<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
F O R M 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-20421
LIBERTY MEDIA CORPORATION
-------------------------------------------------
(Exact name of Registrant as specified in its charter)
State of Delaware 84-1288730
- -------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
9197 So. Peoria Street
Englewood, Colorado 80112
- --------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (720) 875-5400
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
<PAGE> 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
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
============ ============
(continued)
</TABLE>
I-1
<PAGE> 3
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>
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.
I-2
<PAGE> 4
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, 2000 March 31, 1999 February 28, 1999
----------------- ----------------- -----------------
amounts in millions
<S> <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.
I-3
<PAGE> 5
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
(subsidiary of AT&T Corp.)
Consolidated Statements Of Stockholder's Equity
(unaudited)
<TABLE>
<CAPTION>
Accumulated
other Due
Common stock Additional comprehensive (from) to
Preferred ------------------------- paid-in earnings, Accumulated related
stock Class A Class B Class C capital net of taxes deficit parties
--------- ------- ------- ------- ---------- ------------- ----------- ---------
amounts in millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 2000 $ -- -- -- -- 33,838 6,518 (1,975) 27
Net earnings -- -- -- -- -- -- 977 --
Foreign currency translation
adjustments -- -- -- -- -- (31) -- --
Recognition of previously
unrealized gains on available-
for-sale securities, net -- -- -- -- -- (1,476) -- --
Unrealized gains on available-for-
sale securities -- -- -- -- -- 3,256 -- --
Issuances of common stock by
subsidiary and affiliate, net of
taxes -- -- -- -- 73 -- -- --
Contribution of net liability from
related party (note 5) -- -- -- -- (69) -- -- --
Other transfers to related parties,
net -- -- -- -- 26 -- -- (43)
--------- ------- ------- ------- ---------- ------------- ----------- ---------
Balance at March 31, 2000 $ -- -- -- -- 33,868 8,267 (998) (16)
========= ======= ======= ======= ========== ============= =========== =========
</TABLE>
<TABLE>
<CAPTION>
Total
stockholder's
equity
-------------
<S> <C>
Balance at January 1, 2000 38,408
Net earnings 977
Foreign currency translation
adjustments (31)
Recognition of previously
unrealized gains on available-
for-sale securities, net (1,476)
Unrealized gains on available-for-
sale securities 3,256
Issuances of common stock by
subsidiary and affiliate, net of
taxes 73
Contribution of net liability from
related party (note 5) (69)
Other transfers to related parties,
net (17)
-------------
Balance at March 31, 2000 41,121
=============
</TABLE>
See accompanying notes to consolidated financial statements.
I-4
<PAGE> 6
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
Cash flows from operating activities: (note 2)
<S> <C> <C> <C>
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.
I-5
<PAGE> 7
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.
(continued)
I-6
<PAGE> 8
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Certain prior period amounts have been reclassified for comparability
with the 2000 presentation.
(2) Supplemental Disclosures to 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>
(continued)
I-7
<PAGE> 9
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
investments in affiliates $(200)
Liabilities reclassified to investments in affiliates 190
Minority interests in equity of subsidiaries reclassified to
investments in affiliates 63
-----
Decrease in cash and cash equivalents $ 53
=====
</TABLE>
(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, 2000 December 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
================= =================
(continued)
</TABLE>
I-8
<PAGE> 10
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
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)
============ ============ ============
(continued)
</TABLE>
I-9
<PAGE> 11
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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.
(continued)
I-10
<PAGE> 12
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
(continued)
I-11
<PAGE> 13
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
(continued)
I-12
<PAGE> 14
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
(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.
(continued)
I-13
<PAGE> 15
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(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.
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.
(continued)
I-14
<PAGE> 16
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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.
(continued)
I-15
<PAGE> 17
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
Flextech has undertaken to finance the working capital requirements of
a joint venture (the "Principal Joint Venture") formed with BBC
Worldwide, and is obligated to provide the Principal Joint Venture with
a primary credit facility of (pound)88 million and, subject to certain
restrictions, a standby credit facility of (pound)30 million. As of
March 31, 2000, the Principal Joint Venture had borrowed (pound)59
million under the primary credit facility. If Flextech defaults in its
funding obligation to the Principal Joint Venture and fails to cure
within 42 days after receipt of notice from BBC Worldwide, BBC
Worldwide is entitled, within the following 90 days, to require that
Liberty 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.
(continued)
I-16
<PAGE> 18
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 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.
(continued)
I-17
<PAGE> 19
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
(continued)
</TABLE>
I-18
<PAGE> 20
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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>
I-19
<PAGE> 21
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
GENERAL
The following discussion and analysis provides information concerning
our results of operations and financial condition. This discussion should be
read in conjunction with our accompanying consolidated financial statements and
the notes thereto.
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, Liberty Digital, 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., QVC Inc., UnitedGlobalCom, 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 Tele-Communications, Inc. ("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.
I-20
<PAGE> 22
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 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. See note 3 to the accompanying
consolidated financial statements. 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 three month period ended March
31, 2000, the one month period ended March 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. 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."
I-21
<PAGE> 23
<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.
I-22
<PAGE> 24
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.
I-23
<PAGE> 25
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.
I-24
<PAGE> 26
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.
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
effected 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.
I-25
<PAGE> 27
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 3-3/4% Senior Exchangeable Debentures due 2030
and the 4% Senior Exchangeable Debentures due 2029. The carrying amount of the
exchangeable debentures in excess of the principal amount (the "Contingent
Portion") is based on the fair value of the underlying Sprint PCS Group Stock.
The increase or decrease in the Contingent Portion is recorded as an increase or
decrease to interest expense in the combined statement of operations and
comprehensive earnings. 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.
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 of
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 of 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 of 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.
I-26
<PAGE> 28
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 studios 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, 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.
I-27
<PAGE> 29
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 commended 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 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 $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.
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.
I-28
<PAGE> 30
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 million 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 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.
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 its 3-3/4% Senior Exchangeable Debentures due 2030.
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 its 3-3/4% Senior Exchangeable Debentures due 2030.
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% ($20 billion at March 31,
2000) of the total market capitalization of the Liberty Media Group tracking
stock, 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.
I-29
<PAGE> 31
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 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 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. 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 Group 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 Group 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.
I-30
<PAGE> 32
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.
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 (pound)88
million and, subject to certain restrictions, a standby credit facility of
(pound)30 million. As of March 31, 2000, this joint venture had borrowed
(pound)59 million under the primary credit facility. If Flextech 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 Flextech'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 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 month 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.
I-31
<PAGE> 33
Item 3. Quantitative and Qualitative Disclosures about 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 three months ended March 31, 2000 and 1999,
Liberty would have recorded approximately $2 million and $5 million of
additional interest expense, respectively. At March 31, 2000, the aggregate fair
value of Liberty's 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 have been used to hedge certain 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 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 senior
exchangeable debentures 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 decreased in value by 10%.
I-32
<PAGE> 34
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.
I-33
<PAGE> 35
LIBERTY MEDIA CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit -
(27) Liberty Media Corporation Financial Data Schedule
(b) Reports on Form 8-K filed during the quarter ended March 31,
2000:
<TABLE>
<CAPTION>
Date of Items
Report Reported Financial Statements Filed
------ -------- --------------------------
<S> <C> <C>
January 25, 2000 Items 5 and 7 None.
</TABLE>
II-1
<PAGE> 36
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIBERTY MEDIA CORPORATION
Date: May 12, 2000 By: /s/ Charles Y. Tanabe
--------------------------------------
Charles Y. Tanabe
Senior Vice President and
General Counsel
Date: May 12, 2000 By: /s/ Kathryn Scherff
--------------------------------------
Kathryn Scherff
Vice President and Controller
(Principal Financial Officer
and Principal Accounting
Officer)
II-2
<PAGE> 37
EXHIBIT INDEX
The following exhibit is filed herewith (according to the number assigned to it
in Item 601 of Regulation S-K) as noted:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
<S> <C>
(27) Liberty Media Corporation Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 2,177
<SECURITIES> 525
<RECEIVABLES> 175
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,127
<PP&E> 465
<DEPRECIATION> 24
<TOTAL-ASSETS> 66,889
<CURRENT-LIABILITIES> 4,255
<BONDS> 6,810
0
0
<COMMON> 0
<OTHER-SE> 41,121
<TOTAL-LIABILITY-AND-EQUITY> 66,889
<SALES> 0
<TOTAL-REVENUES> 235
<CGS> 0
<TOTAL-COSTS> 174
<OTHER-EXPENSES> 144
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 439
<INCOME-PRETAX> 1,679
<INCOME-TAX> (702)
<INCOME-CONTINUING> 977
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 977
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
