% (or such lower rate provided by an applicable treaty)
of its effectively connected earnings and profits for the taxable year, subject
to certain adjustments.
Backup Withholding and Information Reporting. Backup withholding (at the
rate of 31%) will not apply to payments made by us or a paying agent on the
debentures or Sprint PCS stock if the certifications required by Sections
871(h) or 881(c) are received, provided in each case that we or such paying
agent, as the case may be, does not have actual knowledge (and, with respect to
payments made after December 31, 2000, does not have reason to know) that the
payee is a United States person.
Non-U.S. Holders of the debentures and Sprint PCS stock should consult their
tax advisors regarding the application of information reporting and backup
withholding in their particular situations, the availability of an exemption
therefrom, and the procedure for obtaining such an exemption, if available. Any
amounts withheld from a payment to a Non-U.S. Holder under the backup
withholding rules will be allowed as a credit against such Non-U.S. Holder's
United States federal income tax liability and may entitle such Non-U.S. Holder
to a refund, provided that the required information is furnished to the IRS.
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PLAN OF DISTRIBUTION
We will not receive any of the proceeds from sales of debentures by selling
security holders. The debentures may be sold from time to time:
. directly by any selling security holder to one or more purchasers;
. to or through underwriters, brokers or dealers;
. through agents on a best-efforts basis or otherwise; or
. through a combination of such methods of sale.
If debentures are sold through underwriters, brokers or dealers, the selling
security holder will be responsible for underwriting discounts or agent's
commissions.
The debentures may be sold:
. in one or more transactions at a fixed price or prices, which may be
changed;
. at prevailing market prices at the time of sale or at prices related to
such prevailing prices;
. at varying prices determined at the time of sale; or
. at negotiated prices.
Such sales may be effected in transactions (which may involve crosses or
block transactions):
. on any national securities exchange or quotation service on which the
debentures may be listed or quoted at the time of sale;
. in the over-the-counter market;
. in transactions otherwise than on such exchanges or services or in the
over-the-counter market; or
. through the writing of options.
In connection with the sale of the debentures, any selling security holder
may:
. enter into hedging transactions with brokers, dealers or others, which
may in turn engage in short sales of the debentures in the course of
hedging the positions they assume;
. sell short or deliver debentures to close out such short positions; or
. loan or pledge debentures to brokers, dealers or others that may in turn
sell such securities.
Any selling security holder may pledge or grant a security interest in some
or all of the debentures owned by it, and if it defaults in the performance of
its secured obligations, the pledgees or secured party may sell from time to
time the pledged debentures pursuant to the registration statement of which
this prospectus is a part. The selling security holders may also transfer and
donate debentures in other circumstances in which case the transferees, donees,
pledgees or other successors in interest will be the selling security holders
for purposes of this prospectus.
Underwriters, brokers, dealers and agents may receive compensation in the
form of underwriting discounts, concessions or commissions from the selling
security holders or the purchasers of debentures for whom they may act as
agent. The selling security holders and any underwriters, dealers or agents
that participate in the distribution of debentures may be deemed to be
"underwriters" within the meaning of the Securities Act, and any profit on the
sale of debentures by them and any discounts, commissions or concessions
received by them might be deemed to be underwriting discounts and commissions
under the Securities Act.
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There is currently no active trading market for the debentures. We do not
currently anticipate listing the debentures on any stock exchange. Therefore,
any trading with respect to the debentures is expected to occur in over-the-
counter markets.
At the time a particular offering or sale of debentures is made, a prospectus
supplement, if required, will be distributed which will set forth the aggregate
amount of debentures offered or sold and the terms of the offering or sale,
including the name or names of any underwriters, dealers or agents, any
discounts, commissions and other terms constituting compensation from the
selling security holders and any discounts, commissions or concessions allowed
or reallowed or paid to dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the debentures can be offered or sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain
jurisdictions the debentures may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with.
There is no assurance that the selling security holders will sell any of the
debentures. In addition, any debentures covered by this prospectus which
qualify for sale pursuant to Rule 144 or Rule 144A under the Securities Act may
be sold pursuant to Rule 144 or Rule 144A rather than pursuant to this
prospectus.
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LEGAL MATTERS
The validity of the debentures will be passed upon for us by Baker Botts
L.L.P., New York, New York.
EXPERTS
The consolidated financial statements of Liberty Media Corporation and
subsidiaries ("New Liberty" or "Successor") as of December 31, 1999, and of
Liberty Media Corporation ("Old Liberty" or "Predecessor") as of December 31,
1998, and for the periods from March 1, 1999 to December 31, 1999 (Successor
period) and from January 1, 1999 to February 28, 1999 and for each of the years
in the two-year period ended December 31, 1998 (Predecessor periods), have been
included in the registration statement in reliance upon the report of KPMG LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
The report of KPMG LLP, dated February 29, 2000, contains an explanatory
paragraph that states that effective March 9, 1999, AT&T Corp., the owner of
the assets comprising New Liberty, acquired Tele-Communications, Inc., the
owner of the assets comprising Old Liberty, in a business combination accounted
for as a purchase. As a result of the acquisition, the consolidated financial
information for the periods after the acquisition is presented on a different
basis than that for the periods before the acquisition and, therefore, is not
comparable.
WHERE TO FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the debentures that may be sold by this
prospectus. This prospectus, which forms a part of the registration statement,
does not contain all the information included in the registration statement.
You should refer to the registration statement, including its exhibits and
schedules, for further information about us or the debentures that may be sold
by this prospectus. Statements contained in this prospectus as to the contents
of any contract or other document are not necessarily complete, and, where any
contract or other document is an exhibit to the registration statement, we
refer you to that exhibit for a more complete description of the matter
involved.
We are subject to the informational requirements of the Securities Exchange
Act of 1934. Accordingly, we file reports and other information with the SEC.
In addition, AT&T files annual, quarterly and special reports, proxy statements
and other information with the SEC, and such reports, proxy statements and
other information may contain important information about us. AT&T has agreed,
pursuant to the Inter-Group Agreement, that for so long as AT&T Liberty Media
Group tracking stock is outstanding, AT&T will prepare and include in its SEC
filings consolidated financial statements of AT&T and combined financial
statements of the Liberty Media Group (of which we are the primary operating
unit).
You may read and copy the registration statement and the reports and other
information we file and any reports and other information AT&T files at the
SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms. Our SEC filings and AT&T's SEC
filings are also available to the public from commercial document retrieval
services and at the Internet world wide web site maintained by the SEC at
www.sec.gov.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Liberty Media Corporation
Audited Consolidated Financial Statements
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998.......... F-3
Consolidated Statements of Operations and Comprehensive Earnings for
the years ended
December 31, 1999, 1998 and 1997..................................... F-5
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1999, 1998 and 1997..................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.................................................. F-7
Notes to Consolidated Financial Statements............................ F-8
Unaudited Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and December 31,
1999................................................................. F-40
Consolidated Statements of Operations and Comprehensive Earnings for
the three months ended March 31, 2000, the one month ended March 31,
1999 and the two months ended February 28, 1999...................... F-42
Consolidated Statements of Stockholder's Equity for the three months
ended March 31, 2000................................................. F-43
Consolidated Statements of Cash Flows for the three months ended March
31, 2000, the one month ended March 31, 1999 and the two months ended
February 28, 1999.................................................... F-44
Notes to Consolidated Financial Statements............................ F-45
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Liberty Media Corporation:
We have audited the accompanying consolidated balance sheets of Liberty Media
Corporation and subsidiaries ("New Liberty" or "Successor") as of December 31,
1999, and of Liberty Media Corporation and subsidiaries ("Old Liberty" or
"Predecessor") as of December 31, 1998, and the related consolidated statements
of operations and comprehensive earnings, stockholders' equity, and cash flows
for the periods from March 1, 1999 to December 31, 1999 (Successor period) and
from January 1, 1999 to February 28, 1999 and for each of the years in the two-
year period ended December 31, 1998 (Predecessor periods). These consolidated
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the aforementioned Successor consolidated financial
statements present fairly, in all material respects, the financial position of
New Liberty as of December 31, 1999, and the results of their operations and
their cash flows for the Successor period, in conformity with generally
accepted accounting principles. Further, in our opinion, the aforementioned
Predecessor consolidated financial statements present fairly, in all material
respects, the financial position of Old Liberty as of December 31, 1998, and
the results of their operations and their cash flows for the Predecessor
periods, in conformity with generally accepted accounting principles.
As discussed in note 1, effective March 9, 1999, AT&T Corp., parent company
of New Liberty, acquired Tele-Communications, Inc., parent company of Old
Liberty, in a business combination accounted for as a purchase. As a result of
the acquisition, the consolidated financial information for the periods after
the acquisition is presented on a different cost basis than that for the
periods before the acquisition and therefore, is not comparable.
KPMG LLP
Denver, Colorado
February 29, 2000
F-2
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
<TABLE>
<CAPTION>
New Liberty Old Liberty
1999 1998
----------- -----------
(note 2)
amounts in millions
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents........................... $ 1,714 228
Short-term investments.............................. 378 159
Trade and other receivables, net.................... 116 142
Prepaid expenses and committed program rights....... 405 263
Deferred income tax assets.......................... 750 216
Other current assets................................ 5 21
------- ------
Total current assets.............................. 3,368 1,029
------- ------
Investments in affiliates, accounted for under the
equity method, and related receivables (note 5)...... 15,922 3,079
Investments in available-for-sale securities and
others (note 6)...................................... 28,593 10,539
Property and equipment, at cost....................... 162 279
Less accumulated depreciation....................... 19 124
------- ------
143 155
------- ------
Intangible assets:
Excess cost over acquired net assets................ 9,966 940
Franchise costs..................................... 273 99
------- ------
10,239 1,039
Less accumulated amortization..................... 454 140
------- ------
9,785 899
------- ------
Other assets, at cost, net of accumulated
amortization......................................... 839 82
------- ------
Total assets...................................... $58,650 15,783
======= ======
</TABLE>
F-3
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED BALANCE SHEETS--(Continued)
December 31, 1999 and 1998
<TABLE>
<CAPTION>
New Old
Liberty Liberty
1999 1998
------- -------
(note 2)
amounts in
millions
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable............................................ $ 44 49
Accrued liabilities......................................... 201 199
Accrued stock compensation.................................. 2,405 126
Program rights payable...................................... 166 156
Customer prepayments........................................ -- 124
Current portion of debt..................................... 554 184
------- ------
Total current liabilities................................. 3,370 838
------- ------
Long-term debt (note 9)....................................... 2,723 1,912
Deferred income tax liabilities (note 10)..................... 14,103 3,582
Other liabilities............................................. 23 89
------- ------
Total liabilities......................................... 20,219 6,421
------- ------
Minority interests in equity of subsidiaries (notes 7 and 8).. 23 132
Stockholder's equity (note 11):
Preferred stock, $.0001 par value. Authorized 100,000
shares; no shares issued and outstanding................... -- --
Class A common stock $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares ............... -- --
Class B common stock $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares ............... -- --
Class C common stock, $.0001 par value. Authorized 1,000,000
shares; issued and outstanding 1,000 shares ............... -- --
Additional paid-in capital.................................. 33,838 4,682
Accumulated other comprehensive earnings, net of taxes (note
13)........................................................ 6,518 3,186
Accumulated (deficit) earnings.............................. (1,975) 952
------- ------
38,381 8,820
Due to related parties...................................... 27 410
------- ------
Total stockholder's equity................................ 38,408 9,230
------- ------
Commitments and contingencies (note 14)
Total liabilities and stockholder's equity................ $58,650 15,783
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ --------------------------
Ten months Two months Years ended
ended ended December 31,
December 31, February 28, -------------
1999 1999 1998 1997
------------ ------------ ------ -----
amounts in millions(note 2)
<S> <C> <C> <C> <C>
Revenue:
Unaffiliated parties............................................................... $ 549 192 1,197 1,070
Related parties (note 11).......................................................... 180 43 162 155
------- ---- ------ -----
729 235 1,359 1,225
------- ---- ------ -----
Operating costs and expenses:
Operating.......................................................................... 343 95 713 627
Selling, general and administrative................................................ 229 87 387 342
Charges from related parties (note 11)............................................. 24 6 43 97
Stock compensation (note 12)....................................................... 1,785 183 518 296
Depreciation and amortization...................................................... 562 22 129 123
------- ---- ------ -----
2,943 393 1,790 1,485
------- ---- ------ -----
Operating loss................................................................... (2,214) (158) (431) (260)
Other income (expense):
Interest expense................................................................... (287) (25) (104) (40)
Interest expense to related parties, net (note 11)................................. (1) (1) (9) (15)
Dividend and interest income....................................................... 242 10 65 59
Share of losses of affiliates, net (note 5)........................................ (904) (66) (1,002) (785)
Minority interests in losses (earnings) of subsidiaries............................ 92 4 13 (10)
Gains on dispositions, net (notes 5 and 6)......................................... 4 14 2,449 406
Gains on issuance of equity by affiliates and subsidiaries (notes 5 and 7)......... -- 372 105 --
Other, net........................................................................... (4) (9) (3) --
------- ---- ------ -----
(858) 299 1,514 (385)
------- ---- ------ -----
Earnings (loss) before income taxes.............................................. (3,072) 141 1,083 (645)
Income tax benefit (expense) (note 10)............................................... 1,097 (211) (461) 175
------- ---- ------ -----
Net earnings (loss).............................................................. $(1,975) (70) 622 (470)
------- ---- ------ -----
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments........................................... 60 (15) 2 (23)
Unrealized holding gains arising during the period, net of reclassification
adjustments....................................................................... 6,458 885 2,417 747
------- ---- ------ -----
Other comprehensive earnings (loss)................................................ 6,518 870 2,419 724
------- ---- ------ -----
Comprehensive earnings (note 13)..................................................... $ 4,543 800 3,041 254
--------------------------------------------------
======= ==== ====== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
Accumulated
other
Common stock Additional comprehensive Accumulated Due to Total
Preferred ----------------------- paid-in earnings, (deficit) related stockholder's
stock Class A Class B Class C captial net of taxes earnings parties equity
--------- ------- ------- ------- ---------- ------------- ----------- ------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1997................... $-- -- -- -- 3,495 43 800 177 4,515
Net loss............... -- -- -- -- -- -- (470) -- (470)
Foreign currency
translation
adjustments........... -- -- -- -- -- (23) -- -- (23)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 747 -- -- 747
Excess of consideration
paid over carryover
basis of net assets
acquired from related
party................. -- -- -- -- (86) -- -- -- (86)
Gains in connection
with issuances of
stock of affiliates
and subsidiaries (note
5).................... -- -- -- -- 85 -- -- -- 85
Excess of cash received
over carryover basis
of SUMMITrak Assets... -- -- -- -- 30 -- -- -- 30
Contribution to equity
from related party for
acquisitions.......... -- -- -- -- 30 -- -- -- 30
Other transfers from
(to) related parties,
net................... -- -- -- -- 56 -- -- (163) (107)
---- --- --- --- ------ ----- ------ ------ ------
Balance at December 31,
1997................... -- -- -- -- 3,610 767 330 14 4,721
Net earnings........... -- -- -- -- -- -- 622 -- 622
Foreign currency
translation
adjustments........... -- -- -- -- -- 2 -- -- 2
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 2,417 -- -- 2,417
Payments for call
agreements............ -- -- -- -- (140) -- -- -- (140)
Gains in connection
with issuances of
stock of affiliates
and subsidiaries (note
5).................... -- -- -- -- 70 -- -- -- 70
Transfers from related
party due to
acquisitions of
minority interests
(note 7).............. -- -- -- -- 772 -- -- -- 772
Assignment of option
from related party.... -- -- -- -- 16 -- -- (16) --
Transfer from related
party for acquisition
of cost investment ... -- -- -- -- 354 -- -- -- 354
Other transfers from
related parties, net.. -- -- -- -- -- -- -- 412 412
---- --- --- --- ------ ----- ------ ------ ------
Balance at December 31,
1998................... -- -- -- -- 4,682 3,186 952 410 9,230
Net loss............... -- -- -- -- -- -- (70) -- (70)
Foreign currency
translation
adjustments........... -- -- -- -- -- (15) -- -- (15)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 885 -- -- 885
Other transfers from
(to) related parties,
net................... -- -- -- -- 430 -- -- (1,011) (581)
---- --- --- --- ------ ----- ------ ------ ------
Balance on February 28,
1999................... -- -- -- -- 5,112 4,056 882 (601) 9,449
---- --- --- --- ------ ----- ------ ------ ------
Balance at March 1,
1999................... -- -- -- -- 33,468 -- -- 197 33,665
Net loss............... -- -- -- -- -- -- (1,975) -- (1,975)
Foreign currency
translation
adjustments........... -- -- -- -- -- 60 -- -- 60
Recognition of
previously unrealized
losses on available-
for-sale securities,
net................... -- -- -- -- -- 7 -- -- 7
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 6,451 -- -- 6,451
Transfer from related
party for redemption
of debentures......... -- -- -- -- 354 -- -- -- 354
Gains in connection
with issuances of
stock of affiliates
and subsidiaries (note
8).................... -- -- -- -- 104 -- -- -- 104
Utilization of net
operating losses of
Liberty by AT&T (note
10)................... -- -- -- -- (88) -- -- -- (88)
Other transfers to
related parties, net.. -- -- -- -- -- -- -- (170) (170)
---- --- --- --- ------ ----- ------ ------ ------
Balance at December 31,
1999................... $-- -- -- -- 33,838 6,518 (1,975) 27 38,408
==== === === === ====== ===== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ ----------------------------
Ten months Two months
ended ended Years ended
December 31, February 28, December 31,
1999 1999 1998 1997
------------ ------------ ------- ------
amounts in millions (note 4)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................................................. $(1,975) (70) 622 (470)
Adjustments to reconcile net earnings (loss) to net cash provided (used) by
operating activities:
Depreciation and amortization....................................................... 562 22 129 123
Stock compensation.................................................................. 1,785 183 518 296
Payments of stock compensation...................................................... (111) (126) (58) (75)
Share of losses of affiliates, net.................................................. 904 66 1,002 785
Deferred income tax (benefit) expense............................................... (1,025) 212 546 11
Intergroup tax allocation........................................................... (75) (1) (89) (189)
Cash payment from AT&T pursuant to tax sharing agreement............................ 1 -- -- --
Minority interests in (losses) earnings of subsidiaries............................. (92) (4) (13) 10
Gains on issuance of equity by affiliates and subsidiaries.......................... -- (372) (105) --
Gains on disposition of assets, net................................................. (4) (14) (2,449) (406)
Noncash interest.................................................................... 153 -- -- --
Other noncash charges............................................................... 3 18 -- 32
Changes in operating assets and liabilities, net of the effect of acquisitions and
dispositions:
Change in receivables.............................................................. 7 33 (56) 6
Change in prepaid expenses and committed program rights............................ (119) (23) (65) (1)
Change in payables, accruals and customer prepayments.............................. 119 (31) 44 27
------- ---- ------- -----
Net cash provided (used) by operating activities.................................. 133 (107) 26 149
------- ---- ------- -----
Cash flows from investing activities:
Cash paid for acquisitions.......................................................... (109) -- (92) (41)
Capital expended for property and equipment......................................... (40) (15) (60) (110)
Cash balances of deconsolidated subsidiaries........................................ -- (53) -- (39)
Investments in and loans to affiliates and others................................... (2,596) (51) (1,404) (580)
Purchases of marketable securities.................................................. (7,757) (3) -- --
Sales and maturities of marketable securities....................................... 5,725 9 -- --
Return of capital from affiliates................................................... 7 -- 12 5
Collections on loans to affiliates and others....................................... -- -- -- 133
Cash proceeds from dispositions..................................................... 130 43 423 268
Other, net.......................................................................... (18) (9) -- (6)
------- ---- ------- -----
Net cash used by investing activities............................................. (4,658) (79) (1,121) (370)
------- ---- ------- -----
Cash flows from financing activities:
Borrowings of debt.................................................................. 3,187 155 2,199 661
Repayments of debt.................................................................. (2,211) (145) (609) (341)
Net proceeds from issuance of stock by subsidiaries................................. 123 -- -- --
Payments for call agreements........................................................ -- -- (140) --
Cash transfers (to) from related parties............................................ (159) 31 (215) (428)
Repurchase of stock of subsidiary................................................... -- (45) -- --
Other, net.......................................................................... (20) (7) (12) (5)
------- ---- ------- -----
Net cash provided (used) by financing activities.................................. 920 (11) 1,223 (113)
------- ---- ------- -----
Net increase (decrease) in cash and cash equivalents.............................. (3,605) (197) 128 (334)
Cash and cash equivalents at beginning of year................................... 5,319 228 100 434
------- ---- ------- -----
Cash and cash equivalents at end of year......................................... $ 1,714 31 228 100
--------------------------------------------------
======= ==== ======= =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999, 1998 and 1997
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Liberty Media Corporation ("Liberty" or the "Company") and those of all
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Effective March 9, 1999,
AT&T Corp. ("AT&T") indirectly owns 100% of the outstanding common stock of
Liberty. Previously, Liberty was a wholly owned subsidiary of TCI.
Liberty's domestic subsidiaries generally operate or hold interests in
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. In
addition, certain of Liberty's subsidiaries hold interests in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services, infomercials and
transaction processing. Liberty also has significant interests in foreign
affiliates which operate in cable television, programming and satellite
distribution.
(2) Merger with AT&T
On March 9, 1999, AT&T acquired TCI in a merger transaction (the "AT&T
Merger") whereby a wholly owned subsidiary of AT&T merged with and into TCI,
and TCI thereby became a subsidiary of AT&T. As a result of the AT&T Merger,
each series of TCI common stock was converted into a class of AT&T common stock
subject to applicable exchange ratios. The AT&T Merger has been accounted for
using the purchase method. Accordingly, Liberty's assets and liabilities have
been recorded at their respective fair values therefore, creating a new cost
basis. For financial reporting purposes the AT&T Merger is deemed to have
occurred on March 1, 1999. Accordingly, for periods prior to March 1, 1999 the
assets and liabilities of Liberty and the related consolidated financial
statements are sometimes referred to herein as "Old Liberty", and for periods
subsequent to February 28, 1999 the assets and liabilities of Liberty and the
related consolidated financial statements are sometimes referred to herein as
"New Liberty". The "Company" and "Liberty" refers to both New Liberty and Old
Liberty.
F-8
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table represents the summary balance sheet of Old Liberty at
February 28, 1999, prior to the AT&T Merger and the opening summary balance
sheet of New Liberty subsequent to the AT&T Merger. Certain pre-merger
transactions occurring between March 1, 1999, and March 9, 1999, that affected
Old Liberty's equity, gains on issuance of equity by affiliates and
subsidiaries and stock compensation have been reflected in the two-month period
ended February 28, 1999.
<TABLE>
<CAPTION>
Old New
Liberty Liberty
------- -------
amounts in
millions
<S> <C> <C>
Assets:
Cash and cash equivalents................................................................................. $ 31 5,319
Other current assets...................................................................................... 410 434
Investments in affiliates................................................................................. 3,971 17,116
Investment in Time Warner................................................................................. 7,361 7,832
Investment in Sprint...................................................................................... 3,381 3,681
Other investments......................................................................................... 1,232 1,540
Property and equipment, net............................................................................... 111 125
Intangibles and other assets.............................................................................. 389 11,159
------- ------
$16,886 47,206
======= ======
Liabilities and Equity:
Current liabilities....................................................................................... $ 1,051 1,675
Long-term debt............................................................................................ 2,087 1,845
Deferred income taxes..................................................................................... 4,147 9,963
Other liabilities......................................................................................... 90 19
------- ------
Total liabilities....................................................................................... 7,375 13,502
------- ------
Minority interests in equity of subsidiaries.............................................................. 62 39
Stockholder's equity...................................................................................... 9,449 33,665
------- ------
$16,886 47,206
--------------------------------------------------
======= ======
</TABLE>
The following table reflects the recapitalization resulting from the AT&T
Merger (amounts in millions):
<TABLE>
<S> <C>
Stockholder's equity of Old Liberty................................ $ 9,449
Purchase accounting adjustments.................................... 24,216
-------
Initial stockholder's equity of New Liberty subsequent to the AT&T
Merger............................................................ $33,665
=======
</TABLE>
The following unaudited condensed results of operations for the years ended
December 31, 1999 and 1998 were prepared assuming the AT&T Merger occurred on
January 1, 1998. These pro forma amounts are not necessarily indicative of
operating results that would have occurred if the AT&T Merger had occurred on
January 1, 1998.
<TABLE>
<CAPTION>
Years ended
December 31,
--------------
1999 1998
------- -----
amounts in
millions
<S> <C> <C>
Revenue...................................................... $ 964 1,359
Net loss..................................................... $(2,201) (306)
</TABLE>
F-9
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash equivalents consist of investments which are readily convertible into
cash and have maturities of three months or less at the time of acquisition.
Receivables
Receivables are reflected net of an allowance for doubtful accounts. Such
allowance at December 31, 1999 and 1998 was not material.
Program Rights
Prepaid program rights are amortized on a film-by-film basis over the
anticipated number of exhibitions. Committed program rights and program rights
payable are recorded at the estimated cost of the programs when the film is
available for airing less prepayments. These amounts are amortized on a film-
by-film basis over the anticipated number of exhibitions.
Investments
All marketable equity securities held by the Company are classified as
available-for-sale and are carried at fair value. Unrealized holding gains and
losses on securities classified as available-for-sale are carried net of taxes
as a component of accumulated other comprehensive earnings in stockholder's
equity. Realized gains and losses are determined on a specific-identification
basis.
Other investments in which the ownership interest is less than 20% and are
not considered marketable securities are carried at the lower of cost or net
realizable value. For those investments in affiliates in which the Company's
voting interest is 20% to 50%, the equity method of accounting is generally
used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company's share of net earnings or losses of the
affiliates as they occur rather then as dividends or other distributions are
received, limited to the extent of the Company's investment in, advances to and
commitments for the investee. The Company's share of net earnings or losses of
affiliates includes the amortization of the difference between the Company's
investment and its share of the net assets of the investee. Recognition of
gains on sales of properties to affiliates accounted for under the equity
method is deferred in proportion to the Company's ownership interest in such
affiliates.
Subsequent to the AT&T Merger, changes in the Company's proportionate share
of the underlying equity of a subsidiary or equity method investee, which
result from the issuance of additional equity securities by such subsidiary or
equity investee, generally are recognized as gains or losses in the Company's
consolidated statements of stockholder's equity.
Property and Equipment
Property and equipment, including significant improvements, is stated at
cost. Depreciation is computed on a straight-line basis using estimated useful
lives of 3 to 20 years for support equipment and 10 to 40 years for buildings
and improvements.
F-10
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Excess Cost Over Acquired Net Assets
Excess cost over acquired net assets consists of the difference between the
cost of acquiring non-cable entities and amounts assigned to their tangible
assets. Such amounts are generally amortized on a straight-line basis over 20
years.
Franchise Costs
Franchise costs generally include the difference between the cost of
acquiring cable companies and amounts allocated to their tangible assets. Such
amounts are amortized on a straight-line basis over 40 years.
Impairment of Long-lived Assets
The Company periodically reviews the carrying amounts of property, plant and
equipment and its intangible assets to determine whether current events or
circumstances warrant adjustments to such carrying amounts. If an impairment
adjustment is deemed necessary, such loss is measured by the amount that the
carrying value of such assets exceeds their fair value. Considerable management
judgment is necessary to estimate the fair value of assets, accordingly, actual
results could vary significantly from such estimates. Assets to be disposed of
are carried at the lower of their financial statement carrying amount or fair
value less costs to sell.
Minority Interests
Recognition of minority interests' share of losses of subsidiaries is
generally limited to the amount of such minority interests' allocable portion
of the common equity of those subsidiaries. Further, the minority interests'
share of losses is not recognized if the minority holders of common equity of
subsidiaries have the right to cause the Company to repurchase such holders'
common equity.
Preferred stock (and accumulated dividends thereon) of subsidiaries are
included in minority interests in equity of subsidiaries. Dividend requirements
on such preferred stocks are reflected as minority interests in earnings of
subsidiaries in the accompanying consolidated statements of operations and
comprehensive earnings.
Foreign Currency Translation
The functional currency of the Company is the United States ("U.S.") dollar.
The functional currency of the Company's foreign operations generally is the
applicable loacl currency for each foreign subsidiary and foreign equity method
investee. In this regard, the functional currency of certain of the Company's
foreign subsidiaries and foreign equity investees is the Argentine peso, the
United Kingdom ("UK") pound sterling ("(Pounds)" or "pounds"), the French franc
("FF") and the Japanese yen ("(Yen)"). Assets and liabilities of foreign
subsidiaries and foreign equity investees are translated at the spot rate in
effect at the applicable reporting date, and the consolidated statements of
operations and the Company's share of the results of operations of its foreign
equity affiliates are translated at the average exchange rates in effect during
the applicable period. The resulting unrealized cumulative translation
adjustment, net of applicable income taxes, is recorded as a component of
accumulated other comprehensive earnings in stockholder's equity.
Transactions denominated in currencies other than the functional currency are
recorded based on exchange rates at the time such transactions arise.
Subsequent changes in exchange rates result in transaction gains and losses
which are reflected in the accompanying consolidated statements of operations
and comprehensive earnings as unrealized (based on the applicable period end
exchange rate) or realized upon settlement of the transactions.
F-11
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Unless otherwise indicated, convenience translations of foreign currencies
into U.S. dollars are calculated using the applicable spot rate at December 31,
1999, as published in The Wall Street Journal.
Derivative Instruments and Hedging Activities
Liberty has entered into "cashless collar" transactions with respect to
certain securities held by Liberty. The cashless collar provides Liberty with a
put option that gives it the right to require its counterparty to buy
designated shares at a designated price per share and simultaneously provides
the counterparty a call option giving it the right to buy the same number of
shares at a designated price per share.
As Liberty's cashless collars are designated to specific shares of stock held
by Liberty and the changes in the fair value of the cashless collars are
correlated with changes in the fair value of the underlying securities, the
cashless collars function as hedges. Accordingly, changes in the fair value of
the cashless collars designated to specific shares which are accounted for as
available-for-sale securities are reported as a component of comprehensive
earnings (in unrealized gains) along with the changes in the fair value of the
underlying securities.
During 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities, ("Statement 133"), which is effective for all fiscal
years beginning after June 15, 2000. Statement 133 establishes accounting and
reporting standards for derivative instruments and hedging activities by
requiring that all derivative instruments be reported as assets or liabilities
and measured at their fair values. Under Statement 133, changes in the fair
values of derivative instruments are recognized immediately in earnings unless
those instruments qualify as hedges of the (1) fair values of existing assets,
liabilities, or firm commitments, (2) variability of cash flows of forecasted
transactions, or (3) foreign currency exposure of net investments in foreign
operations. Although the Company's management has not completed its assessment
of the impact of Statement 133 on its consolidated results of operations and
financial position, management does not expect that the impact of Statement 133
will be significant, however, there can be no assurances that the impact will
not be significant.
Revenue Recognition
Programming revenue is recognized in the period during which programming is
provided, pursuant to affiliation agreements. Advertising revenue is
recognized, net of agency commissions, in the period during which underlying
advertisements are broadcast. Cable revenue is recognized in the period that
services are rendered. Cable installation revenue is recognized in the period
the related services are provided to the extent of direct selling costs. Any
remaining amount is deferred and recognized over the estimated average period
that customers are expected to remain connected to the cable distribution
system.
Stock Based Compensation
Statement of Financial Accounting Standards No. 123, Accounting for Stock-
Based Compensation ("Statement 123"), establishes financial accounting and
reporting standards for stock-based employee compensation plans as well as
transactions in which an entity issues its equity instruments to acquire goods
or services from non-employees. As allowed by Statement 123, Liberty continues
to account for stock-based compensation pursuant to Accounting Principles Board
Opinion No. 25 ("APB Opinion No. 25").
Reclassifications
Certain prior period amounts have been reclassified for comparability with
the 1999 presentation.
F-12
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Estimates
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.
(4) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $93 million, $32 million, $103 million and $41
million for the ten months ended December 31, 1999, the two months ended
February 28, 1999 and the years ended December 31, 1998 and 1997, respectively.
Cash paid for income taxes during the ten months ended December 31, 1999 and
the two months ended February 28, 1999 was not material. Cash paid for income
taxes during the years ended December 31, 1998 and 1997 was $29 million and $35
million, respectively.
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ ---------------------------
Ten months Two months Years ended
ended ended December 31,
December 31, February 28, --------------
1999 1999 1998 1997
------------ ------------ ------ ------
amounts in millions
<S> <C> <C> <C> <C>
Cash paid for acquisitions:
Fair value of assets acquired................................................... $122 -- 162 260
Net liabilities assumed......................................................... (13) -- (107) (72)
Debt issued to related parties and others....................................... -- -- -- (128)
Deferred tax asset recorded in acquisition...................................... -- -- -- 14
Minority interest in equity of acquired subsidiaries............................ -- -- 39 (119)
Excess consideration paid over carryover basis of net assets acquired from
related party.................................................................. -- -- -- 86
Gain in connection with the issuance of stock by subsidiary..................... -- -- (2) --
---- --- ------ ------
Cash paid for acquisitions.................................................... $109 -- 92 41
--------------------------------------------------
==== === ====== ======
</TABLE>
F-13
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant noncash investing and financing activities are as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ ---------------------------
Ten months Two months Years ended
ended ended December 31,
December 31, February 28, --------------
1999 1999 1998 1997
------------ ------------ ------ ------
amounts in millions
<S> <C> <C> <C> <C>
Exchange of subsidiaries for limited partnership interest......................... $135 -- -- --
==== === ====== =====
Noncash acquisitions of minority interests in equity of subsidiaries (note 7):
Fair value of assets............................................................ $-- -- (741) (29)
Deferred tax liability recorded................................................. -- -- 154 --
Minority interests in equity of subsidiaries.................................... -- -- (185) (1)
Contribution to equity from related party for acquisitions...................... -- -- 772 30
---- --- ------ -----
$-- -- -- --
==== === ====== =====
Common stock received in exchange for option (note 6)............................. $-- -- -- 306
==== === ====== =====
Preferred stock received in exchange for common stock and note receivable (note
6)............................................................................... $-- -- -- 371
--------------------------------------------------
==== === ====== =====
</TABLE>
The following table reflects the change in cash and cash equivalents
resulting from the AT&T Merger and related restructuring transactions (amounts
in millions):
<TABLE>
<S> <C>
Cash and cash equivalents prior to the AT&T Merger $ 31
Cash contribution in connection with the AT&T Merger 5,464
Cash paid to TCI for certain warrants to purchase shares of General
Instruments Corporation ("General Instrument") (176)
------
Cash and cash equivalents subsequent to the AT&T Merger $5,319
======
</TABLE>
F-14
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Liberty ceased to include TV Guide, Inc. ("TV Guide") in its consolidated
financial results and began to account for TV Guide using the equity method of
accounting, effective March 1, 1999 (see note 78). Liberty ceased to include
Flextech p.l.c. ("Flextech") and Cablevision S.A. ("Cablevision") in its
consolidated financial results and began to account for Flextech and
Cablevision using the equity method of accounting, effective January 1, 1997
and October 1, 1997, respectively. The effects of changing the method of
accounting for Liberty's ownership interests in these investments from the
consolidation method to the equity method are summarized below:
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ --------------------------
Ten months Two months Years ended
ended ended December 31,
December 31, February 28, -------------
1999 1999 1998 1997
------------ ------------ ------ ------
amounts in millions
<S> <C> <C> <C> <C>
Assets (other than cash and cash equivalents) reclassified to investments in
affiliates....................................................................... $-- (200) -- (596)
Liabilities reclassified to investments in affiliates............................. -- 190 -- 484
Minority interests in equity of subsidiaries reclassified to investments in
affiliates....................................................................... -- 63 -- 151
---- ---- ----- ------
Decrease in cash and cash equivalents............................................. $-- 53 -- 39
--------------------------------------------------
==== ==== ===== ======
</TABLE>
(5) Investments in Affiliates Accounted for under the Equity Method
Liberty has various investments accounted for under the equity method. The
following table includes Liberty's carrying amount and percentage ownership of
the more significant investments in affiliates at December 31, 1999 and the
carrying amount at December 31, 1998:
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------------- ------------
December 31,
December 31, 1999 1998
------------------- ------------
Percentage Carrying Carrying
Ownership Amount Amount
---------- -------- ------------
amounts in millions
<S> <C> <C> <C>
USA Networks, Inc. ("USAI") and related investments....................................... 21% $ 2,699 1,042
Telewest Communications plc ("Telewest").................................................. 22% 1,996 515
Discovery Communications, Inc. ("Discovery").............................................. 49% 3,441 49
TV Guide.................................................................................. 44% 1,732 --
QVC Inc. ("QVC").......................................................................... 43% 2,515 197
Flextech.................................................................................. 37% 727 320
UnitedGlobalCom, Inc. ("UnitedGlobalCom")................................................. 10% 505 --
Jupiter Telecommunications Co., Ltd. ("Jupiter").......................................... 40% 399 143
Various foreign equity investments (other than Telewest, Flextech and Jupiter) ........... various 1,064 518
Other .................................................................................... various 844 295
------- -----
-------------------------------------------------- $15,922 3,079
======= =====
</TABLE>
F-15
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table reflects Liberty's share of earnings (losses) of
affiliates:
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ ----------------------------
Ten months Two months Years ended
ended ended December 31,
December 31, February 28, ---------------
1999 1999 1998 1997
------------ ------------ ------- ------
amounts in millions
<S> <C> <C> <C> <C>
USAI and related investments...................................................... $ (20) 10 30 5
Telewest.......................................................................... (222) (38) (134) (145)
Discovery......................................................................... (269) (8) (39) (29)
TV Guide.......................................................................... (46) -- -- --
QVC............................................................................... (11) 13 64 30
Flextech.......................................................................... (41) (5) (21) (16)
Fox/Liberty Networks LLC ("Fox/Liberty Networks")................................. (48) (1) (83) --
UnitedGlobalCom................................................................... 23 -- -- --
Jupiter........................................................................... (54) (7) (26) (23)
Other foreign investments......................................................... (113) (15) (99) (80)
Sprint Spectrum Holding Company, L.P., MinorCo, L.P. and PhillieCo Partnership I,
L.P. (the "PCS Ventures") (note 6)............................................... -- -- (629) (493)
Other............................................................................. (103) (15) (65) (34)
----- --- ------- -----
$(904) (66) (1,002) (785)
--------------------------------------------------
===== === ======= =====
</TABLE>
Summarized unaudited combined financial information for affiliates is as
follows:
<TABLE>
<CAPTION>
December 31,
--------------
1999 1998
------- ------
amounts in
millions
<S> <C> <C>
Combined Financial Position
Investments................................................................................................ $ 1,415 2,003
Property and equipment, net................................................................................ 8,885 8,147
Other intangibles, net..................................................................................... 19,778 14,395
Other assets, net.......................................................................................... 9,207 7,553
------- ------
Total assets............................................................................................. $39,285 32,098
======= ======
Debt....................................................................................................... $17,210 15,264
Other liabilities.......................................................................................... 12,645 11,620
Owners' equity............................................................................................. 9,430 5,214
------- ------
Total liabilities and equity............................................................................ $39,285 32,098
======= ======
</TABLE>
F-16
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ ----------------------------
Ten months Two months Years ended
ended ended December 31,
December 31, February 28, ---------------
1999 1999 1998 1997
------------ ------------ ------- ------
amounts in millions
<S> <C> <C> <C> <C>
Combined Operations
Revenue...................................................................... $10,492 2,341 14,062 6,613
Operating expenses........................................................... (9,066) (1,894) (13,092) (7,163)
Depreciation and amortization................................................ (1,461) (353) (2,629) (997)
------- ------ ------- ------
Operating income (loss)...................................................... (35) 94 (1,659) (1,547)
Interest expense............................................................. (886) (281) (1,728) (540)
Other, net................................................................... (151) (127) (166) (469)
------- ------ ------- ------
Net loss................................................................... $(1,072) (314) (3,553) (2,556)
--------------------------------------------------
======= ====== ======= ======
</TABLE>
USAI owns and operates businesses in network and television production,
television broadcasting, electronic retailing, ticketing operations, and
internet services. At December 31, 1999, Liberty directly and indirectly held
66.5 million shares of USAI's common stock (as adjusted for a subsequent two-
for-one stock split). Liberty also held shares directly in certain subsidiaries
of USAI which are exchangeable into 79.0 million shares of USAI common stock
(as adjusted for the two-for-one stock split). Liberty'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 obtains permission from the FCC.
If the exchange of subsidiary stock into USAI common stock was completed at
December 31, 1999, Liberty would own 145.5 million shares (as adjusted for the
two-for-one stock split) or approximately 21% (on a fully-diluted basis) of
USAI common stock. USAI's common stock had a closing market value of $27.63 per
share (as adjusted for the two-for-one stock split) on December 31, 1999.
Liberty accounts for its investments in USAI and related subsidiaries on a
combined basis under the equity method.
In February 1998, USAI paid cash and issued shares and one of its
subsidiaries issued shares in connection with the acquisition of certain assets
from Universal Studios, Inc. (the "Universal Transaction"). Liberty recorded an
increase to its investment in USAI of $54 million and an increase to additional
paid-in-capital of $33 million (after deducting deferred income taxes of $21
million) as a result of this share issuance.
USAI issued shares in June 1998 to acquire the remaining stock of
Ticketmaster Group, Inc. which it did not previously own (the "Ticketmaster
Transaction"). Liberty recorded an increase to its investment in USAI of $52
million and an increase to additional paid-in-capital of $31 million (after
deducting deferred income taxes of $21 million) as a result of this share
issuance. No gain was recognized in the consolidated statement of operations
and comprehensive earnings for either the Universal Transaction or the
Ticketmaster Transaction due primarily to Liberty's intention to purchase
additional equity interests in USAI.
In connection with the Universal Transaction, Liberty was granted an
antidilutive right with respect to any future issuance of USAI's common stock,
subject to certain limitations, that enables it to maintain its percentage
ownership interests in USAI.
Telewest currently operates and constructs cable television and telephone
systems in the UK. At December 31, 1999 Liberty indirectly owned 506 million of
the issued and outstanding Telewest ordinary shares. The reported closing price
on the London Stock Exchange of Telewest ordinary shares was $5.34 per share at
December 31, 1999.
F-17
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Effective September 1, 1998, Telewest and General Cable PLC ("General Cable")
consummated a merger (the "General Cable Merger") in which holders of General
Cable received New Telewest shares and cash. Based upon Telewest's closing
price of $1.51 per share on April 14, 1998, the General Cable Merger was valued
at approximately $1.1 billion. The cash portion of the General Cable Merger was
financed through an offer to qualifying Telewest shareholders for the purchase
of approximately 261 million new Telewest shares at a price of $1.57 per share
(the "Telewest Offer"). Liberty subscribed to 85 million Telewest ordinary
shares at an aggregate cost of $133 million in connection with the Telewest
Offer. In connection with the General Cable Merger, Liberty converted its
entire holdings of Telewest convertible preference shares (133 million shares)
into Telewest ordinary shares. As a result of the General Cable Merger,
Liberty's ownership interest in Telewest decreased to 22%. In connection with
the increase in Telewest's equity, net of the dilution of Liberty's interest in
Telewest, that resulted from the General Cable Merger, Liberty recorded a non-
cash gain of $60 million (before deducting deferred income taxes of $21
million) during 1998.
The Class A common stock of TV Guide is publicly traded. At December 31,
1999, Liberty held 58 million shares of TV Guide Class A common stock (as
adjusted for a two-for-one stock split) and 75 million shares of TV Guide Class
B common stock (as adjusted for a two-for-one stock split). See note 7. The TV
Guide Class B common stock is convertible, one-for-one, into TV Guide Class A
common stock. The closing price for TV Guide Class A common stock was $43.00
per share on December 31, 1999.
Flextech develops and sells a variety of television programming in the UK. At
December 31, 1999, Liberty indirectly owned 58 million Flextech ordinary
shares. The reported closing price on the London Stock Exchange of the Flextech
ordinary shares was $18.58 per share at December 31, 1999.
In April 1997, Flextech and BBC Worldwide Limited ("BBC Worldwide") formed
two separate joint ventures (the "BBC Joint Ventures") and entered into certain
related transactions. The consummation of the BBC Joint Ventures and related
transactions resulted in, among other things, a reduction of Liberty's economic
ownership interest in Flextech from 46.2% to 36.8%. Liberty continues to
maintain a voting interest in Flextech of approximately 50%. As a result of
such dilution, Liberty recorded a $152 million increase to the carrying amount
of Liberty's investment in Flextech, a $53 million increase to deferred income
tax liability, a $66 million increase to additional paid-in-capital and a $33
million increase to minority interests in equity of subsidiaries. No gain was
recognized in the consolidated statement of operations and comprehensive
earnings due primarily to certain contingent obligations of Liberty with
respect to one of the BBC Joint Ventures (see note 14).
Liberty and The News Corporation Limited ("News Corp.") each previously owned
50% of Fox/Liberty Networks which operates national and regional sports
networks. Prior to the first quarter of 1998, Liberty had no obligation, nor
intention, to fund Fox/Liberty Networks. During 1998, Liberty made the
determination to provide funding to Fox/Liberty Networks based on specific
transactions consummated by Fox/Liberty Networks. Consequently, Liberty's share
of losses of Fox/Liberty Networks for the year ended December 31, 1998 included
previously unrecognized losses of Fox/Liberty Networks of approximately $64
million. Losses for Fox/Liberty Networks were not recognized in prior periods
due to the fact that Liberty's investment in Fox/Liberty Networks was less than
zero. During 1999, News Corp. acquired Liberty's 50% interest in Fox/Liberty
Networks (see note 6).
On September 30, 1999, Liberty purchased 9.9 million class B shares of
UnitedGlobalCom for approximately $493 million in cash. UnitedGlobalCom is the
largest global broadband communications provider of video, voice and data
services with operations in over 20 countries throughout the world. At December
31, 1999, Liberty owned an approximate 10% economic ownership interest
representing an approximate 36% voting interest in UnitedGlobalCom. The closing
price for UnitedGlobalCom Class A
F-18
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
common stock was $70.63 per share on December 31, 1999. The UnitedGlobalCom
Class B common stock is convertible, on a one-for-one basis, into
UnitedGlobalCom Class A common stock.
On October 9, 1997, Liberty sold a portion of its 51% interest in Cablevision
to unaffiliated third parties. In connection with such sale and certain related
transactions, Liberty recognized a gain of $49 million. Liberty's equity
interest in Cablevision was 28% at December 31, 1999.
The $13 billion aggregate excess of Liberty's aggregate carrying amount in
its affiliates over Liberty's proportionate share of its affiliates' net assets
is being amortized over estimated useful life of 20 years.
Certain of Liberty's affiliates are general partnerships and, as such, are
liable as a matter of partnership law for all debts (other than non-recourse
debts) of that partnership in the event liabilities of that partnership were to
exceed its assets.
(6) Investments in Available-for-sale Securities and Others
Investments in available-for-sale securities and others are summarized as
follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
December 31,
-----------------------
1999 1998
----------- -----------
amounts in millions
<S> <C> <C>
Sprint Corporation ("Sprint")(a).................................................................... $10,186 2,446
Time Warner, Inc. ("Time Warner")(b)................................................................ 8,202 7,083
News Corp.(c)....................................................................................... 2,403 --
General Instrument(d)............................................................................... 3,430 396
Other available-for-sale securities................................................................. 3,765 315
Other investments, at cost, and related receivables(e).............................................. 985 458
------- ------
28,971 10,698
Less short-term investments....................................................................... 378 159
------- ------
28,593 10,539
--------------------------------------------------
======= ======
</TABLE>
--------
(a) Pursuant to a final judgment (the "Final Judgment") agreed to by Liberty,
AT&T and the United States Department of Justice (the "DOJ") on December
31, 1998, Liberty transferred all of its beneficially owned securities (the
"Sprint Securities") of Sprint to a trustee (the "Trustee") prior to the
AT&T Merger. The Final Judgment, which was entered by the United States
District Court for the District of Columbia on August 23, 1999, would
require the Trustee, on or before May 23, 2002, to dispose of a portion of
the Sprint Securities sufficient to cause Liberty 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.
The Final Judgment requires that the Trustee vote the Sprint Securities
beneficially owned by Liberty in the same proportion as other holders of
Sprint's PCS Stock so long as such securities are held by the trust. The
Final Judgment also prohibits the acquisition of Liberty of additional
Sprint Securities, with certain exceptions, without the prior written
consent of the DOJ.
The PCS Ventures included Sprint Spectrum Holding Company, L. P. and
MinorCo, L.P. (collectively, "Sprint PCS") and PhillieCo Partnership I,
L.P. ("PhillieCo"). The partners of each of the Sprint PCS partnerships
were subsidiaries of Sprint, Comcast Corporation ("Comcast"), Cox
Communications, Inc. ("Cox") and Liberty. The partners of PhillieCo were
subsidiaries of Sprint, Cox and Liberty. Liberty had
F-19
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
a 30% partnership interest in each of the Sprint PCS partnerships and a 35%
partnership interest in PhillieCo.
On November 23, 1998, Liberty, Comcast, and Cox exchanged their respective
interests in Sprint PCS and PhillieCo (the "PCS Exchange") for shares of
Sprint PCS Group Stock, which tracks the performance of Sprint's then newly
created PCS Group (consisting initially of the PCS Ventures and certain PCS
licenses which were separately owned by Sprint). The Sprint PCS Group Stock
collectively represents an approximate 17% voting interest in Sprint. As a
result of the PCS Exchange, Liberty, through the trust established pursuant
to the Final Judgment, holds the Sprint Securities which consists of shares
of Sprint PCS Group Stock, as well as certain additional securities of
Sprint exercisable for or convertible into such securities, representing
approximately 24% of the equity value of Sprint attributable to its PCS
Group and less than 1% of the voting interest in Sprint. Through November
23, 1998, Liberty accounted for its interest in the PCS Ventures using the
equity method of accounting; however, as a result of the PCS Exchange,
Liberty's less than 1% voting interest in Sprint and the Final Judgment,
Liberty no longer exercises significant influence with respect to its
investment in the PCS Ventures. Accordingly, Liberty accounts for its
investment in the Sprint PCS Group Stock as an available-for-sale security.
As a result of the PCS Exchange, Liberty recorded a non-cash gain of $1.9
billion (before deducting deferred income taxes of $647 million) during the
fourth quarter of 1998 based on the difference between the carrying amount
of Liberty's interest in the PCS Ventures and the fair value of the Sprint
Securities received.
In September 1999, a trust for Liberty's benefit entered into a four and
one-half year "cashless collar" with a financial institution with respect
to 35 million shares of Sprint PCS Group Stock (as adjusted for a two-for-
one stock split), secured by 35 million shares of such stock (as adjusted
for a two-for-one stock split). The collar provides the trust with a put
option that gives it the right to require its counterparty to buy 35
million shares of Sprint PCS Group Stock from the trust in five tranches in
approximately four and one-half years for a weighted average price of
$27.62 per share (as adjusted for a two-for-one stock split). Liberty
simultaneously sold a call option giving the counterparty the right to buy
the same shares of stock from the trust in five tranches in approximately
four and one-half years for a weighted average price of $57.42 per share
(as adjusted for a two-for-one stock split).
Additionally, on December 15, 1999, the trust entered into a "cashless
collar" with a financial institution with respect to 18 million shares of
Sprint PCS Group Stock (as adjusted for a two-for-one stock split). The
collar consists of a put option that gives the trust the right to require
its counterparty to buy 18 million shares of Sprint PCS Group Stock (as
adjusted for a two-for-one stock split) from the trust in three tranches in
approximately two years for $50.00 per share (as adjusted for a two-for-one
stock split). The counterparty has a call option giving the counterparty
the right to buy the same shares from the trust in three tranches in
approximately two years for $65.23 per share (as adjusted for a two-for-one
stock split). The put and the call options of each of these collars were
equally priced, resulting in no cash cost to the trust or Liberty.
(b) Liberty holds shares of a series of Time Warner's series common stock with
limited voting rights (the "TW Exchange Stock") that are convertible into
an aggregate of 114 million shares of Time Warner common stock. Liberty
accounts for its investment in Time Warner as an available-for-sale
security.
On June 24, 1997, Liberty granted Time Warner an option to acquire the
business of Southern Satellite Systems, Inc. (the "Southern Business") from
Liberty. Liberty received 6.4 million shares of TW Exchange Stock valued at
$306 million in consideration for the grant. Pursuant to the option, Time
Warner acquired the Southern Business, effective January 1, 1998, for $213
million in cash. Liberty recognized a $515 million pre-tax gain in
connection with such transaction in the first quarter of 1998.
F-20
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In March 1999, Liberty entered into a seven-year "cashless collar" with a
financial institution with respect to 15 million shares of Time Warner
common stock, secured by 15 million shares of its TW Exchange Stock. This
cashless collar provides Liberty with a put option that gives it the right
to require its counterparty to buy 15 million Time Warner shares from
Liberty in approximately seven years for $67.45 per share. Liberty
simultaneously sold a call option giving the counterparty the right to buy
the same number of Time Warner shares from Liberty in approximately seven
years for $158.33 per share. The put and the call options were equally
priced, resulting in no cash cost to Liberty.
(c) On July 15, 1999, News Corp. acquired Liberty's 50% interest in Fox/Liberty
Networks in exchange for 51.8 million News Corp. American Depository
Receipts ("ADRs") representing preferred limited voting ordinary shares of
News Corp. Of the 51.8 million ADRs received, 3.6 million were placed in an
escrow (the "Escrow Shares") pending an independent third party valuation,
as of the third anniversary of the transaction. The remainder of the 51.8
million ADRs received (the "Restricted Shares") are subject to a two-year
lockup which restricts any transfer of the securities for a period of two
years from the date of the transaction. Liberty recorded the ADRs at fair
value of $1,403 million, which included a discount from market value for
the Restricted Shares due to the two-year restriction on transfer,
resulting in a $13 million gain on the transaction. In a related
transaction, Liberty acquired from News Corp. 28.1 million additional ADRs
representing preferred limited voting ordinary shares of News Corp. for
approximately $695 million. Liberty accounts for its investment in News
Corp. as an available-for-sale security, with the exception of the
Restricted Shares and the Escrow Shares.
(d) On July 17, 1998, TCI acquired 21.4 million shares of restricted stock of
General Instrument in exchange for (i) certain of the assets of the
National Digital Television Center, Inc.'s ("NDTC") set-top authorization
business, (ii) the license of certain related software to General
Instrument, (iii) a $50 million promissory note from TCI to General
Instrument and (iv) a nine year revenue guarantee from TCI in favor of
General Instrument. In connection therewith, NDTC also entered into a
service agreement pursuant to which it will provide certain postcontract
services to General Instrument's set-top authorization business. Such
shares of General Instrument stock and the promissory note were contributed
to Liberty. The 21.4 million shares of General Instrument common stock
were, in addition to other transfer restrictions, originally restricted as
to their sale by Liberty for a three year period. Liberty recorded its
investment in such shares at fair value which included a discount
attributable to the above-described liquidity restriction. The $396 million
fair value of General Instrument common stock received net of the $42
million present value of the promissory note due from Liberty to General
Instrument, has been reflected as an increase in additional paid-in
capital.
On January 5, 2000, Motorola, Inc. completed the acquisition of General
Instrument through a merger of General Instrument with a wholly owned
subsidiary of Motorola. In the merger, each outstanding share of General
Instrument common stock was converted into the right to receive 0.575
shares of Motorola common stock. In connection with the merger Liberty
received 18 million shares and warrants to purchase 12 million shares of
Motorola common stock in exchange for its holdings in General Instrument.
Subsequent to the merger, the Motorola securities are no longer subject to
the three year restriction and accordingly, Liberty accounted for its
investment in General Instrument as an available-for-sale security at
December 31, 1999. Liberty has agreed not to transfer or encumber the
Motorola securities for a specified period which is less than one year.
Liberty's ability to exercise warrants to purchase 6.1 million shares of
Motorola common stock are subject to AT&T satisfying the terms of a
purchase commitment in 2000. AT&T has agreed to pay Liberty $14.35 for each
warrant that does not vest as a result of the purchase commitment not being
met.
(e) On August 1, 1997, Liberty IFE, Inc., a wholly-owned subsidiary of Liberty,
which held non-voting Class C common stock of International Family
Entertainment, Inc. ("IFE") ("Class C Stock") and $23 million of IFE 6%
convertible secured notes due 2004, convertible into Class C Stock
("Convertible Notes"),
F-21
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
contributed its Class C Stock and Convertible Notes to Fox Kids Worldwide,
Inc. ("FKW") in exchange for a new series of 30 year non-convertible 9%
preferred stock of FKW with a stated value of $345 million. As a result of
the exchange, Liberty recognized a pre-tax gain of approximately $304
million during the third quarter of 1997.
Investments in available-for-sale securities are summarized as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
December 31,
-----------------------
1999 1998
----------- -----------
amounts in millions
<S> <C> <C>
Equity securities:
Fair value......................................... $24,464 9,721
Gross unrealized holding gains..................... 11,453 3,998
Gross unrealized holding losses.................... (646) --
Debt securities:
Fair value......................................... $ 1,995 --
Gross unrealized holding losses.................... (22) --
</TABLE>
Management of Liberty 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's investments in available-for-sale securities and others
aggregated $29.2 billion and $11.2 billion at December 31, 1999 and December
31, 1998, respectively. No independent appraisals were conducted for those
assets.
(7) Acquisitions and Dispositions
During July 1997, the 10% minority interest in Encore Media Corporation
("EMC") was purchased by TCI for approximately 2.4 million shares of Liberty
Media Group Series A Stock. Such 10% interest in EMC was simultaneously
contributed to Liberty and was accounted for as an acquisition of a minority
interest and resulted in an increase of $30 million in additional paid-in-
capital.
On January 12, 1998, TCI acquired from a minority shareholder of TV Guide,
formerly named United Video Satellite Group, Inc. ("UVSG"), 49.6 million
shares of UVSG Class A common stock (as adjusted for a two-for-one stock
split) in exchange for shares of TCI stock. The aggregate value assigned to
the shares issued by TCI was based upon the market value of such shares at the
time the transaction was announced. Such transaction was accounted for as an
acquisition of minority interest. Simultaneously, TCI contributed such UVSG
shares of common stock to Liberty. As a result of such transaction, Liberty
increased its ownership in the equity of UVSG to approximately 73% and the
voting power increased to 93%. The purchase price of $346 million in TCI stock
was recorded as an increase in additional paid-in-capital by Liberty.
Effective February 1, 1998, Turner-Vision, Inc. ("Turner Vision")
contributed the assets, obligations and operations of its retail C-band
satellite business to Superstar/Netlink Group LLC ("SNG") in exchange for an
approximate 20% interest in SNG. As a result of such transaction, Liberty's
ownership interest in SNG decreased to approximately 80%. In connection with
the increase in SNG's equity, net of the dilution of Liberty's ownership
interest in SNG, that resulted from such transaction, Liberty recognized a
gain of $38 million (before deducting deferred income taxes of $15 million).
Turner Vision's contribution to SNG was accounted for as a purchase and the
$61 million excess of the purchase price over the fair value of the net assets
acquired was recorded as excess cost and is being amortized over five years.
F-22
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On August 24, 1998, Liberty purchased 100% of the issued and outstanding
common stock of Pramer S.A. ("Pramer"), an Argentine programming company, for a
total purchase price of $97 million, which was satisfied by $32 million in cash
and the issuance of notes payable in the amount of $65 million. Such
transaction was accounted for under the purchase method. Accordingly, the
results of operations of Pramer have been consolidated with those of Liberty
since August 24, 1998. The $101 million excess cost over acquired net assets is
being amortized over ten years.
On November 19, 1998, TCI exchanged, in a merger transaction, 10.1 million
shares of TCI common stock for shares of Tele-Communications International,
Inc. ("TINTA") common stock not beneficially owned by TCI. Such transaction was
accounted for by Liberty as an acquisition of minority interest in equity of
subsidiaries. The aggregate value assigned to the shares issued by TCI was
based upon the market value of the common stock at the time the merger was
announced. In connection with the contribution to Liberty of the TINTA shares
in such merger transaction, Liberty recorded the total purchase price of $426
million as an increase to additional paid-in-capital.
On March 1, 1999, UVSG and News Corp. completed a transaction whereby UVSG
acquired News Corp.'s TV Guide properties, creating a broader platform for
offering television guide services to consumers and advertisers, and UVSG was
renamed TV Guide. News Corp. received total consideration of $1.9 billion
including $800 million in cash, 22.5 million shares of UVSG's Class A common
stock and 37.5 million shares of UVSG's Class B common stock valued at an
average of $18.65 per share. In addition, News Corp. purchased approximately
6.5 million additional shares of UVSG Class A common stock for $129 million in
order to equalize its ownership with that of Liberty. As a result of these
transactions, and another transaction completed on the same date, News Corp,
Liberty 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 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's ownership interest in TV Guide,
Liberty recognized a gain of $372 million (before deducting deferred income
taxes of $147 million). Upon consummation, Liberty began accounting for its
interest in TV Guide under the equity method of accounting.
(8) Liberty Digital, Inc.
Effective July 11, 1997, a wholly-owned subsidiary of Liberty Digital (then
named TCI Music) was merged with and into DMX, Inc. with DMX as the surviving
corporation (the "DMX Merger"). As a result of the DMX Merger, stockholders of
DMX became stockholders of TCI Music.
In connection with the DMX Merger, TCI granted to each stockholder who became
a stockholder of TCI Music pursuant to the DMX Merger, one right (a "Right")
with respect to each whole share of TCI Music Series A common stock acquired by
such stockholder in the DMX Merger pursuant to the terms of a Rights Agreement
among TCI, TCI Music and the rights agent (the "Rights Agreement").
Each Right entitled the holder to require TCI to purchase from such holder
one share of TCI Music Series A common stock for $8.00 per share, subject to
reduction by the aggregate amount per share of any dividend and certain other
distributions, if any, made by TCI Music to its stockholders, and, payable at
the election of TCI, in cash, a number of shares of TCI Group Series A stock,
having an equivalent value or a combination thereof, if during the one-year
period beginning on the effective date of the DMX Merger, the price of TCI
Music Series A common stock did not equal or exceed $8.00 per share for a
period of at least 20 consecutive trading days.
Effective with the DMX Merger, TCI beneficially owned approximately 45.7% of
the outstanding shares of TCI Music Series A common stock and 100% of the
outstanding shares of TCI Music Series B common
F-23
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
stock, which represented 89.6% of the equity and 98.7% of the voting power of
TCI Music. Simultaneously with the DMX Merger, Liberty acquired the TCI-owned
TCI Music common stock by agreeing to reimburse TCI for any amounts required to
be paid by TCI pursuant to TCI's contingent obligation under the Rights
Agreement to purchase up to 15 million shares (7 million of which were owned by
Liberty) of TCI Music Series A common stock and issuing an $80 million
promissory note (the "Music Note") to TCI. Liberty recorded its contingent
obligation to purchase such shares under the Rights Agreement as a component of
minority interest in equity of subsidiaries in the accompanying consolidated
financial statements. TCI Music was included in the consolidated financial
results of Liberty as of the date of the DMX Merger. Due to the related party
nature of the transaction, the $86 million excess of the consideration paid
over the carryover basis of the TCI Music common stock acquired by Liberty from
TCI was reflected as a decrease in additional paid-in-capital. The Music Note
was repaid during 1999.
Prior to the July 1998 expiration of the Rights, Liberty was notified of the
tender of 4.9 million shares of TCI Music Series A common stock and associated
Rights. On August 27, 1998, Liberty paid $39 million to satisfy TCI's
obligation under the Rights Agreement. Such transaction was recorded as an
acquisition of minority interest in equity of subsidiaries.
On September 9, 1999, Liberty and TCI Music completed a transaction (the
"Liberty Digital Transaction") pursuant to which Liberty contributed to TCI
Music substantially all of its directly held internet content and interactive
television assets, its rights to provide interactive video services on AT&T's
cable television systems and a combination of cash and notes receivable equal
to $150 million. In exchange, TCI Music issued common stock and convertible
preferred stock to Liberty and was renamed Liberty Digital, Inc.
During 1999, Liberty Digital issued approximately 4.8 million shares of
common stock in connection with the conversion of its preferred stock and
approximately 2.8 million shares of common stock in connection with the
exercise of certain employee stock options. In connection with the increase in
Liberty Digital's equity, net of the dilution of Liberty's interest in Liberty
Digital, that resulted from such stock issuances, Liberty recorded a $102
million increase to additional paid-in-capital.
F-24
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) Long-Term Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
Weighted
average
interest December 31,
rate ------------
1999 1999 1998
-------- ------ -----
amounts in
millions
<S> <C> <C> <C>
Parent company debt:
Bank credit facilities............................................................................. 5.7% $ 390 116
Senior notes (a)................................................................................... 7.875% 741 --
Senior debentures (a).............................................................................. 8.5% 494 --
Senior exchangeable debentures (b)................................................................. 4.0% 1,022 --
------ -----
2,647 116
Debt of subsidiaries:
Bank credit facilities............................................................................. 6.2% 573 1,513
Convertible subordinated debentures (note 11)...................................................... -- -- 345
Other debt, at varying rates....................................................................... 57 122
------ -----
630 1,980
------ -----
Total debt......................................................................................... 3,277 2,096
Less current maturities.............................................................................. 554 184
------ -----
Total long-term debt............................................................................... $2,723 1,912
--------------------------------------------------
====== =====
</TABLE>
--------
(a) On July 7, 1999, Liberty received net cash proceeds of approximately $741
million and $494 million from the issuance of 7 7/8% Senior Notes due 2009
(the "Senior Notes") and 8 1/2% Senior Debentures due 2029 (the "Senior
Debentures"), respectively. The Senior Notes, which are stated net of
unamortized discount of $9 million, have an aggregate principal amount of
$750 million and the Senior Debentures, which are stated net of unamortized
discount of $6 million, have an aggregate principal amount of $500 million.
Interest on the Senior Notes and the Senior Debentures is payable on
January 15 and July 15 of each year. The proceeds were used to repay
outstanding borrowings under certain of Liberty's credit facilities, which
were subsequently canceled.
(b) On November 16, 1999, Liberty received net cash proceeds of $854 million
from the issuance of 4% Senior Exchangeable Debentures due 2030. The
exchangeable debentures have an aggregate principal amount of $869 million.
Each debenture has a $1,000 face amount and is exchangeable at the holder's
option for the value of 22.9486 shares of Sprint PCS Group Stock (as
adjusted for a two-for-one stock split). This amount will be paid only in
cash until the later of December 31, 2001 and the date the direct and
indirect ownership level of Sprint PCS Group Stock owned by Liberty falls
below a designated level, after which at Liberty's election, Liberty may
pay the amount in cash, Sprint PCS Group Stock or a combination thereof.
Interest on these exchangeable debentures is payable on May 15 and November
15 of each year. The carrying amount of the exchangeable debentures in
excess of the principal amount (the "Contingent Portion) is based on the
fair value of the underlying Sprint PCS Group Stock. The increase or
decrease in the Contingent Portion is recorded as an increase or decrease
to interest expense in the consolidated statement of operations and
comprehensive earnings.
At December 31, 1999, Liberty had approximately $160 million in unused lines
of credit under its bank credit facilities. The bank credit facilities of
Liberty generally contain restrictive covenants which require, among other
things, the maintenance of certain financial ratios, and include limitations on
indebtedness, liens,
F-25
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
encumbrances, acquisitions, dispositions, guarantees and dividends. Liberty was
in compliance with its debt covenants at December 31, 1999. Additionally,
Liberty 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.
The U.S. dollar equivalent of the annual maturities of Liberty's debt for
each of the next five years are as follows: 2000: $554 million; 2001: $72
million; 2002: $80 million; 2003: $99 million and 2004: $145 million.
Based on quoted market prices, the fair value of Liberty's debt at December
31, 1999 is as follows (amounts in millions):
<TABLE>
<S> <C>
Senior Notes.......................................................... $ 742
Senior Debentures..................................................... 506
4% Senior Exchangeable Debentures..................................... 1,088
</TABLE>
Liberty believes that the carrying amount of the remainder of its debt
approximated its fair value at December 31, 1999.
(10) Income Taxes
Subsequent to the AT&T Merger, Liberty is included in the consolidated
federal income tax return of AT&T and party to a tax sharing agreement with
AT&T (the "AT&T Tax Sharing Agreement"). Liberty calculates its respective tax
liability on a separate return basis. The income tax provision for Liberty is
calculated based on the increase or decrease in the tax liability of the AT&T
consolidated group resulting from the inclusion of those items in the
consolidated tax return of AT&T which are attributable to Liberty.
Under the AT&T Tax Sharing Agreement, Liberty will receive a cash payment
from AT&T in periods when it generates taxable losses and such taxable losses
are utilized by AT&T to reduce the consolidated income tax liability. This
utilization of taxable losses will be accounted for by Liberty as a current
federal intercompany income tax benefit. To the extent such losses are not
utilized by AT&T, such amounts will be available to reduce federal taxable
income generated by Liberty in future periods, similar to a net operating loss
carryforward, and will be accounted for as a deferred federal income tax
benefit.
In periods when Liberty generates federal taxable income, AT&T has agreed to
satisfy such tax liability on Liberty's behalf up to a certain amount. The
reduction of such computed tax liabilities will be accounted for by Liberty as
an addition to additional paid-in-capital. The total amount of future federal
tax liabilities of Liberty which AT&T will satisfy under the AT&T Tax Sharing
Agreement is approximately $512 million, which represents the tax effect of the
net operating loss carryforward reflected in TCI's final federal income tax
return, subject to IRS adjustments. Thereafter, Liberty is required to make
cash payments to AT&T for federal tax liabilities of Liberty.
To the extent AT&T utilizes existing net operating losses of Liberty, such
amounts will be accounted for by Liberty as a reduction of additional paid-in-
capital. During the ten month period ending December 31, 1999, AT&T utilized
net operating losses of Liberty with a tax effected carrying value of $88
million.
Liberty will generally make cash payments to AT&T related to states where it
generates taxable income and receive cash payments from AT&T in states where it
generates taxable losses.
Prior to the AT&T Merger, Liberty was included in TCI's consolidated tax
return and was a party to the TCI tax sharing agreements.
F-26
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Liberty's obligation under the 1995 TCI Tax Sharing Agreement of
approximately $139 million (subject to adjustment), which is included in "due
to related parties," shall be paid at the time, if ever, that Liberty
deconsolidates from the AT&T income tax return. Liberty's receivable under the
1997 TCI Tax Sharing Agreement of approximately $220 million was forgiven in
the AT&T Tax Sharing Agreement and recorded as an adjustment to additional
paid-in-capital by Liberty in connection with the AT&T Merger.
Income tax benefit (expense) consists of:
<TABLE>
<CAPTION>
Current Deferred Total
------- -------- -----
amounts in millions
<S> <C> <C> <C>
Ten months ended December 31, 1999:
State and local income tax (expense) benefit,
including intercompany tax allocation........... $ (3) 152 149
Federal income tax benefit, including
intercompany tax allocation..................... 75 873 948
---- ----- -----
$ 72 1,025 1,097
==== ===== =====
----------------------------------------------------------------------------
Two months ended February 28, 1999:
State and local income tax expense, including
intercompany tax allocation..................... $-- (44) (44)
Federal income tax benefit (expense), including
intercompany tax allocation..................... 1 (168) (167)
---- ----- -----
$ 1 (212) (211)
==== ===== =====
Year ended December 31, 1998:
State and local income tax expense, including
intercompany tax allocation..................... $ (4) (109) (113)
Federal income tax benefit (expense), including
intercompany tax allocation..................... 89 (437) (348)
---- ----- -----
$ 85 (546) (461)
==== ===== =====
Year ended December 31, 1997:
State and local income tax expense, including
intercompany tax allocation..................... $ (3) (25) (28)
Federal income tax benefit, including
intercompany tax allocation..................... 189 14 203
---- ----- -----
$186 (11) 175
==== ===== =====
</TABLE>
F-27
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Income tax benefit (expense) differs from the amounts computed by applying
the U.S. federal income tax rate of 35% as a result of the following:
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ ---------------------------
Ten months Two months Years ended
ended ended December 31,
December 31, February 28, --------------
1999 1999 1998 1997
------------ ------------ ------ ------
amounts in millions
<S> <C> <C> <C> <C>
Computed expected tax benefit (expense)........................................... $1,075 (49) (379) 226
Dividends excluded for income tax purposes........................................ 11 2 13 8
Minority interest in equity of subsidiaries....................................... 32 -- (5) 4
Amortization not deductible for income tax purposes............................... (122) (4) (21) (10)
State and local income taxes, net of federal income taxes......................... 97 (29) (74) (18)
Recognition of difference in income tax basis of investments in subsidiaries...... -- (130) -- (25)
Other, net........................................................................ 4 (1) 5 (10)
------ ---- ------ -----
$1,097 (211) (461) 175
====== ==== ====== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1999 and 1998 are presented below:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
December 31,
-----------------------
1999 1998
----------- -----------
amounts in millions
<S> <C> <C>
Deferred tax assets:
Net operating and capital loss carryforwards...................................................... $ 43 99
Future deductible amount attributable to accrued stock compensation and deferred compensation..... 749 218
Other future deductible amounts due principally to non-deductible accruals........................ 37 33
------- -----
Deferred tax assets............................................................................... 829 350
Less valuation allowance.......................................................................... 50 42
------- -----
Net deferred tax assets........................................................................... 779 308
------- -----
Deferred tax liabilities:
Investments in affiliates, due principally to the application of purchase accounting and losses of
affiliates recognized for income tax purposes in excess of losses recognized for financial
statement purposes............................................................................... 13,912 3,637
Intangibles, principally due to differences in amortization....................................... 200 3
Other, net........................................................................................ 20 34
------- -----
Deferred tax liabilities.......................................................................... 14,132 3,674
------- -----
Net deferred tax liabilities........................................................................ $13,353 3,366
======= =====
</TABLE>
At December 31, 1999, Liberty had net operating and capital loss
carryforwards for income tax purposes aggregating approximately $94 million
which, if not utilized to reduce taxable income in future periods, will
F-28
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
expire as follows: 2004: $18 million; 2005: $14 million; 2006: $14 million;
2007: $13 million; 2008: $12 million; and $23 million between 2009 and 2010.
These net operating losses are subject to certain rules limiting their usage.
(11) Stockholder's Equity
Preferred Stock
The Preferred Stock is issuable, from time to time, with such designations,
preferences and relative participating, option or other special rights,
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue of such
Preferred Stock adopted by the Board.
Common Stock
The Class A Stock has one vote per share, and each of the Class B and Class C
Stock has ten votes per share.
As of December 31, 1999, all of the issued and outstanding common stock of
Liberty was held by AT&T.
Transactions with Officers and Directors
In connection with the AT&T Merger, Liberty 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 consolidated statements
of operations and comprehensive earnings.
On February 9, 1998, in connection with the settlement of certain legal
proceedings relative to the Estate of Bob Magness (the "Magness Estate"), the
late founder and former Chairman of the Board of TCI, TCI entered into a call
agreement with Dr. Malone and Dr. Malone's wife (together with Dr. Malone, the
"Malones"), and a call agreement with the Estate of Bob Magness, the Estate of
Betsy Magness, Gary Magness (individually and in certain representative
capacities) and Kim Magness (individually and in certain representative
capacities) (collectively, the "Magness Group"). Under these call agreements,
each of the Magness Group and the Malones granted to TCI the right to acquire
all of the shares of TCI's common stock owned by them that entitle the holder
to cast more than one vote per share (the "High-Voting Shares") upon Dr.
Malone's death or upon a contemplated sale of the High-Voting Shares (other
than a minimal amount) to third parties. In either such event, TCI had the
right to acquire such shares at a price equal to the then market price of
shares of TCI's common stock of the corresponding series that entitled the
holder to cast no more than one vote per share (the "Low-Voting Stock"), plus a
10% premium, or in the case of a sale, the lesser of such price and the price
offered by the third party. In addition, each call agreement provides that if
TCI were ever to be sold to a third party, then the maximum premium that the
Magness Group or the Malones would receive for their High-Voting Shares would
be the price paid for shares of the relevant series of Low-Voting Stock by the
third party, plus a 10% premium. Each call agreement also prohibits any member
of the Magness Group or the Malones from disposing of their High-Voting Shares,
except for certain exempt transfers (such as transfers to related parties or to
the other group or public sales of up to an aggregate of 5% of their High-
Voting Shares after conversion to the respective series of Low-Voting Stock)
and except for a transfer made in compliance with TCI's purchase right
described above. TCI paid $150 million to the Malones and $124 million to the
Magness Group in consideration of their entering into the call agreements, of
which an aggregate of $140 million was allocated to and paid by Liberty.
F-29
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transactions with AT&T (formerly transactions with TCI) and Other Related
Parties
Certain AT&T corporate general and administrative costs are charged to
Liberty at rates set at the beginning of the year based on projected
utilization for that year. Management believes this allocation method is
reasonable. During the ten months ended December 31, 1999, the two months ended
February 28, 1999 and the years ended December 31, 1998 and 1997 Liberty was
allocated less than $1 million, $2 million, $13 million and $13 million,
respectively, in corporate general and administrative costs by AT&T. These
costs are included in charges from related parties in the accompanying
consolidated statements of operations and comprehensive earnings.
Subsidiaries of Liberty lease satellite transponder facilities from a
subsidiary of AT&T. Charges for such arrangements and other related operating
expenses for the ten months ended December 31, 1999, two months ended February
28, 1999 and the years ended December 31, 1998 and 1997 aggregated $20 million,
$4 million, $25 million and $65 million, respectively, and are included in
charges from related parties in the accompanying consolidated statements of
operations and comprehensive earnings.
During 1999, 1998 and 1997, Liberty made marketing support payments to AT&T.
Charges by AT&T for such arrangements for the ten months ended December 31,
1999, the two months ended February 28, 1999 and the years ended December 31,
1998 and 1997 aggregated $4 million, less than $1 million, $5 million and $19
million, respectively, and are included in charges from related parties in the
accompanying consolidated statements of operations and comprehensive earnings.
The Puerto Rico Subsidiary purchases programming services from AT&T. The
charges, which approximate AT&T's cost and are based on the aggregate number of
subscribers served by the Puerto Rico Subsidiary, aggregated $6 million and $1
million during the ten months ended December 31, 1999, the two months ended
February 28, 1999, respectively, and $6 million for each of the years ended
December 31, 1998 and 1997, and are included in operating expenses in the
accompanying consolidated statements of operations and comprehensive earnings.
In connection with the AT&T Merger, warrants to buy 3 million shares of
common stock of CSG Systems International, Inc. ("CSG") and related
registration rights were transferred to Liberty. On April 13, 1999, AT&T
purchased these warrants from Liberty for an aggregate purchase price of $75
million along with the related registration rights. The vesting of the CSG
warrants is contingent on AT&T meeting certain subscriber commitments to CSG.
If any warrants do not vest, Liberty must repurchase the unvested warrants from
AT&T, with interest at 6% from April 12, 1999. Accordingly, Liberty has
recorded the unvested CSG warrants as deferred income until such time as the
CSG warrants vest.
On April 8, 1999, Liberty redeemed all of its outstanding 4 1/2% convertible
subordinated debentures due February 15, 2005. The debentures were convertible
into shares of AT&T Liberty Media Group Class A tracking stock at a conversion
price of $23.54, or 42.48 shares per $1,000 principal amount. Certain holders
of the debentures had exercised their rights to convert their debentures and
14.6 million shares of AT&T Liberty Media Group tracking stock were issued to
such holders. In connection with such issuance of AT&T Liberty Media Group
tracking stock, Liberty recorded an increase to additional paid-in-capital of
$354 million.
During September 1998, TCI assigned its obligation under an option contract
to Liberty. As a result of such assignment, Liberty recorded a $16 million
reduction to the intercompany amount due to TCI and a corresponding increase to
additional paid-in-capital.
Cablevision purchases programming services from certain Liberty affiliates.
The related charges generally are based upon the number of Cablevision's
subscribers that receive the respective services. During the year
F-30
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
ended December 31, 1997, such charges aggregated $12 million. Additionally,
certain of Cablevision's general and administrative functions are provided by
Liberty. The related charges, which generally are based upon the respective
affiliate's cost of providing such functions, aggregated $2 million during the
year ended December 31, 1997. The above-described programming and general and
administrative charges were included in operating costs in the accompanying
consolidated statements of operations and comprehensive earnings.
During July 1997, AT&T entered into a 25 year affiliation agreement with
Starz Encore Group (the "EMG Affiliation Agreement") pursuant to which AT&T
will pay monthly fixed amounts in exchange for unlimited access to all of the
existing Encore and STARZ! services.
Liberty Digital and AT&T entered into an Amended and Restated Contribution
Agreement to be effective as of July 11, 1997 which provides, among other
things, for AT&T to deliver, or cause certain of its subsidiaries to deliver to
Liberty Digital fixed monthly payments (subject to inflation and other
adjustments) through 2017.
During the third quarter of 1997, Liberty sold certain assets (the "SUMMITrak
Assets") to CSG for cash consideration of $106 million, plus five-year warrants
to purchase up to 1.5 million shares of CSG common stock at $24 per share and
$12 million in cash, once certain numbers of TCI affiliated customers are being
processed on a CSG billing system. In connection with the sale of the SUMMITrak
Assets, TCI committed to purchase billing services from CSG through 2012. In
light of such commitment, Liberty has reflected the $30 million excess (after
deducting deferred income taxes of $17 million) of the cash received over the
book value of the SUMMITrak Assets as an increase to additional paid-in-
capital.
During the fourth quarter of 1997, Liberty's remaining assets in TCI
SUMMITrak of Texas, Inc. and TCI SUMMITrak L.L.C. were transferred to TCI in
exchange for a $19 million reduction of the amount owed by Liberty to TCI. Such
transfer was accounted for at historical cost due to the related party nature
of the transaction.
Due to Related Parties
The components of "Due to related parties" are as follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- -----------
December 31,
-----------------------
1999 1998
----------- -----------
amounts in millions
<S> <C> <C>
Notes payable to TCI, including accrued interest.................................................... $-- 141
Intercompany account................................................................................ 27 269
---- ---
$ 27 410
--------------------------------------------------
==== ===
</TABLE>
The non-interest bearing intercompany account includes certain stock
compensation allocations (in Old Liberty) and income tax allocations that are
to be settled at some future date. Stock compensation liabilities of New
Liberty are classified as a separate component of current liabilities. All
other amounts included in the intercompany account are to be settled within
thirty days following notification.
Amounts outstanding at December 31, 1998 under notes payable to TCI had
varying rates of interest. During the second quarter of 1998, TCI made a
contribution to Liberty of $5 million, which was used to reduce the amount due
under the Music Note.
F-31
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(12) Stock Options and Stock Appreciation Rights
Certain officers and other key employees of Liberty had been granted
restricted stock awards and/or options with tandem stock appreciation rights
("SARs") to acquire certain series of TCI stock. In connection with the AT&T
Merger, all series of TCI stock were converted to classes of AT&T stock. As a
result of the AT&T Merger, each stock option and SAR to purchase TCI Group
Series A tracking stock was converted into a stock option and SAR to purchase
0.7757 of a share of AT&T common stock at an exercise price divided by 0.7757,
each stock option and SAR to purchase TCI Ventures Group Series A tracking
stock was converted into a stock option and SAR to purchase 0.52 of a share of
AT&T Liberty Media Group Class A tracking stock at an exercise price divided by
0.52 and each option and SAR to purchase Liberty Media Group Series A tracking
stock was converted into a stock option and SAR to purchase one share of AT&T
Liberty Media Group Class A tracking stock at an unchanged exercise price.
Certain officers and employees of Liberty hold options with tandem SARs to
acquire AT&T common stock and AT&T Liberty Media Group Class A tracking stock
as well as restricted stock awards of AT&T common stock and AT&T Liberty Media
Group Class A tracking stock. Estimates of compensation relating to SARs
granted to such employees of Liberty have been recorded in the accompanying
consolidated financial statements pursuant to APB Opinion No. 25. Such
estimates are subject to future adjustment based upon vesting of the related
stock options and SARs and the market value of AT&T common stock and AT&T
Liberty Media Group Class A tracking stock and, ultimately, on the final
determination of market value when the rights are exercised. Had Liberty
accounted for its stock based compensation pursuant to the fair value based
accounting method in Statement 123, the amount of compensation would not have
been significantly different from what has been reflected in the accompanying
consolidated financial statements due to substantially all of Liberty's stock
option plans having tandem SARs, which are treated as liabilities for financial
statement purposes and require periodic remeasurement under both APB Opinion
No. 25 and Statement 123. The following descriptions of stock options and/or
SARs have been adjusted to reflect the AT&T Merger and any subsequent stock
splits.
F-32
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the number and weighted average exercise price
("WAEP") of certain options in tandem with SARs to purchase AT&T common stock
and AT&T Liberty Media Group Class A tracking stock granted to certain officers
and other key employees of the Company.
<TABLE>
<CAPTION>
AT&T Liberty
AT&T Media Group
common Class A
stock WAEP stock WAEP
------ ----- ------------ ------
amounts in thousands, except for
WAEP
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997............ 8,033 $9.14 18,836 $19.62
Adjustment for TCI Ventures Exchange.... (2,500) 12.27 4,470 7.43
Adjustment for transfer of employees.... 265 10.38 (8) 46.73
Granted................................. 692 12.93 2,495 8.96
Exercised............................... (2,827) 8.43 (1,469) 10.71
Canceled................................ (35) 9.24 (46) 21.34
------ ------
Outstanding at December 31, 1997.......... 3,628 10.38 24,278 16.84
Granted................................. 137 22.10 16,681 86.22
Exercised............................... (1,549) 8.90 (4,769) 13.25
Canceled................................ (27) 12.82 (23) 8.79
------ ------
Outstanding at December 31, 1998.......... 2,189 12.06 36,167 49.32
Granted................................. -- -- 69 32.72
Exercised............................... (316) 11.65 (3,755) 10.03
Adjustment for transfer of employees.... (1,140) 8.14 (579) 13.39
------ ------
Outstanding at December 31, 1999.......... 733 13.23 31,902 13.89
====== ======
Exercisable at December 31, 1999.......... 389 14,341
====== ======
Vesting period.......................... 5 yrs 5yrs
</TABLE>
On November 2, 1999, the Company granted 500,000 free-standing SARs to an
officer of the Company. The SARs vest and become exercisable ratably over a
five-year term, commencing on each anniversary of the date of the grant. The
SARs expire on November 2, 2009, subject to earlier termination in certain
events. Upon the valid exercise of SARs, the officer shall be entitled to
receive from Liberty cash equal to the excess of the fair value of each share
of AT&T Class A Liberty Media Group tracking stock with respect to which such
SARs have been exercised over $37.25 per share.
On December 16, 1997, the Company granted options in tandem with SARs to
acquire 2,912,000 shares of AT&T Liberty Media Group Class B tracking stock to
an officer and director of the Company. The options in tandem with SARs have an
exercise price of $9.97 and vest ratably over five years with such vesting
period beginning December 16, 1997, first became exercisable on December 16,
1998 and expire on December 16, 2007.
Liberty Digital, Inc. Stock Incentive Plan. During 1997, 1998 and 1999,
Liberty Digital granted stock options with tandem SARs to employees under the
Liberty Digital 1997 Stock Inventive Plan ( the "Stock Plan") which is
authorized to issue up to 4,000,000 shares. Options granted under the Stock
Plan expire ten years from the date of grant. In addition, Liberty Digital
granted stock options with tandem SARs to the board of directors and employees
in connection with the DMX Merger. Options issued under the Stock Plan and in
connection with the DMX Merger vest annually in 20% cumulative increments.
On December 11, 1998, Liberty Digital re-priced the stock options with tandem
SARs at $4.00 for all grants to executive officers and employees of Liberty
Digital and its subsidiaries.
F-33
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table presents the number and WAEP of options in tandem with
SARs to purchase Liberty Digital Series A Common Stock, for 1997, 1998 and
1999.
<TABLE>
<CAPTION>
Liberty Digital
Stock Options
Tandem SARs WAEP
--------------- -----
amounts in millions,
except for WAEP
<S> <C> <C>
Outstanding at July 1, 1997
Granted............................................. 3,609 $5.75
------
Outstanding at December 31, 1997...................... 3,609 5.75
Granted............................................. 1,771 4.00
Exercised........................................... (21) 4.00
Canceled............................................ (311) 4.00
------
Outstanding at December 31, 1998...................... 5,048 5.25
Granted............................................. 1,038 10.10
Exercised........................................... (2,708) 5.60
Canceled............................................ (864) 4.00
------
Outstanding at December 31, 1999...................... 2,514 7.32
======
Exercisable at December 31, 1999...................... 563
======
</TABLE>
Exercise prices for options outstanding at the end of year for 1999, 1998 and
1997 ranged from $4.00 to $22.13, $4.00 to $6.25, and $5.75, respectively. The
1999, 1998, and 1997 year-end weighted average remaining contractual life of
such options is 8.2 years, 8.7 years and 9.5 years, respectively.
Deferred Compensation and Stock Option Plan. On September 8, 1999, the
Deferred Compensation and Stock Appreciation Rights Plan was adopted for key
executives. This plan is comprised of a deferred compensation component and
SARs grants. The deferred compensation component provides participants with the
right to receive an aggregate of nine and one half percent of the appreciation
in the Liberty Digital Series A common stock market price over $2.46 subject to
a maximum amount of $19.125. The SARs provide participants with the
appreciation in the market price of the Liberty Digital Series A common stock
above the maximum amount payable under the deferred compensation component.
There are 19,295,193 shares subject to this plan all of which were granted in
1999 at an effective exercise price of $2.46 and a weighted average remaining
life of 4 years at year end. The deferred compensation and SARs components vest
20% annually beginning with the first vesting date of December 15, 1999. Fully
vested options total 3,859,038 at year-end. No options were exercised,
cancelled or expired during 1999. This plan terminates on December 15, 2003.
F-34
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(13) Other Comprehensive Earnings
Accumulated other comprehensive earnings included in Liberty's consolidated
balance sheets and consolidated statements of stockholder's equity reflect the
aggregate of foreign currency translation adjustments and unrealized holding
gains and losses on securities classified as available-for-sale. The change in
the components of accumulated other comprehensive earnings, net of taxes, is
summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Foreign other
currency Unrealized comprehensive
translation gains on earnings, net
adjustments securities of taxes
----------- ---------- -------------
amounts in millions
<S> <C> <C> <C>
Balance at January 1, 1997............. $ 26 17 43
Other comprehensive earnings (loss).... (23) 747 724
---- ----- -----
Balance at December 31, 1997........... 3 764 767
Other comprehensive earnings........... 2 2,417 2,419
---- ----- -----
Balance at December 31, 1998........... 5 3,181 3,186
Other comprehensive earnings (loss).... (15) 885 870
---- ----- -----
Balance at February 28, 1999........... $(10) 4,066 4,056
==== ===== =====
-----------------------------------------------------------------------------
Balance at March 1, 1999............... $-- -- --
Other comprehensive earnings........... 60 6,458 6,518
---- ----- -----
Balance at December 31, 1999........... $ 60 6,458 6,518
==== ===== =====
</TABLE>
F-35
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of other comprehensive earnings are reflected in Liberty's
consolidated statements of operations and comprehensive earnings, net of taxes
and reclassification adjustments for gains realized in net earnings (loss). The
following table summarizes the tax effects and reclassification adjustments
related to each component of other comprehensive earnings.
<TABLE>
<CAPTION>
Tax
Before-tax (expense) Net-of-tax
amount benefit amount
---------- --------- ----------
amounts in millions
<S> <C> <C> <C>
Ten months ended December 31, 1999:
Foreign currency translation adjustments....... $ 99 (39) 60
------- ------ -----
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 10,671 (4,220) 6,451
Less: reclassification adjustment for losses
realized in net loss........................ 12 (5) 7
------- ------ -----
Net unrealized gains......................... 10,683 (4,225) 6,458
------- ------ -----
Other comprehensive earnings................... $10,782 (4,264) 6,518
======= ====== =====
-------------------------------------------------------------------------------
Two months ended February 28, 1999:
Foreign currency translation adjustments....... $ (25) 10 (15)
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 1,464 (579) 885
------- ------ -----
Other comprehensive earnings................... $ 1,439 (569) 870
======= ====== =====
Year ended December 31, 1998:
Foreign currency translation adjustments....... $ 3 (1) 2
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 3,998 (1,581) 2,417
------- ------ -----
Other comprehensive earnings................... $ 4,001 (1,582) 2,419
======= ====== =====
Year ended December 31, 1997:
Foreign currency translation adjustments....... $ (38) 15 (23)
Unrealized gains on securities:
Unrealized holding gains arising during
period...................................... 1,236 (489) 747
------- ------ -----
Other comprehensive earnings................... $ 1,198 (474) 724
======= ====== =====
</TABLE>
(14) Commitments and Contingencies
Starz Encore Group, a wholly owned subsidiary of Liberty, 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
December 31, 1999, these agreements require minimum payments aggregating
approximately $900 million. The aggregate amount of the Film Licensing
Obligations under these license agreements is not currently estimable because
such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Nevertheless, required aggregate payments under the Film Licensing Obligations
could prove to be significant.
Flextech has undertaken to finance the working capital requirements of a
joint venture (the "Principal Joint Venture") formed with BBC Worldwide, and is
obligated to provide the Principal Joint Venture with a
F-36
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
primary credit facility of (Pounds)88 million and, subject to certain
restrictions, a standby credit facility of (Pounds)30 million. As of December
31, 1999, the Principal Joint Venture had borrowed (Pounds)53 million under the
primary credit facility. If Flextech defaults in its funding obligation to the
Principal Joint Venture and fails to cure within 42 days after receipt of
notice from BBC Worldwide, BBC Worldwide is entitled, within the following 90
days, to require that Liberty assume all of Flextech's funding obligations to
the Principal Joint Venture.
Liberty has guaranteed various loans, notes payable, letters of credit and
other obligations (the "Guaranteed Obligations") of certain affiliates. At
December 31, 1999, the Guaranteed Obligations aggregated approximately $655
million. Currently, Liberty is not certain of the likelihood of being required
to perform under such guarantees.
Liberty leases business offices, has entered into pole rental and transponder
lease agreements and uses certain equipment under lease arrangements. Rental
expense under such arrangements amounts to $30 million, $9 million, $27 million
and $20 million for the ten months ended December 31, 1999, the two months
ended February 28, 1999 and the years ended December 31, 1998 and 1997,
respectively.
A summary of future minimum lease payments under noncancelable operating
leases as of December 31, 1999 follows (amounts in millions):
<TABLE>
<S> <C>
Years ending December 31:
2000.............................................................. $21
2001.............................................................. 18
2002.............................................................. 16
2003.............................................................. 16
2004.............................................................. 13
Thereafter........................................................ 21
</TABLE>
It is expected that in the normal course of business, leases that expire
generally will be renewed or replaced by leases on other properties; thus, it
is anticipated that future minimum lease commitments will not be less than the
amount shown for 2000.
Liberty has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is reasonably
possible Liberty 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 consolidated
financial statements.
(15) Information about Liberty's Operating Segments
Liberty is a holding company with a variety of subsidiaries and investments
operating in the media, communications and entertainment industries. Each of
these businesses is separately managed. Liberty identifies its reportable
segments as those consolidated subsidiaries that represent 10% or more of its
combined revenue and those equity method affiliates whose share of earnings or
losses represent 10% or more of its pre-tax earnings or loss. Subsidiaries and
affiliates not meeting this threshold are aggregated together for segment
reporting purposes.
For the ten months ended December 31, 1999, Liberty had three operating
segments: Starz Encore Group, Liberty Digital and Other. Starz Encore Group
owns and operates cable and satellite-delivered premium movie networks in the
United States. Starz Encore Group is wholly owned and consolidated by Liberty.
Liberty Digital is primarily engaged in programming, distributing and marketing
a digital music service delivered to homes and businesses. Liberty Digital is
majority owned and consolidated by Liberty. Other includes Liberty's
F-37
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
investments, primarily in cable television programming entities, corporate and
other consolidated businesses not representing separately reportable segments.
The accounting policies of the segments that are also consolidated
subsidiaries are the same as those described in the summary of significant
accounting policies. Liberty evaluates performance based on the measures of
revenue and operating cash flow (as defined by Liberty), appreciation in stock
price along with other non-financial measures such as average prime time
rating, prime time audience delivery, subscriber growth and penetration, as
appropriate. Liberty believes operating cash flow is a widely used financial
indicator of companies similar to Liberty and its affiliates, which should be
considered in addition to, but not as a substitute for, operating income, net
income, cash flow provided by operating activities and other measures of
financial performance prepared in accordance with generally accepted accounting
principles. Liberty generally accounts for intersegment sales and transfers as
if the sales or transfers were to third parties, that is, at current prices.
Liberty's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technology and marketing strategies.
Liberty utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:
<TABLE>
<CAPTION>
Starz
Encore Liberty
Group Digital Other Total
------ ------- ------ ------
amounts in millions
<S> <C> <C> <C> <C>
Ten months ended December 31, 1999
Segment revenue from external customers
including intersegment revenue................. $ 539 66 124 729
Segment operating cash flow..................... 124 4 5 133
------------------------------------------------------------------------------
Two months ended February 28, 1999
Segment revenue from external customers
including intersegment revenue................. $ 101 15 119 235
Segment operating cash flow..................... 41 1 5 47
Year ended December 31, 1998
Segment revenue from external customers
including intersegment revenue................. 541 86 732 1,359
Segment operating cash flow..................... 96 1 119 216
Year ended December 31, 1997
Segment revenue from external customers
including intersegment revenue................. 350 23 852 1,225
Segment operating cash flow (deficit)........... (32) 9 182 159
As of December 31, 1999
Segment assets.................................. 2,636 1,728 54,286 58,650
Investments in affiliates....................... -- -- 15,922 15,922
As of December 31, 1998
Segment assets.................................. 355 200 15,228 15,783
Investments in affiliates....................... -- -- 3,079 3,079
</TABLE>
F-38
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table provides a reconciliation of segment operating cash flow
to earnings before income taxes:
<TABLE>
<CAPTION>
New Liberty Old Liberty
------------ -------------------------
Year ended
Ten months Two months December
ended ended 31,
December 31, February 28, ------------
1999 1999 1998 1997
------------ ------------ ------ ----
(amounts in millions)
<S> <C> <C> <C> <C>
Segment operating cash flow....................................................... $ 133 47 216 159
Stock compensation................................................................ (1,785) (183) (518) (296)
Depreciation and amortization..................................................... (562) (22) (129) (123)
Interest expense, including amounts to related parties............................ (288) (26) (113) (55)
Segment equity in losses of affiliates............................................ (904) (66) (1,002) (785)
Gains on dispositions, net........................................................ 4 14 2,449 406
Gain on issuance of equity by affiliates and subsidiaries......................... -- 372 105 --
Other, net........................................................................ 330 5 75 49
------- ---- ------ ----
Earnings (loss) before income taxes............................................... $(3,072) 141 1,083 (645)
======= ==== ====== ====
</TABLE>
(16) Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
----------- ---------------------------------
Two months One month
ended ended 2nd 3rd 4th
February 28 March 31, Quarter Quarter Quarter
----------- --------- ------- ------- -------
amounts in millions
<S> <C> <C> <C> <C> <C>
1999:
Revenue.................................................................. $ 235 71 221 214 223
===== === ==== ==== ======
Operating income (loss).................................................. $(158) 3 (636) (95) (1,486)
===== === ==== ==== ======
Net loss................................................................. $ (70) (58) (543) (213) (1,161)
===== === ==== ==== ======
</TABLE>
<TABLE>
<CAPTION>
Old Liberty
-------------------------------
1st 2nd 3rd 4th
Quarter Quarter Quarter Quarter
------- ------- ------- -------
amounts in millions
<S> <C> <C> <C> <C>
1998:
Revenue.................................... $ 313 334 358 354
===== ==== ==== ====
Operating income (loss).................... $(135) (92) 39 (243)
===== ==== ==== ====
Net earnings (loss)........................ $ 126 (251) (135) 882
===== ==== ==== ====
</TABLE>
F-39
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED BALANCE SHEETS
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
amounts in millions
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 2,177 1,714
Cash collateral under securities lending agreement
(note 6)............................................ 1,013 --
Short-term investments............................... 525 378
Trade and other receivables, net..................... 175 116
Prepaid expenses and committed program rights........ 495 405
Deferred income tax assets........................... 731 750
Other current assets................................. 11 5
------- ------
Total current assets............................... 5,127 3,368
------- ------
Investments in affiliates, accounted for under the
equity method, and related receivables (note 3)....... 15,723 15,922
Investments in available-for-sale securities and others
(notes 4, 5 and 6).................................... 34,564 28,593
Property and equipment, at cost........................ 465 162
Less accumulated depreciation........................ 24 19
------- ------
441 143
------- ------
Intangible assets:
Excess cost over acquired net assets................. 10,161 9,966
Franchise costs...................................... 269 273
------- ------
10,430 10,239
Less accumulated amortization...................... 592 454
------- ------
9,838 9,785
------- ------
Other assets, at cost, net of accumulated
amortization.......................................... 1,196 839
------- ------
Total assets....................................... $66,889 58,650
======= ======
</TABLE>
F-40
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED BALANCE SHEETS--(Continued)
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
amounts in millions
<S> <C> <C>
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable and accrued liabilities.............. $ 329 245
Accrued stock compensation............................ 2,179 2,405
Program rights payable................................ 174 166
Current portion of debt............................... 1,573 554
------- -------
Total current liabilities........................... 4,255 3,370
------- -------
Long-term debt (note 6)................................. 5,237 2,723
Deferred income tax liabilities......................... 15,818 14,103
Other liabilities....................................... 136 23
------- -------
Total liabilities................................... 25,446 20,219
------- -------
Minority interests in equity of subsidiaries............ 322 23
Stockholder's equity (note 7):
Preferred stock, $.0001 par value. Authorized 100,000
shares; no shares issued and outstanding............. -- --
Class A common stock $.0001 par value. Authorized
1,000,000 shares; issued and outstanding 1,000
shares............................................... -- --
Class B common stock $.0001 par value. Authorized
1,000,000 shares; issued and outstanding 1,000
shares............................................... -- --
Class C common stock, $.0001 par value. Authorized
1,000,000 shares; issued and outstanding 1,000
shares............................................... -- --
Additional paid-in capital............................ 33,868 33,838
Accumulated other comprehensive earnings, net of
taxes................................................ 8,267 6,518
Accumulated deficit................................... (998) (1,975)
------- -------
41,137 38,381
Due (from) to related parties......................... (16) 27
------- -------
Total stockholder's equity.......................... 41,121 38,408
------- -------
Commitments and contingencies (note 8)
Total liabilities and stockholder's equity.......... $66,889 $58,650
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS
(unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
---------------------- ------------
(note 1) (note 1)
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------ --------- ------------
amounts in millions
<S> <C> <C> <C> <C>
Revenue.............................................................................. $ 235 71 235
Operating costs and expenses:
Operating, selling, general and administrative..................................... 174 56 188
Stock compensation................................................................. (23) (41) 183
Depreciation and amortization...................................................... 167 53 22
------ --- ----
318 68 393
------ --- ----
Operating income (loss).......................................................... (83) 3 (158)
Other income (expense):
Interest expense................................................................... (439) (13) (26)
Dividend and interest income....................................................... 79 24 10
Share of losses of affiliates, net (note 3)........................................ (311) (80) (66)
Minority interests in losses (earnings) of subsidiaries............................ (12) -- 4
Gains on dispositions, net (notes 4 and 5)......................................... 2,441 -- 14
Gains on issuance of equity by affiliates and subsidiaries (note 3)................ -- -- 372
Other, net........................................................................... 4 -- (9)
------ --- ----
1,762 (69) 299
------ --- ----
Earnings (loss) before income taxes.............................................. 1,679 (66) 141
Income tax benefit (expense)......................................................... (702) 8 (211)
------ --- ----
Net earnings (loss).............................................................. $ 977 (58) (70)
------ --- ----
Other comprehensive earnings, net of taxes:
Foreign currency translation adjustments........................................... (31) 12 (15)
Unrealized holding gains arising during the period, net of reclassification
adjustments....................................................................... 1,780 868 885
------ --- ----
Other comprehensive earnings....................................................... 1,749 880 870
====== === ====
------ --- ----
Comprehensive earnings............................................................... $2,726 822 800
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(unaudited)
<TABLE>
<CAPTION>
Accumulated
other
Common stock Additional comprehensive Accumulated Due to Total
Preferred ----------------------- paid-in earnings, (deficit) related stockholder's
stock Class A Class B Class C captial net of taxes earnings parties equity
--------- ------- ------- ------- ---------- ------------- ----------- ------- -------------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
2000................... $-- -- -- -- 33,838 6,518 (1,975) 27 38,408
Net earnings........... -- -- -- -- -- -- 977 -- 977
Foreign currency
translation
adjustments........... -- -- -- -- -- (31) -- -- (31)
Recognition of
previously unrealized
gains on available-
for-sale securities,
net................... -- -- -- -- -- (1,476) -- -- (1,476)
Unrealized gains on
available-for-sale
securities............ -- -- -- -- -- 3,256 -- -- 3,256
Issuances of common
stock by subsidiary
and affiliate, net of
taxes................. -- -- -- -- 73 -- -- -- 73
Contribution of net
liability from related
party (note 5)........ -- -- -- -- (69) -- -- -- (69)
Other transfers to
related parties, net.. -- -- -- -- 26 -- -- (43) (17)
---- --- --- --- ------ ------ ------ --- ------
Balance at March 31,
2000................... $-- -- -- -- 33,868 8,267 (998) (16) 41,121
==== === === === ====== ====== ====== === ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
New Liberty Old Liberty
---------------------- ------------
(note 1) (note 1)
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------ --------- ------------
amounts in millions
(note 2)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)...................................................................... $ 977 (58) (70)
Adjustments to reconcile net earnings (loss) to net cash used by operating activities:
Depreciation and amortization............................................................ 167 53 22
Stock compensation....................................................................... (23) (41) 183
Payments of stock compensation........................................................... (183) (1) (126)
Share of losses of affiliates, net....................................................... 311 80 66
Deferred income tax expense.............................................................. 751 3 212
Intergroup tax allocation................................................................ (49) (12) (1)
Cash receipt from AT&T pursuant to tax sharing agreement................................. 33 -- --
Minority interests in (losses) earnings of subsidiaries.................................. 12 -- (4)
Gains on disposition of assets, net...................................................... (2,441) -- (14)
Noncash interest......................................................................... 364 -- --
Gains on issuance of equity by affiliates and subsidiaries............................... -- -- (372)
Other noncash charges.................................................................... -- -- 18
Changes in operating assets and liabilities, net of the effect of acquisitions and
dispositions:
Change in receivables................................................................... (3) 2 33
Change in prepaid expenses and committed program rights................................. (89) (5) (23)
Change in payables, accruals and customer prepayments................................... 10 (32) (31)
------- ------ ----
Net cash used by operating activities.................................................. (163) (11) (107)
------- ------ ----
Cash flows from investing activities:
Cash paid for acquisitions............................................................... (344) -- --
Capital expended for property and equipment.............................................. (12) (4) (15)
Investments in and loans to affiliates and others........................................ (808) (88) (51)
Purchases of marketable securities....................................................... (337) (3,217) (3)
Sales and maturities of marketable securities............................................ 511 -- 9
Cash proceeds from dispositions.......................................................... -- 3 43
Cash balances of deconsolidated subsidiaries............................................. -- -- (53)
Other, net............................................................................... 15 4 (9)
------- ------ ----
Net cash used by investing activities.................................................. (975) (3,302) (79)
------- ------ ----
Cash flows from financing activities:
Borrowings of debt....................................................................... 2,410 495 155
Repayments of debt....................................................................... (772) (448) (145)
Cash transfers (to) from related parties................................................. (13) (80) 31
Repurchase of stock of subsidiary........................................................ -- -- (45)
Other, net............................................................................... (24) -- (7)
------- ------ ----
Net cash provided (used) by financing activities....................................... 1,601 (33) (11)
------- ------ ----
Net increase (decrease) in cash and cash equivalents................................... 463 (3,346) (197)
Cash and cash equivalents at beginning of year........................................ 1,714 5,319 228
-------------------------------------------------- ------- ------ ----
Cash and cash equivalents at end of year.............................................. $=2,177 =1,973 ==31
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2000
(unaudited)
(1) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Liberty Media Corporation ("Liberty" or the "Company") and those of all of its
majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Effective March 9, 1999,
AT&T Corp. ("AT&T") indirectly owns 100% of the outstanding common stock of
Liberty. Previously, Liberty was a wholly owned subsidiary of Tele-
Communications, Inc. ("TCI").
Liberty's domestic subsidiaries generally operate or hold interests in
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. In
addition, certain of Liberty's subsidiaries hold interests in businesses
engaged in wireless telephony, electronic retailing, direct marketing and
advertising sales relating to programming services, infomercials and
transaction processing. Liberty also has significant interests in foreign
affiliates which operate in cable television, programming and satellite
distribution.
On March 9, 1999, AT&T acquired TCI in a merger transaction (the "AT&T
Merger") whereby a wholly owned subsidiary of AT&T merged with and into TCI,
and TCI thereby became a subsidiary of AT&T. The AT&T Merger has been accounted
for using the purchase method. Accordingly, Liberty's assets and liabilities
have been recorded at their respective fair values therefore, creating a new
cost basis. For financial reporting purposes the AT&T Merger is deemed to have
occurred on March 1, 1999. Accordingly, for periods prior to March 1, 1999 the
assets and liabilities of Liberty and the related consolidated financial
statements are sometimes referred to herein as "Old Liberty", and for periods
subsequent to February 28, 1999 the assets and liabilities of Liberty and the
related consolidated financial statements are sometimes referred to herein as
"New Liberty". The "Company" and "Liberty" refers to both New Liberty and Old
Liberty.
The accompanying interim consolidated 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 consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto contained in Liberty's Report on Form 10-K for the
year ended December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Certain prior period amounts have been reclassified for comparability with
the 2000 presentation.
F-45
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2) Supplemental Disclosures to Consolidated Statements of Cash Flows
Cash paid for interest was $70 million, $16 million and $32 million for the
three months ended March 31, 2000, the one month ended March 31, 1999 and the
two months ended February 28, 1999, respectively. Cash paid for income taxes
during the three months ended March 31, 2000, the one month ended March 31,
1999 and the two months ended February 28, 1999 was not material.
<TABLE>
<CAPTION>
New Liberty Old Liberty
---------------------- ------------
(note 1) (note 1)
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------ --------- ------------
amounts in millions
<S> <C> <C> <C>
Cash paid for acquisitions (note 5):
Fair value of assets acquired........................................................ $1,120 -- --
Net liabilities assumed.............................................................. (562) -- --
Deferred tax asset recorded.......................................................... 71 -- --
Minority interests in equity of acquired attributed subsidiaries..................... (285) -- --
====== === ===
------ --- ---
Cash paid for acquisitions........................................................... $ 344 -- --
</TABLE>
The following table reflects the change in cash and cash equivalents
resulting from the AT&T Merger and related restructuring transactions (amounts
in millions):
<TABLE>
<S> <C>
Cash and cash equivalents prior to the AT&T Merger................... $ 31
Cash contribution in connection with the AT&T Merger................. 5,464
Cash paid to TCI for certain warrants................................ (176)
------
Cash and cash equivalents subsequent to the AT&T Merger.............. $5,319
======
</TABLE>
Liberty ceased to include TV Guide, Inc. ("TV Guide") in its consolidated
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's ownership interest in TV Guide from the
consolidation method to the equity method is summarized below (amounts in
millions):
<TABLE>
<S> <C>
Assets (other than cash and cash equivalents) reclassified to in-
vestments in affiliates........................................... $(200)
Liabilities reclassified to investments in affiliates.............. 190
Minority interests in equity of subsidiaries reclassified to in-
vestments in affiliates........................................... 63
-----
Decrease in cash and cash equivalents.............................. $ 53
=====
</TABLE>
F-46
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Investments in Affiliates Accounted for under the Equity Method
Liberty has various investments accounted for under the equity method. The
following table includes Liberty's carrying amount of the more significant
investments in affiliates:
<TABLE>
<CAPTION>
March
31, December
2000 31, 1999
------- --------
amounts in
millions
<S> <C> <C>
USA Networks, Inc. ("USAI") and related investments....... $ 2,682 2,699
Telewest Communications plc ("Telewest").................. 1,884 1,996
Discovery Communications, Inc. ("Discovery").............. 3,378 3,441
TV Guide.................................................. 1,719 1,732
QVC Inc. ("QVC").......................................... 2,514 2,515
Flextech p.l.c. ("Flextech").............................. 707 727
UnitedGlobalCom, Inc. ("UnitedGlobalCom")................. 453 505
Various foreign equity investments (other than Telewest
and Flextech)............................................ 1,440 1,463
Other..................................................... 946 844
------- ------
$15,723 15,922
======= ======
</TABLE>
The following table reflects Liberty's share of earnings (losses) of
affiliates:
<TABLE>
<CAPTION>
New Liberty Old Liberty
---------------------- ------------
(note 1) (note 1)
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------ --------- ------------
amounts in millions
<S> <C> <C> <C>
USAI and related investments........................................................... $ (7) 3 10
Telewest............................................................................... (87) (25) (38)
Discovery.............................................................................. (63) (16) (8)
TV Guide............................................................................... (13) (4) --
QVC.................................................................................... (1) (1) 13
Flextech............................................................................... (10) (5) (5)
UnitedGlobalCom........................................................................ (50) -- --
Other foreign investments.............................................................. (47) (15) (22)
Other.................................................................................. (33) (17) (16)
----- --- ---
$(311) (80) (66)
</TABLE>
F-47
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized unaudited combined financial information for affiliates is as
follows:
<TABLE>
<CAPTION>
New Liberty Old Liberty
---------------------- ------------
(note 1) (note 1)
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------ --------- ------------
amounts in millions
<S> <C> <C> <C>
Revenue................................................................................ $3,587 993 2,341
Operating expenses..................................................................... (3,199) (849) (1,894)
Depreciation and amortization.......................................................... (622) (124) (353)
------ ---- ------
Operating income (loss).............................................................. (234) 20 94
Interest expense....................................................................... (440) (37) (281)
Other, net............................................................................. (3) (89) (127)
--------------------------------------------------
------ ---- ------
Net loss............................................................................. $ (677) (106) (314)
</TABLE>
USAI owns and operates businesses in network and television production,
television broadcasting, electronic retailing, ticketing operations, and
internet services. At March 31, 2000, Liberty directly and indirectly held 66.5
million shares of USAI's common stock. Liberty also held shares directly in
certain subsidiaries of USAI which are exchangeable into 79.0 million shares of
USAI common stock. Liberty'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 obtains permission from the FCC. If the exchange of subsidiary stock
into USAI common stock was completed at March 31, 2000, Liberty would own 145.5
million shares or approximately 21% (on a fully-diluted basis) of USAI common
stock. USAI's common stock had a closing market value of $22.56 per share on
March 31, 2000.
Telewest currently operates and constructs cable television and telephone
systems in the UK. At March 31, 2000 Liberty indirectly owned 506 million of
the issued and outstanding Telewest ordinary shares. The reported closing price
on the London Stock Exchange of Telewest ordinary shares was $7.66 per share at
March 31, 2000.
On March 1, 1999, 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, 22.5 million
shares of UVSG's Class A common stock and 37.5 million shares of UVSG's Class B
common stock valued at an average of $18.65 per share. In addition, News Corp.
purchased approximately 6.5 million additional shares of UVSG Class A common
stock for $129 million in order to equalize its ownership with that of Liberty.
As a result of these transactions, and another transaction completed on the
same date, News Corp, Liberty 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 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's ownership interest
in TV Guide, Liberty 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 March 31, 2000,
Liberty held 58 million shares of TV Guide Class A common stock and 75 million
shares of TV Guide Class B common. The TV
F-48
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Guide Class B common stock is convertible, one-for-one, into TV Guide Class A
common stock. The closing price for TV Guide Class A common stock was $48.06
per share on March 31, 2000.
Flextech develops and sells a variety of television programming in the UK. At
March 31, 2000, Liberty indirectly owned 58 million Flextech ordinary shares.
The reported closing price on the London Stock Exchange of the Flextech
ordinary shares was $28.34 per share at March 31, 2000.
UnitedGlobalCom is the largest global broadband communications provider of
video, voice and data services with operations in over 20 countries throughout
the world. At March 31, 2000, Liberty owned an approximate 10% economic
ownership interest representing an approximate 36% voting interest in
UnitedGlobalCom. The closing price for UnitedGlobalCom Class A common stock was
$75.06 per share on March 31, 2000. The UnitedGlobalCom Class B common stock is
convertible, on a one-for-one basis, into UnitedGlobalCom Class A common stock.
The $13 billion aggregate excess of Liberty's aggregate carrying amount in
its affiliates over Liberty's proportionate share of its affiliates' net assets
is being amortized over an estimated useful life of 20 years.
(4) Investments in Available-for-sale Securities and Others
Investments in available-for-sale securities and others are summarized as
follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
amounts in millions
<S> <C> <C>
Sprint Corporation ("Sprint")........................................................................ $12,513 10,186
Time Warner, Inc. ("Time Warner").................................................................... 10,975 8,202
News Corp............................................................................................ 2,801 2,403
Motorola, Inc. ("Motorola").......................................................................... 3,308 3,430
Other available-for-sale securities.................................................................. 4,427 3,765
Other investments, at cost, and related receivables.................................................. 1,065 985
======= ======
35,089 28,971
Less short-term investments........................................................................ 525 378
------- ------
$34,564 28,593
</TABLE>
On January 5, 2000, Motorola completed the acquisition of General Instrument
Corporation ("General Instrument") through a merger of General Instrument with
a wholly owned subsidiary of Motorola. In the merger, each outstanding share of
General Instrument common stock was converted into the right to receive 0.575
shares of Motorola common stock. In connection with the merger Liberty received
18 million shares and warrants to purchase 12 million shares of Motorola common
stock in exchange for its holdings in General Instrument. Liberty 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's interest in General Instrument and the fair
value of the Motorola securities received.
Liberty's right to exercise warrants to purchase 6.1 million shares of
Motorola common stock is subject to AT&T satisfying the terms of a purchase
commitment in 2000. AT&T has agreed to pay Liberty $14.35 for each warrant that
does not vest as a result of the purchase commitment not being met.
F-49
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Investments in available-for-sale securities are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
amounts in millions
<S> <C> <C>
Equity securities:
Fair value.......................................... $30,663 24,464
Gross unrealized holding gains...................... 15,440 11,453
Gross unrealized holding losses..................... (1,684) (646)
Debt securities:
Fair value.......................................... 1,820 1,995
Gross unrealized holding gains...................... 1 --
Gross unrealized holding losses..................... (21) (22)
</TABLE>
Management of Liberty 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's investments in available-for-sale securities and others
aggregated $33.3 billion and $29.2 billion at March 31, 2000 and December 31,
1999, respectively. No independent appraisals were conducted for those assets.
(5) Acquisitions
On January 14, 2000, AT&T completed the acquisition of Associated Group, Inc.
("Associated Group"). Each share of Associated Group's common stock was
converted into shares of AT&T tracking stock, subject to applicable exchange
ratios. Prior to the merger, Associated Group's primary assets were shares of
AT&T tracking stock, an approximate 40% interest in Teligent, Inc. ("Teligent")
and all of the outstanding shares of common stock of TruePosition, Inc., which
provides location services for wireless carriers and users designed to
determine the location of any wireless transmitters, including cellular and PCS
telephones. Immediately following the completion of the merger, all of the
assets and businesses of Associated Group other than the AT&T tracking stock
and the equity interest in Teligent were transferred to Liberty.
The acquisition of Associated Group was accounted for as a purchase and the
$20 million excess of the fair value of the net assets acquired over the
purchase price is being amortized over ten years. In connection with the net
liability contributed to Liberty in this transaction, Liberty recorded a $69
million decrease to paid-in-capital.
On March 16, 2000, Liberty purchased shares of preferred stock in TCI
Satellite Entertainment, Inc. ("TSAT") in exchange for Liberty's economic
interest in approximately 5 million shares of Sprint PCS Group Stock, valued at
$300 million. Liberty 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 approximately 85% of
the voting power of TSAT. In connection with this transaction, Liberty realized
a $211 million gain (before related tax expense of $84 million) during the
first quarter of 2000 based on the difference between the cost basis and fair
value of the Sprint PCS Group Stock exchanged.
On March 28, 2000, Liberty 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 paid
approximately $385 million. Such transaction was accounted for as a purchase
and the $216 million excess of the purchase price over the fair value of the
net assets acquired is being amortized over 20 years.
F-50
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Long-Term Debt
Debt is summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ------------
amounts in millions
<S> <C> <C>
Parent company debt:
Bank credit facilities.............................. $ 288 390
Senior notes........................................ 741 741
Senior debentures (a)............................... 1,486 494
Senior exchangeable debentures (b).................. 2,196 1,022
Securities lending agreement (c).................... 1,116 --
------ -----
5,827 2,647
Debt of subsidiaries:
Bank credit facilities.............................. 770 573
Senior notes........................................ 165 --
Other debt, at varying rates........................ 48 57
------ -----
983 630
------ -----
Total debt.......................................... 6,810 3,277
Less current maturities............................... 1,573 554
------ -----
Total long-term debt................................ $5,237 2,723
====== =====
</TABLE>
--------
(a) On February 2, 2000, Liberty 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 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 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 falls below a designated level, after which, at Liberty's
election, Liberty may pay the amount in cash, Sprint PCS Group Stock or a
combination thereof. Interest on these exchangeable debentures is payable
on February 15 and August 15 of each year. The carrying amount of the
exchangeable debentures in excess of the principal amount (the "Contingent
Portion) is based on the fair value of the underlying Sprint PCS Group
Stock. The increase or decrease in the Contingent Portion is recorded as an
increase or decrease to interest expense in the consolidated statement of
operations and comprehensive earnings.
(c) On January 7, 2000, a trust, which holds Liberty'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, has the use of 80% of the cash collateral plus any
interest earned thereon during the term of the loan, and is required to pay
a rebate fee equal to the Federal funds rate less 30 basis points to the
borrower of the loaned shares. The cash collateral of $1,013 million at
March 31, 2000 included $223 million of restricted cash. At March 31, 2000,
Liberty had utilized $103 million of the cash collateral under the
securities lending agreement.
F-51
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At March 31, 2000, Liberty had approximately $161 million in unused lines of
credit under its bank credit facilities. The bank credit facilities of Liberty
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 was in compliance with its debt covenants at March 31, 2000.
Additionally, Liberty 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's debt at March 31,
2000 is as follows (amounts in millions):
<TABLE>
<S> <C>
Senior notes of parent company....................................... $ 742
Senior debentures of parent company.................................. 1,483
Senior exchangeable debentures of parent company..................... 2,295
Senior notes of subsidiary........................................... 178
</TABLE>
Liberty believes that the carrying amount of the remainder of its debt
approximated its fair value at March 31, 2000.
(7) Stockholder's Equity
Preferred Stock
The Preferred Stock is issuable, from time to time, with such designations,
preferences and relative participating, option or other special rights,
qualifications, limitations or restrictions thereof, as shall be stated and
expressed in a resolution or resolutions providing for the issue of such
Preferred Stock adopted by the Board. As of March 31, 2000, no shares of
preferred stock were issued.
Common Stock
The Class A Stock has one vote per share, and each of the Class B and Class C
Stock has ten votes per share.
As of March 31, 2000, all of the issued and outstanding common stock of
Liberty was held by AT&T.
Stock Issuances by Subsidiary
During the first quarter of 2000, Liberty Digital, Inc. ("Liberty Digital")
issued approximately 1.5 million shares of common stock in connection with a
certain acquisition and the exercise of certain employee stock options. In
connection with the increase in Liberty Digital's equity, net of the dilution
of Liberty's interest in Liberty Digital, that resulted from such stock
issuances, Liberty recorded a $69 million increase to paid-in-capital.
Transactions with Officers and Directors
In connection with the AT&T Merger, Liberty 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 consolidated statements
of operations and comprehensive earnings.
F-52
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Transactions with AT&T
Certain AT&T corporate general and administrative costs are charged to
Liberty based on the cost of services provided. Management believes this
allocation method is reasonable. During the three months ended March 31, 2000,
the one month ended March 31, 1999 and the two months ended February 28, 1999
Liberty was charged less than $1 million, less than $1 million and $2 million,
respectively, in corporate general and administrative costs by AT&T. These
costs are included in operating expenses in the accompanying consolidated
statements of operations and comprehensive earnings.
Certain subsidiaries of Liberty produce and/or distribute programming and
other services to cable distribution operators (including AT&T) and others.
Charges to AT&T are based upon customary rates charged to others. Amounts
included in revenue for services provided to AT&T were $52 million, $18 million
and $43 million for the three months ended March 31, 2000, one month period
ending March 31, 1999 and the two month period ending February 28, 1999,
respectively.
Subsidiaries of Liberty lease satellite transponder facilities from a
subsidiary of AT&T. Charges for such arrangements and other related operating
expenses for the three months ended March 31, 2000, the one month ended March
31, 1999 and the two months ended February 28, 1999 aggregated $5 million, $2
million and $4 million, respectively, and are included in operating expenses in
the accompanying consolidated statements of operations and comprehensive
earnings.
Liberty makes marketing support payments to AT&T. Charges by AT&T for such
arrangements were less than $1 million for each of the three months ended March
31, 2000, the one month ended March 31, 1999 and the two months ended February
28, 1999.
The Puerto Rico Subsidiary purchases programming services from AT&T. The
charges, which approximate AT&T's cost and are based on the aggregate number of
subscribers served by the Puerto Rico Subsidiary, aggregated $2 million, less
than $1 million and $1 million during the three months ended March 31, 2000,
the one month ended March 31, 1999 and the two months ended February 28, 1999,
respectively, and are included in operating expenses in the accompanying
consolidated statements of operations and comprehensive earnings.
Due (from) to Related Parties
The amounts included in "Due (from) to related parties" represent a non-
interest bearing intercompany account which includes income tax allocations
that are to be settled at some future date. All other amounts included in the
intercompany account are to be settled within thirty days following
notification.
(8) Commitments and Contingencies
Starz Encore Group, a wholly owned subsidiary of Liberty, provides premium
programming distributed by cable, direct satellite, TVRO and other distributors
throughout the United States. Starz Encore Group is obligated to pay fees for
the rights to exhibit certain films that are released by various producers
through 2017 (the "Film Licensing Obligations"). Based on customer levels at
March 31, 2000, these agreements require minimum payments aggregating
approximately $1.2 billion. The aggregate amount of the Film Licensing
Obligations under these license agreements is not currently estimable because
such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Nevertheless, required aggregate payments under the Film Licensing Obligations
could prove to be significant.
F-53
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Flextech has undertaken to finance the working capital requirements of a
joint venture (the "Principal Joint Venture") formed with BBC Worldwide, and is
obligated to provide the Principal Joint Venture with a primary credit facility
of (Pounds)88 million and, subject to certain restrictions, a standby credit
facility of (Pounds)30 million. As of March 31, 2000, the Principal Joint
Venture had borrowed (Pounds)59 million under the primary credit facility. If
Flextech defaults in its funding obligation to the Principal Joint Venture and
fails to cure within 42 days after receipt of notice from BBC Worldwide, BBC
Worldwide is entitled, within the following 90 days, to require that Liberty
assume all of Flextech's funding obligations to the Principal Joint Venture.
Liberty has guaranteed various loans, notes payable, letters of credit and
other obligations (the "Guaranteed Obligations") of certain affiliates. At
March 31, 2000, the Guaranteed Obligations aggregated approximately $679
million. Currently, Liberty is not certain of the likelihood of being required
to perform under such guarantees.
Pursuant to a final judgment (the "Final Judgment") agreed to by Liberty,
AT&T and the United States Department of Justice (the "DOJ") on December 31,
1998, Liberty transferred all of its beneficially owned securities (the "Sprint
Securities") of Sprint to a trustee (the "Trustee") prior to the AT&T Merger.
The Final Judgment, which was entered by the United States District Court for
the District of Columbia on August 23, 1999, would require the Trustee, on or
before May 23, 2002, to dispose of a portion of the Sprint Securities
sufficient to cause Liberty 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.
The Final Judgment requires that the Trustee vote the Sprint Securities
beneficially owned by Liberty in the same proportion as other holders of
Sprint's PCS Stock so long as such securities are held by the trust. The Final
Judgment also prohibits the acquisition by Liberty of additional Sprint
Securities, with certain exceptions, without the prior written consent of the
DOJ.
Liberty leases business offices, has entered into pole rental and transponder
lease agreements and uses certain equipment under lease arrangements.
Liberty has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is reasonably
possible Liberty 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 consolidated
financial statements.
(9) Information about Liberty's Operating Segments
Liberty is a holding company with a variety of subsidiaries and investments
operating in the media, communications and entertainment industries. Each of
these businesses is separately managed. Liberty identifies its reportable
segments as those consolidated subsidiaries that represent 10% or more of its
consolidated revenue and those equity method affiliates whose share of earnings
or losses represent 10% or more of its pre-tax earnings or loss. If the
aggregate revenue of identifiable reportable segments is less than 75% of total
consolidated revenue, additional operating segments are presented until the
threshold is met. Subsidiaries and affiliates not meeting this threshold are
aggregated together for segment reporting purposes.
For the three months ended March 31, 2000, Liberty had three operating
segments: Starz Encore Group, Liberty Digital and Other. Starz Encore Group
owns and operates cable and satellite-delivered premium movie networks in the
United States. Starz Encore Group is wholly owned and consolidated by Liberty.
Liberty Digital is primarily engaged in programming, distributing and marketing
a digital music service delivered to
F-54
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
homes and businesses. Liberty Digital is majority owned and consolidated by
Liberty. Other includes Liberty's investments, primarily in cable television
programming entities, corporate and other consolidated businesses not
representing separately reportable segments.
The accounting policies of the segments that are also consolidated
subsidiaries are the same as those described in the summary of significant
accounting policies. Liberty evaluates performance based on the measures of
revenue and operating cash flow (as defined by Liberty), appreciation in stock
price along with other non-financial measures such as average prime time
rating, prime time audience delivery, subscriber growth and penetration, as
appropriate. Liberty believes operating cash flow is a widely used financial
indicator of companies similar to Liberty and its affiliates, which should be
considered in addition to, but not as a substitute for, operating income, net
income, cash flow provided by operating activities and other measures of
financial performance prepared in accordance with generally accepted accounting
principles. Liberty generally accounts for intersegment sales and transfers as
if the sales or transfers were to third parties, that is, at current prices.
Liberty's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technology and marketing strategies.
Liberty utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:
<TABLE>
<CAPTION>
Starz
Encore Liberty
Group Digital Other Total
------ ------- ------ ------
amounts in millions
<S> <C> <C> <C> <C>
Three months ended March 31, 2000
Segment revenue from external customers
including intersegment revenue............ $ 176 17 42 235
Segment operating cash flow................ 63 -- (2) 61
As of March 31, 2000
Segment assets............................. 2,672 1,884 62,333 66,889
Investments in affiliates.................. -- 31 15,692 15,723
Investments in available-for-sale
securities and others..................... 4 1,316 33,244 34,564
One month ended March 31, 1999
Segment revenue from external customers
including intersegment revenue............ 52 8 11 71
Segment operating cash flow................ 14 1 -- 15
----------------------------------------------------------------------------
Two months ended February 28, 1999
Segment revenue from external customers
including intersegment revenue............ $ 101 15 119 235
Segment operating cash flow................ 41 1 5 47
</TABLE>
F-55
<PAGE>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following table provides a reconciliation of segment operating cash flow
to earnings before income taxes:
<TABLE>
<CAPTION>
New Liberty Old Liberty
---------------------- ------------
(note 1) (note 1)
Three months One month Two months
ended ended ended
March 31, March 31, February 28,
2000 1999 1999
------------ --------- ------------
amounts in millions
<S> <C> <C> <C>
Segment operating cash flow............................................................ $ 61 15 47
Stock compensation..................................................................... 23 41 (183)
Depreciation and amortization.......................................................... (167) (53) (22)
Interest expense....................................................................... (439) (13) (26)
Segment equity in losses of affiliates................................................. (311) (80) (66)
Gains on dispositions, net............................................................. 2,441 -- 14
Gain on issuance of equity by affiliates and subsidiaries.............................. -- -- 372
Other, net............................................................................. 71 24 5
--------------------------------------------------
------ --- ----
Earnings (loss) before income taxes.................................................... $1,679 (66) 141
</TABLE>
F-56
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
[LOGO OF LIBERTY MEDIA CORPORATION]
Liberty Media Corporation
3 3/4% Senior Exchangeable Debentures due 2030
PROSPECTUS
June 26, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Registration
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of debentures being registered. All amounts are estimates except the SEC
registration fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................ $213,840
Printing and engraving expenses.................................... $100,000
Legal fees and expenses............................................ $100,000
Accounting fees and expenses....................................... $ 25,000
Miscellaneous...................................................... $ 10,000
--------
Total.............................................................. $448,840
</TABLE>
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("DGCL") provides,
generally, that a corporation shall have the power to indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding (except actions by or in the
right of the corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of the corporation against all expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the corporation and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his or her conduct was unlawful. A corporation may similarly indemnify
such person for expenses actually and reasonably incurred by such person in
connection with the defense or settlement of any action or suit by or in the
right of the corporation, provided such person acted in good faith and in a
manner he or she reasonably believed to be in or not opposed to the best
interests of the corporation, and, in the case of claims, issues and matters as
to which such person shall have been adjudged liable to the corporation,
provided that a court shall have determined, upon application, that, despite
the adjudication of liability but in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
Section 102(b)(7) of the DGCL provides, generally, that the certificate of
incorporation may contain a provision eliminating or limiting the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director, provided that such
provision may not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under section 174
of Title 8 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit. No such provision
may eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision became effective.
II-1
<PAGE>
Article V, Section E of the Restated Certificate of Incorporation, as amended
("Liberty Charter"), of Liberty Media Corporation, a Delaware corporation
("Liberty"), provides as follows:
"1.Limitation on Liability.
To the fullest extent permitted by the DGCL as the same exists or
may hereafter be amended, a director of the Corporation shall not be
liable to the Corporation or any of its stockholders for monetary
damages for breach of fiduciary duty as a director. Any repeal or
modification of this subparagraph 1 shall be prospective only and shall
not adversely affect any limitation, right or protection of a director
of the Corporation existing at the time of such repeal or modification.
2.Indemnification.
(a) Right to Indemnification. The Corporation shall indemnify and
hold harmless, to the fullest extent permitted by applicable law as it
presently exists or may hereafter be amended, any person who was or is
made or is threatened to be made a party or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative
or investigative (a "proceeding") by reason of the fact that he, or a
person for whom he is the legal representative, is or was a director or
officer of the Corporation or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation or of a partnership, limited liability company, joint
venture, trust, enterprise or nonprofit entity, including service with
respect to employee benefit plans, against all liability and loss
suffered and expenses (including attorneys' fees) reasonably incurred
by such person. Such right of indemnification shall inure whether or
not the claim asserted is based on matters which antedate the adoption
of this Section E. The Corporation shall be required to indemnify a
person in connection with a proceeding (or part thereof) initiated by
such person only if the proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
(b) Prepayment of Expenses. The Corporation shall pay the expenses
(including attorneys' fees) incurred by a director or officer in
defending any proceeding in advance of its final disposition, provided,
however, that the payment of expenses incurred by a director or officer
in advance of the final disposition of the proceeding shall be made
only upon receipt of an undertaking by the director or officer to repay
all amounts advanced if it should be ultimately determined that the
director or officer is not entitled to be indemnified under this
subparagraph 2 or otherwise.
(c) Claims. If a claim for indemnification or payment of expenses
under this subparagraph 2 is not paid in full within 60 days after a
written claim therefor has been received by the Corporation, the
claimant may file suit to recover the unpaid amount of such claim and,
if successful in whole or in part, shall be entitled to be paid the
expense of prosecuting such claim. In any such action the Corporation
shall have the burden of proving that the claimant was not entitled to
the requested indemnification or payment of expenses under applicable
law.
(d) Non-Exclusivity of Rights. The rights conferred on any person by
this subparagraph 2 shall not be exclusive of any other rights which
such person may have or hereafter acquire under any statute, provision
of this Certificate, the Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise.
(e) Other Indemnification. The Corporation's obligation, if any, to
indemnify any person who was or is serving at its request as a
director, officer, employee or agent of another corporation,
partnership, limited liability company, joint venture, trust,
enterprise or nonprofit entity shall be reduced by any amount such
person may collect as indemnification from such other corporation,
partnership, limited liability company, joint venture, trust,
enterprise or nonprofit entity.
3.Amendment or Repeal.
Any repeal or modification of the foregoing provisions of this
Section E shall not adversely affect any right or protection hereunder
of any person in respect of any act or omission occurring prior to the
time of such repeal or modification."
II-2
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
On March 8, 1999, in connection with the merger of AT&T and TCI, we
reclassified each share of our existing and outstanding common stock, $1.00 par
value per share, held by TCI into one share of Class A Common Stock, $.0001 par
value per share, one share of Class B Common Stock, $.0001 par value per share,
and one share of Class C Common Stock, $.0001 par value per share. We believe
this transaction was exempt from registration under the Securities Act either
because it did not involve a "sale" of securities as defined in Section 2(3) of
the Securities Act or, if it did involve a "sale," the transaction was exempt
from the registration requirements of the Securities Act by virtue of Section
4(2) of the Securities Act since it did not involve a public offering.
On June 30, 1999, we sold to Lehman Brothers, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Banc of America Securities LLC, BNY Capital Markets, Inc.,
Credit Lyonnais Securities, Donaldson, Lufkin & Jenrette, Morgan Stanley Dean
Witter, Salomon Smith Barney, Schroder & Co. Inc and TD Securities our 7 7/8%
senior notes due 2009 at an aggregate offering price of $750,000,000 (less a
discount to these initial purchasers of $4,875,000) and our 8 1/2% senior
debentures due 2029 at an aggregate offering price of $500,000,000 (less a
discount to these initial purchasers of $4,375,000).
On November 16, 1999, we sold our 4% senior exchangeable debentures due 2029
to Donaldson, Lufkin & Jenrette Securities Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Goldman, Sachs & Co. and Salomon Smith Barney at
an aggregate offering price of $868,789,000 (less a discount to these initial
purchasers of $15,000,000).
On February 2, 2000, we sold to Lehman Brothers and Salomon Smith Barney Inc.
our 8 1/4% Senior Debentures due 2030, at an aggregate offering price of $1
billion (less a discount to the initial purchasers of $8.8 million).
On February 10, 2000, we sold to Salomon Smith Barney Inc. our 3 3/4% Senior
Exchangeable Debentures due 2030 at an aggregate offering price of $750 million
(less a discount to the initial purchaser of $15 million). On March 8, 2000, we
sold to Salomon Smith Barney Inc. an additional $60 million principal amount of
our 3 3/4% Senior Exchangeable Debentures due 2030 (less a discount to the
initial purchaser of $1 million).
We believe that the sales of our 7 7/8% senior notes, our 8 1/2% senior
debentures, our 4% senior exchangeable debentures, our 8 1/4% senior debentures
and our 3 3/4% senior exchangeable debentures were exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) of the Securities
Act because none of these transactions involved a public offering.
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits. The following is a complete list of Exhibits filed as part of
this Registration Statement:
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of Liberty, dated March 8, 1999
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-4 of Liberty Media Corporation (File No. 333-
86491) as filed on September 3, 1999 (the "Liberty S-4 Registration
Statement")).
3.2 Bylaws of Liberty, as adopted March 8, 1999 (incorporated by reference
to Exhibit 3.2 of the Liberty S-4 Registration Statement).
4.1 Indenture dated as of July 7, 1999, between Liberty and The Bank of
New York (incorporated by reference to Exhibit 4.1 to the Liberty S-4
Registration Statement).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
4.2 Fourth Supplemental Indenture dated as of February 10, 2000, between
Liberty and The Bank of New York (incorporated by reference to Exhibit
4.11 to the Annual Report on Form 10-K of Liberty Media Corporation
for the year ended December 31, 1999, as filed on March 27, 2000 (the
"Liberty 10-K")).
4.3 Registration Rights Agreement dated as of February 10, 2000, between
Liberty and Salomon Smith Barney Inc. (incorporated by reference to
Exhibit 4.12 to the Liberty 10-K).
4.4 Form of 3 3/4% Senior Exchangeable Debenture due 2030 (incorporated by
reference to Exhibit 4.13 to the Liberty 10-K).
4.5 Liberty undertakes to furnish the Securities and Exchange Commission,
upon request, a copy of all instruments with respect to long-term debt
not filed herewith.
Opinion of Baker Botts L.L.P. with respect to legality of debentures
5 being registered.
10.1 Contribution Agreement dated March 9, 1999, by and among Liberty Media
Corporation, Liberty Media Management LLC, Liberty Media Group LLC and
Liberty Ventures Group LLC (incorporated by reference to Exhibit 10.1
to the Liberty S-4 Registration Statement).
10.2 Inter-Group Agreement dated as of March 9, 1999, between AT&T Corp.
and Liberty Media Corporation, Liberty Media Group LLC and each
Covered Entity listed on the signature pages thereof (incorporated by
reference to Exhibit 10.2 to the Liberty S-4 Registration Statement).
10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty and
AT&T Corp. (incorporated by reference to Exhibit 10.3 to the Liberty
S-4 Registration Statement).
10.4 Tax Sharing Agreement dated as of March 9, 1999, by and among AT&T
Corp., Liberty Media Corporation, Tele-Communications, Inc., Liberty
Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the signature pages
thereof (incorporated by reference to Exhibit 10.4 to the Liberty S-4
Registration Statement).
10.5 First Amendment to Tax Sharing Agreement dated as of May 28, 1999, by
and among AT&T Corp., Liberty Media Corporation, Tele-Communications,
Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz,
Inc., TCI CT Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to Exhibit 10.5 to
the Liberty S-4 Registration Statement).
10.6 Second Amendment to Tax Sharing Agreement dated as of September 24,
1999, by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.6 to Registration Statement on Form S-1 of Liberty Media
Corporation (File No. 333-93917) as filed on December 30, 1999 (the
"Liberty S-1 Registration Statement")).
10.7 Third Amendment to Tax Sharing Agreement dated as of October 20, 1999,
by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.7 to the Liberty S-l Registration Statement).
10.8 Fourth Amendment to Tax Sharing Agreement dated as of October 28,
1999, by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.8 to the Liberty S-l Registration Statement).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.9 Fifth Amendment to Tax Sharing Agreement dated as of December 6, 1999,
by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.9 to the Liberty S-l Registration Statement).
10.10 Sixth Amendment to Tax Sharing Agreement dated as of December 10,
1999, by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.10 to the Liberty S-l Registration Statement).
10.11 Seventh Amendment to Tax Sharing Agreement dated as of December 30,
1999, by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.11 to the Liberty S-l Registration Statement).
10.12 Instrument dated January 14, 2000, adding The Associated Group, Inc.
as a party to the Tax Sharing Agreement dated as of March 9, 1999, as
amended, among The Associated Group, Inc., AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and
each Covered Entity listed on the signature pages thereof
(incorporated by reference to Exhibit 10.12 to the Liberty S-1
Registration Statement).
10.13 Amended and Restated Contribution Agreement dated January 14, 2000, by
and among Liberty Media Corporation, Liberty Media Management LLC,
Liberty Media Group LLC, Liberty Ventures Group LLC, The Associated
Group, Inc. and Liberty AGI, Inc. (incorporated by reference to
Exhibit 10.13 to the Liberty S-1 Registration Statement).
10.14 First Supplement to Inter-Group Agreement dated as of May 28, 1999,
between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.14 to the Liberty S-1 Registration Statement).
10.15 Second Supplement to Inter-Group Agreement dated as of September 24,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.15 to the Liberty S-1 Registration Statement).
10.16 Third Supplement to Inter-Group Agreement dated as of October 20,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.16 to the Liberty S-1 Registration Statement).
10.17 Fourth Supplement to Inter-Group Agreement dated as of December 6,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.17 to the Liberty S-1 Registration Statement).
10.18 Fifth Supplement to Inter-Group Agreement dated as of December 10,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.18 to the Liberty S-1 Registration Statement).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.19 Sixth Supplement to Inter-Group Agreement dated as of December 30,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.19 to the Liberty S-1 Registration Statement).
10.20 Instrument dated January 14, 2000, adding The Associated Group, Inc.
as a party to the Inter-Group Agreement dated as of March 9, 1999, as
supplemented, between and among AT&T Corp., on the one hand, and
Liberty Media Corporation, Liberty Media Group LLC and each Covered
Entity listed on the signature pages thereof, on the other hand
(incorporated by reference to Exhibit 10.20 to the Liberty S-1
Registration Statement).
10.21 Restated and Amended Employment Agreement dated November 1, 1992,
between Tele-Communications, Inc. and John C. Malone (assumed by
Liberty as of March 9, 1999), and the amendment thereto dated June 30,
1999 and effective as of March 9, 1999, between Liberty and John C.
Malone (incorporated by reference to Exhibit 10.6 to the Liberty S-4
Registration Statement).
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Liberty Media Corporation (incorporated by reference
to Exhibit 21 to the Liberty 8 1/4% S-4 Registration Statement).
23.1 Consent of KPMG LLP.
23.2 Consent of Baker Botts L.L.P. (included in Exhibit 5).
24 Powers of Attorney.*
25 Statement of Eligibility of Trustee.*
</TABLE>
--------
* Previously filed.
(b) Financial Statement Schedules. Schedules not listed above have been
omitted because the information to be set forth therein is not material, not
applicable or is shown in the financial statements or notes thereto.
Item 17. Undertakings
(a) Liberty hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of the prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
II-6
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Liberty pursuant to the foregoing provisions or otherwise, Liberty has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Liberty of
expenses incurred or paid by a director, officer or controlling person of
Liberty in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, Liberty will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act of 1933 and will be
governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the county of Douglas, state of
Colorado, on June 26, 2000.
LIBERTY MEDIA CORPORATION
/s/ Charles Y. Tanabe
By: _________________________________
Name: Charles Y. Tanabe
Title: Senior Vice President and
General Counsel
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons (which persons
constitute a majority of the Board of Directors) in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ John C. Malone Chairman of the Board June 26, 2000
______________________________________ and Director
John C. Malone
/s/ Robert R. Bennett President, Chief June 26, 2000
______________________________________ Executive Officer and
Robert R. Bennett Director (Principal
Executive Officer)
/s/ Gary S. Howard Executive Vice June 26, 2000
______________________________________ President, Chief
Gary S. Howard Operating Officer and
Director
/s/ Paul A. Gould Director June 26, 2000
______________________________________
Paul A. Gould
/s/ Jerome H. Kern Director June 26, 2000
______________________________________
Jerome H. Kern
______________________________________ Director
John C. Petrillo
/s/ Larry E. Romrell Director June 26, 2000
______________________________________
Larry E. Romrell
/s/ Daniel E. Somers Director June 26, 2000
______________________________________
Daniel E. Somers
</TABLE>
II-8
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
Director
______________________________________
John D. Zeglis
/s/ Kathryn Scherff Vice President and June 26, 2000
______________________________________ Controller
Kathryn Scherff (Principal Financial
Officer and
Principal Accounting
Officer)
/s/ Robert W. Murray Jr. June 26, 2000
By: __________________________________
Robert W. Murray Jr.
Attorney-in-fact
</TABLE>
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
3.1 Restated Certificate of Incorporation of Liberty, dated March 8, 1999
(incorporated by reference to Exhibit 3.1 to the Registration
Statement on Form S-4 of Liberty Media Corporation (File
No. 333-86491) as filed on September 3, 1999 (the "Liberty S-4
Registration Statement")).
3.2 Bylaws of Liberty, as adopted March 8, 1999 (incorporated by reference
to Exhibit 3.2 of the Liberty S-4 Registration Statement).
4.1 Indenture dated as of July 7, 1999, between Liberty and The Bank of
New York (incorporated by reference to Exhibit 4.1 to the Liberty S-4
Registration Statement).
4.2 Fourth Supplemental Indenture dated as of February 10, 2000, between
Liberty and The Bank of New York (incorporated by reference to Exhibit
4.11 to the Annual Report on Form 10-K of Liberty Media Corporation
for the year ended December 31, 1999, as filed on March 27, 2000 (the
"Liberty 10-K").
4.3 Registration Rights Agreement dated as of February 10, 2000, between
Liberty and Salomon Smith Barney Inc. (incorporated by reference to
Exhibit 4.12 to the Liberty 10-K).
4.4 Form of 3 3/4% Senior Exchangeable Debenture due 2030 (incorporated by
reference to Exhibit 4.13 to the Liberty 10-K).
4.5 Liberty undertakes to furnish the Securities and Exchange Commission,
upon request, a copy of all instruments with respect to long-term debt
not filed herewith.
Opinion of Baker Botts L.L.P. with respect to legality of debentures
5 being registered.
10.1 Contribution Agreement dated March 9, 1999, by and among Liberty Media
Corporation, Liberty Media Management LLC, Liberty Media Group LLC and
Liberty Ventures Group LLC (incorporated by reference to Exhibit 10.1
to the Liberty S-4 Registration Statement).
10.2 Inter-Group Agreement dated as of March 9, 1999, between AT&T Corp.
and Liberty Media Corporation, Liberty Media Group LLC and each
Covered Entity listed on the signature pages thereof (incorporated by
reference to Exhibit 10.2 to the Liberty S-4 Registration Statement).
10.3 Intercompany Agreement dated as of March 9, 1999, between Liberty and
AT&T Corp. (incorporated by reference to Exhibit 10.3 to the Liberty
S-4 Registration Statement).
10.4 Tax Sharing Agreement dated as of March 9, 1999, by and among AT&T
Corp., Liberty Media Corporation, Tele-Communications, Inc., Liberty
Ventures Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the signature pages
thereof (incorporated by reference to Exhibit 10.4 to the Liberty S-4
Registration Statement).
10.5 First Amendment to Tax Sharing Agreement dated as of May 28, 1999, by
and among AT&T Corp., Liberty Media Corporation, Tele-Communications,
Inc., Liberty Ventures Group LLC, Liberty Media Group LLC, TCI Starz,
Inc., TCI CT Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to Exhibit 10.5 to
the Liberty S-4 Registration Statement).
10.6 Second Amendment to Tax Sharing Agreement dated as of September 24,
1999, by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.6 to Registration Statement on Form S-1 of Liberty Media
Corporation (File No. 333-93917) as filed on December 30, 1999 (the
"Liberty S-1 Registration Statement")).
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Number Description
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10.7 Third Amendment to Tax Sharing Agreement dated as of October 20, 1999,
by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.7 to the Liberty S-l Registration Statement).
10.8 Fourth Amendment to Tax Sharing Agreement dated as of October 28,
1999, by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.8 to the Liberty S-l Registration Statement).
10.9 Fifth Amendment to Tax Sharing Agreement dated as of December 6, 1999,
by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.9 to the Liberty S-l Registration Statement).
10.10 Sixth Amendment to Tax Sharing Agreement dated as of December 10,
1999, by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.10 to the Liberty S-l Registration Statement).
10.11 Seventh Amendment to Tax Sharing Agreement dated as of December 30,
1999, by and among AT&T Corp., Liberty Media Corporation, Tele-
Communications, Inc., Liberty Ventures Group LLC, Liberty Media Group
LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and each Covered Entity
listed on the signature pages thereof (incorporated by reference to
Exhibit 10.11 to the Liberty S-l Registration Statement).
10.12 Instrument dated January 14, 2000, adding The Associated Group, Inc.
as a party to the Tax Sharing Agreement dated as of March 9, 1999, as
amended, among The Associated Group, Inc., AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings, Inc. and
each Covered Entity listed on the signature pages thereof
(incorporated by reference to Exhibit 10.12 to the Liberty S-1
Registration Statement).
10.13 Amended and Restated Contribution Agreement dated January 14, 2000, by
and among Liberty Media Corporation, Liberty Media Management LLC,
Liberty Media Group LLC, Liberty Ventures Group LLC, The Associated
Group, Inc. and Liberty AGI, Inc. (incorporated by reference to
Exhibit 10.13 to the Liberty S-1 Registration Statement).
10.14 First Supplement to Inter-Group Agreement dated as of May 28, 1999,
between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.14 to the Liberty S-1 Registration Statement).
10.15 Second Supplement to Inter-Group Agreement dated as of September 24,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.15 to the Liberty S-1 Registration Statement).
10.16 Third Supplement to Inter-Group Agreement dated as of October 20,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.16 to the Liberty S-1 Registration Statement).
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10.17 Fourth Supplement to Inter-Group Agreement dated as of December 6,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.17 to the Liberty S-1 Registration Statement).
10.18 Fifth Supplement to Inter-Group Agreement dated as of December 10,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.18 to the Liberty S-1 Registration Statement).
10.19 Sixth Supplement to Inter-Group Agreement dated as of December 30,
1999, between and among AT&T Corp., on the one hand, and Liberty Media
Corporation, Liberty Media Group LLC and each Covered Entity listed on
the signature pages thereof, on the other hand (incorporated by
reference to Exhibit 10.19 to the Liberty S-1 Registration Statement).
10.20 Instrument dated January 14, 2000, adding The Associated Group, Inc.
as a party to the Inter-Group Agreement dated as of March 9, 1999, as
supplemented, between and among AT&T Corp., on the one hand, and
Liberty Media Corporation, Liberty Media Group LLC and each Covered
Entity listed on the signature pages thereof, on the other hand
(incorporated by reference to Exhibit 10.20 to the Liberty S-1
Registration Statement).
10.21 Restated and Amended Employment Agreement dated November 1, 1992,
between Tele-Communications, Inc. and John C. Malone (assumed by
Liberty as of March 9, 1999), and the amendment thereto dated June 30,
1999 and effective as of March 9, 1999, between Liberty and John C.
Malone (incorporated by reference to Exhibit 10.6 to the Liberty S-4
Registration Statement).
12 Computation of Ratio of Earnings to Fixed Charges.
21 Subsidiaries of Liberty Media Corporation (incorporated by reference
to Exhibit 21 to the Liberty 8 1/4% S-4 Registration Statement).
23.1 Consent of KPMG LLP.
23.2 Consent of Baker Botts L.L.P. (included in Exhibit 5).
24 Powers of Attorney.*
25 Statement of Eligibility of Trustee.*
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* Previously filed.
