Liberty Media Corp

Liberty Media Corporation
Annual Report
April 2002

CONTENTS

Letter to

Shareholders

Stock Performance

Company Profile

Financial Information

1

9

11

F-1

Corporate Data

Inside Back Cover

Certain statements in this document may constitute ‘‘forward-looking statements’’ within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could
cause the actual results, performance or achievements of Liberty Media Corporation and subsidiaries or industry results, to differ materially
from any future results, performance or achievements expressed or implied by such forward-looking statements. Such risks, uncertainties
and other factors include among others: the risks and factors described in the publicly filed documents of Liberty Media Corporation,
including the most recently filed Form 10-K of Liberty Media Corporation; general economic and business conditions and industry trends
including in the advertising and retail markets; the continued strength of the industries in which we operate; uncertainties inherent in
proposed business strategies and development plans; rapid technological changes; future financial performance, including availability, terms
and deployment of capital; availability of qualified personnel; changes in, or the failure or the inability to comply with, government regulation,
including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings;
changes in the nature of key strategic relationships with partners and joint ventures; competitor responses to LIberty Media Corporation’s
products and services, and the overall market acceptance of such products and services, including acceptance of the pricing of such products
and services. These forward-looking statements speak only as of the date of this document. Liberty Media Corporation expressly disclaims
any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any
change in Liberty Media Corporation’s expectations with regard thereto or any change in events, conditions or circumstances on which any
such statement is based.

To Our Shareholders:

Welcome to the new Liberty Media Corporation.

The last time we provided a shareholder report was in April 2000. The world in which
we live has changed dramatically since then and a dynamic financial and economic
climate has created both challenges and opportunities for the extended Liberty family.
As a result, we have continued to refine our business tactics and our corporate
structure to position ourselves to address these challenges and to create new
opportunities in a way that fulfills Liberty’s established goal to maximize shareholder
value over the long-term.

Our longtime shareholders will recall that this is the fourth stage of Liberty Media’s
evolution. The first was in 1991 when Liberty was created through a rights offering by
Tele-Communications, Inc. (TCI). At the time, we held a combination of both cable
and programming assets. That initial phase ended in 1994 when we were reacquired
by TCI. Liberty II got its start in 1995 when TCI distributed Liberty Media tracking
stock to its shareholders. In this iteration, our principal assets were composed of
holdings in domestic programming networks. In 1999, AT&T acquired TCI and issued
tracking shares in Liberty III to the former holders of TCI’s Liberty and TCI Ventures
tracking stocks. The combination with TCI Ventures added technology, wireless
telephone and international cable and programming businesses to our asset mix. The
current version, Liberty IV, was created in August 2001 when Liberty split-off from
AT&T.

Liberty’s evolution over the past 11 years reflects the dynamic opportunism that is at
the core of our strategy and our enterprise. We are today and indeed, have always
been, focused on creating long-term value for our shareholders. We are neither trying
to grow our reported earnings by a constant rate nor trying to meet particular financial
ratios. We manage our business portfolio with a single goal: to maximize the overall
returns on our invested equity over a rolling five- to seven-year period. We believe
that consistent application of
this philosophy, combined with discipline, patience,
focus and a prudent capital structure will result in superior long-term returns for our
shareholders.

A Consistent, Disciplined Approach to Value Creation

Our approach to value creation has always had three primary components.

Š

Š

The first component
expansion of existing businesses and investment in new opportunities.

is growth of our business operations. This includes

is execution of

The second component
transactional activity. This includes
acquisitions and investments that start a new business or add to an existing one.
It also encompasses business combinations in which we seek to amalgamate our
businesses with others to improve scale economics, enhance the liquidity of our
holdings or in some case, exit the business.

1

Š

The third and final component
is management of our capital structure. We
employ a range of financial techniques to raise capital, manage interest rate and
foreign currency risk, reduce exposure and/or benefit from market fluctuations in
some of our publicly traded company holdings, and maintain our access to capital
markets.

An Excellent Year for Our Non-Public Affiliates

Several of our affiliated companies are publicly traded and produce their own annual
reports. Therefore, we will only highlight the 2001 performance of our non-public
affiliates in this report.

StarzEncore Group (SEG) had a very good year with 18 percent revenue growth and
a 33 percent
increase in operating cash flow (defined here as earnings before
interest, depreciation, stock-related compensation and amortization). The revenue
increase reflects the success of the digital strategy that SEG founder and CEO John
Sie and his management team began to deploy in 1994. By targeting its product line
and pricing to make them more attractive to satellite distributors and cable operators
launching digital cable service, SEG has benefited disproportionately in the growth of
these two distribution platforms in the past several years. At the end of 2001, SEG
customers subscribed to more than 114 million different service units, compared with
88 million at the end of 2000 and just 58 million in 1999. We expect this growth to
continue into 2002. In addition, we hope to see early results from some of the new
services that SEG is beginning to offer, such as subscription video on demand. In
conjunction with the new technology being deployed by cable and satellite operators,
this service will give subscribers access to the SEG movies on demand for a
reasonable monthly subscription fee, rather than only at a scheduled time.

Discovery Communications, Inc. (DCI) continued its domestic and international
expansion during 2001. At the end of the year, the company that John Hendricks
founded in mid-1985 with just 156,000 subscribers, operated 33 networks in 33
languages and 155 countries. The DCI networks counted 670 million total
subscriptions, making DCI by far the largest provider of television networks in the
world. Despite one of the worst years in the advertising market in recent memory, DCI
delivered revenue growth of more than five percent and nearly doubled operating
cash flow to $375 million in 2001. What’s more, DCI turned in solid subscriber and
primetime audience growth across its domestic networks. However, the company was
not
that affected most media
companies in 2001. This resulted in a slight decrease in domestic network advertising
revenue in 2001. Nonetheless, the tremendous expansion in its newer domestic and
international networks has permitted DCI to continue to grow despite the adverse
domestic market conditions. We expect substantially all of DCI’s domestic and
international networks to produce positive operating cash flow in 2002.

immune to the same sluggish advertising market

2

QVC continued to exceed expectations over the past year and expand its leading
presence in the electronic retailing marketplace. With 2001 revenue growth of 11
percent to more than $3.9 billion and operating cash flow growth of 17 percent to
$722 million, we are excited about future prospects at QVC. QVC is taking its promise
of quality, value and convenience to the international market where its operations in
the U.K. and Germany continue to show improvement. Closer to home, QVC
recorded its highest one day sales in the company’s history during the fourth quarter,
with more than $80 million in sales in a 24-hour period.

In Japan, our 35 percent-owned distribution company, Jupiter Telecommunications
(J-Com), and our 50 percent-owned programming company, Jupiter Programming
(JPC), are good examples of why we think there are excellent
investment
opportunities in other parts of the world. Our attributed share of revenue from our
businesses in Japan increased by 34 percent in 2001, and operating cash flow
improved to almost breakeven for the year. This is the result of 40 and 26 percent
increases in revenues at J-Com and JPC respectively. J-Com is expanding its
footprint
throughout Japan and leading the consolidation in the Japanese cable
industry. At the end of 2001, J-Com served almost 1.4 million cable subscribers – an
increase of more than 50 percent from year-end 2000 – as well as 166,000 telephone
customers and 378,000 Internet customers. J-Com also boasts some of the highest
average monthly revenue per customer in the world at almost $50 per month. We
expect J-Com to show positive operating cash flow for the full year ending 2002, and
we expect to continue to capitalize on consolidation opportunities in Japan. JPC
growth was fueled by strong gains at its core group of networks, as well as by the
rapid success of six networks that were launched in 2000. The success of these new
networks in such a short time highlights a core strategy at Liberty Media – leveraging
the relationship between distribution and content to the benefit of both. Virtually all of
JPC’s 12 networks have already achieved breakeven or positive operating cash flow.

CourtTV was one of the fastest-growing cable television networks in 2001, with more
than 68 million subscribers at year end. CourtTV’s revenues grew by more than 25
revenue
percent in 2001, and we expect the network to achieve better than 20 percent
growth in 2002 while delivering positive operating cash flow – a tremendous
improvement over the past three years.

We also are pleased with the early results of Game Show Network, in which we
acquired a 50 percent interest last year. At the end of 2001, Game Show Network’s
subscribers numbered more than 40 million, an increase of almost 50 percent over
the end of 2000. New management has been very effective in raising awareness of
the network, expanding distribution and improving viewership.

Significant Strategic Transactions

We completed or announced a number of very significant transactions in 2001. Each
was unique in its purpose and circumstances, but they all met at least one of our

3

three core objectives: to enter a new business, to increase scale in an existing
business, or to exit a business.

the largest operator of cable television systems outside of

In the fall of 1999, we purchased an 11 percent equity stake in UnitedGlobalCom
(UGC),
the U.S. We
acquired this position because we sensed opportunities to expand the business and
to use the large cable television business as a platform upon which we could create
other related businesses. In January of 2002 we acquired additional
interests in a
restructured UGC in exchange for cash and debt securities of its principal subsidiary.
We currently own approximately 74% of its outstanding equity.

The dramatic shift in the capital markets in late 2000 and throughout 2001 effectively
prohibited developing telecommunications companies from raising the capital
necessary to complete their development, and many of their original assumptions
proved to be overly optimistic. In the subsequent collapse of the debt and equity
markets, we perceived an opportunity to expand our European activities beyond our
interests in UGC and Telewest Communications plc, a broadband services provider in
the United Kingdom.

As a part of that effort, we attempted to secure 60 percent of the cable subscribers in
the largest market in Europe by acquiring six of the nine regional cable television
companies in Germany. We viewed this as an opportunity to own and control a large
European cable television business, and use it as a gravitational center around which
we could build and attach other businesses. However, while we recognized the
opportunity, we were also aware of the risks. German consumers have a rich variety
of television programming available to them at low cost, and the local telephone
company has been quite aggressive in its marketing of high-speed Internet services.
Thus, to leverage two of the largest potential revenue opportunities – additional levels
of programming service and Internet – would be very challenging. What’s more, we
would not be able to offer these additional services without making a substantial
capital commitment
In addition, the
industry is structured in such a way that the company we were attempting to buy only
had direct access to about one-third of the actual customer base. The remaining
subscribers were served by intermediary companies to which our business would be
a wholesaler.

to upgrade the physical distribution network.

Given these challenges and our other objectives, we determined at the outset that we
would only be willing to proceed with the acquisition if we were permitted to do three
the
things: acquire some of
business from a passive transporter of networks owned and marketed by others to a
retailer of services to end customers, and invest in programming networks. Without
this flexibility, we felt that the risks were too high given the size of the investment, and
we believed that we would be better off pursuing other opportunities. In the end, the
German anti-trust authorities turned down our proposed acquisition and the

the intermediary businesses, change the nature of

4

associated changes to the business model. We elected not to appeal this decision.
While it could have been an excellent opportunity under the right conditions because
it nicely complemented our objectives in European cable, the strategic fit didn’t justify
the potential risks.

In 2001 we completed the last of the transactions associated with the assembly of
Liberty Livewire that were initiated in 2000. Livewire’s mission is to become the global
leader
in providing technical and creative solutions to producers, owners and
distributors of content. Livewire provides a scaled global platform of end-to-end
traditional and digital media services for advertisers, studios, programming networks,
and multi-channel video providers. We expect Livewire to be a leading contributor to
the development of new digital media services and applications, which will serve the
benefit of many of our affiliate companies as well as the broader media industry.

We also completed a transaction in 2001 in which we exchanged our 21% interest in
Gemstar-TV Guide International for News Corporation shares. As a result of the
transaction we now are one of the largest shareholders in News Corporation with an
18% interest. This transaction allowed us to diversify our risk and to enhance the
liquidity of our holding.

In late 2001, we announced our agreement to exchange a portion of our interest in
USA Networks Inc. and certain other assets for shares in Vivendi Universal as part of
a larger transaction between USA and Vivendi. In the larger transaction, Vivendi will
acquire USA’s entertainment assets such as USA Network and the Sci Fi Channel in
exchange for cash and securities convertible into the 40 percent stake in USA
Networks held by Vivendi. In effect, Vivendi’s holdings in USA will be redeemed for
USA’s entertainment assets. After the fact, we will own approximately the same 20
percent of the remaining company, USA Interactive, that we currently hold in USA
Networks, and we will own approximately three percent of Vivendi.

We also completed a transaction in early 2001 in which Viacom acquired Black
Entertainment Television (BET). We were a founding investor in BET in 1980. The
transaction was an excellent opportunity to exit the business at a price that reflected
the synergies that Viacom, with its MTV networks and other media assets, could
create. As a result of the transaction, we received 15.2 million shares of Viacom.

In a similar transaction, in November we and our partners announced an agreement
to sell Telemundo to General Electric’s NBC for $2.2 billion. Together with Sony and
other investors, we had acquired Telemundo in 1998 for $780 million. At the time we
saw the tremendous growth in the size and attractiveness to advertisers of
the
Spanish-speaking market
In addition, we owned cable and network
businesses in Latin America that might prove complementary. However, as the
television station ownership rules relaxed, it became clear that the business would be
more valuable to a company that already owned television stations in major markets.

in the U.S.

5

As in the case of BET, industry consolidation and scale economics created a situation
in which the business was more valuable to the buyer than it was to us. We
completed this transaction in April 2002, and we received more than $675 million of
cash.

Active and Aggressive Financial Management

We were particularly active in the financial management arena in 2001. As we were
anticipating a potential decline in public company stock prices, we took aggressive
steps during the year to protect some of our public stock holdings. We used financial
instruments to limit our downside risk in these holdings and to extract liquidity from
non-strategic investments in a tax-efficient manner.

instruments to achieve these objectives:
Specifically, we used two types of
exchangeable debentures and equity collars. The exchangeable debentures give the
holder the right to exchange the debentures, at any time prior to maturity, into a fixed
number of shares of stock that we hold in another company. They can be
advantageous because the exchange right permits a lower interest rate. In 2002 we
issued a total of $1.4 billion of these securities, exchangeable into Motorola and
Viacom shares.
In addition, during 2000 we issued $1.8 billion of debentures
exchangeable into Sprint PCS stock. In the aggregate, the amount of cash we raised
from issuing these securities exceeded the public trading value of the underlying
stocks held by Liberty by $1.3 billion at the end of 2001 and by $1.7 billion at March
31, 2002.

Equity collars are options with two components: a put and a call. We purchase a put
right, giving us the right to require the counterparty to buy a given number of shares in
a company from us on a specified date at a certain price. We simultaneously sell a
call right on the same number of shares in the same company. Normally, the put
strike price is set at a small discount and the call strike price is set at a premium to the
current market price. In this way, we are protected if the stock price declines and we
benefit if it increases. During 2001, we entered into equity collars of varying lengths
with respect to some of our shares in a number of companies. Including the equity
collars into which we entered in 1999 and 2000, the total minimum value of the
covered shares, as measured by the number of shares times the price of the put, was
$9.4 billion at the end of 2001 and $8.3 billion at March 31, 2002. That exceeded the
public market value of those shares held by Liberty by $2.1 billion at the end of 2001
and by $3.7 billion at March 31, 2002.

The combined extra value created by the exchangeable debentures and equity collars
was $3.4 billion, or approximately $1.25 per Liberty share outstanding at the end of
2001, and $5.4 billion, or more than $2 per Liberty share outstanding at March 31,
2002. This demonstrates the important role that financial management plays in our
overall value creation strategy.

6

At the end of 2001, we had approximately $2.7 billion of corporate cash available to
us and little in the way of ongoing capital expenditure, working capital or funding
requirements. At the corporate level we owed approximately $3.1 billion under the
exchangeable debentures described above. We also had outstanding another $2.5
billion in long-term public notes and debentures, and $1.1 billion in other debt
instruments (some of which has been subsequently repaid). We believe that this debt
level is modest given our cash on hand and the market value of our public equity
securities, equity collars and private investments. Our substantial liquidity position is
not an accident, but rather the result of careful planning and policy. In view of the
uncertain economic climate, we think it’s prudent to maintain substantial
liquidity,
positioning us to take advantage of opportunities as they arise.

In the fall of 2001, we announced that we would consider creating a tracking stock to
reflect
the performance of our expanding international cable television and
programming business. We expect to present the proposal to create this new security
for shareholder approval this summer. The new security has several uses. We would
like to create a way for investors to participate in the performance of this business, as
well as to have a security that we can use to make acquisitions in the business. Also,
given that the foreign cable companies frequently carry higher amounts of debt than
we do at the parent level, we would like to isolate the credit characteristics of those
businesses from our other activities. The first step in the process is to seek
shareholder approval for the structural changes and corporate charter amendments
necessary to create the tracking stock. Assuming that our shareholders approve
these steps, we will determine the best way to issue the new security at a future date.

A Favorable Long-Term Outlook

The market value of our company on any given day is heavily influenced by the
In the media
general market sentiment
businesses, that market sentiment is, at the moment, clouded by uncertainty with
respect
In
telecommunications, high-profile collapses and fears about high debt leverage and
capital spending requirements continue to suppress investor interest.

to the timing of a recovery in the market

the sectors in which we operate.

for television advertising.

for

In the long-term the value of our business will depend on four things:
Š

The success of our operating companies;

Š Our skill in defending ourselves against swings in investor attitude for our public

companies;

Š Our ability to maintain adequate liquidity to take advantage of opportunities; and
Š Our discipline in distinguishing real opportunities to create long-term value from
the chance simply to buy at prices that are lower than they were in the past.

7

In the past few months, we have pursued a number of acquisitions, most notably in
European cable. We have a presence in that market and we believe that additional
consolidation can create a more attractive business for us. Despite the apparent
strategic opportunity and the fact that prices are much lower than they were two years
ago, we abandoned several of those efforts because conditions weren’t right. Either
the operating environment was unsatisfactory or other buyers, usually financial
players, put a higher value on the assets than we did. It is always disappointing to
devote substantial resources to projects that don’t come to fruition. Disappointment
fades as new situations arise. Destruction of shareholder value, on the other hand, is
permanent.

We remain as committed as ever to our history of opportunism and our strategy for
value creation. Though the acquisition aspect of the strategy receives the most public
attention, our operating businesses quietly become more profitable and more valuable
likely
every day. In the overall scheme of things, this persistent improvement will
contribute more to our long-term value than any individual acquisition. This fact
makes it much easier to be patient in uncertain times.

We’d like to thank you very much for your continued support of our efforts. We are all
significant shareholders in the company and we join you in the thrill of a robust stock
price as well as the pain of a decline in value. Our interests are directly aligned with
to position Liberty Media
yours, and you can be assured we will do our best
Corporation to grow and prosper in the years to come.

Very truly yours,

Robert R. Bennett
President and CEO

John C. Malone
Chairman of the Board

8

STOCK PERFORMANCE

On August 10, 2001, Liberty Media split off from AT&T Corp. and, effective January 2002, began
trading under the new stock symbols L and LMC.B on the New York Stock Exchange. The following
tables illustrate the performance of the Liberty Media Corporation Series A Common Stock since it was
initially issued by TCI in August of 1995 in comparison to its peers, and in comparison to the S&P 500
and Nasdaq indices.

9

10

COMPANY PROFILE

Liberty Media holds interests in a broad range of domestic and international video programming,
communications, technology and Internet businesses. A complete listing of Liberty Media’s domestic
and international programming networks and businesses is included in the table below.

The following table sets forth Liberty’s assets that are held directly and indirectly through partnerships,
joint ventures, common stock investments and instruments convertible into common stock. Ownership
percentages in the table are approximate and, where applicable, assume conversion to common stock
by Liberty and, to the extent known by Liberty, other holders. In some cases, Liberty’s interest may be
subject to buy/sell procedures, repurchase rights or, under certain circumstances, dilution.

ENTITY

SUBSCRIBERS
AT 12/31/01
(000’s)

YEAR
LAUNCHED

ATTRIBUTED
OWNERSHIP AT
03/31/02

VIDEO PROGRAMMING/INTERACTIVE TELEVISION SERVICES

AOL Time Warner Inc. (NYSE: AOL)(1)

Corus Entertainment Inc.(2)
(TSE: CJR.B; NYSE: CJR)

Court TV

Crown Media Holdings, Inc.
(Nasdaq: CRWN)

Discovery Communications, Inc.

Discovery Channel
The Learning Channel
Animal Planet
Travel Channel
Discovery Health Channel
Discovery Digital (aggregate units)(3)

Discovery Civilization
Discovery Home & Leisure
Discovery Kids
Discovery Science
Discovery Wings
Discovery en Español

Animal Planet Asia
Animal Planet Europe
Animal Planet Japan(4)
Animal Planet Latin America
Animal Planet UK
Discovery Asia
Discovery Canada
Discovery India
Discovery Japan(4)
Discovery Europe
Discovery Turkey
Discovery Germany
Discovery Italy/Africa
Discovery Latin America

68,100

1991

85,587
82,703
76,083
60,943
28,638
54,208

42,533
9,422
1,168
10,001
6,950
45,642
7,055
23,405
2,923
25,701
1,035
2,194
2,216
14,834

11

1985
1980
1996
1987
1999

1996
1996
1996
1996
1998
1998
1998
1998
2000
1998
1998
1994
1995
1996
1996
1989
1997
1996
1996
1996

4%

17%

50%

13%

50%

25%

25%

10%

25%

ENTITY

SUBSCRIBERS
AT 12/31/01
(000’s)

YEAR
LAUNCHED

ATTRIBUTED
OWNERSHIP AT
03/31/02

VIDEO PROGRAMMING/INTERACTIVE TELEVISION SERVICES (Cont.)

Discovery Latin America Kids Network
Discovery Middle East
People & Arts (Latin America)
Discovery Home & Leisure (Europe)
Europe Showcase
Health Latin America
Health UK
Travel & Adventure (Latin America)
Discovery.com, Inc.

DMX MUSIC, Inc.

E! Entertainment Television

Style

Flextech Limited (UK)

Bravo
Challenge TV
Living
SMG
Trouble
TV Travel Shop
UK Drama (UKTV)
UK Gold (UKTV)
UK Gold Classics (UKTV)
UK Horizons (UKTV)
UK Style (UKTV)
UK Play (UKTV)

Fox Family Worldwide, Inc.

Game Show Network

International Channel

Canale ñ(3)

Jupiter Programming Co., Ltd. (Japan)

Animal Planet
Cable Soft Network
Nikkei CNBC
Discovery Japan
Golf Network
Jidaigeki
JSky Sports
Kids Station
La La Media
Nihon-Eiga
Premium Anime Channel (AT-X)
Shop Channel

MacNeil/Lehrer Productions

11,602
214
12,155
7,376
23,458
5,383
5,360
4,279
Online

9,021

70,399
17,158

7,605
7,217
7,698
N/A
7,514
10,332
6,605
8,829
6,333
7,721
7,799
7,828

40,859

11,806
45

1,168
3,931
N/A
2,923
3,136
1,818
2,901
4,160
1,152
674
41
6,506

N/A

12

1996
1997
1995
1999
1998
2000
2000
2000
1995

1986

1990
1998

1985
1993
1993
1957
1984
1998
1997
1992
1999
1997
1997
1998

1990
1998

2000
1989
1997
1996
1996
2000
1998
2000
2000
2000
2000
1996

N/A

25%

56%(5)

10%

25%
25%
25%
25%
4%
25%
9%
12%
12%
12%
12%
12%
12%

(6)

50%(5)

90%

50%
17%
50%
10%
25%
45%
5%
29%
8%
50%
5%
7%
35%

67%

ENTITY

SUBSCRIBERS
AT 12/31/01
(000’s)

YEAR
LAUNCHED

ATTRIBUTED
OWNERSHIP AT
03/31/02

VIDEO PROGRAMMING/INTERACTIVE TELEVISION SERVICES (Cont.)

MultiThématiques, S.A.
Canal Jimmy (France)
Canal Jimmy (Italy)
Ciné Cinémas (Benelux/Scandanavia)
Ciné Cinémas (France)
Ciné Cinémas (Italy)
Ciné Classics (France)
Ciné Classics (Spain)
Ciné Classics (Italy)
Eurochannel (Brazil)
Planète (Germany)
Planète (Italy)
Planète (Poland)
Seasons (France)
Seasons (Italy)
Seasons (Poland)
Seasons (Spain)

The News Corporation Limited(9)

(NYSE: NWS.A; ASX: NCPDP)

Pramer S.C.A. (Argentina)

America Sports
Canal á
Cineplaneta
elgourmet.com
Film & Arts
GEMS International
Magic Kids
P&E
Plus Satelital
Rio de la Plata

The Premium Movie Partnership

(Australia)

QVC, Inc.
QVC
QVC-The Shopping Channel (UK)
QVC-Germany
QVC-Japan
iQVC

Starz Encore Group LLC

Encore
MOVIEplex
Thematic Multiplex (aggregate units)(3)

Love Stories
Westerns

2,632
1,007
38
1,651
160
1,453
231
160
904
2,266
1,010
2,033
142
53
453
37

2,423
4,162
2,028
4,508
6,348
3,450
4,156
1,687
3,902
76

909

71,889
9,138
23,283
2,894
Online

18,798
6,575
76,009

13

1991
1997
2000
1991
1997
1991
1995
1997
2000
1997
1997
1996
1996
1997
2000

1990
1996
1997
2000
2000
N/A
1995
1996
1988
2000

1995

1986
1993
1996
2001
1995

1991
1995

1994
1994

27%(7)

14%

18%(8)

100%

20%

43%

34%

100%

ENTITY

SUBSCRIBERS
AT 12/31/01
(000’s)

YEAR
LAUNCHED

ATTRIBUTED
OWNERSHIP AT
03/31/02

VIDEO PROGRAMMING/INTERACTIVE TELEVISION SERVICES (Cont.)

Mystery
Action
True Stories
WAM! America’s Kidz Network

STARZ!

STARZ! Theater(3)
BLACK STARZ!(3)
STARZ! Family(3)
STARZ! Cinema(3)

Telemundo Communications Group

Torneos y Competencias, S.A.

USA Networks, Inc. (Nasdaq: USAI)(11)

Viacom Inc. (NYSE: VIA)(13)

1994
1994
1994
1994

1994
1996
1997
1999
1999

N/A

N/A

12,987

N/A

N/A

ENTITY

BUSINESS DESCRIPTION

VIDEO PROGRAMMING/INTERACTIVE TELEVISION SERVICES

ACTV, Inc.
(Nasdaq: IATV)

Producer of tools for interactive programming for
television and Internet platforms.

Liberty Livewire Corporation
(Nasdaq: LWIRA)

Provides a wide range of traditional audio and video
post-production, transmission, library services, and
audio/video distribution services via satellite and fiber
to worldwide clients in the feature film, television and
advertising industries. Also provides interactive
television services under the brand name “HyperTv
with Livewire.”

35%(10)

54%

20%(7)(12)

<1%

ATTRIBUTED
OWNERSHIP
AT 03/31/02

19%(14)

87%(15)

priceline.com, Incorporated
(Nasdaq: PCLN)

E-commerce service allowing consumers to make
offers on products and services.

4%

Arris Group, Inc.
(Nasdaq: ARRS)

Motorola, Inc.
(NYSE: MOT)

TECHNOLOGY AND MANUFACTURING

Manufacturer of products for hybrid fiber/coaxial
broadband networks.

Provider of integrated communications solutions and
embedded electronic solutions.

9%

4%(16)

TruePosition, Inc.

Provider of wireless location technology and services.

89%

14

HOMES IN
SERVICE
AREA/PASSED
12/31/01 (17)
(000)

BASIC
SUBS
12/31/01(18)
(000)

TELEPHONE
LINES
12/31/01
(000)

INTERNET
SUBS
12/31/01

ATTRIBUTED
OWNERSHIP
AT 03/31/02

ENTITY

CABLE AND TELEPHONY

5,281/3,516

1,438

650/582

243

N/A

N/A

50

N/A

Cablevisión S.A.
(Argentina)

Chorus Communication
Limited (Ireland)
(formerly Princes
Holdings Limited)

Digital Latin America LLC

N/A

94

N/A

N/A

IDT Corporation
(Nasdaq: IDTC)

Jupiter Telecommunications
Co.,Ltd. (Japan)

Liberty Cablevision of
Puerto Rico, Inc.

Metrópolis-Intercom, S.A.
(Chile)

8,080/6,690

1,366

442/300

1,600/1,121

125

268

166

N/A

N/A

378

N/A

13

Omnipoint Communications, Inc.

50%

50%

43%

17%

36%

100%

50%

4%

21%(19)

Sprint PCS Group
(NYSE: PCS)

Telewest
Communications plc (UK)
(LN: TWT) (Nasdaq: TWSTY)

The Wireless Group
(LN: TWG)

UnitedGlobalCom, Inc.
(Nasdaq: UCOMA)

6,074/4,914

1,343

2,206

388

25%

30%

78%(20)

15

ENTITY

BUSINESS DESCRIPTION

SATELLITE COMMUNICATIONS SERVICES

ATTRIBUTED
OWNERSHIP
AT 03/31/02

Liberty Satellite & Technology, Inc.
(OTC: LSTTA/LSTTB)

Foresees strategic opportunities worldwide in the
distribution of internet data and other content via
satellite and related businesses.

85%(21)

39%

85%

27%

<1%

54%

9%

13%

<1%

3%

Aerocast.com, Inc.

Ascent Network Services

Astrolink International LLC

Hughes Electronics Corporation
(NYSE: GMH)

On Command Corporation
(Nasdaq: ONCO)

Sky Latin America

Wildblue Communications, Inc.

XM Satellite Radio Holdings, Inc.
(Nasdaq: XMSR)

Cendant Corporation
(NYSE: CD)

Net2Phone Inc.
(Nasdaq: NTOP)

Developer of terrestrial and satellite network to
distribute streaming media to businesses and
consumers.

Provides uplink services to the NBC television
network.

Astrolink is building a global communications
system for the delivery of next-generation
broadband service in over 40 countries.

A subsidiary of General Motors Corporation
providing digital television entertainment
(DirecTV), satellite services and satellite-based
private business networks.

Provider of in-room interactive entertainment,
Internet access, Business information and guest
services for the lodging industry.

Satellite delivered television platform currently
servicing Mexico, Brazil, Chile, Columbia and
Argentina.

Will build a ka-band satellite network that will
focus on providing broadband services to homes
and small offices in North America and Latin
America.

Will transmit up to 100 national audio channels of
music, news, talk, sports and children’s
programming from two satellites directly to
vehicle, home and portable radios.

OTHER

Franchisor of hotels, rental car agencies, tax
preparation services & real estate brokerage
offices. Provides access to insurance, travel,
shopping, auto and other services primarily
through buying clubs. Provides vacation time
share services, mortgage services and employee
relocation. Operates in over 100 countries.

Provider of voice and enhanced services over IP
networks to consumers, businesses and carriers
worldwide.

16

COMPANY

CLASS

SHARES AT 03/31/02

ACTV, Inc.
(Nasdaq: IATV)

Alloy Online, Inc.
(Nasdaq: ALOY)

AOL Time Warner Inc.
(NYSE: AOL)

Arris Group, Inc.
(Nasdaq: ARRS)

Cendant Corporation
(NYSE: CD)

Corus Entertainment Inc.
(TSE: CJR.B; NYSE: CJR)

Crown Media Holdings, Inc.
(Nasdaq: CRWN)

IDT Corporation
(Nasdaq: IDTC)

PUBLIC STOCK INVESTMENTS

Common
Warrants

Common

8,805,000(5)
2,500,000(14)

2,922,294(5)

Series LMCN-V Common

171,185,826(22)

Common
Options

Common

Class B Non-Voting

Class A Common

6,827,000

854,342(22)(23)

26,356,979

7,125,000

9,416,746

Class B Common

10,260,303

Liberty Livewire Corporation
(Nasdaq: LWIRA)

Liberty Satellite & Technology, Inc.
(OTC: LSTTA/LSTTB)

Class A Common
Class B Common

Class A Common
Class B Common

Lightspan, Inc.
(Nasdaq: LSPN)

Motorola, Inc.
(NYSE: MOT)

The News Corporation Limited
(NYSE: NWS.A)(ASX: NCPDP)

Open TV, Inc.
(Nasdaq: OPTV)

priceline.com, Incorporated
(Nasdaq: PCLN)

Primedia
(NYSE: PRM)

Sprint PCS Group
(NYSE: PCS)

45,600(15)
35,272,649(15)

603,595
36,578,594(22)(24)

4,059,302(5)
11,773(25)

71,296,650
18,419,550(16)

Common
Warrants

Common
Warrants

Preferred Limited Voting ADRs

231,932,575(8)

2,252,252(5)

8,458,333

8,000,000

192,043,102
12,582,628(22)(26)
8,021,302(22)(27)

Common

Common

Common

Series 2 Common
Warrants
Convertible Preferred

17

COMPANY

CLASS

SHARES AT 03/31/02

PUBLIC STOCK INVESTMENTS (Cont.)

Telewest Communications plc
(LN: TWT)

Ordinary Shares
Convertible Limited Voting Shares

The Wireless Group plc
(LN: TWG)

USA Networks, Inc.
(Nasdaq: USAI)

UnitedGlobalCom, Inc.
(Nasdaq: UCOMA)

Viacom Inc. (NYSE: VIA)

XM Satellite Radio, Inc.
(Nasdaq: XMSR)

Ordinary Shares
B Ordinary

Common
B Common

Class A Common
Class C Common

Class B Common

Class A Common

722,205,225(22)
22,185,093(22)

21,146,374

1,166,000(22)

102,233,553(7)(12)

51,199,996

3,493,570(20)
303,123,542(20)

15,182,499

1,000,000

(1) AOL Time Warner has interests in Internet Services, including AOL, Netscape and CompuServe;
filmed entertainment and television production including Warner Brothers and New Line Cinema;
recorded music and music publishing; book and magazine publishing; cable television systems;
cable television programming and television broadcasting, including: CNN, Cartoon Network,
Headline News, TNT, Turner Classic Movies, WTBS Superstation, HBO, Cinemax, and the WB
Television Network.

(2) Corus is one of Canada’s leading media companies focused on children’s programming and
music. Its principal assets consist of 49 radio stations, specialty television networks, Pay TV,
conventional television assets, and Nelvana Limited, an international producer and distributor of
children’s programming and products.

(3) Digital services.

(4)

Liberty’s attributed ownership interest in this entity is listed under Jupiter Programming Co., Ltd.
of which Liberty Media International, Inc. owns 50%.

(5) On March 14, 2002, Liberty Media completed its planned acquisition of Liberty Digital, Inc. Each
Liberty Digital stockholder received 0.25 shares of Liberty Media Corporation Series A common
stock for each share of Liberty Digital, Inc. Series A common stock held. As a result of the
merger, Liberty Media owns 100% of the equity of Liberty Digital.

(6)

Liberty’s interest consists of shares of 30-year 9% preferred stock which have a stated aggregate
value of $345 million and are not convertible into common stock.

(7) On December 17, 2001, Vivendi Universal announced that it will acquire full control of the
entertainment assets of USA Networks. Liberty will
receive American Depository Shares
representing over 37 million Vivendi Universal ordinary shares in exchange for a portion of its
stake in USA Networks and its 27% stake in the European cable programming company,
MultiThématiques. Following the transaction, Liberty will own approximately 3% of Vivendi
Universal and 20% of USA Networks, which will change its name to USA Interactive.

(8)

In December 2001, Liberty Media and News Corp. consummated the second phase of the
Gemstar-TV Guide International, Inc. transaction whereby Liberty Media contributed its remaining
Gemstar ownership interest to News Corp. in exchange for 28.8 million News Corp. ADSs.

18

(9) News Corp. has operations in the United States, Canada, the United Kingdom, Australia, Latin
America and the Pacific Basin. These include U.S. cable networks, FX, Fox News Channel and
the Fox regional and national sports networks. News Corp.’s businesses also include Fox
Broadcasting Company, 20th Century Fox, satellite platforms BSkyB in the United Kingdom,
SKYPerfecTV! in Japan and STAR in Asia, and the publication of newspapers, magazines and
books.

(10) On April 12, 2002 Liberty consummated the agreement

to sell

its ownership interest

in

Telemundo to NBC in exchange for approximately $675 million in cash.

(11) USA Networks, Inc. is focused on the convergence of entertainment, information and direct
selling. It is organized into three distinct but interrelated units which include the following assets:
USA Entertainment’s USA Network, SCI FI Channel, TRIO, NWI, Studios USA, USA Films, USA
Broadcasting and USA Interactive Entertainment; USA Electronic Retailing’s HSN, HSN
International, HSN Interactive; and USA Information and Services’ Ticketmaster, Ticketmaster
Online-Citysearch,
(Nasdaq: TMCS), Hotel Reservations Network (Nasdaq: ROOM),
Electronic Commerce Solutions, Styleclick (Nasdaq: IBUY) and Precision Response Corporation.

Inc.

(12) Liberty owns direct and indirect interests in various USA Networks, Inc., USANi LLC and Home
Shopping Network, Inc. securities which may be converted or exchanged for USA Networks
common stock. Assuming the conversion or exchange of such securities, the conversion or
exchange of certain securities owned by Universal Studios, Inc. and certain of its affiliates for
USA Networks common stock, Liberty would own approximately 20% of USA Networks.

(13) Viacom is a diversified entertainment company with operations in broadcasting, cable television,
programming, entertainment, radio, outdoor advertising, video, publishing and online businesses.
Viacom’s well known brands include CBS, MTV, Nickelodeon, VH1, BET, Paramount Pictures,
Infinity Broadcasting, UPN, TNN, CMT, Showtime, Blockbuster and Simon & Schuster.

(14) Liberty’s ownership of ACTV is approximately 19% assuming the exercise of 2,500,000 warrants

which are exercisable at $15.00/share and expire 3/29/04.

(15) Liberty owns 91% of the equity and 99% of the voting power of Liberty Livewire on a fully diluted

basis.

(16)

In addition to its common stock holdings in Motorola, Liberty owns warrants to purchase
approximately 18.4 million additional shares of Motorola common stock at $8.26 per share, all of
which are vested. The 4% ownership interest assumes exercise of all warrants.

(17) Homes in Service Area: The number of homes to which the relevant operating company is
permitted by law to offer its services. Not all service areas are granted exclusively to the
respective operating company.

(18) Homes Passed: Homes that can be connected to a cable distribution system without further

extension of the distribution network.

(19) Less than 1% of voting power. Liberty holds securities of Sprint which are exercisable for or

convertible into Sprint PCS Group Stock.

(20) On January 30, 2002, Liberty Media completed a transaction with UnitedGlobalCom, Inc. in which
Liberty contributed $200 million in cash, approximately $891.7 million in current principal amount
of convertible notes issued by United’s subsidiaries, Belmarken Holding B.A. and United
PanEurope Communications and approximately $1,435.3 million and Euro 263.1 million
aggregate principal amount at maturity of UPC’s publicly traded bonds. In exchange, Liberty was
issued approximately 281.3 million Class C common shares of United. These shares, when
combined with Liberty’s prior holdings, give Liberty an approximate 78% economic ownership in
United assuming the conversion of Class C common into Class A common.

19

(21) On April 1, 2002, Liberty contributed to Liberty Satellite 100% of

the equity of Ascent
Entertainment Group, Inc. and the 89.4% of Liberty Satellite, LLC that was previously held by
Liberty. Also announced was a reverse 1-for-10 stock split. After giving effect to the stock split,
Liberty received 34 million shares of Liberty Satellite’s Series B Common Stock. Liberty holds
preferred stock of Liberty Satellite which gives Liberty approximately 98% of the voting power and
approximately 85% economic ownership of Liberty Satellite.

(22) Common equivalent shares.

(23) Options with an average exercise price of $6.86.

(24)

Includes $150 million of convertible preferred stock, convertible at $88.406 per share into
1,696,717 shares of Liberty Satellite Class B common stock. In addition to its common stock
holdings in Liberty Satellite, Liberty owns $150 million face amount of cumulative preferred stock.

(25) Liberty owns warrants exercisable as follows: 1,534 shares at $5/share expiring 6/30/04 and

10,239 shares at $3.76 /share expiring 5/9/02.

(26) Warrants exercisable at $12.01; expire 11/13/03.

(27) $123,314,991 face value convertible at $15.38 into shares of Series 2 PCS Stock.

20

Market for Registrant’s Common Equity and Related Stockholder Matters.

From March 9, 1999 to August 10, 2001, we were a wholly-owned subsidiary of AT&T Corp. Effective
August 10, 2001, AT&T effected our split-off pursuant to which our capital stock was recapitalized, and each
outstanding share of AT&T Class A Liberty Media Group tracking stock was redeemed for one share of Liberty
Series A common stock and each outstanding share of AT&T Class B Liberty Media Group tracking stock was
redeemed for one share of Liberty Series B common stock. As a result of this split-off, our common stock
began trading on the New York Stock Exchange on August 10, 2001 under the symbols LMC.A and LMC.B.
Effective January 2, 2002, we changed the ticker symbol for our Series A common stock to ‘‘L.’’ The
following table sets forth the range of high and low sales prices of shares of our Series A and Series B
common stock for the period from August 10, 2001 to December 31, 2001; and for AT&T Class A and Class B
Liberty Media Group tracking stock for the year ended December 31, 2000 and for the period from January 1,
2001 to August 9, 2001.

Series A

Series B

High

Low

High

Low

2001

2000

First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17.25
18.04
17.85
14.46

First quarter
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30.72
29.94
26.56
19.25

11.88
11.50
9.75
11.17

24.44
19.19
17.44
10.75

18.69
18.82
18.35
15.50

36.56
32.69
32.63
20.63

14.20
12.50
12.00
12.30

27.00
22.13
18.75
12.75

As of February 28, 2002, there were approximately 6,600 and 400 record holders of our Series A common

stock and Series B common stock, respectively (which amounts do not include the number of shareholders
whose shares are held of record by banks, brokerage houses or other institutions, but include each such
institution as one shareholder).

We have not paid any cash dividends on our Series A common stock and Series B common stock, and we

have no present intention of so doing. Payment of cash dividends, if any, in the future will be determined by
our Board of Directors in light of our earnings, financial condition and other relevant considerations.

F-1

Selected Financial Data.

The following tables present selected historical information relating to our financial condition and results

of operations for the past five years. The following data should be read in conjunction with our consolidated
financial statements. We were a wholly-owned subsidiary of Tele-Communications, Inc. (‘‘TCI’’) from August
1994 to March 9, 1999. On March 9, 1999, AT&T Corp. acquired TCI in a merger transaction (the ‘‘AT&T
Merger’’). For financial reporting purposes, the AT&T Merger is deemed to have occurred on March 1, 1999.
In connection with the merger, our assets and liabilities were adjusted to their respective fair values pursuant to
the purchase method of accounting. For periods prior to March 1, 1999, our assets and liabilities and the related
consolidated results of operations are referred to below as ‘‘Old Liberty,’’ and for periods subsequent to
February 28, 1999, our assets and liabilities and the related consolidated results of operations are referred to as
‘‘New Liberty.’’ In connection with the merger, TCI effected an internal restructuring as a result of which
certain assets and approximately $5.5 billion in cash were contributed to us.

Summary Balance Sheet Data:
Investment in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in available-for-sale securities and other cost

New Liberty

December 31,

Old Liberty

December 31,

2001

2000

1999

1998

1997

amounts in millions

$10,076

20,464

15,922

3,079

2,359

investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Debt, including current portion and call option obligations . . . . .
Stockholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$23,544
$48,539
$ 7,227
$30,123

19,035
54,268
6,363
34,109

28,593
58,658
3,277
38,408

10,539
15,783
2,096
8,820

3,971
7,735
785
4,707

New Liberty

Old Liberty

Year ended
December 31,
2001

Year ended
December 31,
2000

Ten months
ended
December 31,
1999

Two months
ended
February 28,
1999

Years ended
December 31,

1998

1997

amounts in millions

Summary Statement of Operations Data:
Revenue . . . . . . . . . . . . . . . . . . . . . . .
Operating income (loss) . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . .
Share of losses of affiliates, net . . . . . .
Gains (losses) on dispositions, net . . . .
Net earnings (loss) . . . . . . . . . . . . . . .
Pro forma basic and diluted net
earnings (loss) per common
share(1) . . . . . . . . . . . . . . . . . . . . .

$ 2,059
$(1,127)
$ (525)
$(4,906)
$ (310)
$(6,203)

1,526
436
(399)
(3,485)
7,340
1,485

729
(2,214)
(135)
(904)
4
(2,021)

235
(158)
(26)
(66)
14
(70)

1,359
(431)
(104)
(1,002)
2,449
622

1,225
(260)
(40)
(785)
406
(470)

$ (2.40)

.57

(.78)

(.03)

.24

(.18)

(1) The pro forma basic and diluted net earnings (loss) per common share for periods prior to our split off
from AT&T is based upon 2,588 million shares of Liberty Series A and Series B common stock issued
upon consummation of the split off.

F-2

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis provides information concerning our results of operations and
financial condition. This discussion should be read in conjunction with our accompanying consolidated financial
statements and the notes thereto.

From March 9, 1999 through August 9, 2001, AT&T Corp. (‘‘AT&T’’) owned 100% of our outstanding
common stock. During such time, the AT&T Class A Liberty Media Group common stock and the AT&T Class
B Liberty Media Group common stock (together, the AT&T Liberty Media Group tracking stock) were tracking
stocks of AT&T designed to reflect the economic performance of the businesses and assets of AT&T attributed
to the Liberty Media Group. We were included in the Liberty Media Group.

On May 7, 2001, AT&T contributed to us assets that were attributed to the Liberty Media Group but not

previously owned by us (the ‘‘Contributed Assets’’). These assets included (i) preferred stock and common
stock interests in a subsidiary of IDT Corporation, a multinational telecommunications services provider and
(ii) an approximate 8% indirect common equity interest in Liberty Digital, Inc. (‘‘Liberty Digital’’). Subsequent
to these contributions, our businesses and assets and those of our subsidiaries constituted all of the businesses
and assets of the Liberty Media Group. The contributions have been accounted for in a manner similar to a
pooling of interests and, accordingly, our financial statements for periods prior to the contributions have been
restated to include the financial position and results of operations of the Contributed Assets.

Effective August 10, 2001, AT&T effected our split-off pursuant to which our common stock was

recapitalized, and each outstanding share of AT&T Class A Liberty Media Group tracking stock was redeemed
for one share of Liberty Series A common stock and each outstanding share of AT&T Class B Liberty Media
Group tracking stock was redeemed for one share of Liberty Series B common stock (the ‘‘Split Off
Transaction’’). Subsequent to the Split Off Transaction, we are no longer a subsidiary of AT&T and no shares
of AT&T Liberty Media Group tracking stock remain outstanding. The Split Off Transaction has been
accounted for at historical cost.

Our 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 our subsidiaries
hold interests in technology and Internet businesses, as well as interests in businesses engaged in wireless
telephony, electronic retailing, direct marketing and advertising sales relating to programming services,
infomercials and transaction processing. We also have significant interests in foreign affiliates, which operate in
cable television, programming and satellite distribution.

Our most significant consolidated subsidiaries at December 31, 2001, were Starz Encore Group LLC
(‘‘Starz Encore Group’’), Liberty Livewire Corporation (‘‘Liberty Livewire’’) and On Command Corporation
(‘‘On Command’’). These businesses are either wholly or majority owned and are controlled by us and,
accordingly, the results of operations of these businesses are included in our consolidated results for the periods
in which they are wholly or majority owned and controlled.

A significant portion of our operations are conducted through entities in which we do not have a
controlling financial interest but do have the ability to exercise significant influence over the operating and
financial policies of the investee. In these instances we use the equity method of accounting. Accordingly, our
share of the results of operations of these businesses is reflected in our consolidated results as earnings or
losses of affiliates. Included in our investments in affiliates at December 31, 2001 were USA Networks, Inc.
(‘‘USAI’’), Discovery Communications, Inc. (‘‘Discovery’’), QVC, Inc. (‘‘QVC’’), UnitedGlobalCom, Inc.
(‘‘UnitedGlobalCom’’) and Telewest Communications plc (‘‘Telewest’’).

We also hold ownership interests in companies in which we do not have significant influence. The most
significant of these include AOL Time Warner Inc. (‘‘AOL Time Warner’’), Sprint Corporation (‘‘Sprint’’), The
News Corporation Limited (‘‘News Corp.’’) and Motorola, Inc. (‘‘Motorola’’) These investments are classified

F-3

as available-for-sale securities and are carried at fair value. Realized gains and losses on disposition are
determined on an average cost basis.

AT&T’s acquisition of Tele-Communications, Inc. (‘‘TCI’’), our former parent, by merger (the ‘‘AT&T

Merger’’) on March 9, 1999 was accounted for using the purchase method. Accordingly, at the time of the
merger, our assets and liabilities were adjusted to their respective fair values resulting in 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, our assets and liabilities and the related consolidated financial statements are
sometimes referred to herein as ‘‘Old Liberty,’’ and for periods subsequent to February 28, 1999, our assets and
liabilities and the related consolidated financial statements are sometimes referred to herein as ‘‘New Liberty.’’
‘‘Liberty’’ refers to both New Liberty and Old Liberty.

Summary Of Operations

Starz Encore Group provides premium programming distributed by cable, direct-to-home satellite and
other distribution media throughout the United States. Liberty Livewire provides sound, video and ancillary
post production and distribution services to the motion picture and television industries in the United States,
Europe, Asia and Mexico. On Command provides in-room, on-demand video entertainment and information
services to hotels, motels and resorts primarily in the United States. To enhance the reader’s understanding,
separate financial data has been provided in the table below, for the periods in which they were consolidated,
for Starz Encore Group, Liberty Livewire and On Command 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, and includes purchase accounting adjustments related to On Command that have
not been ‘‘pushed down’’ to On Command’s publicly available financial statements. Included in the other
category are our other consolidated subsidiaries and corporate expenses. Some of our significant other
consolidated subsidiaries include Liberty Digital, Inc., Pramer S.C.A. and Liberty Cablevision of Puerto Rico.
Liberty Digital is principally engaged in programming, distributing and marketing digital and analog music
services to homes and businesses. Pramer is an owner and distributor of video programming services primarily
in Argentina. Liberty Cablevision of Puerto Rico provides cable television and other broadband services in
Puerto Rico. The results of TV Guide are included for the two months ended February 28, 1999, after which
time we began accounting for this investment using the equity method of accounting. We hold 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 also
discussed separately below.

F-4

In order to provide a meaningful basis for comparing the years ended December 31, 2001, 2000 and 1999,

the operating results of New Liberty for the ten months ended December 31, 1999 have been combined with
the operating results of Old Liberty for the two months ended February 28, 1999, for purposes of the following
table and discussion. Depreciation, amortization and certain other line items included in the operating results
presented below are not comparable between periods as a result of the effects of purchase accounting
adjustments related to the AT&T Merger. The combining of predecessor and successor accounting periods is
not permitted by generally accepted accounting principles.

Combined Liberty

Year ended
December 31,
2001

% of
revenue

Year ended
December 31,
2000

$ of
revenue

Year ended
December 31,
1999

% of
revenue

dollar amounts in millions

Starz Encore Group

Revenue . . . . . . . . . . . . . . . . . . . . .
Operating, selling, general and

administrative . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . .
Depreciation and amortization . . . . .

$ 863

100 % $ 733

100 % $

640

100 %

(550)
(88)
(157)

(64)
(10)
(18)

(498)
(163)
(157)

(68)
(22)
(21)

(475)
(286)
(149)

(74)
(45)
(23)

Operating income (loss) . . . . . .

$ 68

8 % $ (85)

(11)% $ (270)

(42)%

Liberty Livewire

Revenue . . . . . . . . . . . . . . . . . . . . .
Operating, selling, general and

administrative . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . .
Depreciation and amortization . . . . .
Impairment of assets . . . . . . . . . . . .

$ 593

100 % $ 295

100 % $ —

(504)
(3)
(136)
(313)

(85)
(1)
(23)
(54)

(251)
42
(55)
—

(85)
14
(19)
—

—
—
—
—

Operating income (loss) . . . . . .

$(363)

(63)% $

31

10 % $ —

On Command

Revenue . . . . . . . . . . . . . . . . . . . . .
Operating, selling, general and

administrative . . . . . . . . . . . . . . .
Depreciation and amortization . . . . .

Operating loss . . . . . . . . . . . . .

Other

Revenue . . . . . . . . . . . . . . . . . . . . .
Operating, selling, general and

administrative . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . .
Depreciation and amortization . . . . .
Impairment of assets . . . . . . . . . . . .

Operating income (loss) . . . . . .

$(735)

(a) Not meaningful.

$ 239

100 % $ 200

100 % $ —

(195)
(141)

$ (97)

(82)
(59)

(151)
(108)

(76)
(54)

—
—

(41)% $ (59)

(30)% $ —

$ 364

(a)

$ 298

(a)

$

324

(a)

(433)
(41)
(550)
(75)

(286)
1,071
(534)
—

$ 549

(309)
(1,682)
(435)
—

$(2,102)

—

—
—
—
—

—

—

—
—

—

Certain of our consolidated subsidiaries and equity affiliates (the ‘‘Programming Affiliates’’) are dependent

on the entertainment industry for entertainment and for educational and informational programming. In
addition, a significant portion of certain of the Programming Affiliates’ revenue is generated by the sale of
advertising on their networks. A prolonged downturn in the economy could have a negative impact on the
revenue and operating income of the Programming Affiliates. Such an event could reduce the development of

F-5

new television and motion picture programming, thereby adversely impacting the Programming Affiliates’
supply of service offerings. In addition, a soft economy could reduce consumer disposable income and
consumer demand for the products and services of the Programming Affiliates.

We have one consolidated subsidiary (Pramer) and two equity affiliates (Torneos y Competencias S.C.A.

and Cablevisio´n S.A.) located in Argentina. While Argentina has been in a recession for the past four years, the
Argentine government has historically maintained an exchange rate of one Argentine peso to one U.S. dollar
(the ‘‘peg rate’’). Due to worsening economic and political conditions in late 2001, the Argentine government
eliminated the peg rate effective January 11, 2002. The value of the Argentine peso dropped significantly on the
day the peg rate was eliminated and has dropped further since that date. In addition, the Argentine government
placed restrictions on the payment of obligations to foreign creditors. While we cannot predict what future
impact these economic events will have on our Argentine businesses, we note that during 2001 these businesses
experienced significant adverse effects as customers began extending payments and lenders began tightening
credit criteria. See additional discussion below.

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 with cable operators and satellite direct-to-home distributors. In
1997, Starz Encore Group entered into a 25-year affiliation agreement with TCI. TCI cable systems were
subsequently acquired by AT&T in the AT&T Merger and operate under the name AT&T Broadband. Under
this affiliation agreement with AT&T Broadband, AT&T Broadband pays fixed monthly payments in exchange
for unlimited access to all of the existing Encore and STARZ! services. The payment from AT&T Broadband
can be 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. As a result of AT&T’s acquisition of MediaOne
Group, Inc. on June 15, 2000, the contracted payment amount increased by approximately 20%. After adjusting
for the elimination of the former MediaOne contract, the net payment amount from the combined AT&T
companies increased by approximately 10%. Substantially all of Starz Encore Group’s other affiliation
agreements generally provide for payments based on the number of subscribers that receive Starz Encore
Group’s services.

By letter dated May 29, 2001, AT&T Broadband has disputed the enforceability of the excess

programming costs pass through provisions of the affiliation agreement and questioned whether the affiliation
agreement, as a whole, is ‘‘voidable.’’ In addition, AT&T Broadband raised certain issues concerning the
interpretation of the contractual requirements associated with the treatment of acquisitions and dispositions.
Starz Encore Group believes the position expressed by AT&T Broadband to be without merit. On July 10,
2001, Starz Encore Group initiated a lawsuit against AT&T Broadband and Satellite Services, Inc., a subsidiary
of AT&T Broadband that is also a party to the affiliation agreement, for breach of contract and collection of
damages and costs.

On October 19, 2001, Starz Encore Group entered into a standstill and tolling agreement whereby the
parties agreed to move the court to stay the lawsuit until August 31, 2002 to permit the parties an opportunity
to resolve their dispute. This agreement provides that either party may unilaterally petition the court to lift the
stay after April 30, 2002 and proceed with the litigation. The court granted the stay on October 30, 2001. In
conjunction with this agreement, we and AT&T Broadband entered into various agreements whereby Starz
Encore Group will indirectly receive payment for AT&T Broadband’s proportionate share of the programming
costs pass through for 2001.

Revenue increased 18% and 15% in 2001 and 2000, respectively, as compared to the corresponding prior
year. Such increases are due to increases in subscription units from all forms of distribution. At December 31,
2001, Starz Encore Group had 114.1 million subscription units, as compared to 87.9 million units at
December 31, 2000 and 58.3 million at December 31, 1999. Such increases in subscription units were due
primarily to an increase in subscribers to Starz Encore Group’s thematic multiplex service, which increased

F-6

from 27.6 million subscribers at December 31, 1999 to 52.5 million subscribers at December 31, 2000 and 76.0
million subscribers at December 31, 2001. Over the two-year period Encore, Movieplex, and Starz! subscribers
increased (decreased) 37%, (7%), and 29%, respectively. At December 31, 2001, AT&T Broadband customers
represented 16% of Starz Encore Group’s total subscription units; and other cable, DBS, and other distribution
represented 41%, 42% and 1%, respectively. AT&T Broadband customers generated $259 million or 30% of
Starz Encore Group’s revenue for the year ended December 31, 2001.

Operating, selling, general and administrative expenses increased 10% and 5% during 2001 and 2000,

respectively, as compared to the corresponding prior year, primarily due to an increase in programming
expenses. Programming expenses increased due to an increase in programming license fees resulting from
increased use of more expensive first-run films from certain movie studios. Higher marketing expenses and
higher salaries and related payroll expenses also contributed to the increase in operating, selling, general and
administrative expenses in 2001.

Starz Encore Group has granted phantom stock appreciation rights to certain of its officers. Compensation

relating to the phantom stock appreciation rights has been recorded based upon the fair value of Starz Encore
Group as determined by a third-party appraisal. The amount of expense associated with the phantom stock
appreciation rights is generally based on the vesting of such rights and the change in the fair value of Starz
Encore Group.

As a result of the implementation of new accounting standards and the resulting elimination of goodwill

amortization, we expect Starz Encore Group to generate improved operating income during 2002, as compared
to 2001.

Liberty Livewire. In April 2000, we acquired all of the outstanding common stock of Four Media
Company in exchange for AT&T Class A Liberty Media Group common stock and cash. In June 2000, we
acquired a controlling interest in The Todd-AO Corporation in exchange for AT&T Class A Liberty Media
Group common stock. Immediately following the closing of such transaction, we contributed 100% of the
capital stock of Four Media Company to Todd-AO in exchange for additional Todd-AO common stock.
Following these transactions, Todd-AO changed its name to Liberty Livewire. In July 2000, we purchased all
of the assets relating to the post production, content and sound editorial businesses of SounDelux Entertainment
Group, and contributed such assets to Liberty Livewire for additional Liberty Livewire stock. Following these
transactions, we owned approximately 88% of the equity and controlled approximately 99% of the voting
power of Liberty Livewire, and as a result, began to consolidate the operations of Liberty Livewire during the
quarter ended June 30, 2000. Liberty Livewire is dependent on the television and movie production industries
and the commercial advertising market for a substantial portion of its revenue.

During 2001, Liberty Livewire consummated several smaller acquisitions for an aggregate purchase price

of $140 million. Increases in Liberty Livewire’s revenue and expenses that are included in our consolidated
results of operations for the year ended December 31, 2001 are due to (i) the inclusion of Liberty Livewire for
a full year in 2001, as compared to six months in 2000 and (ii) the acquisitions made by Liberty Livewire in
2001.

On a pro forma basis and assuming that all of the 2000 and 2001 acquisitions had been consummated on
January 1, 2000, Liberty Livewire’s revenue decreased $33 million or 5% in 2001, as compared to 2000; and
expenses decreased $26 million or 5% in 2001. The decrease in revenue is due to weakness in the economy in
general, and specifically in the entertainment and advertising industries in 2001. This weakness was magnified
by the events of September 11, 2001. We believe that this pro forma discussion provides information that is
useful in analyzing Liberty Livewire’s business. However, pro forma operating results should be considered in
addition to, and not as a substitute for, actual results.

As a result of the weakness in the economy and in the entertainment and advertising industries discussed

above, Liberty Livewire did not meet its 2001 operating objectives and has reduced its 2002 expectations.

F-7

Accordingly, Liberty Livewire assessed the recoverability of its property and equipment and intangible assets
and determined that an impairment adjustment was necessary. In addition, in the fourth quarter, Liberty
Livewire made the decision to consolidate certain of its operations and close certain facilities. In connection
with these initiatives, Liberty Livewire recorded a restructuring charge related to lease cancellation fees and an
additional impairment charge related to its property and equipment. All of the foregoing charges are included in
impairment of long-lived assets in our statement of operations.

On Command. On March 28, 2000, we announced that we had completed our cash tender offer for the
outstanding common stock of Ascent Entertainment Group, Inc. Approximately 85% of the outstanding shares
of common stock of Ascent were tendered in the offer. On June 8, 2000, we acquired the remaining 15% of
Ascent. On Command is a majority owned subsidiary of Ascent. On Command’s principal business is
providing pay-per-view entertainment and information services to hotels, motels and resorts. Upon completion
of the tender offer, we consolidated the operations of On Command.

The increase in On Command’s revenue and expenses is due primarily to having 12 months of operations

in our 2001 consolidated results, as compared to nine months of operations in our 2000 consolidated results.
However, for the full year ended December 31, 2001, On Command experienced a 10% decrease in revenue
and a 5% decrease in operating, selling, general and administrative expenses. The decrease in revenue is due
primarily to a decrease in hotel occupancy rates in 2001. The lower hotel occupancy rates are attributable to a
decrease in travel due to the events of September 11, 2001, as well as the downturn in the U.S. economy. Cost
control measures instituted in the second half of 2001 by On Command resulted in the decrease in expenses. As
a percentage of revenue, operating, selling, general and administrative expenses increased from 72% in 2000 to
76% in 2001 because certain of On Command’s content fees and other room services costs do not vary with
revenue or occupancy. Although, no assurance can be given, On Command anticipates that its cost control
measures will result in improved margins in 2002.

Other. Included in this information are the results of our other consolidated subsidiaries and corporate

expenses.

Revenue increased 22% and decreased 8% in 2001 and 2000, respectively, as compared to the

corresponding prior year. The 2001 increase is attributable primarily to an increase in revenue at Liberty Digital
due to the acquisition of AEI Network, Inc. in 2001. The 2000 decrease is primarily due to the deconsolidation
of TV Guide on March 1, 1999, which accounted for $97 million of the decrease. The effect of the
deconsolidation of TV Guide was partially offset by a $12 million increase in revenue at Pramer, a $20 million
increase in revenue at Liberty Digital and a $12 million increase in revenue at other international subsidiaries.
Ascent Network Services, Inc. which was acquired during March 2000 as part of the Ascent transaction, also
contributed $17 million in additional revenue.

Operating, selling, general and administrative expenses increased 51% and decreased 7% in 2001 and

2000, respectively, as compared to the corresponding prior year. The increase in 2001 is due primarily to
increases in expenses at Liberty Digital of $54 million and True Position of $30 million. In addition, we
incurred expenses related to our split off from AT&T which aggregated $11 million, and we incurred higher
legal and consulting fees in 2001 related to our transaction with UnitedGlobalCom and our unsuccessful
acquisition of six German cable systems. The 2000 decrease in expenses is primarily due to the deconsolidation
of TV Guide, which accounted for $76 million of the decrease. The effect of the TV Guide deconsolidation was
offset by start up expenses of $26 million at True Position, Inc. which was acquired on January 14, 2000 as
part of the Associated Group transaction, increased expenses of $9 million at each of Pramer and Liberty
Digital, and $11 million of expenses associated with the acquisition of Ascent Network Services.

Depreciation and amortization were comparable over the 2001 and 2000 periods. Depreciation and
amortization increased $99 million to $534 million in 2000 from $435 million in 1999. This increase was a
result of the effects of purchase accounting adjustments related to the AT&T Merger and other acquisitions.

F-8

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, vesting percentages
and, ultimately, on the final determination of market value when the rights are exercised.

Other Income and Expense

Interest expense was $525 million, $399 million, $135 million and $26 million for the years ended

December 31, 2001 and 2000, the ten month period ending December 31, 1999 and the two month period
ending February 28, 1999, respectively. The increase in 2001 is due to the issuance of our exchangeable
debentures in 2000 and 2001, as well as the issuance of notes payable to UnitedGlobalCom in 2001. We repaid
these notes payable in late 2001 and early 2002. The increase in interest expense during 2000 was a result of
increased borrowings during the second half of 1999 and the first quarter of 2000.

Dividend and interest income was $272 million, $301 million, $242 million and $10 million for the years

ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the two months ended
February 28, 1999, respectively. The decrease in 2001 is primarily attributable to lower interest rates on our
invested cash balances, combined with the elimination of Time Warner dividends subsequent to the merger of
Time Warner and AOL. These decreases were partially offset by interest earned on certain debt securities that
we purchased in the second and third quarter of 2001. The majority of these debt securities were contributed to
UnitedGlobalCom in January 2002. The increase in dividend and interest income during the year ended
December 31, 2000 primarily represents interest earned on our cash and cash equivalents, increased dividends
from investments in News Corp. and Motorola and interest earned on cash balances at Ascent and Liberty
Satellite and Technology, Inc. (‘‘LSAT’’).

During 2001 and 2000, we determined that certain of our cost investments experienced other-than

temporary (‘‘nontemporary’’) declines in value. As a result, the cost bases of such investments were adjusted to
their respective fair values based primarily on recent quoted market prices. These adjustments are reflected as
nontemporary declines in fair value of investments in the consolidated statements of operations. The following
table identifies such adjustments attributable to each of the individual investments as follows:

Investments

AOL Time Warner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
News Corp.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Viacom, Inc. (‘Viacom‘) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Pan-Europe Communications, N.V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Antec Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Motorola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Primedia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended
December 31,

2001

2000

amounts in millions
$2,052 —
915 —
201 —
195 —
127 —
232 1,276
103
—
84
379

$4,101

1,463

We consider a number of factors in our determination of fair value including (i) the financial condition,
operating performance and near term prospects of the investee; (ii) the reason for the decline in fair value, be it
general market conditions, industry specific or investee specific; (iii) analysts’ ratings and estimates of 12
month share price targets for the investee; (iv) the length of time that the fair value of the investment is below
our carrying value; and (v) our intent and ability to hold the investment for a period of time sufficient to allow
for a recovery in fair value. In situations where the fair value of an investment is not evident due to lack of a
public market price or other factors, we use our best estimates and assumptions to arrive at the estimated fair

F-9

value of such investment. As our assessment of the fair value of our investments and any resulting impairment
losses requires a high degree of judgment and includes significant estimates and assumptions, actual results
could differ materially from our estimates and assumptions. Accordingly, we believe this policy is one of our
critical accounting policies.

Aggregate gains (losses) from dispositions during the years ended December 31, 2001 and 2000, the ten

month period ended December 31, 1999 and the two month period ended February 28, 1999 were $(310)
million, $7,340 million, $4 million and $14 million, respectively. The following table provides information
regarding significant components of gains (losses) from dispositions for the years ended December 31, 2001
and 2000.

Transaction

Year ended
December 31,

2001

2000

amounts in millions
$ 559 —
Merger of Viacom and BET Holdings II, Inc.
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
253 —
Merger of AOL and Time Warner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(965) —
Exchange of our Gemstar common stock for News Corp. ADSs . . . . . . . . . . . . . . .
Merger of Motorola and General Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,233
Merger of Telewest and Flextech . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —
649
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 4,391
Merger of TV Guide and Gemstar
67
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(157)

Total

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(310) 7,340

In all of the above exchange transactions, the gains or losses were calculated based upon the difference

between the carrying value of the assets relinquished, as determined on an average cost basis, compared to the
fair value of the assets received.

We recognized a gain on issuance of equity by affiliates and subsidiaries of $372 million during the two
months ended February 28, 1999, in connection with the acquisition by United Video Satellite Group of the TV
Guide properties. Such gain is included in other, net in the accompanying consolidated statement of operations.
Subsequent to the AT&T Merger, changes in our proportionate share of the underlying equity of one of our
subsidiaries or equity method investees which result from the issuance of additional equity securities of such
subsidiary or investee are recognized as increases or decreases in our consolidated statements of stockholders’
equity.

Effective January 1, 2001, we adopted Statement of Financial Accounting Standards No. 133,
‘‘Accounting for Derivative Instruments and Hedging Activities’’ (‘‘Statement 133’’), which establishes
accounting and reporting standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. All derivatives, whether designated in hedging
relationships or not, are required to be recorded on the balance sheet at fair value. If the derivative is
designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item
attributable to the hedged risk are recognized in earnings. If the derivative is designated as a cash flow hedge,
the effective portions of changes in the fair value of the derivative are recorded in other comprehensive
earnings and are recognized in the statement of operations when the hedged item affects earnings. Ineffective
portions of changes in the fair value of cash flow hedges are recognized in earnings. If the derivative is not
designated as a hedge, changes in the fair value of the derivative are recognized in earnings.

We use various derivative instruments including equity collars, put spread collars, bond swaps and foreign

exchange contracts to manage fair value and cash flow risk associated with many of our investments, some of
our variable rate debt and forecasted transactions to be denominated in foreign currencies. Each of these
derivative instruments is executed with a counterparty, generally well known major financial institutions. While
we believe these derivative instruments effectively manage the risks highlighted above, they are subject to

F-10

counterparty credit risk. Counterparty credit risk is the risk that the counterparty is unable to perform under the
terms of the derivative instrument upon settlement of the derivative instrument. To protect ourselves against
credit risk associated with these counterparties we:

•

•

Execute our derivative instruments with several different counterparties, and

Execute derivative instrument agreements which contain a provision that requires the counterparty to
post the ‘‘in the money’’ portion of the derivative instrument into a cash collateral account for our
benefit, if the respective counterparty’s credit rating were to reach certain levels, generally a rating that
is below Standard & Poor’s rating of A- or Moody’s rating of A3.

Due to the importance of these derivative instruments to our risk management strategy, we actively

monitor the creditworthiness of each of these counterparties. Based on our analysis, we consider
nonperformance by any of our counterparties to be unlikely.

Our counterparty credit risk by financial institution is summarized below:

Counterparty

Counterparty A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Counterparty B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Counterparty C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Counterparty D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Aggregate fair
value of derivative
instruments at
December 31, 2001

amounts in millions
$ 752
619
279
181
232

$2,063

The adoption of Statement 133 on January 1, 2001, resulted in a cumulative increase in net earnings of
$545 million (after tax expense of $356 million) and an increase in other comprehensive loss of $87 million.
The increase in net earnings was mostly attributable to separately recording the fair value of our embedded call
option obligations associated with our senior exchangeable debentures. The increase in other comprehensive
loss relates primarily to changes in the fair value of our warrants and options to purchase certain available-for-
sale securities.

Realized and unrealized gains on financial instruments for the year ended December 31, 2001 included a

$167 million unrealized gain related to call option obligations, a $616 million unrealized net loss for changes in
the fair value of derivative instruments related to available-for-sale securities and other derivatives not
designated as hedging instruments, and a $275 million unrealized net gain for changes in the time value of
options for fair value hedges. During the year ended December 31, 2001, we received cash proceeds of $329
million as a result of unwinding certain of our equity collars. Pursuant to Statement 133, the proceeds received
less the offsetting impact of hedge accounting on the underlying securities resulted in $162 million of realized
and unrealized gains on financial instruments in our consolidated statement of operations for the year ended
December 31, 2001.

We use the Black-Scholes model to estimate the fair value of our derivative instruments. The Black-
Scholes model incorporates a number of variables in determining such fair values, including expected volatility
of the underlying security and an appropriate discount rate. We select a volatility rate at the inception of the
derivative instrument based on the historical volatility of the underlying security and on the term of the
derivative instrument. The volatility assumption is generally not changed during the term of the derivative
instrument unless there is an indication that the historical volatility is no longer appropriate. Considerable
management judgment is required in estimating the Black-Scholes variables. Actual results upon settlement or
unwinding of our derivative instruments may differ materially from these estimates. Accordingly, we consider
accounting for our derivative instruments to be one of our critical accounting policies.

F-11

Prior to the adoption of Statement 133, the carrying amount of the senior exchangeable debentures was
adjusted based on the fair value of the underlying security. Increases or decreases in the value of the underlying
security above the principal amount of the senior exchangeable debentures were recorded as unrealized gains or
losses on financial instruments in the consolidated statements of operations. If the value of the underlying
security decreased below the principal amount of the senior exchangeable debentures there was no effect on the
principal amount of the debentures.

Upon adoption of Statement 133, the call option feature of the exchangeable debentures is reported

separately in the consolidated balance sheet at fair value. Changes in the fair value of the call option
obligations subsequent to January 1, 2001 are recognized as unrealized gains (losses) on financial instruments
in our consolidated statements of operations. During the year ended December 31, 2001, we recorded
unrealized gains of $167 million related to the call option obligations.

Investments in Affiliates Accounted for Under the Equity Method

Our share of losses of affiliates was $4,906 million, $3,485 million, $904 million and $66 million during
the years ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the two months
ended February 28, 1999, respectively. A summary of our share of losses of affiliates, including nontemporary
declines in value and excess cost amortization, is included below:

New Liberty

Percentage
Ownership at
December 31,
2001

Year ended
December 31,
2001

Year ended
December 31,
2000

amounts in millions

Ten months
ended
December 31,
1999

Old Liberty

Two months
ended
February 28,
1999

Discovery . . . . . . . . . . . . . . . . . . . . . . . .
QVC . . . . . . . . . . . . . . . . . . . . . . . . . . .
USAI and related investments . . . . . . . . .
UnitedGlobalCom . . . . . . . . . . . . . . . . . .
Telewest . . . . . . . . . . . . . . . . . . . . . . . . .
Jupiter Telecommunications Co., Ltd.

(‘‘Jupiter’’) . . . . . . . . . . . . . . . . . . . . .
Cablevisio´n S.A. (‘‘Cablevisio´n’’) . . . . . .
ASTROLINK International LLC

(‘‘Astrolink’’) . . . . . . . . . . . . . . . . . . .
Teligent, Inc. (‘‘Teligent’’) . . . . . . . . . . . .
Gemstar . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .

50%
42%
20%
20%
25%

35%
50%

32%

N/A
N/A
Various

$ (293)
36
35
(751)
(2,538)

(90)
(476)

(417)
(85)
(133)
(194)

$(4,906)

(293)
(12)
(36)
(211)
(441)

(114)
(49)

(8)
(1,269)
(254)
(798)

(3,485)

(269)
(11)
(20)
23
(222)

(54)
(28)

—
—
—
(323)

(904)

(8)
13
10
—
(38)

(7)
(3)

—
—
—
(33)

(66)

At December 31, 2001, the aggregate carrying amount of our investments in affiliates exceeded our
proportionate share of our affiliates’ net assets by $7,766 million. This excess basis is being amortized over
estimated useful lives of up to 20 years. Such amortization was $798 million, $1,058 million, $463 million and
$9 million for the years ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the
two months ended February 28, 1999, respectively. Such excess basis amortization is included in our share of
losses of affiliates. Also included in share of losses for the years ended December 31, 2001 and 2000, are
adjustments for nontemporary declines in value aggregating $2,396 million and $1,324 million, respectively.
We expect to continue to record shares of losses in affiliates for the foreseeable future.

Discovery. Our share of Discovery’s net loss was $293 million, $293 million, $269 million, and $8 million

for the years ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the two
months ended February 28, 1999, respectively. Our share of losses for the years ended December 31, 2001 and

F-12

2000 and the ten months ended December 31, 1999, included $188 million, $187 million and $155 million,
respectively, in excess basis amortization. Exclusive of the excess basis amortization, our share of losses of
Discovery was $105 million, $106 million and $122 million for the years ended December 31, 2001, 2000 and
1999, respectively. The reduction in Discovery’s 2000 net loss was the net effect of lower operating expenses
as Discovery cut back on its online initiatives partially offset by increased interest expense.

QVC. Our share of QVC’s net earnings (loss) was $36 million, $(12) million, $(11) million and $13
million for the years ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the
two months ended February 28, 1999, respectively, including excess basis amortization of $110 million, $110
million and $92 million, respectively. Excluding the effect of excess basis amortization, our share of QVC’s
earnings was $146 million, $98 million and $94 million in 2001, 2000 and 1999, respectively. The increase in
QVC’s net income in 2001 and 2000 principally resulted from increased revenue and operating margins at
QVC’s domestic operations.

USA Networks, Inc. Our share of USA Networks, Inc.’s net earnings (loss) was $35 million, $(36) million,

$(20) million and $10 million for the years ended December 31, 2001 and 2000, the ten month period ended
December 31, 1999 and the two month period ended February 28, 1999, respectively. Our share of losses for
the years ended December 31, 2001 and 2000 and the ten months ended December 31, 1999, included $64
million, $64 million and $53 million, respectively, in excess basis amortization. Exclusive of the excess basis
amortization, our share of earnings of USA Networks was $99 million, $28 million and $43 million for the
years ended December 31, 2001, 2000 and 1999, respectively. Such increase in 2001 is due to USA Networks’
increased operating income and gains from dispositions of assets.

UnitedGlobalCom. Our share of UnitedGlobalCom’s net earnings (loss) was $(751) million, $(211) million

and $23 million for the years ended December 31, 2001 and 2000 and for the ten months ended December 31,
1999, respectively. Our share of UnitedGlobalCom’s operations included $51 million, $46 million and $6
million in excess basis amortization for the years ended December 31, 2001 and 2000 and the ten months
ended December 31, 1999, respectively. Exclusive of the excess basis amortization, our share of earnings
(losses) of UnitedGlobalCom was $(700) million, $(165) million and $29 million for the years ended December
31, 2001, 2000 and 1999, respectively. The increased loss in 2001 is due to charges recorded by
UnitedGlobalCom for impairment of long-lived assets, which aggregated $1,426 million. In addition,
UnitedGlobalCom incurred higher depreciation charges and interest expense in 2001, and recognized
impairment losses on certain of its investments. Our recorded share of earnings in 1999 was due to gains that
UnitedGlobalCom recorded during the fourth quarter of 1999 resulting from sales of investments in affiliates.
Such gains recorded by UnitedGlobalCom in 1999 were non-recurring.

Telewest. Our share of Telewest’s net losses was $2,538 million, $441 million, $222 million and $38
million for the years ended December 31, 2001 and 2000, the ten month period ended December 31, 1999 and
the two month period ended February 28, 1999, respectively. Our share of losses for the years ended
December 31, 2001 and 2000 and the ten month period ended December 31, 1999 includes $109 million, $164
million and $73 million, respectively, in excess basis amortization. During the year ended December 31, 2001,
we determined that our investment in Telewest experienced a nontemporary decline in value. As a result, the
carrying value of Telewest was adjusted to its estimated fair value, and we recorded an impairment charge of
$1,801 million. Such charge is included in share of losses of affiliates. Excluding the effects of excess basis
amortization and the nontemporary decline in value adjustment, our share of Telewest’s losses were $628
million, $277 million and $187 million in 2001, 2000 and 1999, respectively. Telewest’s net loss increased in
2001 primarily due to a charge of $1,112 million related to the impairment of Telewest’s long-lived assets
recorded in the fourth quarter.

Cablevisio´n. Cablevisio´n provides cable television and high speed data services in Argentina. The
Argentine government has historically maintained an exchange rate of one Argentine peso to one U.S. dollar
(the ‘‘peg rate’’). Due to deteriorating economic and political conditions in Argentina in late 2001, the
Argentine government eliminated the peg rate effective January 11, 2002. The value of the Argentine peso

F-13

dropped significantly on the day the peg rate was eliminated and has dropped further since that date. In
addition, the Argentine government placed restrictions on the payment of obligations to foreign creditors. As a
result of the devaluation of the Argentine peso, Cablevisio´n recorded foreign currency translation losses of
$393 million in the fourth quarter of 2001. At December 31, 2001, we determined that our investment in
Cablevisio´n had experienced a nontemporary decline in value, and accordingly, recorded an impairment charge
of $195 million. Such charge is included in shares of losses of affiliates. Our share of losses in 2001, when
combined with foreign currency translation losses recorded in other comprehensive loss at December 31, 2001,
reduced the carrying value of our investment to zero as of December 31, 2001. Included in accumulated other
comprehensive earnings at December 31, 2001, is $257 million of unrealized foreign currency translation losses
related to our investment in Cablevisio´n.

Astrolink. Astrolink, a developmental stage entity, originally intended to build a global telecom network

using Ka-band geostationary satellites to provide broadband data communications services. Astrolink’s original
business plan required significant additional financing over the next several years. During the fourth quarter of
2001, two of the members of Astrolink informed Astrolink that they do not intend to provide any of Astrolink’s
required financing. In light of this decision, Astrolink is considering several alternatives with respect to its
proposed business plan, including, but not limited to, seeking alternative funding sources, scaling back their
proposed business plan, and liquidating the venture entirely. There can be no assurance that Astrolink will be
able to obtain the necessary financing on acceptable terms, or that it will be able to fulfill the business plan as
originally proposed, or at all.

During the second quarter of 2001, we determined that our investment in Astrolink experienced a
nontemporary decline in value. Accordingly, the carrying amount of such investment was adjusted to its then
estimated fair value resulting in a recognized loss of $155 million. Such loss is included in share of losses of
affiliates. Based on a fourth quarter 2001 assessment of Astrolink’s remaining sources of liquidity and
Astrolink’s inability to obtain financing for its business plan, we concluded that the carrying value of our
investment in Astrolink should be further reduced to reflect a fair value that assumes the liquidation of
Astrolink. Accordingly, we wrote-off all of our remaining investment in Astrolink during the fourth quarter of
2001. The aggregate amount required to reduce our investment in Astrolink to zero was $250 million. Including
such fourth quarter amount, we recorded losses and charges relating to our investment in Astrolink aggregating
$417 million during the year ended December 31, 2001.

Teligent. In January 2000, we acquired a 40% equity interest in Teligent, a full-service facilities based

communications company through our acquisition of Associated Group, Inc. During the year ended
December 31, 2000, we determined that our investment in Teligent experienced a nontemporary decline in
value. As a result, the carrying amount of this investment was adjusted to its estimated fair value resulting in a
charge of $839 million. The balance of our share of loss results from recording our 40% share of their net loss
for the year 2000. This impairment charge is included in share of losses of affiliates. In April 2001, we
exchanged our investment in Teligent for shares of IDT Investments, Inc., a subsidiary of IDT Corporation. As
the fair value of the consideration received in the exchange approximated the carrying value of our investment
in Teligent, no gain or loss was recognized on the transaction.

Gemstar. On July 12, 2000, TV Guide and Gemstar completed a merger whereby Gemstar acquired TV

Guide. As a result of this transaction, 133 million shares of TV Guide held by us were exchanged for 87.5
million shares of Gemstar common stock. Following the merger, we owned approximately 21% of Gemstar.
Our share of Gemstar’s net loss was $254 million from the date of acquisition through December 31, 2000 and
included excess basis amortization of $199 million.

During 2001, we exchanged all of our Gemstar common stock for American Depositary Shares of News

Corp. We recorded share of losses of $133 million prior to such exchange.

F-14

Liquidity and Capital Resources

Although our sources of funds include our available cash balances, net cash from operating activities,

dividend and interest receipts, and proceeds from asset sales, we are primarily dependent upon our financing
activities to generate sufficient cash resources to meet our future cash requirements and planned commitments.
Our borrowings of debt aggregated $2,667 million, $4,597 million, $3,187 million and $155 million for the
years ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the two months ended
February 28, 1999. Due to covenant restrictions in the bank credit facilities of our subsidiaries, we are
generally not entitled to the cash resources or cash generated by operations of our subsidiaries and business
affiliates.

In January 2001, we received net cash proceeds of $588 million (after underwriter fees of $12 million)

from the issuance of our 31⁄2% senior exchangeable debentures due 2031. These debentures are exchangeable,
at the option of the holder, for the value of 36.8189 shares of Motorola stock. We may pay such value in cash,
with a number of shares of Motorola stock or a combination of cash and stock, as determined in the debentures.

In March 2001, we received net cash proceeds of $801 million (after underwriter fees of $17 million) from

the issuance of our 31⁄4% senior exchangeable debentures due 2031. These debentures are exchangeable, at the
option of the holder, for the value of 18.5666 shares of Viacom stock. We may pay such value in cash, with a
number of shares of Viacom stock or a combination of cash and stock, as determined in the debentures.

In December 2001, we issued $237.8 million of 73⁄4% Senior Notes due 2009 for cash proceeds of $238.4

million. We used such cash proceeds to repay a portion of our notes payable to UnitedGlobalCom.

Prior to the Split Off Transaction, we were 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 with AT&T, we received a cash payment from
AT&T in periods when we generated taxable losses and those taxable losses were utilized by AT&T to reduce
the consolidated income tax liability. Subsequent to the Split Off Transaction, we are no longer entitled to such
cash payments.

In connection with the Split Off Transaction, we have also been deconsolidated from AT&T for federal

income tax purposes. As a result, AT&T was required to pay us an amount equal to 35% of the amount of the
net operating loss carryforward reflected in TCI’s final federal income tax return that has not been used as an
offset to our obligations under the AT&T Tax Sharing Agreement and that has been, or is reasonably expected
to be, utilized by AT&T. The $803 million payment was received by us prior to the Split Off Transaction and
has been reflected as an increase to additional paid-in-capital in the accompanying consolidated statement of
stockholders’ equity. In addition, certain deferred intercompany gains will be includible in AT&T’s taxable
income as a result of the Split Off Transaction, and AT&T will be entitled to reimbursement from us for the
resulting tax liability of approximately $115 million. Such tax liability has been accrued as of December 31,
2001 and has been reflected as a reduction in additional paid-in-capital in the accompanying consolidated
statement of stockholders’ equity.

AT&T, as the successor to TCI, is the subject of an Internal Revenue Service (‘‘IRS’’) audit for the 1993-

1995 tax years. The IRS has notified AT&T and us that it is considering proposing income adjustments and
assessing certain penalties in connection with TCI’s 1994 tax return. The IRS’s position could result in
recognition of up to approximately $305 million of additional income, resulting in as much as $107 million of
additional tax liability, plus interest. In addition, the IRS may assert certain penalties. AT&T and we do not
agree with the IRS’s proposed adjustments and penalties, and AT&T and we intend to vigorously defend our
position. Pursuant to the AT&T Tax Sharing Agreement, we may be obligated to reimburse AT&T for any tax
that is ultimately assessed as a result of this audit. We are currently unable to estimate a range of any such
reimbursement, but we believe that any such reimbursement would not be material to our financial position.

F-15

In connection with the private letter ruling received by AT&T with respect to the tax consequences of the
Split Off Transaction, we represented to the Internal Revenue Service that, within one year following the Split
Off Transaction, we will issue, subject to market and business conditions, at least $250 million to $500 million
of equity for cash or other assets, and, within two years following the Split Off Transaction, we will issue at
least $500 million to $1 billion of equity (including any equity issued during the first year) for cash or other
assets. During the period from August 10, 2001 to December 31, 2001, we did not issue any common stock.

Our primary uses of cash in recent years have been investments in and advances to affiliates and
acquisitions of consolidated subsidiaries. In this regard, our investments in and advances to cost and equity
method affiliates aggregated $2,579 million, $3,359 million, $2,596 million, and $51 million for the years
ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the two months ended
February 28, 1999, respectively. Our cash paid for acquisitions aggregated $113 million, $735 million and $109
million for the years ended December 31, 2001 and 2000 and the ten months ended December 31, 1999,
respectively. In addition, we had debt repayments of $1,048 million, $2,156 million, $2,211 million, and $145
million during the years ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the
two months ended February 28, 1999, respectively.

We anticipate that we will continue to fund our existing investees as they develop and expand their
businesses, and that such investments and advances to affiliates will aggregate $1.0 to $1.5 billion in 2002.
Although we may invest additional amounts in new or existing ventures in 2002, we are unable to quantify
such investments at this time. In addition, we have $1,143 million of debt that is required to be repaid or
refinanced in 2002. We intend to fund such investing and financing activities with a combination of available
cash and short term investments, borrowings under existing credit facilities, monetization of existing
marketable securities, proceeds from the sale of assets, and the issuance of debt and equity securities.

At December 31, 2001, we and our consolidated subsidiaries had bank credit facilities which provided for

borrowings of up to $2,202 million. Borrowings under these facilities of $1,985 million were outstanding at
December 31, 2001. Certain assets of our 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.

Based on currently available information and expected future transactions, we expect to receive

approximately $180 million in dividend and interest income during the year ended December 31, 2002. Based
on current debt levels and current interest rates, we expect to make interest payments of approximately $400
million during the year ended December 31, 2002.

Various partnerships and other affiliates of ours accounted for using 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. Notwithstanding the foregoing, certain of our
affiliates may require additional capital to finance their operating or investing activities. In addition, we are
party to stockholder and partnership agreements that provide for possible capital calls on stockholders and
partners. In the event our affiliates require additional financing and we fail to meet a capital call, or other
commitment to provide capital or loans to a particular company, such failure may have adverse consequences to
us. These consequences may include, among others, the dilution of our equity interest in that company, the
forfeiture of our right to vote or exercise other rights, the right of the other stockholders or partners to force us
to sell our interest at less than fair value, the forced dissolution of the company to which we have made the
commitment or, in some instances, a breach of contract action for damages against us. Our ability to meet
capital calls or other capital or loan commitments is subject to our ability to access cash.

Pursuant to a proposed final judgment agreed to by TCI, AT&T and the United States Department of
Justice on December 30, 1998, we transferred all of our beneficially owned securities of Sprint PCS to a trustee
prior to the AT&T merger. The Final Judgment, which was entered by the United States District Court for the
District of Columbia on August 23, 1999, requires the Trustee, on or before May 23, 2002, to dispose of a

F-16

portion of the Sprint PCS Group common stock held by the trust sufficient to cause us to beneficially own no
more than 10% of the outstanding Sprint PCS Group common stock-Series 1 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 us. At our request, the Department of Justice has joined us and AT&T in a joint motion to terminate
the Final Judgment which was filed in the District Court in February 2002. Under the terms of the Final
Judgement, the obligation of the trustee to dispose of the first tranche of shares by May 23, 2002 will be stayed
while the District Court considers the joint motion. We are also seeking the approval of the Federal
Communications Commission to the stay of the Trustee’s obligation to dispose of the first tranche of shares
pending the District Court’s determination of the joint motion.

On January 30, 2002, we completed a transaction with UnitedGlobalCom (the ‘‘New United Transaction’’)

pursuant to which a new holding company (‘‘New United’’) was formed to own UnitedGlobalCom, and all
shares of UnitedGlobalCom common stock were exchanged for shares of common stock of New United. In
addition, we contributed (i) cash consideration of $200 million; (ii) a note receivable from Belmarken Holding
B.V., a subsidiary of UnitedGlobalCom, with an accreted value of $892 million and (iii) Senior Notes and
Senior Discount Notes of United-Pan Europe Communications N.V., a subsidiary of UnitedGlobalCom,
comprised of U.S. dollar denominated notes with a face amount of $1,435 million and euro denominated notes
with a face amount of euro 263 million, which we acquired in the fourth quarter of 2001, to New United in
exchange for 281.3 million shares of Class C common stock of New United. Upon consummation of the New
United transaction, we own an approximate 72% economic interest and a 94% voting interest in New United.
Pursuant to certain voting and standstill arrangements entered into at the time of closing, we are unable to
exercise control of New United, and accordingly, we will continue to use the equity method of accounting for
our investment.

Also on January 30, 2002, New United acquired from us our debt and equity interests in IDT United, Inc.

and $751 million principal amount at maturity of UnitedGlobalCom’s $1,375 million 103⁄4% senior secured
discount notes due 2008 (the ‘‘2008 Notes’’), which had been distributed to us in redemption of a portion of
our interest in IDT United. IDT United was formed as an indirect subsidiary of IDT Corporation for purposes
of effecting a tender offer for all outstanding 2008 Notes at a purchase price of $400 per $1,000 principal
amount at maturity, which tender offer expired on February 1, 2002. The aggregate purchase price for our
interest in IDT United of $449 million equaled the aggregate amount we had invested in IDT United, plus
interest. Approximately $305 million of the purchase paid was paid by the assumption by New United of debt
owed by us to a subsidiary of UnitedGlobalCom and the remainder was credited against the $200 million cash
contribution by us to New United described above. In connection with the New United Transaction, one of our
subsidiaries agreed to loan to a subsidiary of New United up to $105 million. As of February 28, 2002, such
subsidiary of New United has borrowed $103 million from our subsidiary to acquire additional shares of
preferred stock and promissory notes issued by IDT United. The 2008 Notes owned by IDT United, together
with 2008 Notes acquired by New United directly from us referred to above, all of which remain outstanding,
represent approximately 98.2% of the outstanding 2008 Notes.

UnitedGlobalCom and its significant operating subsidiaries have incurred losses since their formation, as

they have attempted to expand and develop their businesses and introduce new services. In November 2001,
United Australia/Pacific, Inc. (‘‘UAP’’), a 50% owned affiliate of UnitedGlobalCom, failed to make interest
payments on certain of its senior notes. Following such default, the trustee of the Indenture for UAP’s senior
notes declared the principal and interest due and payable. In February 2002, United Pan-Europe
Communications N.V. (‘‘UPC’’), a majority-owned consolidated subsidiary of UnitedGlobalCom, failed to
make required interest payments on certain of its senior notes. Both UAP and UPC are negotiating the
restructuring of their respective debt instruments. No assurance can be given that such negotiations will be
successful. In addition, certain other UnitedGlobalCom subsidiaries do not have sufficient working capital to
service their debt or other liabilities when due during the next year. As a result of the foregoing, there is
substantial doubt about UnitedGlobalCom’s ability to continue as a going concern. UnitedGlobalCom’s
management is taking steps to address these matters. However, no assurance can be given that such steps will
be successful.

F-17

We have guaranteed $619 million of the bank debt of Jupiter, an equity affiliate that provides broadband

services in Japan. Approximately $343 million of such guaranteed amount is due and payable by Jupiter during
the first quarter of 2002. Jupiter is currently negotiating the refinancing of substantially all of its long-term and
short-term debt. We anticipate that we and the other Jupiter shareholders will make equity contributions to
Jupiter in connection with such refinancing, and that our share of such equity contributions will be
approximately $450 million. Upon such refinancing, we anticipate that our guarantee of Jupiter debt would be
cancelled.

We have also guaranteed various loans, notes payable, letters of credit and other obligations (the
‘‘Guaranteed Obligations’’) of certain other affiliates. At December 31, 2001, the Guaranteed Obligations
aggregated approximately $170 million. Currently, we are not certain of the likelihood of being required to
perform under such guarantees.

Information concerning the amount and timing of required payments under our contractual obligations is

summarized below:

Contractual obligation

Less
than
1 year

Long-term debt (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating lease obligations . . . . . . . . . . . . . . . . . . . . . . . .
Film Licensing Obligations (2) . . . . . . . . . . . . . . . . . . . . .

$1,143
70
405

Payments due by period

1-3
years

4-5
years

After
5 years

Total

amounts in millions
1,024
332
71
115
191
378

5,665
115
388

8,164
371
1,362

Total contractual payments . . . . . . . . . . . . . . . . . . . .

$1,618

825

1,286

6,168

9,897

(1)

Includes all debt instruments, including the call option feature related to our exchangeable debentures.
Amounts are stated at the face amount at maturity and may differ from the amounts stated in our
consolidated balance sheet to the extent debt instruments (i) were issued at a discount or premium or (ii)
are reported at fair value in our consolidated balance sheet. Also includes capital lease obligations.

(2) Starz Encore Group is obligated to pay fees for the rights to exhibit certain films that are released by

various producers through 2014. The amounts in the table represent the minimum obligation based on the
number of Starz Encore subscribers at December 31, 2001. 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.

We have contingent liabilities related to legal proceedings and other matters arising in the ordinary course

of business. Although it is reasonably possible we 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.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (the ‘‘FASB’’) issued Statement No. 141,
Business Combinations (‘‘Statement 141’’), and Statement No. 142, Goodwill and Other Intangible Assets
(‘‘Statement 142’’). Statement 141 requires that the purchase method of accounting be used for all business
combinations. Statement 141 also specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from goodwill. Statement 142 will require
that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also
require that intangible assets with estimable useful lives be amortized over their respective estimated useful

F-18

lives to their estimated residual values, and reviewed for impairment in accordance with SFAS Statement
No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

We adopted the provisions of Statement 141 effective July 1, 2001, and are required to adopt Statement

142 effective January 1, 2002.

Statement 141 requires upon adoption of Statement 142, that we evaluate our existing intangible assets and

goodwill that were acquired in prior purchase business combinations, and to make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill.
Upon adoption of Statement 142, we will be required to reassess the useful lives and residual values of all
intangible assets acquired, and make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite
useful life, we will be required to test the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption
and recognized as the cumulative effect of a change in accounting principle in the first interim period.

In connection with Statement 142’s transitional goodwill impairment evaluation, Statement 142 will
require us to perform an assessment of whether there is an indication that goodwill and equity-method goodwill
is impaired as of the date of adoption. To accomplish this, we must identify our reporting units and determine
the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill
and intangible assets, to those reporting units as of the date of adoption. We will then have up to six months
from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting
unit’s carrying amount. To the extent a reporting unit’s carrying amount exceeds its fair value, an indication
exists that the reporting unit’s goodwill may be impaired and we must perform the second step of the
transitional impairment test. In the second step, we must compare the implied fair value of the reporting unit’s
goodwill, determined by allocating the reporting unit’s fair value to all of its assets (recognized and
unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement
141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is
required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in accounting principle in our
statement of operations.

As of the date of adoption, we will have unamortized goodwill in the amount of $9,191 million,

unamortized identifiable intangible assets in the amount of $831 million, and unamortized equity-method excess
costs in the amount of $7,766 million, all of which will be subject to the transition provisions of Statements
141 and 142. Amortization expense related to goodwill was $617 million and $587 million for the years ended
December 31, 2001 and 2000, respectively; and amortization of equity-method excess costs (included in share
of losses of affiliates) aggregated $798 million and $1,058 million for the years ended December 31, 2001 and
2000, respectively. We currently estimate that upon adoption of Statement 142, we will be required to recognize
a $1.5-$2.0 billion transitional impairment loss as the cumulative effect of a change in accounting principle.
The foregoing estimate does not include an adjustment for our proportionate share of any transition adjustments
that our equity method affiliates may record, as we are currently unable to estimate the amount of such
adjustment.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ‘‘Accounting for
the Impairment or Disposal of Long-Lived Assets,’’ which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supercedes prior statements that address the
disposal of a segment of a business, and eliminates the exception to consolidation for subsidiaries for which
control is likely to be temporary. This statement retains the prior statement’s fundamental provisions for the
recognition and measurement of impairment of long-lived assets to be held and used, as well as the
measurement of long-lived assets to be disposed of by sale. The statement is effective for fiscal years beginning
after December 15, 2001. We have not determined the impact that adoption of this statement will have on its
financial position, results of operations or cash flow.

F-19

Quantitative and Qualitative Disclosures about Market Risk.

We are exposed to market risk in the normal course of business due to our 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. We have
established policies, procedures and internal processes governing our management of market risks and the use
of financial instruments to manage our exposure to such risks.

Investments in and advances to our foreign affiliates are denominated in foreign currencies. Therefore, we

are exposed to changes in foreign currency exchange rates. We do not hedge the majority of our foreign
currency exchange risk because of the long-term nature of our interests in foreign affiliates. During 2001, we
entered into a definitive agreement to acquire six regional cable television systems in Germany. A portion of
the consideration for such acquisition was to be denominated in euros. In order to reduce our exposure to
changes in the euro exchange rate, we had entered into forward purchase contracts with respect to euro 3,243
million as of December 31, 2001. Such contracts generally have terms ranging from 90 to 120 days and can be
renewed at their expiration at our option. At December 31, 2001, we had recorded a liability of $24 million
representing unrealized losses related to these contracts. In February 2002, we failed to receive regulatory
approval for our proposed German cable acquisition. From time to time we evaluate potential European
acquisitions that may require euro currency, and accordingly, we currently intend to renew our euro forward
purchase contracts in order to limit our exposure to increases in the euro exchange rate. We may also choose to
settle certain of our euro forward purchase contracts depending on the value of the euro. No assurance can be
given regarding the future value of the euro, and we continue to be subject to risk of further devaluation of the
euro. If the price of the euro had been 10% lower at December 31, 2001, we would have recognized an
unrealized loss on financial instruments of $289 million. We continually evaluate our foreign currency exposure
based on current market conditions and the business environment in each country in which we operate.

We are exposed to changes in interest rates primarily as a result of our borrowing and investment
activities, which include investments in fixed and floating rate debt instruments and borrowings used to
maintain liquidity and to fund business operations. The nature and amount of our long-term and short-term debt
are expected to vary as a result of future requirements, market conditions and other factors. We manage our
exposure to interest rates by maintaining what we believe is an appropriate mix of fixed and variable rate debt.
We believe this best protects us from interest rate risk. We have achieved this appropriate mix by (i) issuing
fixed rate debt that we believe has a low stated interest rate and significant term to maturity and (ii) issuing
short-term variable rate debt to take advantage of historically low short-term interest rates. As of December 31,
2001, $3,727 million or 63% of our debt was composed of fixed rate debt with a weighted average stated
interest rate of 5.8%. Our variable rate debt of $2,180 million had a weighted average interest rate of 3.8% at
December 31, 2001. Had market interest rates been 100 basis points higher (representing an approximate 26%
increase over our variable rate debt effective cost of borrowing) throughout the year ended December 31, 2001,
we would have recognized approximately $19 million of additional interest expense. Had the price of the
securities underlying the call option obligations associated with our senior exchangeable debentures been 10%
higher during the year ended December 31, 2001, we would have recognized an additional unrealized loss on
financial instruments of $165 million.

We are exposed to changes in stock prices primarily as a result of our significant holdings in publicly
traded securities. We continually monitor changes in stock markets, in general, and specifically changes in the
stock prices of our holdings. We believe that changes in stock prices can be expected to vary as a result of
general market conditions, technological changes, specific industry changes and other factors. We use equity
collars, put spread collars and other financial instruments to manage market risk associated with certain
investment positions. These instruments are recorded at fair value based on option pricing models. Equity
collars provide us with a put option that gives us the right to require the counterparty to purchase a specified
number of shares of the underlying security at a specified price (the ‘‘Company Put Price’’) at a specified date
in the future. Equity collars also provide the counterparty with a call option that gives the counterparty the right

F-20

to purchase the same securities at a specified price at a specified date in the future. The put option and the call
option generally are equally priced at the time of origination resulting in no cash receipts or payments. Our
equity collars are accounted for as fair value hedges.

Put spread collars provide us and the counterparty with put and call options similar to equity collars. In
addition, put spread collars provide the counterparty with a put option that gives it the right to require us to
purchase the underlying securities at a price that is lower than the Company Put Price. The inclusion of the
secondary put option allows us to secure a higher call option price while maintaining net zero cost to enter into
the collar. However, the inclusion of the secondary put exposes us to market risk if the underlying security
trades below the put spread price. Our put spread collars have not been designated as fair value hedges.

The following table provides information regarding our equity and put spread collars at December 31,

2001:

Security

Type of collar

Put spread

AOL . . . . . . . . . . . . . . . . . . Equity collar
AOL . . . . . . . . . . . . . . . . . .
Sprint PCS . . . . . . . . . . . . . . Equity collar
. . . . . . . . . . . . . Equity collar
News Corp.
News Corp.
. . . . . . . . . . . . .
Motorola . . . . . . . . . . . . . . . Equity collar
Cendant . . . . . . . . . . . . . . . . Equity collar
Priceline . . . . . . . . . . . . . . . . Equity collar

Put spread

No. of
underlying
shares
(000’s)

Weighted
average
put spread
price per
share

Weighted
average
put price
per share

Weighted
average
call price
per share

Weighted
average
years to
maturity

36,100
21,538
156,506
5,000
6,916
67,624
26,357
3,125

N/A
$ 28
N/A
N/A
$ 20
N/A
N/A
N/A

$47
$49
$26
$45
$33
$24
$19
$37

$ 96
$118
$ 41
$ 85
$ 79
$ 44
$ 33
$ 92

3.6
3.2
6.2
3.2
3.8
2.1
3.4
3.5

At December 31, 2001, the fair value of the securities underlying the equity and put spread collars in the
foregoing table was $7,536 million, (excluding the fair value of the related equity and put spread collars) and
the total value of our available-for-sale equity securities was $19,537 million. Had the market price of our
unhedged available-for-sale securities been 10% lower at December 31, 2001, the aggregate value of such
securities would have been $1,200 million lower resulting in an increase to unrealized losses in other
comprehensive earnings.

Had the stock price of our publicly traded investments accounted for using the equity method been 10%

lower at December 31, 2001, there would have been no impact on the carrying value of such investments.

From time to time we enter into total return debt swaps in connection with our purchase of our own or

third-party public and private indebtedness. Under these arrangements, we direct a counterparty to purchase a
specified amount of the underlying debentures for our benefit. We post collateral with the counterparty equal to
10% of the value of the purchased securities We earn interest income based upon the face amount and stated
interest rate of the debt securities, and we pay interest expense at market rates on the amount funded by the
counterparty. In the event the fair value of the underlying debentures declines, we are required to post cash
collateral for the decline, and we record an unrealized loss on financial instruments. At December 31, 2001, the
aggregate purchase price of debt securities underlying total return debt swap arrangements was $118 million.
As of such date, we had posted cash collateral equal to $59 million. In the event the fair value of the purchased
debt securities were to fall to zero, we would be required to post additional cash collateral of $59 million.

We measure the effectiveness of our 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, we monitor 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. We believe
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, we monitor historical market

F-21

trends relative to values currently present in the market. We believe 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 assets.
These measures allow our management to measure the success of its use of derivative instruments and to
determine when to enter into or exit from derivative instruments.

F-22

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders
Liberty Media Corporation:

We have audited the accompanying consolidated balance sheets of Liberty Media Corporation and

subsidiaries (‘‘New Liberty’’ or ‘‘Successor’’) as of December 31, 2001 and 2000, and the related consolidated
statements of operations, comprehensive earnings, stockholders’ equity, and cash flows for the years ended
December 31, 2001 and 2000 and the period from March 1, 1999 to December 31, 1999 (Successor periods)
and from January 1, 1999 to February 28, 1999 (Predecessor period). These consolidated financial statements
are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of

America. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned Successor consolidated financial statements present fairly, in all
material respects, the financial position of New Liberty as of December 31, 2001 and 2000, and the results of
their operations and their cash flows for the Successor periods, in conformity with accounting principles
generally accepted in the United States of America. Further, in our opinion, the aforementioned Predecessor
consolidated financial statements present fairly, in all material respects, the results of their operations and their
cash flows for the Predecessor period, in conformity with accounting principles generally accepted in the
United States of America.

As discussed in notes 3 and 8 to the consolidated financial statements, the Company changed its method of

accounting for derivative instruments and hedging activities in 2001.

As discussed in note 1 to the consolidated financial statements, effective March 9, 1999, AT&T Corp., the

former parent company of New Liberty, acquired Tele-Communications, Inc., the former parent company of
Liberty Media Corporation, in a business combination accounted for as a purchase. As a result of the
acquisition, the consolidated financial information for the periods after the acquisition is presented on a
different cost basis than that for the periods before the acquisition and, therefore, is not comparable.

Denver, Colorado
March 8, 2002

KPMG LLP

F-23

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2001 and 2000

2001

2000*

amounts in millions

Current assets:

ASSETS

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Trade and other receivables, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and program rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax assets (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,077
397
356
352
311
38

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3,531

1,295
500
307
283
242
73

2,700

Investments in affiliates, accounted for using the equity method, and related receivables

(note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in available-for-sale securities and other cost investments (note 6) . . . . . . . . . .
Property and equipment, at cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,076
23,544
1,190
(249)

20,464
19,035
976
(131)

941

845

Intangible assets:

Excess cost over acquired net assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Franchise costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,752
190

10,896
190

Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10,942
(1,588)

11,086
(998)

9,354

10,088

Other assets, at cost, net of accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,093

1,136

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$48,539

54,268

(continued)

F-24

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2001 and 2000

Current liabilities:

LIABILITIES AND STOCKHOLDERS’ EQUITY

2001

2000*

amounts in millions

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued stock compensation (note 11)
Program rights payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Long-term debt (note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Call option obligations (note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liabilities (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

127
159
278
833
240
1,143

2,780

4,764
1,320
8,977
442

148
105
401
1,216
179
1,094

3,143

5,269
—
11,337
62

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18,283

19,811

Minority interests in equity of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders’ equity (note 10):

Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued and

133

348

outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

—

Series A common stock $.01 par value. Authorized 4,000,000,000 shares; issued and

outstanding 2,378,127,544 shares at December 31, 2001 . . . . . . . . . . . . . . . . . . . . .

24

—

—

Series B common stock $.01 par value. Authorized 400,000,000 shares; issued and

outstanding 212,045,288 shares at December 31, 2001 . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Additional paid-in capital
Accumulated other comprehensive earnings (loss), net of taxes (note 13) . . . . . . . . . . . . .
Accumulated deficit

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2
35,996
840
(6,739)

—
35,042
(397)
(536)

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30,123

34,109

Commitments and contingencies (note 14)

Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$48,539

54,268

* as restated, see note 2

See accompanying notes to consolidated financial statements.

F-25

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

New Liberty

Year ended
December 31,
2001

Year ended
December 31,
2000*

Ten months
ended
December 31,
1999*

Old Liberty

Two months
ended
February 28,
1999

amounts in millions
(note 2)

Revenue:

Unaffiliated parties . . . . . . . . . . . . . . . . . . . . . . . . . .
Related parties (note 10) . . . . . . . . . . . . . . . . . . . . . .

$ 1,849
210

Operating costs and expenses:

Operating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative (‘‘SG&A’’) . . . . . .
Charges from related parties (note 10) . . . . . . . . . . . .
Stock compensation-SG&A (note 11) . . . . . . . . . . . . .
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . .
Impairment of long-lived assets (note 3)

2,059

1,089
573
20
132
209
775
388

3,186

Operating income (loss) . . . . . . . . . . . . . . . . . . .

(1,127)

Other income (expense):

Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividend and interest income . . . . . . . . . . . . . . . . . .
Share of losses of affiliates, net (note 5) . . . . . . . . . . .
Nontemporary declines in fair value of investments

(525)
272
(4,906)

1,283
243

1,526

801
348
37
(950)
122
732
—

1,090

436

(399)
301
(3,485)

549
180

729

343
229
24
1,785
19
543
—

2,943

192
43

235

95
87
6
183
7
15

—

393

(2,214)

(158)

(135)
242
(904)

(note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(4,101)

(1,463)

—

Realized and unrealized gains (losses) on financial

instruments, net (note 3) . . . . . . . . . . . . . . . . . . . .
Gains (losses) on dispositions, net (notes 5 and 6) . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Earnings (loss) before income taxes and minority
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefit (expense) (note 9) . . . . . . . . . . . . . . . .
Minority interests in losses of subsidiaries . . . . . . . . . . . . .

interest

Earnings (loss) before cumulative effect of

(174)
(310)
(11)

(9,755)

223
7,340
3

2,520

(153)
4
(4)

(950)

(10,882)
3,908
226

2,956
(1,534)
63

(3,164)
1,097
46

accounting change . . . . . . . . . . . . . . . . . . . . .

(6,748)

1,485

(2,021)

Cumulative effect of accounting change, net of taxes

(notes 3 and 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . .

545
$ (6,203)

—
1,485

—
(2,021)

Pro forma earnings (loss) per common share (note 3):
Pro forma basic and diluted earnings (loss) before

cumulative effect of accounting change . . . . . . . . .
Cumulative effect of accounting change, net of taxes . .

Pro forma basic and diluted net earnings (loss) . . . . . .

$

$

(2.61)
.21

(2.40)

.57
—

.57

(.78)
—

(.78)

(26)
10
(66)

—

—

14
363

295

137
(211)
4

(70)

—
(70)

(.03)
—

(.03)

Pro forma number of common shares outstanding . . . .

2,588

2,588

2,588

2,588

* as restated, see note 2

See accompanying notes to consolidated financial statements.

F-26

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

New Liberty

Year ended
December 31,
2001

Year ended
December 31,
2000*

Ten months
ended
December 31,
1999*

Old Liberty

Two months
ended
February 28,
1999

Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(6,203)

amounts in millions
1,485

(2,021)

Other comprehensive earnings, net of taxes (note 13):

Foreign currency translation adjustments . . . . . . . .
Unrealized holding gains (losses) arising during the
period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Recognition of previously unrealized losses (gains)
. . . . . . . . . .

on available-for-sale securities, net

Cumulative effect of accounting change (notes 3

(359)

(202)

60

(1,013)

(6,115)

6,488

2,696

(635)

7

and 8)

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(87)

—

Other comprehensive (loss) earnings . . . . . . . . . . .

1,237

Comprehensive earnings (loss) . . . . . . . . . . . . . . . . . . .

$(4,966)

(6,952)

(5,467)

—

6,555

4,534

(70)

(15)

885

—

—

870

800

* as restated, see note 2

See accompanying notes to consolidated financial statements.

F-27

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Preferred
stock

Common stock

Series A Series B

Additional
paid-in
capital

Accumulated
other
comprehensive
earnings, net
of taxes

Accumulated
(deficit)
earnings

Total
stockholders’
equity

Balance at January 1, 1999

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings . . . . . . . . . . . . . .
Other transfers from related parties, net . . . . . . . .

Balance on February 28, 1999 . . . . . . . . . . . . . . . .

Balance at March 1, 1999 (as restated, see note 2) . .
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings . . . . . . . . . . . . . .
Transfer from related party for redemption of

debentures . . . . . . . . . . . . . . . . . . . . . . . . . . .

Gains in connection with issuances of stock of

affiliates and subsidiaries, net of taxes
(note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Utilization of net operating losses of Liberty by

AT&T (note 9) . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 1999 . . . . . . . . . . . . . . . .

Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . .
Issuance of AT&T Class A Liberty Media Group
common stock for acquisitions (note 7) . . . . . .

Gains in connection with issuances of stock by

affiliates and subsidiaries, net of taxes
(note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Utilization of net operating losses of Liberty by

AT&T (note 9) . . . . . . . . . . . . . . . . . . . . . . . .
Other transfers to related parties, net . . . . . . . . . .

Balance at December 31, 2000 . . . . . . . . . . . . . . . .

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings . . . . . . . . . . . . . .
Issuance of common stock upon consummation of
Split Off Transaction (note 2) . . . . . . . . . . . . .

Contribution from AT&T upon consummation of

Split Off Transaction (note 2) . . . . . . . . . . . . .

Accrual of amounts due to AT&T for taxes on

deferred intercompany gains (note 2) . . . . . . . .

Losses in connection with issuances of stock by

subsidiaries and affiliates, net of taxes
(note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Utilization of net operating losses of Liberty by

AT&T prior to Split Off Transaction (note 9) . .

Stock option exercises and issuance of restricted

stock prior to Split Off Transaction . . . . . . . . .

$ —
—
—
—

$ —

$ —
—
—

—

—

—

—

—
—

—

—

—
—

—

—
—

—

—

—

—

—

—

—
—
—
—

—

—
—
—

—

—

—

—

—
—

—

—

—
—

—

—
—

—
—
—
—

—

—
—
—

—

—

—

—

—
—

—

—

—
—

—

—
—

24

2

—

—

—

—

—

—

—

—

—

—

amounts in millions
4,682
—
—
430

3,186
—
870
—

5,112

4,056

952
(70)
—
—

882

—
—
6,555

—
(2,021)
—

8,820
(70)
870
430

10,050

33,500
(2,021)
6,555

354

108

(88)

—

—

—

(2,021)

38,408

1,485
—

—

—

—
—

1,485
(6,952)

1,064

355

(38)
(213)

—

—

—

6,555

—
(6,952)

—

—

—
—

(397)

—
1,237

(536)

34,109

(6,203)
—

(6,203)
1,237

—

—

—

—

—

—

—

—

—

—

—

—

—

803

(115)

(8)

(2)

302

33,500
—
—

354

108

(88)

33,874

—
—

1,064

355

(38)
(213)

35,042

—
—

(26)

803

(115)

(8)

(2)

302

Balance at December 31, 2001 . . . . . . . . . . . . . . . .

$ —

24

2

35,996

840

(6,739)

30,123

See accompanying notes to consolidated financial statements.

F-28

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

New Liberty

Year ended
December 31,
2001

Year ended
December 31,
2000*

Ten months
ended
December 31,
1999*

Old Liberty

Two months
ended
February 28,
1999

amounts in millions
(note 4)

$(6,203)

1,485

(2,021)

(70)

(545)
984
388
132
(244)
4,906
4,101

174
310
(226)
(3,613)
(222)
166
40

30
(148)
(4)
26

(113)
(358)
(1,031)
(1,548)
(269)
615
471
(5)

(2,238)

1,639

1,028
(1,048)
—
383
366
803
(157)
(20)
2,994
782
1,295
$ 2,077

—
854
—
(950)
(319)
3,485
1,463

(223)
(7,340)
(63)
1,821
(294)
414
15

(116)
(121)
88
199

(735)
(221)
(1,568)
(1,791)
(848)
1,820
456
21

(2,866)

4,597

—
(2,156)
121
—
—
—
(286)
(28)
2,248
(419)
1,714
1,295

—
562
—
1,785
(111)
904
—

153
(4)
(46)
(1,025)
(75)
1
3

7
(119)
119
133

(109)
(40)
(1,090)
(1,506)
(7,757)
5,725
130
(11)

(4,658)

3,187

—
(2,211)
123
—
—
—
(159)
(20)
920
(3,605)
5,319
1,714

—
22
—
183
(126)
66
—

—
(14)
(4)
212
(1)
—
(354)

33
(23)
(31)
(107)

—
(15)
(30)
(21)
(3)
9
43
(62)

(79)

155

—
(145)
—
—
—
—

31
(52)
(11)
(197)
228
31

Cash flows from operating activities:

Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net earnings (loss) to net cash

provided (used) by operating activities:
Cumulative effect of accounting change, net of taxes . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of stock compensation . . . . . . . . . . . . . . . . . . . .
Share of losses of affiliates, net
. . . . . . . . . . . . . . . . . . . . .
Nontemporary decline in fair value of investments . . . . . . .
Realized and unrealized losses (gains) on financial

instruments, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses (gains) on disposition of assets, net . . . . . . . . . . . . .
Minority interests in losses of subsidiaries . . . . . . . . . . . . .
Deferred income tax expense (benefit) . . . . . . . . . . . . . . . .
Intergroup tax allocation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments from AT&T pursuant to tax sharing agreement . . .
Other noncash charges (income) . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities, net of the effect

of acquisitions and dispositions:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and program rights . . . . . . . . . . . . . . . .
Payables and other current liabilities . . . . . . . . . . . . . . . .
Net cash provided (used) by operating activities . . . . . .

Cash flows from investing activities:

Cash paid for acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expended for property and equipment . . . . . . . . . . . . .
Investments in and loans to equity affiliates . . . . . . . . . . . . . .
Investments in and loans to cost investments . . . . . . . . . . . . .
Purchases of marketable securities . . . . . . . . . . . . . . . . . . . . .
Sales and maturities of marketable securities . . . . . . . . . . . . . .
Cash proceeds from dispositions . . . . . . . . . . . . . . . . . . . . . .
Other investing activities, net . . . . . . . . . . . . . . . . . . . . . . . . .

Net cash used by investing activities . . . . . . . . . . . . . .

Cash flows from financing activities:

Borrowings of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds attributed to call option obligations upon issuance of
senior exchangeable debentures . . . . . . . . . . . . . . . . . . . . .
Repayments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net proceeds from issuance of stock by subsidiaries . . . . . . . .
Premium proceeds from financial instruments . . . . . . . . . . . . .
Proceeds from settlement of financial instruments, net . . . . . . .
Payment from AT&T related to Split Off Transaction . . . . . . .
Cash transfers (to) from related parties . . . . . . . . . . . . . . . . . .
Other financing activities, net . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided (used) by financing activities . . . . . .
Net increase (decrease) in cash and cash equivalents . .
Cash and cash equivalents at beginning of period . . . . .
Cash and cash equivalents at end of period . . . . . . . . .

* as restated, see note 2

See accompanying notes to consolidated financial statements.

F-29

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001, 2000 and 1999

(1) Basis of Presentation

The accompanying consolidated financial statements include the accounts of Liberty Media Corporation

(‘‘Liberty’’ or the ‘‘Company’’) and those of all majority-owned and controlled subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

Liberty’s domestic subsidiaries generally operate or hold interests in businesses which provide
programming services including production, acquisition and distribution through all available formats and
media of branded entertainment, educational and informational programming and software. In addition, certain
of Liberty’s subsidiaries hold interests in businesses engaged in wireless telephony, electronic retailing, direct
marketing and advertising sales relating to programming services, infomercials and transaction processing.
Liberty also has significant interests in foreign affiliates which operate in cable television, programming and
satellite distribution.

(2) AT&T Ownership of Liberty

On March 9, 1999, AT&T Corp. (‘‘AT&T’’) acquired Tele-Communications, Inc. (‘‘TCI’’), the former

parent company of Liberty, in a merger transaction (the ‘‘AT&T Merger’’). As a result of the AT&T Merger,
each series of TCI common stock was converted into a class of AT&T common stock subject to applicable
exchange ratios. The AT&T Merger was accounted for using the purchase method. Accordingly, at the time of
the AT&T Merger, Liberty’s assets and liabilities were recorded at their respective fair values resulting in 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’’ refer to both New Liberty and Old
Liberty.

F-30

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table represents the summary balance sheet of Old Liberty at February 28, 1999, prior to
the AT&T Merger and the opening summary balance sheet of New Liberty subsequent to the AT&T Merger.
Certain pre-merger transactions occurring between March 1, 1999, and March 9, 1999, that affected Old
Liberty’s equity, gains on issuance of equity securities by affiliates and subsidiaries, and stock compensation
have been reflected in the two-month period ended February 28, 1999.

ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Investments in available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
Intangibles and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New
Liberty

Old
Liberty

amounts in millions

$ 5,319
434
17,116
13,094
125
11,159

31
1,011
3,971
11,974
111
389

$47,247

17,487

LIABILITIES AND EQUITY
Current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,872
1,845
9,972
19

Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13,708

1,051
2,087
4,147
90

7,375

Minority interests in equity of subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39
33,500

62
10,050

$47,247

17,487

From March 9, 1999 through August 9, 2001, AT&T owned 100% of the outstanding common stock of

Liberty. During such time, the AT&T Class A Liberty Media Group common stock and the AT&T Class B
Liberty Media Group common stock (together, the AT&T Liberty Media Group tracking stock) were tracking
stocks of AT&T designed to reflect the economic performance of the businesses and assets of AT&T attributed
to the Liberty Media Group. Liberty was included in the Liberty Media Group.

On May 7, 2001, AT&T contributed to Liberty assets that were attributed to the Liberty Media Group but

not previously owned by Liberty (the ‘‘Contributed Assets’’). These assets included (i) preferred stock and
common stock interests in a subsidiary of IDT Corporation, a multinational telecommunications services
provider and (ii) an approximate 8% indirect common equity interest in Liberty Digital, Inc. (‘‘Liberty
Digital’’). Subsequent to these contributions, the businesses and assets of Liberty and its subsidiaries
constituted all of the businesses and assets of the Liberty Media Group. The contributions have been accounted
for in a manner similar to a pooling of interests and, accordingly, the financial statements of Liberty for periods
prior to the contributions have been restated to include the financial position and results of operations of the
Contributed Assets.

Effective August 10, 2001, AT&T effected the split-off of Liberty pursuant to which Liberty’s common
stock was recapitalized, and each outstanding share of AT&T Class A Liberty Media Group tracking stock was
redeemed for one share of Liberty Series A common stock and each outstanding share of AT&T Class B
Liberty Media Group tracking stock was redeemed for one share of Liberty Series B common stock (the ‘‘Split
Off Transaction’’). Subsequent to the Split Off Transaction, Liberty is no longer a subsidiary of AT&T and no

F-31

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

shares of AT&T Liberty Media Group tracking stock remain outstanding. The Split Off Transaction has been
accounted for at historical cost.

In connection with the Split Off Transaction, Liberty has also been deconsolidated from AT&T for federal
income tax purposes. As a result, AT&T was required to pay Liberty an amount equal to 35% of the amount of
the net operating loss carryforward reflected in TCI’s final federal income tax return that has not been used as
an offset to Liberty’s obligations under the AT&T Tax Sharing Agreement and that has been, or is reasonably
expected to be, utilized by AT&T. The $803 million payment was received by Liberty prior to the Split Off
Transaction and has been reflected as an increase to additional paid-in-capital in the accompanying consolidated
statement of stockholders’ equity. In addition, certain deferred intercompany gains will be includible in AT&T’s
taxable income as a result of the Split Off Transaction, and AT&T will be entitled to reimbursement from
Liberty for the resulting tax liability of approximately $115 million. Such tax liability has been accrued as of
December 31, 2001 and has been reflected as a reduction in additional paid-in-capital in the accompanying
consolidated statement of stockholders’ equity.

(3) Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash equivalents consist of investments which are readily convertible into cash and have maturities of

three months or less at the time of acquisition.

Receivables

Receivables are reflected net of an allowance for doubtful accounts. Such allowance at December 31, 2001

and 2000 was not material.

Program Rights

Prepaid program rights are amortized on a film-by-film basis over the anticipated number of exhibitions.

Committed program rights and program rights payable are recorded at the estimated cost of the programs when
the film is available for airing less prepayments. These amounts are amortized on a film-by-film basis over the
anticipated number of exhibitions.

Investments

All marketable equity and debt securities held by the Company are classified as available-for-sale and are

carried at fair value. Unrealized holding gains and losses on securities that are classified as available-for-sale
(‘‘AFS Securities’’) and are hedged with a derivative financial instrument that qualifies as a fair value hedge
under Statement of Financial Accounting Standards No. 133 ‘‘Accounting for Derivative Instruments and
Hedging Activities’’ (‘‘Statement 133’’) are recognized in the Company’s consolidated statement of operations.
Unrealized holding gains and losses of AFS Securities that are not hedged pursuant to Statement 133 are
carried net of taxes as a component of accumulated other comprehensive earnings in stockholder’s equity.
Realized gains and losses are determined on an average cost basis. Other investments in which the Company’s
ownership interest is less than 20% and are not considered marketable securities are carried at the lower of cost
or net realizable value.

For those investments in affiliates in which the Company has the ability to exercise significant influence,

the equity method of accounting is used. Under this method, the investment, originally recorded at cost, is
adjusted to recognize the Company’s share of net earnings or losses of the affiliates as they occur rather then as
dividends or other distributions are received, limited to the extent of the Company’s investment in, advances to

F-32

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

and commitments for the investee. The Company’s share of net earnings or losses of affiliates includes the
amortization of the difference between the Company’s investment and its share of the net assets of the investee
and also includes any nontemporary declines in fair value recognized during the period.

Subsequent to the AT&T Merger, changes in the Company’s proportionate share of the underlying equity

of a subsidiary or equity method investee, which result from the issuance of additional equity securities by such
subsidiary or equity investee, are recognized as increases or decreases in the Company’s consolidated
statements of stockholders’ equity.

The Company continually reviews its investments to determine whether a decline in fair value below the

cost basis is other than temporary (‘‘nontemporary’’). The Company considers a number of factors in its
determination including (i) the financial condition, operating performance and near term prospects of the
investee; (ii) the reason for the decline in fair value, be it general market conditions, industry specific or
investee specific; (iii) analysts’ ratings and estimates of 12 month share price targets for the investee; (iv) the
length of time that the fair value of the investment is below the Company’s carrying value; and (v) the
Company’s intent and ability to hold the investment for a period of time sufficient to allow for a recovery in
fair value. If the decline in fair value is deemed to be other than temporary, the cost basis of the security is
written down to fair value. In situations where the fair value of an investment is not evident due to a lack of a
public market price or other factors, the Company uses its best estimates and assumptions to arrive at the
estimated fair value of such investment. The Company’s assessment of the foregoing factors involves a high
degree of judgment and accordingly, actual results may differ materially from the Company’s estimates and
judgments. Writedowns for cost investments and AFS Securities are included in the consolidated statements of
operations as nontemporary declines in fair values of investments. Writedowns for equity method investments
are included in share of losses of affiliates.

Property and Equipment

Property and equipment, including significant improvements, is stated at cost. Depreciation is computed

using the straight-line method using estimated useful lives of 3 to 20 years for support equipment and 10 to 40
years for buildings and improvements.

Excess Cost Over Acquired Net Assets

Excess cost over acquired net assets consists of the difference between the cost of acquiring non-cable

entities and amounts assigned to their tangible assets. Such amounts are amortized using the straight-line
method over periods ranging from 5 to 20 years.

Franchise Costs

Franchise costs generally include the difference between the cost of acquiring cable companies and
amounts allocated to their tangible assets. Such amounts are amortized using the straight-line method over 20
years.

Impairment of Long-lived Assets

The Company periodically reviews the carrying amounts of its property and equipment and its intangible

assets to determine whether current events or circumstances indicate that such carrying amounts may not be
recoverable. If the carrying amount of the asset is greater than the expected undiscounted cash flows to be
generated by such asset, an impairment adjustment is to be recognized. Such adjustment is measured by the
amount that the carrying value of such assets exceeds their fair value. The Company generally measures fair

F-33

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

value by considering sale prices for similar assets or by discounting estimated future cash flows using an
appropriate discount rate. Considerable management judgment is necessary to estimate the fair value of assets,
accordingly, actual results could vary significantly from such estimates. Assets to be disposed of are carried at
the lower of their financial statement carrying amount or fair value less costs to sell.

As a result of the weakness in the economy in 2001 certain subsidiaries of the Company did not meet their
2001 operating objectives and have reduced their 2002 expectations. Accordingly, the subsidiaries assessed the
recoverability of their property and equipment and intangible assets and determined that impairment
adjustments were necessary. In addition, in the fourth quarter, a subsidiary made the decision to consolidate
certain of its operations and close certain facilities. In connection with these initiatives, the subsidiary recorded
a restructuring charge related to lease cancellation fees and an additional impairment charge related to its
property and equipment. All of the foregoing charges are included in impairment of long-lived assets in the
Company’s statement of operations.

Minority Interests

Recognition of minority interests’ share of losses of subsidiaries is generally limited to the amount of such
minority interests’ allocable portion of the common equity of those subsidiaries. Further, the minority interests’
share of losses is not recognized if the minority holders of common equity of subsidiaries have the right to
cause the Company to repurchase such holders’ common equity.

Preferred stock (and accumulated dividends thereon) of subsidiaries are included in minority interests in

equity of subsidiaries. Dividend requirements on such preferred stocks are reflected as minority interests in
earnings of subsidiaries in the accompanying consolidated statements of operations and comprehensive
earnings.

Foreign Currency Translation

The functional currency of the Company is the United States (‘‘U.S.’’) dollar. The functional currency of

the Company’s foreign operations generally is the applicable local currency for each foreign subsidiary and
foreign equity method investee. Assets and liabilities of foreign subsidiaries and foreign equity investees are
translated at the spot rate in effect at the applicable reporting date, and the consolidated statements of
operations and the Company’s share of the results of operations of its foreign equity affiliates are translated at
the average exchange rates in effect during the applicable period. The resulting unrealized cumulative
translation adjustment, net of applicable income taxes, is recorded as a component of accumulated other
comprehensive earnings in stockholder’s equity.

Transactions denominated in currencies other than the functional currency are recorded based on exchange

rates at the time such transactions arise. Subsequent changes in exchange rates result in transaction gains and
losses which are reflected in the accompanying consolidated statements of operations and comprehensive
earnings as unrealized (based on the applicable period end exchange rate) or realized upon settlement of the
transactions.

Unless otherwise indicated, convenience translations of foreign currencies into U.S. dollars are calculated

using the applicable spot rate at December 31, 2001, as published in The Wall Street Journal.

Derivative Instruments and Hedging Activities

The Company uses various derivative instruments including equity collars, put spread collars, bond swaps

and foreign exchange contracts to manage fair value and cash flow risk associated with many of its
investments, some of its variable rate debt and forecasted transactions to be denominated in foreign currencies.

F-34

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Each of these derivative instruments is executed with a counterparty, generally well known major financial
institutions. While Liberty believes these derivative instruments effectively manage the risks highlighted above,
they are subject to counterparty credit risk. Counterparty credit risk is the risk that the counterparty is unable to
perform under the terms of the derivative instrument upon settlement of the derivative instrument. To protect
itself against credit risk associated with these counterparties the Company:

•

•

Executes its derivative instruments with several different counterparties, and

Executes derivative instrument agreements which contain a provision that requires the counterparty to
post the ‘‘in the money’’ portion of the derivative instrument into a cash collateral account for the
Company’s benefit, if the respective counterparty’s credit rating were to reach certain levels, generally
a rating that is below Standard & Poor’s rating of A-or Moody’s rating of A3.

Due to the importance of these derivative instruments to its risk management strategy, Liberty actively monitors
the creditworthiness of each of these counterparties. Based on its analysis, the Company considers
nonperformance by any of its counterparties to be unlikely.

Effective January 1, 2001, Liberty adopted Statement 133, which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments embedded in other contracts, and
for hedging activities. All derivatives, whether designated in hedging relationships or not, are required to be
recorded on the balance sheet at fair value. If the derivative is designated as a fair value hedge, the changes in
the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in
earnings. If the derivative is designated as a cash flow hedge, the effective portions of changes in the fair value
of the derivative are recorded in other comprehensive earnings and are recognized in the statement of
operations when the hedged item affects earnings. Ineffective portions of changes in the fair value of cash flow
hedges are recognized in earnings. If the derivative is not designated as a hedge, changes in the fair value of
the derivative are recognized in earnings. Currently, the only instruments designated as hedges are the
Company’s equity collars, which are designated as fair value hedges.

The fair value of derivative instruments is estimated using the Black-Scholes model. The Black-Scholes
model incorporates a number of variables in determining such fair values, including expected volatility of the
underlying security and an appropriate discount rate. The Company selects a volatility rate at the inception of
the derivative instrument based on the historical volatility of the underlying security and on the term of the
derivative instrument. The volatility assumption is generally not changed during the term of the derivative
instrument unless there is an indication that the historical volatility is no longer appropriate. Considerable
management judgment is required in estimating the Black-Scholes variables. Actual results upon settlement or
unwinding of derivative instruments may differ materially from these estimates.

Derivative gains and losses included in other comprehensive earnings are reclassified into earnings at the

time the sale of the hedged item or transaction is recognized.

Prior to the adoption of Statement 133, changes in the fair value of the Company’s equity collars were

reported as a component of comprehensive earnings (in unrealized gains) along with changes in the fair value
of the underlying securities. Changes in the fair value of put spread collars were recorded as unrealized gains
(losses) on financial instruments in the consolidated statements of operations.

The adoption of Statement 133 on January 1, 2001, resulted in a cumulative increase in net earnings of

$545 million, or $0.21 per common share, (after tax expense of $356 million) and an increase in other
comprehensive loss of $87 million. The increase in net earnings was mostly attributable to separately recording
the fair value of the embedded call option obligations associated with the Company’s senior exchangeable
debentures. The increase in other comprehensive loss relates primarily to changes in the fair value of the
Company’s warrants and options to purchase certain available-for-sale securities.

F-35

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The Company assesses the effectiveness of equity collars by comparing changes in the intrinsic value of

the equity collar to changes in the fair value of the underlying security. For derivatives designated as fair value
hedges, changes in the time value of the derivatives, which are excluded from the assessment of hedge
effectiveness, are recognized currently in earnings as a component of realized and unrealized gains (losses) on
financial instruments. Hedge ineffectiveness, determined in accordance with Statement 133, had no impact on
earnings for the year ended December 31, 2001.

For the year ended December 31, 2001, realized and unrealized gains on financial instruments included a

$167 million unrealized gain related to call option obligations, a $616 million unrealized net loss for changes in
the fair value of derivative instruments related to available-for-sale securities and other derivatives not designed
as hedging instruments, and a $275 million unrealized net gain for changes in the time value of options for fair
value hedges. During the year ended December 31, 2001, the Company received cash proceeds of $329 million
as a result of unwinding certain of its equity collars. Pursuant to Statement 133, the proceeds received less the
offsetting impact of hedge accounting on the underlying securities resulted in $162 million of realized and
unrealized gains on financial instruments in the consolidated statement of operations for the year ended
December 31, 2001.

Revenue Recognition

Programming revenue is recognized in the period during which programming is provided, pursuant to
affiliation agreements. Advertising revenue is recognized, net of agency commissions, in the period during
which underlying advertisements are broadcast. Revenue from post-production services is recognized in the
period the services are rendered. Cable and other distribution revenue is recognized in the period that services
are rendered. Cable installation revenue is recognized in the period the related services are provided to the
extent of direct selling costs. Any remaining amount is deferred and recognized over the estimated average
period that customers are expected to remain connected to the cable distribution system.

Advertising Costs

Advertising costs generally are expensed as incurred. Advertising expense aggregated $43 million, $35
million, $18 million and $4 million for the years ended December 31, 2001 and 2000, the ten months ended
December 31, 1999 and the two months ended February 28, 1999, respectively.

Stock Based Compensation

Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation

(‘‘Statement 123’’), establishes financial accounting and reporting standards for stock-based employee
compensation plans as well as transactions in which an entity issues its equity instruments to acquire goods or
services from non-employees. As allowed by Statement 123, Liberty continues to account for stock-based
compensation pursuant to Accounting Principles Board Opinion No. 25 (‘‘APB Opinion No. 25’’).

Agreements that may require Liberty to reacquire interests in subsidiaries held by officers and employees

in the future are marked-to-market at the end of each reporting period with corresponding adjustments being
recorded to stock compensation expense.

Pro Forma Earnings (Loss) Per Common Share

Pro forma basic earnings (loss) per common share is computed by dividing net earnings (loss) by the pro

forma number of common shares outstanding. The pro forma number of outstanding common shares for
periods prior to the Split Off Transaction is based upon the number of shares of Series A and Series B Liberty

F-36

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

common stock issued upon consummation of the Split Off Transaction. Pro forma diluted earnings (loss) per
common share presents the dilutive effect on a per share basis of potential common shares as if they had been
converted at the beginning of the periods presented. Excluded from diluted earnings per share for the year
ended December 31, 2001, are 76 million potential common shares because their inclusion would be anti-
dilutive.

Reclassifications

Certain prior period amounts have been reclassified for comparability with the 2001 presentation.

Estimates

The preparation of financial statements in conformity with generally accepted accounting principles

requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (the ‘‘FASB’’) issued Statement No. 141,
Business Combinations (‘‘Statement 141’’), and Statement No. 142, Goodwill and Other Intangible Assets
(‘‘Statement 142’’). Statement 141 requires that the purchase method of accounting be used for all business
combinations. Statement 141 also specifies criteria that intangible assets acquired in a purchase method
business combination must meet to be recognized and reported apart from goodwill. Statement 142 will require
that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also
require that intangible assets with estimable useful lives be amortized over their respective estimated useful
lives to their estimated residual values, and reviewed for impairment in accordance with SFAS Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.

The Company adopted the provisions of Statement 141 effective July 1, 2001, and is required to adopt

Statement 142 effective January 1, 2002.

Statement 141 requires upon adoption of Statement 142, that the Company evaluate its existing intangible

assets and goodwill that were acquired in prior purchase business combinations, and make any necessary
reclassifications in order to conform with the new criteria in Statement 141 for recognition apart from goodwill.
Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values
of all intangible assets acquired, and make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite
useful life, the company will be required to test the intangible asset for impairment in accordance with the
provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the
date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim
period.

In connection with Statement 142’s transitional goodwill impairment evaluation, Statement 142 will

require the Company to perform an assessment of whether there is an indication that goodwill and equity-
method goodwill is impaired as of the date of adoption. To accomplish this, the Company must identify its
reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities,
including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The
Company will then have up to six months from the date of adoption to determine the fair value of each

F-37

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

reporting unit and compare it to the reporting unit’s carrying amount. To the extent a reporting unit’s carrying
amount exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the
Company must perform the second step of the transitional impairment test. In the second step, the Company
must compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting
unit’s fair value to all of its assets (recognized and unrecognized) and liabilities in a manner similar to a
purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be
measured as of the date of adoption. This second step is required to be completed as soon as possible, but no
later than the end of the year of adoption. Any transitional impairment loss will be recognized as the
cumulative effect of a change in accounting principle in the Company’s statement of earnings.

As of the date of adoption, the Company will have unamortized goodwill in the amount of $9,191 million,
unamortized identifiable intangible assets in the amount of $831 million, and unamortized equity-method excess
costs in the amount of $7,766 million, all of which will be subject to the transition provisions of Statements
141 and 142. Amortization expense related to goodwill was $617 million and $587 million for the years ended
December 31, 2001 and 2000, respectively; and amortization of equity-method excess costs (included in share
of losses of affiliates) aggregated $798 million and $1,058 million for the years ended December 31, 2001 and
2000, respectively. The Company currently estimates that upon adoption of Statement 142, it will be required to
recognize a $1.5—$2.0 billion transitional impairment loss as the cumulative effect of a change in accounting
principle. The foregoing estimate does not include an adjustment for the Company’s proportionate share of any
transition adjustments that its equity method affiliates may record, as the Company is currently unable to
estimate the amount of such adjustment.

In August 2001, the FASB issued Statement of Financial Accounting Standards No. 144 ‘‘Accounting for
the Impairment or Disposal of Long-Lived Assets,’’ which addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supercedes prior statements that address the
disposal of a segment of a business, and eliminates the exception to consolidation for subsidiaries for which
control is likely to be temporary. This statement retains the prior statement’s fundamental provisions for the
recognition and measurement of impairment of long-lived assets to be held and used, as well as the
measurement of long-lived assets to be disposed of by sale. The statement is effective for fiscal years beginning
after December 15, 2001. The Company has not determined the impact that adoption of this statement will have
on its financial position, results of operations or cash flow.

F-38

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(4) Supplemental Disclosures to Consolidated Statements of Cash Flows

New Liberty

Year ended
December 31,
2001

Year ended
December 31,
2000

Ten months
ended
December 31,
1999

Old Liberty

Two months
ended
February 28,
1999

amounts in millions

Cash paid for acquisitions:

Fair value of assets acquired . . . . . . . . . . . . . . . . .
Net liabilities assumed . . . . . . . . . . . . . . . . . . . . .
Deferred tax liability . . . . . . . . . . . . . . . . . . . . . . .
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . .
Contribution to equity for acquisitions . . . . . . . . . .

Cash paid for acquisitions . . . . . . . . . . . . . . .

Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . .

Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . .

$ 264
(136)
(7)
(8)
—

$ 113

$ 451

$

9

3,733
(1,208)
(281)
(445)
(1,064)

735

335

2

122
(13)
—
—
—

109

93

1

—
—
—
—
—

—

32

—

During the ten months ended December 31, 1999, certain subsidiaries with a carrying value of $135

million were exchanged for a cost method investment in an online music venture.

The following table reflects the change in cash and cash equivalents resulting from the AT&T Merger and

related restructuring transactions (amounts in millions):

Cash and cash equivalents prior to the AT&T Merger

. . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash contribution in connection with the AT&T Merger . . . . . . . . . . . . . . . . . . . . . .
Cash paid to TCI for certain warrants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$
31
5,464
(176)

Cash and cash equivalents subsequent to the AT&T Merger . . . . . . . . . . . . . . . . . . . . . . .

$5,319

(5) Investments in Affiliates Accounted for Using the Equity Method

Liberty has various investments accounted for using the equity method. The following table includes

Liberty’s carrying amount and percentage ownership of the more significant investments in affiliates at
December 31, 2001 and the carrying amount at December 31, 2000:

December 31, 2001

December 31,
2000

Percentage
Ownership

Carrying
Amount

Carrying
Amount

dollar amounts in millions

Discovery Communications, Inc. (‘‘Discovery’’) . . . . . . . . . . .
QVC, Inc. (‘‘QVC’’) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
USA Networks, Inc. (‘‘USAI’’) and related investments . . . . . .
UnitedGlobalCom, Inc. (‘‘UnitedGlobalCom’’) . . . . . . . . . . . .
Telewest Communications plc (‘‘Telewest’’) . . . . . . . . . . . . . .
Jupiter Telecommunications Co., Ltd. (‘‘Jupiter’’) . . . . . . . . . .
Gemstar—TV Guide International, Inc. (‘‘Gemstar’’) . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

50% $ 2,900
42% 2,543
20% 2,857
(418)
20%
97
25%
407
35%
—
1,690

N/A
various

3,133
2,508
2,824
314
2,712
575
5,855
2,543

$10,076

20,464

F-39

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table reflects Liberty’s share of earnings (losses) of affiliates including excess basis

amortization and nontemporary declines in value:

Discovery . . . . . . . . . . . . . . . . . . . . . . . . .
QVC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
USAI and related investments . . . . . . . . . . .
UnitedGlobalCom . . . . . . . . . . . . . . . . . . .
Telewest
. . . . . . . . . . . . . . . . . . . . . . . . . .
Jupiter . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cablevisio´n S.A. (‘‘Cablevisio´n’’) . . . . . . . .
ASTROLINK International LLC

(‘‘Astrolink’’) . . . . . . . . . . . . . . . . . . . . .
Teligent, Inc. (‘‘Teligent’’) . . . . . . . . . . . . .
Gemstar . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

New Liberty

Year ended
December 31,
2001

Year ended
December 31,
2000

Ten months
ended
December 31,
1999

Old Liberty

Two months
ended
February 28,
1999

$ (293)
36
35
(751)
(2,538)
(90)
(476)

(417)
(85)
(133)
(194)

$(4,906)

amounts in millions
(293)
(12)
(36)
(211)
(441)
(114)
(49)

(269)
(11)
(20)
23
(222)
(54)
(28)

(8)
(1,269)
(254)
(798)

(3,485)

—
—
—
(323)

(904)

(8)
13
10

—
(38)
(7)
(3)

—
—
—
(33)

(66)

At December 31, 2001, the aggregate carrying amount of Liberty’s investments in its affiliates exceeded

Liberty’s proportionate share of its affiliates’ net assets by $7,766 million. Such excess is being amortized over
estimated useful lives of up to 20 years. Such amortization was $798 million, $1,058 million, $463 million and
$9 million for the years ended December 31, 2001 and 2000, the ten months ended December 31, 1999 and the
two months ended February 28, 1999, respectively, and is included in share of losses of affiliates.

Certain of Liberty’s affiliates are general partnerships and, as such, Liberty is liable as a matter of
partnership law for all debts (other than non-recourse debts) of that partnership in the event liabilities of that
partnership were to exceed its assets.

USAI

USAI owns and operates businesses in network and television production, electronic retailing, ticketing

operations, and internet services. At December 31, 2001, Liberty held 74.4 million shares of USAI’s common
stock. In addition, at December 31, 2001, Liberty held shares and other equity interests in certain subsidiaries
of USAI that are exchangeable for an aggregate of 79.0 million shares of USAI common stock. The exchange
of such shares and interests is subject to certain conditions including that Liberty’s ownership of USAI’s
common stock issuable upon such exchange not being restricted by Federal Communications Commission
(‘‘FCC’’) regulations. On August 28, 2001, USAI gave Liberty notice that on August 21, 2001 USAI had sold
its television broadcast stations and associated broadcast licenses and as a result of such sale, FCC regulations
no longer restricted Liberty’s ownership of shares of USAI’s common stock issuable upon such exchange and,
accordingly, that USAI was exercising its right to require that Liberty exchange such stock and other interests
of such subsidiaries for shares of USAI common stock (the ‘‘USAI Exchange’’).

If the USAI Exchange had been completed at December 31, 2001, Liberty would have owned 153.4
million shares or approximately 20% (on a fully-diluted basis) of USAI common stock. The closing price of
USAI’s common stock on December 31, 2001 was $27.31 per share.

F-40

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In December 2001, Liberty entered into an agreement with USAI and Vivendi Universal, S.A.

(‘‘Vivendi’’), pursuant to which USAI will contribute substantially all of its entertainment assets to a
partnership controlled by Vivendi. In connection with the transaction, Liberty entered into a separate agreement
with Vivendi, pursuant to which Vivendi will acquire from Liberty 25 million shares of common stock of
USAI, approximately 38.7 millions shares of USANi LLC, which are exchangeable, on a one-for-one basis, for
shares of USAI common stock, and all of its approximate 30% interest in multiThematiques S.A., together with
certain liabilities with respect thereto, in exchange for ADSs representing approximately 37.4 million Vivendi
ordinary shares, subject to adjustment. The closing of Liberty’s transaction with Vivendi and the closing of
Vivendi’s transaction with USAI are conditioned on one another. Subsequent to the Vivendi transaction with
USAI, USAI will be renamed USA Interactive. The Company anticipates that the Vivendi transaction will be
consummated in the second quarter of 2002. Upon completion Liberty will own approximately 3% of Vivendi
and 20% of USA Interactive.

UnitedGlobalCom

UnitedGlobalCom is a global broadband communications provider of video, voice and data services with
operations in over 25 countries throughout the world. At December 31, 2001, Liberty owned an approximate
20% economic ownership interest representing an approximate 40% voting interest in UnitedGlobalCom.
Liberty owns 9.9 million shares of UnitedGlobalCom Class B common stock and 13.1 million shares of
UnitedGlobalCom Class A common stock. The UnitedGlobalCom Class B common stock is convertible, on a
one-for-one basis, into UnitedGlobalCom Class A common stock. The closing price of UnitedGlobalCom’s
Class A common stock on December 31, 2001 was $5.00 per share.

On January 30, 2002, the Company and UnitedGlobalCom completed a transaction (the ‘‘New United

Transaction’’) pursuant to which a new holding company (‘‘New United’’) was formed to own
UnitedGlobalCom, and all shares of UnitedGlobalCom common stock were exchanged for shares of common
stock of New United. In addition, the Company contributed (i) cash consideration of $200 million; (ii) a note
receivable from Belmarken Holding B.V., a subsidiary of UnitedGlobalCom, with an accreted value of $892
million and (iii) Senior Notes and Senior Discount Notes of United-Pan Europe Communications N.V., a
subsidiary of UnitedGlobalCom, comprised of U.S. dollar denominated notes with a face amount of $1,435
million and euro denominated notes with a face amount of euro 263 million to New United in exchange for
281.3 million shares of Class C common stock of New United. Upon consummation of the New United
Transaction, Liberty owns an approximate 72% economic interest and a 94% voting interest in New United.
Pursuant to certain voting and standstill arrangements entered into at the time of closing, Liberty is unable to
exercise control of New United, and accordingly, Liberty will continue to use the equity method of accounting
for its investment. Due to the Company’s commitment to increase its investment in UnitedGlobalCom, as
evidenced by the New United Transaction, the Company recognized its share of UnitedGlobalCom’s losses
such that its investment in UnitedGlobalCom was less than zero at December 31, 2001. As the Company’s
investment in United Pan-Europe Communications, N.V., a subsidiary of UnitedGlobalCom, has a carrying
value of $718 million at December 31, 2001, the Company continues to include the negative carrying value of
its UnitedGlobalCom investment in investments accounted for using the equity method.

Also on January 30, 2002, New United acquired from Liberty its debt and equity interests in IDT United,

Inc. and $751 million principal amount at maturity of UnitedGlobalCom’s $1,375 million 10-3/4% senior
secured discount notes due 2008 (the ‘‘2008 Notes’’), which had been distributed to Liberty in redemption of a
portion of its interest in IDT United. IDT United was formed as an indirect subsidiary of IDT Corporation for
purposes of effecting a tender offer for all outstanding 2008 Notes at a purchase price of $400 per $1,000
principal amount at maturity, which tender offer expired on February 1, 2002. The aggregate purchase price for
the Company’s interest in IDT United of approximately $449 million was equal to the aggregate amount

F-41

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Liberty had invested in IDT United, plus interest. Approximately $305 million of the purchase paid was paid
by the assumption by New United of debt owed by Liberty to a subsidiary of UnitedGlobalCom, and the
remainder was credited against the $200 million cash contribution by Liberty to New United described above.
In connection with the New United Transaction, a subsidiary of Liberty agreed to loan to a subsidiary of New
United up to $105 million. As of February 28, 2002, such subsidiary of New United has borrowed $103 million
from the Liberty subsidiary to acquire additional shares of preferred stock and promissory notes issued by IDT
United. The 2008 Notes owned by IDT United, together with 2008 Notes acquired by New United directly
from Liberty referred to above, all of which remain outstanding, represent approximately 98.2% of the
outstanding 2008 Notes.

Telewest

Telewest currently operates and constructs cable television and telephone systems in the UK. In April

2000, Telewest acquired Flextech p.l.c. (‘‘Flextech’’) which develops and sells a variety of television
programming in the UK. Prior to the acquisition, Liberty owned an approximate 37% equity interest in
Flextech and a 22% equity interest in Telewest. As a result of the acquisition, Liberty owns an approximate
25% equity interest in Telewest. Liberty recognized a $649 million gain (excluding related tax expense of $227
million) on the acquisition based on the difference between the carrying value of Liberty’s interest in Flextech
and the fair value of the Telewest shares received. At December 31, 2001 Liberty indirectly owned 744.4
million of the issued and outstanding Telewest ordinary shares. The closing price of Telewest’s ordinary shares
on December 31, 2001 was $0.94 per share.

During the year ended December 31, 2001, Liberty determined that its investment in Telewest experienced

a nontemporary decline in value. As a result, the carrying value of Telewest was adjusted to its estimated fair
value, and the Company recorded a charge of $1,801 million. Such charge is included in share of losses of
affiliates. Summarized financial information for Telewest is as follows:

December 31,

2001

2000

amounts in millions

Financial Position

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net

$ 795
5,051
2,752
611

377
5,078
4,666
586

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$9,209

10,707

Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owners’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$7,122
1,431
656

6,360
1,080
3,267

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$9,209

10,707

F-42

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Years ended December 31,

2001

2000

1999

amounts in millions

Results of Operations

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1,623
$ 1,811
(1,380) (1,293)

1,064
(777)

Operating cash flow (as defined by Liberty) . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

431
(941)

330
(863)

(1,112) —

(681)
(217)

(585)
(27)

287
(475)
—
(350)
(155)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(2,520) (1,145)

(693)

Gemstar

Gemstar is a global technology and media company focused on consumer entertainment. The common
stock of Gemstar is publicly traded. On July 12, 2000, Gemstar acquired TV Guide, Inc. (‘‘TV Guide’’). TV
Guide shareholders received .6573 shares of Gemstar common stock in exchange for each share of TV Guide.
As a result of this transaction, 133 million shares of TV Guide held by Liberty were exchanged for 87.5 million
shares or 21% of Gemstar common stock. Liberty recognized a $4,391 million gain (before deferred tax
expense of $1,737 million) on such transaction during the third quarter of 2000 based on the difference
between the carrying value of Liberty’s interest in TV Guide and the fair value of the Gemstar securities
received.

In May 2001, Liberty consummated a transaction (‘‘Exchange Transaction’’) with The News Corporation
Limited (‘‘News Corp.’’) whereby Liberty exchanged 70.7 million shares of Gemstar for 121.5 million News
Corp. American Depository Shares (‘‘ADSs’’) representing preferred, limited voting, ordinary shares of News
Corp. Liberty recorded a loss of $764 million in connection with the Exchange Transaction as the fair value of
the securities received by Liberty was less than the carrying value of the Gemstar shares. In December 2001,
Liberty exchanged its remaining Gemstar shares for 28.8 million additional News Corp. ADSs and recorded an
additional loss of $201 million.

Cablevisio´n

Cablevisio´n provides cable television and high speed data services in Argentina. At December 31, 2001,
the Company has a 50% ownership in Cablevisio´n. The Argentine government has historically maintained an
exchange rate of one Argentine peso to one U.S. dollar (the ‘‘peg rate’’). Due to deteriorating economic and
political conditions in Argentina in late 2001, the Argentine government eliminated the peg rate effective
January 11, 2002. The value of the Argentine peso dropped significantly on the day the peg rate was
eliminated. In addition, the Argentine government placed restrictions on the payment of obligations to foreign
creditors. As a result of the devaluation of the Argentine peso, Cablevisio´n recorded foreign currency
translation losses of $393 million in the fourth quarter of 2001. At December 31, 2001, the Company
determined that its investment in Cablevisio´n had experienced a nontemporary decline in value, and
accordingly, recorded an impairment charge of $195 million. Such charge is included in share of losses of
affiliates. The Company’s share of losses in 2001, when combined with foreign currency translation losses
recorded in other comprehensive loss at December 31, 2001, reduced the carrying value of its investment in
Cablevisio´n to zero as of December 31, 2001. Included in accumulated other comprehensive earnings at
December 31, 2001 is $257 million of unrealized foreign currency translation losses related to the Company’s
investment in Cablevisio´n.

F-43

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Astrolink

Astrolink, a developmental stage entity, originally intended to build a global telecom network using Ka-

band geostationary satellites to provide broadband data communications services. Astrolink’s original business
plan required significant additional financing over the next several years. During the fourth quarter of 2001, two
of the members of Astrolink informed Astrolink that they do not intend to provide any of Astrolink’s required
financing. In light of this decision, Astrolink is considering several alternatives with respect to its proposed
business plan, including, but not limited to, seeking alternative funding sources, scaling back their proposed
business plan, and liquidating the venture entirely. There can be no assurance that Astrolink will be able to
obtain the necessary financing on acceptable terms, or that it will be able to fulfill the business plan as
originally proposed, or at all.

During the second quarter of 2001, the Company determined that its investment in Astrolink experienced a

nontemporary decline in value. Accordingly, the carrying amount of such investment was adjusted to its then
estimated fair value resulting in a recognized loss of $155 million. Such loss is included in share of losses of
affiliates. Based on a fourth quarter 2001 assessment of Astrolink’s remaining sources of liquidity and
Astrolink’s inability to obtain financing for its business plan, the Company concluded that the carrying value of
its investment in Astrolink should be further reduced to reflect a fair value that assumes the liquidation of
Astrolink. Accordingly, the Company wrote-off all of its remaining investment in Astrolink during the fourth
quarter of 2001. The aggregate amount required to reduce its investment in Astrolink to zero was $250 million.
Including such fourth quarter amount, the Company recorded losses and charges relating to its investment in
Astrolink aggregating $417 million during the year ended December 31, 2001.

Teligent

In January 2000, the Company acquired a 40% equity interest in Teligent, a full-service facilities based
communications company. During the nine months ended September 30, 2000, the Company determined that
its investment in Teligent experienced a nontemporary decline in value. As a result, the carrying amount of this
investment was adjusted to its estimated fair value resulting in a charge of $839 million. This impairment
charge is included in share of losses of affiliates. In April 2001, the Company exchanged its investment in
Teligent for shares of IDT Investments, Inc., a subsidiary of IDT Corporation. As the fair value of the
consideration received in the exchange approximated the carrying value of the Company’s investment in
Teligent, no gain or loss was recognized on the transaction. The Company accounts for its investment in IDT
Investments, Inc. using the cost method.

F-44

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Summarized unaudited combined financial information for affiliates other than Telewest is as follows:

Combined Financial Position

December 31,

2001

2000

amounts in millions

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangibles, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets, net

$

872
7,060
15,183
10,837

1,776
8,294
26,763
11,603

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$33,952

48,436

Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Owners’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$17,262
14,075
2,615

18,351
15,904
14,181

Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$33,952

48,436

Combined Operations

Years ended December 31,

2001

2000

1999

amounts in millions

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 15,132
(13,381)
(2,703)
(1,426)

14,626
(13,511)
(2,718)
—

10,787
(9,401)
(1,087)
—

Operating income (loss)

. . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(2,378)
(1,639)
(685)

(1,603)
(1,616)
174

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (4,702)

(3,045)

299
(599)
(75)

(375)

(6) Investments in Available-for-Sale Securities and Other Cost Investments

Investments in available-for-sale securities and other cost investments are summarized as follows:
December 31,

Sprint Corporation (‘‘Sprint’’) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
AOL Time Warner Inc. (‘‘AOL Time Warner’’) . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
News Corp.
Motorola, Inc. (‘‘Motorola’’) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Viacom, Inc. (‘‘Viacom’’) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Pan-Europe Communications N.V. (‘‘UPC’’) . . . . . . . . . . . . . . . . . . . . .
Time Warner Inc. (‘‘Time Warner’’) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other investments, at cost, and related receivables . . . . . . . . . . . . . . . . . . . . . .

Less short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2001

2000

amounts in millions
5,192
$ 5,697
—
6,236
2,342
6,118
1,982
1,773
—
670
718
203
— 6,325
2,989
502

2,386
343

23,941
(397)

19,535
(500)

$23,544

19,035

F-45

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Sprint PCS

Liberty and certain of its consolidated subsidiaries collectively are the beneficial owners of approximately

197 million shares of Sprint PCS Group Stock and certain other instruments convertible into such securities
(the ‘‘Sprint Securities’’). The Sprint PCS Group Stock is a tracking stock intended to reflect the performance
of Sprint’s domestic wireless PCS operations. Liberty accounts for its investment in the Sprint Securities as an
available-for-sale security.

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
Sprint Securities to a trustee (the ‘‘Trustee’’) prior to the AT&T Merger. The Final Judgment, which was
entered by the United States District Court of the District of Columbia on August 23, 1999, requires the
Trustee, on or before May 23, 2002, to dispose of a portion of the Sprint Securities sufficient to cause Liberty
to beneficially own no more than 10% of the outstanding Sprint PCS Group common stock—Series 1 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. As of December 31, 2001, Liberty beneficially owned approximately
19% of Sprint PCS Group common stock—Series 2.

The Final Judgment requires that the Trustee vote the Sprint Securities beneficially owned by Liberty and

its consolidated subsidiaries in the same proportion as other holders of Sprint Securities 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. At Liberty’s request, the
Department of Justice has joined Liberty and AT&T in a joint motion to terminate the Final Judgment which
was filed in the District Court in February 2002. Under the terms of the Final Judgment, the obligation of the
trustee to dispose of the first tranche of shares by May 23, 2002 will be stayed while the District Court
considers the joint motion. Liberty is also seeking the approval of the Federal Communications Commission to
the stay of the trustee’s obligation to dispose of the first tranche of shares pending the District Court’s
determination of the joint motion.

AOL Time Warner

On January 11, 2001, America Online, Inc. completed its merger with Time Warner to form AOL Time

Warner. In connection with the merger, each share of Time Warner common stock held by Liberty was
converted into 1.5 shares of an identical series of AOL Time Warner stock. Upon completion of this
transaction, Liberty holds a total of 171 million shares in AOL Time Warner. Liberty recognized a $253 million
gain (before deferred tax expense of $100 million) based upon the difference between the carrying value of
Liberty’s interest in Time Warner and the fair value of the AOL Time Warner securities received.

News Corp.

In May and December of 2001, Liberty acquired an aggregate of 154 million News Corp. ADSs in
exchange for its shares of Gemstar common stock and another equity investment. Liberty recorded a loss of
$965 million in connection with these exchanges based on the difference between the fair value of the News
Corp. ADSs received and the carrying value of the Gemstar investment. In connection with this transaction, the
Company agreed to restrictions on its ability to transfer certain of the ADSs prior to May 2003. Liberty had
previously acquired 51.8 million News Corp. ADSs in 1999 in exchange for Liberty’s 50% interest in
Fox/Liberty Networks, and had acquired 28.1 million ADSs for $695 million in cash. Liberty recognized a $13
million gain on the 1999 exchange. At December 31, 2001, Liberty owned 236 million ADSs or approximately
18% of the outstanding equity of News Corp. Liberty accounts for its investment in News Corp. as an
available-for-sale security.

F-46

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Motorola

On January 5, 2000, Motorola acquired General Instrument Corporation (‘‘General Instrument’’). In
connection with such acquisition, Liberty received 54 million shares of Motorola common stock and warrants
to purchase an additional 37 million shares in exchange for its holdings in General Instrument. Liberty
recognized a $2,233 million gain (before deferred 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. At December 31, 2001 Liberty holds
approximately 71 million shares of Motorola common stock and vested warrants to purchase an additional 18
million shares of such common stock at $8.26 per share. Such warrants expire on June 30, 2002.

Viacom

On January 23, 2001, BET Holdings II, Inc. (‘‘BET’’) was acquired by Viacom in exchange for shares of
Class B common stock of Viacom. As a result of the merger, Liberty received 15.2 million shares of Viacom’s
Class B common stock (less than 1% of Viacom’s common equity) in exchange for its 35% ownership interest
in BET, which investment had been accounted for using the equity method. Liberty accounts for its investment
in Viacom as an available-for-sale security. Liberty recognized a gain of $559 million (before deferred tax
expense of $221 million) in the first quarter of 2001 based upon the difference between the carrying value of
Liberty’s interest in BET and the value of the Viacom securities received.

UPC

In May 2001, the Company entered into a loan agreement with UPC and Belmarken Holding B.V.
(‘‘Belmarken’’), a subsidiary of UPC, pursuant to which the Company loaned Belmarken $857 million, which
represented a 30% discount to the face amount of the loan of $1,225 million (the ‘‘Belmarken Loan’’). UPC is
a consolidated subsidiary of UnitedGlobalCom. The loan accrues interest at 6% per annum, and all principal
and interest are due in May 2007. After May 29, 2002, the loan is exchangeable, at the option of the Company,
into shares of ordinary common stock of UPC at a rate of $6.85 per share. At inception, Liberty recorded the
conversion feature of the loan at its estimated fair value of $420 million, and the $437 million remaining
balance as a loan receivable. Liberty accounts for the convertible feature of the Belmarken Loan as a derivative
security under Statement 133, and records the convertible feature at fair value with periodic market adjustments
recorded in the statement of operations as unrealized gains or losses. The discounted loan receivable is being
accreted up to the $1,225 million face amount over its term. Such accretion, which includes the stated interest
of 6%, is being recognized in interest income over the term of the loan. Upon consummation of the New
United Transaction, the Company contributed the Belmarken Loan to New United in exchange for Class C
shares of New United. Liberty had previously purchased exchangeable preferred stock and warrants of UPC in
December 2000 for $203 million.

During 2001, the Company acquired certain outstanding senior notes and senior discount notes of UPC.

Liberty acquired approximately $1,435 million face amount of U.S. dollar denominated notes and euro 263
million face amount of euro denominated notes for an aggregate purchase price of $358 million. Such notes
were contributed to New United in connection with the New United Transaction on January 30, 2002.

F-47

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Nontemporary Decline in Fair Value of Investments

During the years ended December 31, 2001 and 2001, Liberty determined that certain of its AFS

Securities and cost investments experienced nontemporary declines in value. As a result, the cost bases of such
investments were adjusted to their respective fair values based primarily on recent quoted market prices. These
adjustments are reflected as nontemporary declines in fair value of investments in the consolidated statements
of operations. The following table identifies the realized losses attributable to each of the individual
investments as follows:

Investments

AOL Time Warner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
News Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Viacom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
UPC preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Antec Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Motorola . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Primedia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended
December 31,

2001

2000

amounts in millions

$2,052
915
201
195
127
232
—
379

$4,101

—
—
—
—
—
1,276
103
84

1,463

Equity Collars and Put Spread Collars

The Company has entered into equity collars, put spread collars and other financial instruments to manage

market risk associated with its investments in certain marketable securities. These instruments are recorded at
fair value based on option pricing models. Equity collars provide the Company with a put option that gives the
Company the right to require the counterparty to purchase a specified number of shares of the underlying
security at a specified price (the ‘‘Company Put Price’’) at a specified date in the future. Equity collars also
provide the counterparty with a call option that gives the counterparty the right to purchase the same securities
at a specified price at a specified date in the future. The put option and the call option generally are equally
priced at the time of origination resulting in no cash receipts or payments. The Company’s equity collars are
accounted for as fair value hedges.

Put spread collars provide the Company and the counterparty with put and call options similar to equity

collars. In addition, put spread collars provide the counterparty with a put option that gives it the right to
require the Company to purchase the underlying securities at a price that is lower than the Company Put Price.
The inclusion of the secondary put option allows the Company to secure a higher call option price while
maintaining net zero cost to enter into the collar. The Company’s put spread collars have not been designated as
fair value hedges.

F-48

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Investments in available-for-sale securities at December 31, 2001 and 2000 are summarized as follows:

December 31, 2001

Equity
securities

Equity
collars

Put
spread
collars

Debt
securities

Total

amounts in millions

Cost basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross gains recognized in earnings . . . . . . . . . . . . . .
Gross losses recognized in earnings . . . . . . . . . . . . .
Gross unrealized holding gains . . . . . . . . . . . . . . . . .
Gross unrealized holding losses . . . . . . . . . . . . . . . .

84

1,800

$19,310 — —
263
(1,542) — —
2,185 — —
(500) — —

1,457
—
—
94
(46)

20,767
2,147
(1,542)
2,279
(546)

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$19,537

1,800

263

1,505

23,105

December 31, 2000

Equity
securities

Equity
collars

Put
spread
collars

Debt
securities

Total

amounts in millions

Cost basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross gains recognized in earnings . . . . . . . . . . . . . .
Gross unrealized holding gains . . . . . . . . . . . . . . . . .
Gross unrealized holding losses . . . . . . . . . . . . . . . .

$17,640 — —
— 188
—
1,003
1,080 —
(2,636) — —

1,533
—

86
(64)

19,173
188
2,169
(2,700)

Fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$16,007

1,080

188

1,555

18,830

Management estimates that the fair market value of all of its investments in available-for-sale securities
and others aggregated $23,760 million and $19,664 million at December 31, 2001 and December 31, 2000,
respectively. Management calculates market values 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.
No independent appraisals were conducted for those assets.

Forward Foreign Exchange Contracts

The Company does not hedge the majority of its foreign currency exchange risk because of the long term

nature of its interests in foreign affiliates. During 2001, the Company entered into a definitive agreement to
acquire six regional cable television systems in Germany. A portion of the consideration for such acquisition
was to be denominated in euros. In order to reduce its exposure to changes in the euro exchange rate, Liberty
had entered into forward purchase contracts with respect to euro 3,243 million as of December 31, 2001. Such
contracts generally have terms ranging from 90 to 120 days and can be renewed at their expiration at Liberty’s
option. Liberty is not accounting for the forward purchase contracts as hedges. At December 31, 2001, the
Company had recorded a liability of $24 million representing unrealized losses related to these contracts due to
a decrease in the value of the euro compared to the U.S. dollar.

Total Return Debt Swaps

From time to time the Company enters into total return debt swaps in connection with its purchase of its

own or third-party public and private indebtedness. Under these arrangements, Liberty directs a counterparty to
purchase a specified amount of the underlying debt security for the benefit of the Company. The Company
posts collateral with the counterparty equal to 10% of the value of the purchased securities. The Company
earns interest income based upon the face amount and stated interest rate of the debentures, and pays interest

F-49

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

expense at market rates on the amount funded by the counterparty. In the event the fair value of the underlying
debentures declines, the Company is required to post cash collateral for the decline, and the Company records
an unrealized loss on financial instruments. Liberty has the contractual right to net settle the total return debt
swaps, and currently, intends to do so. Accordingly, Liberty records the net asset related to the total return debt
swaps.

At December 31, 2001, the aggregate purchase price of debt securities underlying Liberty’s total return
debt swap arrangements was $118 million. As of such date, the Company had posted cash collateral equal to
$59 million. In the event the fair value of the purchased debt securities were to fall to zero, the Company
would be required to post additional cash collateral of $59 million.

(7) Acquisitions and Dispositions

2000

Associated Group, Inc. (‘‘Associated Group’’)

On January 14, 2000, Liberty completed its acquisition of Associated Group pursuant to a merger

agreement among AT&T, Liberty and Associated Group. Under the merger agreement, each share of Associated
Group’s Class A common stock and Class B common stock was converted into 0.49634 shares of AT&T
common stock and 2.41422 shares of AT&T Class A Liberty Media Group common stock. Prior to the merger,
Associated Group’s primary assets were (1) 19.7 million shares of AT&T common stock, (2) 46.8 million
shares of AT&T Class A Liberty Media Group common stock, (3) 10.6 million shares of AT&T Class B
Liberty Media Group common stock, (4) 21.4 million shares of common stock of Teligent, and (5) all of the
outstanding shares of common stock of TruePosition, Inc., which provides location services for wireless carriers
and users designed to determine the location of any wireless transmitter, including cellular and PCS telephones.
Immediately following the completion of the merger, all of the assets and businesses of Associated Group were
transferred to Liberty. All of the shares of AT&T common stock, AT&T Class A Liberty Media Group common
stock and AT&T Class B Liberty Media Group common stock previously held by Associated Group were
retired by AT&T.

The acquisition of Associated Group was accounted for as a purchase, and the $17 million excess of the
fair value of the net assets acquired over the purchase price is being amortized over ten years. As a result of the
issuance of AT&T Class A Liberty Media Group common stock, net of the shares of AT&T Class A Liberty
Media Group common stock acquired in this transaction, Liberty recorded a $778 million increase to additional
paid-in-capital, which represents the total purchase price of this acquisition.

Liberty Satellite & Technology, Inc.

On March 16, 2000, Liberty purchased shares of preferred stock in TCI Satellite Entertainment, Inc. in

exchange for Liberty’s economic interest in approximately 5 million shares of Sprint PCS Group stock, which
had a fair value of $300 million. During the third quarter of 2000, TCI Satellite Entertainment, Inc. changed its
name to Liberty Satellite & Technology, Inc. (‘‘LSAT’’). Liberty received 150,000 shares of LSAT Series A
12% Cumulative Preferred Stock and 150,000 shares of LSAT 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 LSAT. In connection with this transaction, Liberty
realized a $211 million gain (before related tax expense of $84 million) based on the difference between the
cost basis and fair value of the economic interest in the Sprint PCS Group stock exchanged.

F-50

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Ascent Entertainment Group, Inc. (‘‘Ascent’’)

On March 28, 2000, Liberty completed its cash tender offer for the outstanding common stock of 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. On June 8, 2000, Liberty completed its
acquisition of 100% of Ascent for an additional $67 million. The total purchase price for the acquisition was
$452 million. Such transaction was accounted for as a purchase, and the $228 million excess of the purchase
price over the fair value of the net assets acquired is being amortized over five years.

Liberty Livewire Corporation (‘‘Liberty Livewire’’)

On April 10, 2000, Liberty acquired all of the outstanding common stock of Four Media Company (‘‘Four

Media’’) for total consideration of $462 million comprised of $123 million in cash, $194 million of assumed
debt, 6.4 million shares of AT&T Class A Liberty Media Group common stock and a warrant to purchase
approximately 700,000 shares of AT&T Class A Liberty Media Group common stock at an exercise price of
$23 per share. Four Media provides technical and creative services to owners, producers and distributors of
television programming, feature films and other entertainment products both domestically and internationally.

On June 9, 2000, Liberty acquired a controlling interest in The Todd-AO Corporation (‘‘Todd-AO’’), in
exchange for approximately 5.4 million shares of AT&T Class A Liberty Media Group common stock valued at
$106 million. Todd-AO provides sound, video and ancillary post production and distribution services to the
motion picture and television industries in the United States and Europe.

Immediately following the closing of such transaction, Liberty contributed to Todd-AO 100% of the
capital stock of Four Media, in exchange for approximately 16.6 million shares of the Class B Common Stock
of Todd-AO increasing Liberty’s ownership interest in Todd-AO to approximately 84% of the equity and
approximately 98% of the voting power. Following Liberty’s acquisition of Todd-AO, and the contribution by
Liberty to Todd-AO of Liberty’s ownership in Four Media, Todd-AO changed its name to Liberty Livewire.

On July 19, 2000, Liberty purchased all of the assets relating to the post production, content and sound

editorial businesses of SounDelux Entertainment Group for $90 million in cash, and contributed such assets to
Liberty Livewire in exchange for approximately 8.2 million additional shares of Liberty Livewire Class B
Common Stock. Following this contribution, Liberty’s ownership in Liberty Livewire increased to
approximately 88% of the equity and approximately 99% of the voting power of Liberty Livewire.

Each of the foregoing acquisitions was accounted for as a purchase. In connection therewith, Liberty
recorded an aggregate increase to additional paid-in-capital of $251 million. The $452 million excess purchase
price over the fair value of the net assets acquired is being amortized over 20 years.

1999

TV Guide

On March 1, 1999, United Video Satellite Group, Inc. (‘‘UVSG’’), a consolidated subsidiary of Liberty,

and News Corp. completed a transaction whereby UVSG acquired News Corp.’s TV Guide properties and
UVSG was renamed TV Guide. Upon completion of this transaction, and another transaction completed by TV
Guide on the same date, Liberty owned an economic interest of approximately 44% and controlled
approximately 49% of the voting power of TV Guide. In connection with the increase in TV Guide’s equity,
net of dilution of Liberty’s ownership interest in TV Guide, Liberty recognized a gain of $372 million (before
deducting deferred income taxes of $147 million). Upon consummation, Liberty began accounting for its
interest in TV Guide under the equity method of accounting.

F-51

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Pro Forma Information

The following unaudited pro forma information for the year ended December 31, 2000 was prepared
assuming the 2000 acquisitions discussed above occurred on January 1, 2000. These pro forma amounts are not
necessarily indicative of operating results that would have occurred if the acquisitions discussed above had
occurred on January 1, 2000.

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pro forma basic and diluted earnings per common share . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,769
$1,413
$ 0.55

(8) Long-Term Debt

Debt is summarized as follows:

Weighted
average
interest
rate 2001

December 31,

2001

2000

amounts in millions

Parent company debt:

Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior exchangeable debentures . . . . . . . . . . . . . . . . . . . . . . . .
Bank credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.8% $
8.3%
3.7%
2.6%
8.0%

982
1,486
858
675
288

742
1,486
1,679
475
580

Debt of subsidiaries:

Bank credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other debt, at varying rates . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.3%
N/A

Total debt

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.5%

Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4,289

4,962

1,310
—
308

1,129
179
93

1,618

1,401

5,907
(1,143)

6,363
(1,094)

$ 4,764

5,269

Senior Notes and Debentures

In July 1999, Liberty issued $750 million of 77⁄8% Senior Notes due 2009 and issued $500 million of
81⁄2% Senior Debentures due 2029 for aggregate cash proceeds of $741 million and $494 million, respectively.
Interest on both issuances is payable on January 15 and July 15 of each year.

In February 2000, Liberty issued $1 billion of 81⁄4% Senior Debentures due 2030 for aggregate cash

proceeds of $983 million. Interest on these debentures is payable on February 1 and August 1 of each year.

In December 2001, the Company issued $237.8 million of 73⁄4% Senior Notes due 2009 for cash proceeds

of $238.4 million. Interest on these notes is payable on January 15 and July 15 of each year.

The senior notes and debentures are stated net of an aggregate unamortized discount of $19 million and
$22 million at December 31, 2001 and 2000, respectively, which is being amortized to interest expense in the
consolidated statements of operations.

F-52

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Senior Exchangeable Debentures

In November 1999, Liberty issued $869 million of 4% Senior Exchangeable Debentures due 2029. Interest

is payable on May 15 and November 15 of each year. Each $1,000 debenture is exchangeable at the holder’s
option for the value of 22.9486 shares of Sprint PCS Group stock. After the later of December 31, 2001 or the
date Liberty’s ownership level in the Sprint PCS Group falls below a specified level, Liberty may, at its
election, pay the exchange value in cash, Sprint PCS Group stock or a combination thereof. Prior to such time,
the exchange value must be paid in cash.

In February and March 2000, Liberty issued an aggregate of $810 million of 33⁄4% Senior Exchangeable

Debentures due 2030. Interest is payable on February 15 and August 15 of each year. Each $1,000 debenture is
exchangeable at the holder’s option for the value of 16.7764 shares of Sprint PCS Group stock. After the later
of February 15, 2002 or the date Liberty’s ownership level in the Sprint PCS Group falls below a specified
level, Liberty may, at its election, pay the exchange value in cash, Sprint PCS Group stock or a combination
thereof. Prior to such time, the exchange value must be paid in cash.

In January 2001, Liberty issued $600 million of 31⁄2% Senior Exchangeable Debentures due 2031. Interest

is payable on January 15 and July 15 of each year. Each $1,000 debenture is exchangeable at the holder’s
option for the value of 36.8189 shares of Motorola common stock. Such exchange value is payable, at Liberty’s
option, in cash, Motorola stock or a combination thereof. On or after January 15, 2006, Liberty, at its option,
may redeem the debentures for cash.

In March 2001, Liberty issued $817.7 million of 31⁄4% Senior Exchangeable Debentures due 2031. Interest
is payable on March 15 and September 15 of each year. Each $1,000 debenture is exchangeable at the holder’s
option for the value of 18.5666 shares of Viacom Class B common stock. After January 23, 2003, such
exchange value is payable at Liberty’s option in cash, Viacom stock or a combination thereof. Prior to such
date, the exchange value must be paid in cash. On or after March 15, 2006, Liberty, at its option, may redeem
the debentures for cash.

Prior to the adoption of Statement 133, the carrying amount of the senior exchangeable debentures was
adjusted based on the fair value of the underlying security. Increases or decreases in the value of the underlying
security above the principal amount of the senior exchangeable debentures were recorded as unrealized gains or
losses on financial instruments in the consolidated statements of operations. If the value of the underlying
security decreased below the principal amount of the senior exchangeable debentures there was no effect on the
principal amount of the debentures.

Upon adoption of Statement 133, the call option feature of the exchangeable debentures is reported
separately in the consolidated balance sheet at fair value. Accordingly, at January 1, 2001, Liberty recorded a
transition adjustment to reflect the call option obligations at fair value ($459 million) and to recognize in net
earnings the difference between the fair value of the call option obligations at issuance and the fair value of the
call option obligations at January 1, 2001. Such adjustment to net earnings aggregated $757 million (before tax
expense of $299 million) and is included in cumulative effect of accounting change. Changes in the fair value
of the call option obligations subsequent to January 1, 2001 are recognized as unrealized gains (losses) on
financial instruments in Liberty’s consolidated statements of operations. During the year ended December 31,
2001, Liberty recorded unrealized gains of $167 million related to the call option obligations.

Under Statement 133, the reported amount of the long-term debt portion of the exchangeable debentures is

calculated as the difference between the face amount of the debentures and the fair value of the call option
feature on the date of issuance. The fair value of the call option obligations related to the $1,418 million of
exchangeable debentures issued during the year ended December 31, 2001, aggregated $1,028 million on the

F-53

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

date of issuance. Accordingly, the long-term debt portion was recorded at $390 million. The long-term debt is
accreted to its face amount over the term of the debenture using the effective interest method. Such accretion
aggregated $6 million during the year ended December 31, 2001, and is included in interest expense. The
transition adjustment noted above resulted in a decrease in the carrying value of the long-term debt portion of
the senior exchangeable debentures of $1,216 million on January 1, 2001.

Bank Credit Facilities

At December 31, 2001, Liberty and its subsidiaries had approximately $217 million in unused lines of

credit under their respective bank credit facilities. The bank credit facilities 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. The
borrowers were in compliance with their debt covenants at December 31, 2001. Additionally, the bank credit
facilities require the payment of fees ranging from .15% to .375% per annum on the average unborrowed
portions of the total commitments.

The U.S. dollar equivalent of the annual maturities of Liberty’s debt for each of the next five years are as

follows (amounts in millions):

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$1,143
211
121
435
589

Liberty estimates the fair value of its debt based on the quoted market prices for the same or similar issues

or on the current rate offered to Liberty for debt of the same remaining maturities. The fair value of Liberty’s
publicly traded debt at December 31, 2001 is as follows (amounts in millions):

Senior notes of parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior debentures of parent company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Senior exchangeable debentures of parent company, including call option

$1,024
1,438

liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,323

Liberty believes that the carrying amount of the remainder of its debt, which is comprised primarily of

variable rate debt, approximated its fair value at December 31, 2001.

A reconciliation of the carrying value of the Company’s debt to the face amount at maturity is as follows

(amounts in millions):

Carrying value at December 31, 2001
Add:

Unamortized issue discount on Senior Notes and Debentures . . . . . . . . . . . .
Unamortized discount attributable to call option feature of exchangeable

$5,907

19

debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2,238

Face amount at maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$8,164

F-54

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(9)

Income Taxes

During the period from March 9, 1999 to August 10, 2001, Liberty was included in the consolidated
federal income tax return of AT&T and was a party to a tax sharing agreement with AT&T (the ‘‘AT&T Tax
Sharing Agreement’’). Liberty calculated its respective tax liability on a separate return basis. The income tax
provision for Liberty was calculated based on the increase or decrease in the tax liability of the AT&T
consolidated group resulting from the inclusion of those items in the consolidated tax return of AT&T which
were attributable to Liberty.

Under the AT&T Tax Sharing Agreement, Liberty received a cash payment from AT&T in periods when it
generated taxable losses and such taxable losses were utilized by AT&T to reduce the consolidated income tax
liability. This utilization of taxable losses was accounted for by Liberty as a current federal intercompany
income tax benefit. To the extent such losses were not utilized by AT&T, such amounts were available to
reduce federal taxable income generated by Liberty in future periods, similar to a net operating loss
carryforward, and were accounted for as a deferred federal income tax benefit.

In periods when Liberty generated federal taxable income, AT&T agreed to satisfy such tax liability on

Liberty’s behalf up to a certain amount. Thereafter, Liberty was required to make cash payments to AT&T for
federal tax liabilities of Liberty. The reduction of such computed tax liabilities was accounted for by Liberty as
an increase to additional paid-in-capital.

To the extent AT&T utilized existing net operating losses of Liberty, such amounts were accounted for by
Liberty as a reduction of additional paid-in-capital. Net operating losses of Liberty with a tax effected carrying
value of $2 million, $38 million and $88 million were recorded as a reduction to additional paid-in-capital
during the seven months ended July 31, 2001, the year ended December 31, 2000 and the ten months ended
December 31, 1999, respectively.

Liberty generally made cash payments to AT&T related to states where it generated taxable income and

received cash payments from AT&T in states where it generates taxable losses.

Prior to the AT&T Merger, Liberty was included in TCI’s consolidated tax return and was a party to the

TCI tax sharing agreements.

Income tax benefit (expense) consists of:

New Liberty

Year ended
December 31
2001

Year ended
December 31,
2000

Ten months
ended
December 31,
1999

Old Liberty

Two months
ended
February 28,
1999

amounts in millions

Current:

Federal . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . .

Deferred:

Federal . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . .

$ 297
(2)

295

3,166
447

3,613

Income tax benefit (expense) . . . . . . . . . . . .

$3,908

277
10

287

(1,490)
(331)

(1,821)

(1,534)

75
(3)

72

873
152

1,025

1,097

—

1

1

(168)
(44)

(212)

(211)

F-55

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Income tax benefit (expense) differs from the amounts computed by applying the U.S. federal income tax

rate of 35% as a result of the following:

New Liberty

Year ended
December 31,
2001

Year ended
December 31,
2000

Ten months
ended
December 31,
1999

Old Liberty

Two months
ended
February 28,
1999

amounts in millions

$3,809

(1,035)

1,107

(49)

Computed expected tax benefit expense) . . .
Dividends excluded for income tax

purposes . . . . . . . . . . . . . . . . . . . . . . . . .

18

Amortization not deductible for income tax

purposes . . . . . . . . . . . . . . . . . . . . . . . . .

(260)

State and local income taxes, net of federal

income taxes . . . . . . . . . . . . . . . . . . . . .

Recognition of difference in income tax

basis of investments in subsidiaries . . . . .

Effect of change in estimated state tax

rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Change in valuation allowance . . . . . . . . . .
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . .

289

21

91
(71)
11

22

(187)

(204)

(69)

—
(50)
(11)

11

(122)

102

—

—
—

(1)

$3,908

(1,534)

1,097

2

(4)

(29)

(130)

—
—

(1)

(211)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and

deferred tax liabilities at December 31, 2001 and 2000 are presented below:

December 31,

2001

2000

amounts in millions

Deferred tax assets:

Net operating and capital loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other future deductible amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 370
296
31

Deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

697
(273)

424

363
247
—

610
(202)

408

Deferred tax liabilities:

Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Discount on exchangeable debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8,422
164
455
49

11,255
218
—
30

Deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9,090

11,503

Net deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$8,666

11,095

F-56

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

At December 31, 2001, Liberty had net operating and capital loss carryforwards for income tax purposes

aggregating approximately $1,016 million which, if not utilized to reduce taxable income in future periods, will
expire as follows: 2004: $1 million; 2005: $16 million; 2006: $14 million; 2007: $16 million; 2008: $12
million; 2009: $27 million; 2010: $6 million; and beyond 2010: $924 million. These net operating losses are
subject to certain rules limiting their usage.

AT&T, as the successor to TCI, is the subject of an Internal Revenue Service (‘‘IRS’’) audit for the 1993-

1995 tax years. The IRS has notified AT&T and Liberty that it is considering proposing income adjustments
and assessing certain penalties in connection with TCI’s 1994 tax return. The IRS’s position could result in
recognition of up to approximately $305 million of additional income, resulting in as much as $107 million of
additional tax liability, plus interest. In addition, the IRS may assert certain penalties. AT&T and Liberty do not
agree with the IRS’s proposed adjustments and penalties, and AT&T and Liberty intend to vigorously defend
their position. Pursuant to the AT&T Tax Sharing Agreement, Liberty may be obligated to reimburse AT&T for
any tax that AT&T is ultimately assessed as a result of this audit. Liberty is currently unable to estimate a range
of any such reimbursement, but believes that any such reimbursement would not be material to its financial
position.

(10) 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 December 31, 2001, no shares of preferred stock were issued.

Common Stock

Prior to the Split Off Transaction, Liberty had 1,000 shares of each of Class A, Class B and Class C

common stock outstanding. In connection with the Split Off Transaction, the Class A and Class B common
stock were reclassified into Series A common stock and the Class C common stock was reclassified into Series
B common stock. The Series A common stock has one vote per share, and the Series B common stock has ten
votes per share. Each share of the Series B common stock is exchangeable at the option of the holder for one
share of Series A common stock.

As of December 31, 2001, there were 75 million shares of Liberty Series A common stock reserved for

issuance under exercise privileges of outstanding stock options.

F-57

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Stock Issuances of Subsidiaries and Equity Affiliates

Certain consolidated subsidiaries and equity affiliates of Liberty have issued shares of common stock in
connection with acquisitions and the exercise of employee stock options. In connection with the increase in the
issuers’ equity, net of the dilution of Liberty’s ownership interest, that resulted from such stock issuances,
Liberty recorded increases (decreases) to additional paid-in-capital as follows:

Stock issuances by consolidated subsidiaries . . . . . . . . . .
Stock issuances by equity affiliates (net of deferred
income taxes of $75 million and $1 million,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Year ended
December 31,
2001

Year ended
December 31,
2000

Ten months
ended
December 31,
1999

amounts in millions
212

143

355

$(8)

—

$(8)

107

1

108

Transactions with Officers and Directors

During the second quarter of 2001, Liberty purchased 2,245,155 shares of common stock of On Command

Corporation (‘‘On Command’’), a consolidated subsidiary of Liberty, from an executive officer and director of
On Command, who is also a director of Liberty, for aggregate cash consideration of $25.2 million. Such
purchase price represents a per share price of $11.22. The closing market price for On Command common
stock on the day the transaction was signed was $7.77. The Company has included the difference between the
aggregate market value of the shares purchased and the cash consideration paid in selling, general and
administrative expenses in the accompanying consolidated statement of operations.

In November 2000, Liberty granted certain officers, a director of Liberty (the ‘‘Liberty Director’’), and a

board member of Liberty Livewire an aggregate 4.0725% common stock interest in Liberty LWR, Inc.
(‘‘LWR’’), which owned a direct interest in Liberty Livewire. The common stock interest granted to these
individuals had a value of approximately $400,000. LWR also awarded the Liberty Director a deferred bonus in
the initial total amount of approximately $3.4 million, which amount will decrease by an amount equal to any
increase over the five-year period from the date of the award in the value of certain of the common shares
granted to the Liberty Director. Liberty and the individuals entered into a stockholders’ agreement in which the
individuals could require Liberty to repurchase, after five years, all or part of their common stock interest in
exchange for Series A Liberty stock at its then fair market value. In addition, Liberty has the right to
repurchase, in exchange for Series A Liberty common stock, the common stock interests held by the
individuals at fair market value at any time.

In July 2001, LWR formed Liberty Livewire Holdings, Inc. (‘‘Livewire Holdings’’) as a wholly owned
subsidiary. LWR then sold to certain officers and the Liberty Director an aggregate 19.872% common stock
interest in Livewire Holdings with an aggregate value of $600. Liberty, LWR and these individuals entered into
a stockholders agreement pursuant to which the individuals can require Liberty to purchase, after five years, all
or part of their common stock interest in Livewire Holdings, in exchange for Liberty common stock, at its then-
fair market value. In addition, Liberty has the right to purchase, in exchange for its common stock, their
common stock interests in Livewire Holdings for fair market value at any time.

In August 2001, in connection with the termination of Liberty Livewire’s director and chief executive
officer, LWR purchased his common stock interest in LWR. In October 2001, LWR purchased from the Liberty

F-58

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

officers and the Liberty Director their respective common stock interests in LWR. In connection with the
purchase of his common stock interest in LWR, the Liberty Director waived the right to receive his deferred
bonus. Upon the completion of these purchases, LWR became a wholly owned subsidiary of the Company.

In October 2000, Liberty restructured its ownership interests in certain assets into a new consolidated
subsidiary. Liberty then sold a preferred interest in such subsidiary to Liberty’s Chairman of the Board of
Directors in exchange for approximately 540,000 shares of LSAT Series A common stock, approximately 3.3
million shares of LSAT Series B common stock and cash consideration of approximately $88 million. No gain
or loss was recognized due to the related party nature of such transaction. The preferred interest has a
liquidation value of $106 million and accrues dividends at 9% per annum payable quarterly in cash.

In September 2000, certain officers of Liberty purchased a 6% common stock interest in a subsidiary for
$1.3 million. Such subsidiary owns an indirect interest in an entity that holds certain of Liberty’s investments in
satellite and technology related assets. Liberty and the officers entered into a shareholders agreement in which
the officers could require Liberty to purchase, after five years, all or part of their common stock interest in
exchange for Series A Liberty stock at the then fair market value. In addition, Liberty has the right to purchase,
in exchange for Series A Liberty common stock, the common stock interests held by the officers at fair market
value at any time. During 2001, two of the officers resigned their positions with the Company, and the
Company purchased their respective interests in the subsidiary for the original purchase price plus 6% interest.

In August 2000, a subsidiary of Liberty sold shares of such subsidiary’s Series A Convertible Participating

Preferred Stock (the ‘‘Preferred Shares’’) to a director of Liberty, who was also the Chairman and Chief
Executive Officer of such subsidiary, for a $21 million note. The Preferred Shares are convertible into 1.4
million shares of the subsidiary’s common stock. The note is secured by the Preferred Shares or the proceeds
from the sale of such shares and the director’s personal obligations under such loan are limited. The note,
which matures on August 1, 2005, may not be prepaid and interest on the note accrues at a rate of 7% per
annum.

In May 2000, Liberty’s President and Chief Executive Officer, certain officers of a subsidiary and another

individual purchased an aggregate 20% common stock interest in a subsidiary for $800,000. This subsidiary
owns a 7% interest in Jupiter Telecommunications Co., Inc. Liberty and the individuals entered into a
shareholders agreement in which the individuals could require Liberty to purchase, after five years, all or part
of their common stock interest in exchange for Series A Liberty common stock at its then fair market value. In
addition, Liberty has the right to purchase, in exchange for Series A Liberty common stock, the common stock
interests held by the officers at fair market value at any time. Liberty recognized $ 4 million and $3 million of
compensation expense related to changes in the market value of its contingent liability to reacquire the common
stock interests held by these officers during the years ended December 31, 2001 and 2000, respectively.

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.

Liberty is party to a call agreement with certain shareholders of Series B Liberty common stock, including

the Chairman of the Board of Directors, which grants Liberty a right to acquire all of the Series B Liberty
common stock held by such shareholders in certain circumstances. The price of acquiring such shares is
generally limited to the market price of the Series A Liberty common stock, plus a 10% premium.

F-59

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Transactions with AT&T and Other Related Parties

Certain subsidiaries of Liberty produce and/or distribute programming and other services to cable
distribution operators (including AT&T) and others pursuant to long term affiliation agreements. Charges to
AT&T are based upon customary rates charged to others. Amounts included in revenue for services provided to
AT&T were $210 million, $243 million, $180 million and $43 million for the seven months ended July 31,
2001, the year ended December 31, 2000, the ten months ended December 31, 1999 and the two months ended
February 28, 1999, respectively.

Prior to the Split Off Transaction, AT&T allocated certain corporate general and administrative costs to
Liberty pursuant to an intergroup agreement. Management believes such allocation methods were reasonable
and materially approximated the amount that Liberty would have incurred on a stand-alone basis. In addition,
there are arrangements between subsidiaries of Liberty and AT&T and its other subsidiaries for satellite
transponder services, marketing support, programming, and hosting services. These expenses aggregated $20
million, $37 million, $24 million and $6 million during the seven months ended July 31, 2001 (the period
immediately prior to the Split Off Transaction), the year ended December 31, 2000, the ten months ended
December 31, 1999 and the two months ended February 28, 1999, respectively.

On April 8, 1999, Liberty redeemed all of its outstanding 41⁄2% convertible subordinated debentures. The
debentures were convertible into shares of AT&T Liberty Media Group Class A common stock at a conversion
price of $11.77, or 84.96 shares per $1,000 principal amount. Certain holders of the debentures had exercised
their rights to convert their debentures and 29.2 million shares of AT&T Liberty Media Group tracking stock
were issued to such holders. In connection with such issuance of AT&T Liberty Media Group tracking stock,
Liberty recorded an increase to additional paid-in-capital of $354 million.

(11) Stock Options and Stock Appreciation Rights

Liberty

Effective with the Split Off Transaction, Liberty assumed from AT&T the Amended and Restated AT&T
Corp. Liberty Media Group 2000 Incentive Plan and renamed it the Liberty Media Corporation 2000 Incentive
Plan (the ‘‘Liberty Incentive Plan’’). Grants by TCI of options and options with tandem stock appreciation
rights (‘‘SARs’’) with respect to shares of Liberty Media Group stock prior to 1999 were assumed by Liberty
under the Liberty Incentive Plan. Grants of free standing SARs made under the Plan in 2000 and in 2001 prior
to the Split Off Transaction were converted into options upon assumption by Liberty.

The Liberty Incentive Plan provides for awards to be made in respect of a maximum of 160 million shares

of common stock of Liberty. Awards may be made as grants of stock options, SARs, restricted shares, stock
units, cash or any combination thereof.

Effective February 28, 2001 (the ‘‘Effective Date’’), the Company restructured the options and options

with tandem SARs to purchase AT&T common stock and AT&T Liberty Media Group tracking stock
(collectively the ‘‘Restructured Options’’) held by certain executive officers of the Company. Pursuant to such
restructuring, all Restructured Options became exercisable on the Effective Date, and each executive officer
was given the choice to exercise all of his Restructured Options. Each executive officer who opted to exercise
his Restructured Options received consideration equal to the excess of the closing price of the subject securities
on the Effective Date over the exercise price. The exercising officers received (i) a combination of cash and
AT&T Liberty Media Group tracking stock for Restructured Options that were vested prior to the Effective
Date and (ii) cash for Restructured Options that were previously unvested. The executive officers used the cash
proceeds from the previously unvested options to purchase restricted shares of AT&T Liberty Media Group

F-60

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

tracking stock. Such restricted shares are subject to forfeiture upon termination of employment. The forfeiture
obligation will lapse according to a schedule that corresponds to the vesting schedule applicable to the
previously unvested options.

In addition, each executive officer was granted free-standing SARs equal to the total number of

Restructured Options exercised. The free-standing SARs were tied to the value of AT&T Liberty Media Group
tracking stock and will vest as to 30% in year one and 17.5% in years two through five. The free-standing
SARs have an exercise price of $14.70 and had a fair value of $9.56 on the date of the grant. Upon completion
of the Split Off Transaction, the free-standing SARs automatically converted to options to purchase Liberty
Series A common stock. Prior to the Effective Date, the Restructured Options were accounted for using
variable plan accounting pursuant to APB Opinion No. 25. Accordingly, the above-described transaction did
not have a significant impact on Liberty’s results of operations.

The following table presents the number and weighted average exercise price (‘‘WAEP’’) of certain
options and options with tandem SARs to purchase Liberty Series A common stock granted to certain officers
and other key employees of the Company.

Liberty Series A
common stock

WAEP

amounts in thousands, except for
WAEP

Outstanding at January 1, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustment for transfer of employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options issued in mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canceled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Outstanding at December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exercisable at December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exercisable at December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exercisable at December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vesting period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

78,158
1,244
(7,510)
(1,158)

70,734
2,341
(7,214)
(479)
12,134

77,516
49,087
(50,315)
(1,167)

75,121

14,341

52,856

23,494

5 yrs

$23.19
18.43
5.02
6.70

6.97
21.73
5.69
9.45
4.75

7.20
14.72
7.62
16.88

11.69

F-61

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides certain information about the Company’s outstanding options at

December 31, 2001.

No. outstanding
options (000’s)

Range of
exercise prices

17,566
1,180
53,336
3,039

75,121

$ 1.08-$ 5.00
$ 6.30-$ 9.95
$10.81-$14.75
$16.35-$28.40

WAEP of
outstanding
options

$ 2.04
$ 7.05
$14.47
$20.59

Weighted
average
remaining
life

4.0 yrs
5.1 yrs
8.9 yrs
8.6 yrs

No. of
exercisable
options
(000’s)

17,534
1,043
4,126
791

23,494

WAEP of
exercisable
options

$ 2.04
$ 7.00
$12.25
$20.11

As permitted by Statement 123, the Company accounts for stock-based compensation pursuant to the
intrinsic value method prescribed by APB Opinion No. 25 and its interpretations. In accordance with APB
Opinion No. 25, Liberty accounts for stock options with tandem SARs granted to its employees as variable plan
awards. Liabilities and the related compensation expense under these awards are subject to future adjustment
based upon vesting provisions and the market value of the underlying security and, ultimately, on the final
determination of market value when the rights are exercised. The Company accounts for stand-alone options as
fixed plan awards, and accordingly, no compensation is recognized for these awards. If the Company had
determined compensation expense based upon the grant-date fair value method pursuant to Statement 123, the
Company’s 2001 net loss and pro forma net loss per common share would have been $6,335 million and $2.45,
respectively. The Company’s net earnings (loss) and pro forma net earnings (loss) per share for 2000 and 1999
would not have been significantly different from what has been reflected in the accompanying consolidated
financial statements as substantially all of Liberty’s stock option awards had tandem SARs in 2000 and 1999.

In addition to the SARs issued in the aforementioned option restructuring, during 2001 and pursuant to the

Liberty Incentive Plan, Liberty awarded 2,104,000 options to purchase Liberty Series A common stock to
certain officers and key employees of the Company. Such options have exercise prices ranging from $12.40 to
$16.35, vest as to 25% in each of years 2 through 5 after the date of grant, and had a weighted-average grant
date fair value of $9.40.

The estimated fair values of the options noted above are based on the Black-Scholes model and are stated
in current annualized dollars on a present value basis. The key assumptions used in the model for purposes of
these calculations generally include the following: (a) a discount rate equal to the 10-year Treasury rate on the
date of grant; (b) a 45% volatility factor, (c) the 10-year option term; (d) the closing price of the respective
common stock on the date of grant; and (e) an expected dividend rate of zero.

Liberty Digital, Inc.

Deferred Compensation and Stock Option Plan. On September 8, 1999, Liberty Digital adopted the
Deferred Compensation and Stock Appreciation Rights Plan for key executives. This plan is comprised of a
deferred compensation component and SARs grants. The deferred compensation component provides
participants with the right to receive an aggregate of nine and one half percent of the appreciation in the
Liberty Digital Series A common stock market price over $2.46 subject to a maximum amount of $19.125. The
SARs provide participants with the appreciation in the market price of the Liberty Digital Series A common
stock above the maximum amount payable under the deferred compensation component. Obligations to the
executives under both the deferred compensation and SAR elements of this plan are accounted for as variable
award plans.

F-62

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

There are 19,295,193 shares subject to this plan all of which were granted in 1999 at an effective exercise

price of $2.46 and a weighted average remaining life of 3 years at year end. The deferred compensation and
SARs components vest 20% annually beginning with the first vesting date of December 15, 1999. Fully vested
unexercised SARs total 3,046,188 at year-end. During the year ended December 31, 1999, there were no
exercises, cancellations or expirations. During 2000 there were 3,859,038 options exercised, and 3,251,401
options cancelled. This plan terminates on December 15, 2003.

Subsequent to December 31, 2001, Liberty effected a short form merger with Liberty Digital whereby
Liberty Digital shareholders received 0.25 shares of Liberty Series A common stock for each share of Liberty
Digital Series A common stock held. Subsequent to this merger Liberty owns 100% of Liberty Digital. In
connection with this merger, all outstanding Liberty Digital SARs were converted to Liberty SARs at the rate
of 0.25 for 1. In addition, all amounts accrued under the deferred compensation plan were paid, and the
deferred compensation plan was terminated.

During the first quarter of 2000, an executive officer of Liberty Digital elected to exercise certain of his

SARs that had been granted by Liberty Digital. In order to satisfy Liberty Digital’s obligations under the stock
option agreement, LDIG and Liberty offered to issue, and the executive agreed to accept, a combination of cash
and AT&T Liberty Media Group tracking stock in lieu of a cash payment. Accordingly, Liberty paid cash of
$50 million and issued 5.8 million shares to the executive officer in the first quarter of 2001.

Starz Encore Group

Starz Encore Group Phantom Stock Appreciation Rights Plan. During 2000 and 1999 Starz Encore Group
granted Phantom Stock Appreciation Rights (PSARS) to certain of its officers under this plan. PSARS granted
under the plan generally vest over a five year period. Compensation under the PSARS is computed based upon
a formula derived from the appraised fair value of the net assets of Starz Encore Group. All amounts earned
under the plan are payable in cash.

Other

Certain of the Company’s subsidiaries have stock based compensation plans under which employees and

non-employees are granted options or similar stock based awards. Awards made under these plans vest and
become exercisable over various terms. The awards and compensation recorded, if any, under these plans is not
significant to Liberty.

(12) Employee Benefit Plans

Liberty is the sponsor of the Liberty Media 401(k) Savings Plan (the ‘‘Liberty 401(k) Plan’’), which
provides employees an opportunity for ownership in the Company and creates a retirement fund. The Liberty
401(k) Plan provides for employees to contribute up to 10% of their compensation to a trust for investment in
Liberty common stock, as well as several mutual funds. The Company, by annual resolution of the Board,
generally contributes up to 100% of the amount contributed by employees. Certain of the Company’s
subsidiaries have their own employee benefit plans. Contributions to all plans aggregated $10 million, $7
million, $3 million and $1 million for the years ended December 31, 2001 and 2000, the ten months ended
December 31, 1999 and the two months ended February 28, 1999, respectively.

F-63

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(13) Other Comprehensive Earnings

Accumulated other comprehensive earnings included in Liberty’s consolidated balance sheets and

consolidated statements of stockholder’s equity reflect the aggregate of foreign currency translation adjustments
and unrealized holding gains and losses on securities classified as available-for-sale. The change in the
components of accumulated other comprehensive earnings, net of taxes, is summarized as follows:

Foreign
currency
translation
adjustment

Unrealized
gains on
securities

Accumulated
other
comprehensive
earnings
(loss), net of
taxes

Balance at January 1, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at February 28, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$

5
(15)

$ (10)

Balance at March 1, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ —
60

Balance at December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Balance at December 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

60
(202)

(142)
(359)

Balance at December 31, 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(501)

amounts in millions
3,181
885

4,066

—
6,495

6,495
(6,750)

(255)
1,596

1,341

3,186
870

4,056

—
6,555

6,555
(6,952)

(397)
1,237

840

F-64

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The components of other comprehensive earnings are reflected in Liberty’s consolidated statements of
comprehensive earnings, net of taxes. The following table summarizes the tax effects related to each component
of other comprehensive earnings.

Year ended December 31, 2001:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding losses on securities arising during period . . . . . . . . . . . . . .
Reclassification adjustment for losses realized in net loss . . . . . . . . . . . . . . . .
Cumulative effect of accounting change . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Before-tax
amount

Tax
(expense)
benefit

Net-of-tax
amount

amounts in millions

$

(588)
(1,661)
4,420
(143)

229
648
(1,724)
56

(359)
(1,013)
2,696
(87)

Other comprehensive earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 2,028

(791)

1,237

Year ended December 31, 2000:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding losses on securities arising during period . . . . . . . . . . . . . .
Reclassification adjustment for gains realized in net earnings . . . . . . . . . . . . .

$
(334)
(10,116)
(1,050)

132
4,001
415

(202)
(6,115)
(635)

Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(11,500)

4,548

(6,952)

Ten months ended December 31, 1999:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding gains on securities arising during period . . . . . . . . . . . . . .
Reclassification adjustment for losses realized in net loss . . . . . . . . . . . . . . . .

$

99
10,733
12

(39)
(4,245)
(5)

Other comprehensive earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 10,844

(4,289)

60
6,488
7

6,555

Two months ended February 28, 1999:
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding gains arising during period . . . . . . . . . . . . . . . . . . . . . . . .

$

(25)
1,464

Other comprehensive earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 1,439

10
(579)

(569)

(15)
885

870

F-65

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(14) Commitments and Contingencies

Starz Encore Group LLC, 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 2014 (the ‘‘Film Licensing Obligations’’). 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. Starz Encore Group’s estimate, based on customer
levels at December 31, 2001, of the future minimum obligation related to the Film Licensing Obligations for
the five years after 2001 and thereafter are as follows (amounts in millions):

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter

$405
224
154
88
103
388

Liberty has guaranteed $619 million of the bank debt of Jupiter, an equity affiliate that provides broadband
services in Japan. Approximately $343 million of such guaranteed amount is due and payable by Jupiter during
the first quarter of 2002. Jupiter is currently negotiating the refinancing of substantially all of its long-term and
short-term debt. Liberty anticipates that it and the other Jupiter shareholders will make equity contributions to
Jupiter in connection with such refinancing, and that Liberty’s share of such equity contributions will be
approximately $450 million. Upon such refinancing, Liberty anticipates that its guarantee of Jupiter debt would
be cancelled.

Liberty has also guaranteed various loans, notes payable, letters of credit and other obligations (the
‘‘Guaranteed Obligations’’) of certain other affiliates. At December 31, 2001, the Guaranteed Obligations
aggregated approximately $170 million. Currently, Liberty is not certain of the likelihood of being required to
perform under such guarantees.

Liberty leases business offices, has entered into pole rental and transponder lease agreements and uses
certain equipment under lease arrangements. Rental expense under such arrangements amounts to $76 million,
$50 million, $30 million and $9 million for the years ended December 31, 2001 and 2000, for the ten months
ended December 31, 1999 and the two months ended February 28, 1999, respectively.

A summary of future minimum lease payments under noncancelable operating leases as of December 31,

2001 follows (amounts in millions):

Years ending December 31:

2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 70
63
52
40
31
115

F-66

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

It is expected that in the normal course of business, leases that expire generally will be renewed or
replaced by leases on other properties; thus, it is anticipated that future minimum lease commitments will not
be less than the amount shown for 2001.

Starz Encore Group LLC v. AT&T Broadband LLC and Satellite Services, Inc.

Starz Encore Group entered into a 25-year affiliation agreement in 1997 with TCI. TCI cable systems

subsequently acquired by AT&T in the TCI merger operate under the name 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 can be adjusted if AT&T acquires or disposes of cable
systems. The affiliation agreement further provides that to the extent Starz Encore Group’s programming costs
increase above or decrease below amounts specified in the agreement, then AT&T Broadband’s payments under
the affiliation agreement will be increased or decreased in an amount equal to a proportion of the excess or
shortfall. Starz Encore Group requested payment from AT&T Broadband of its proportionate share of excess
programming costs during the first quarter of 2001 (which amount aggregated approximately $32 million for
the year 2001). Excess programming costs payable by AT&T Broadband could be significantly larger in future
years.

By letter dated May 29, 2001, AT&T Broadband has disputed the enforceability of the excess

programming costs pass through provisions of the affiliation agreement and questioned whether the affiliation
agreement, as a whole, is ‘‘voidable.’’ In addition, AT&T Broadband raised certain issues concerning
interpretations of the contractual requirements associated with the treatment of acquisitions and dispositions.
Starz Encore Group believes the position expressed by AT&T Broadband to be without merit. On July 10,
2001, Starz Encore Group initiated a lawsuit against AT&T Broadband and Satellite Services, Inc., a subsidiary
of AT&T Broadband that is also a party to the affiliation agreement, in Arapahoe County District Court,
Colorado for breach of contract. Starz Encore Group is seeking a judgment of specific performance of the
contract, damages and costs.

On October 19, 2001, Starz Encore Group entered into a standstill and tolling agreement whereby the
parties agreed to move the court to stay the lawsuit until August 31, 2002 to permit the parties an opportunity
to resolve their dispute. This agreement provides that either party may unilaterally petition the court to lift the
stay after April 30, 2002 and proceed with the litigation. The court granted the stay on October 30, 2001. In
conjunction with this agreement, AT&T Broadband and the Company entered into various agreements whereby
Starz Encore Group will indirectly receive payment for AT&T Broadband’s proportionate share of the
programming costs pass through for 2001.

Liberty has contingent liabilities related to legal proceedings and other matters arising in the ordinary

course of business. Although it is reasonably possible Liberty may incur losses upon conclusion of such
matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected
that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the
accompanying consolidated financial statements.

(15) Information about Liberty’s Operating Segments

Liberty is a holding company with a variety of subsidiaries and investments operating in the media,

communications and entertainment industries. Each of these businesses is separately managed. Liberty identifies
its reportable segments as those consolidated subsidiaries that represent 10% or more of its combined revenue
and those equity method affiliates whose share of earnings or losses represent 10% or more of its pre-tax
earnings or loss. Subsidiaries and affiliates not meeting this threshold are aggregated together for segment
reporting purposes. The segment presentation for prior periods has been conformed to the current period
segment presentation.

F-67

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

For the year ended December 31, 2001, Liberty had five operating segments: Starz Encore Group, Liberty

Livewire, On Command Corporation (‘‘On Command’’), Telewest and Other. Starz Encore Group provides
premium programming distributed by cable, direct-to-home satellite and other distribution media throughout the
United States and is wholly owned and consolidated by Liberty. Liberty Livewire provides sound, video and
ancillary post production and distribution services to the motion picture and television industries in the United
States and Europe and is majority owned and consolidated by Liberty. On Command provides in-room, on-
demand video entertainment and information services to hotels, motels and resorts primarily in the United
States and is majority owned and consolidated by Liberty. Telewest, an equity method affiliate, operates and
constructs cable television and telephone systems in the UK. Other includes Liberty’s non-consolidated
investments, corporate and other consolidated businesses not representing separately reportable segments.

The accounting policies of the segments that are also consolidated subsidiaries are the same as those
described in the summary of significant accounting policies. Liberty evaluates performance based on the
measures of revenue and operating cash flow (as defined by Liberty), appreciation in stock price and 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, distribution channels and
marketing strategies.

F-68

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Liberty utilizes the following financial information for purposes of making decisions about allocating

resources to a segment and assessing a segment’s performance:

Consolidated Subsidiaries

Starz
Encore
Group

Liberty
Livewire

On
Command

Equity
method
affiliate

Other

Telewest

Eliminations

Total

amounts in millions

Performance Measures:
Year ended December 31, 2001

Revenue . . . . . . . . . . . . . . . . . . . . .
Operating cash flow . . . . . . . . . . . . .

$ 863
313

Year ended December 31, 2000

Revenue . . . . . . . . . . . . . . . . . . . . .
Operating cash flow . . . . . . . . . . . . .

Ten months ended December 31, 1999

Revenue . . . . . . . . . . . . . . . . . . . . .
Operating cash flow . . . . . . . . . . . . .

Two months ended February 28, 1999

Revenue . . . . . . . . . . . . . . . . . . . . .
Operating cash flow . . . . . . . . . . . . .

Balance Sheet Information:
As of December 31, 2001

733
235

539
124

101
41

593
89

295
44

—
—

—
—

Total assets . . . . . . . . . . . . . . . . . . .
Investments in affiliates . . . . . . . . . .

2,861
138

915
—

As of December 31, 2000

Total assets . . . . . . . . . . . . . . . . . . .
Investments in affiliates . . . . . . . . . .

2,754
155

1,141
8

239
44

200
49

—
—

—
—

433
—

439
2

364
(69)

1,811
431

298
12

190
9

134
6

1,623
330

857
235

207
52

(1,811)
(431)

(1,623)
(330)

(857)
(235)

(207)
(52)

2,059
377

1,526
340

729
133

235
47

44,330
9,938

9,209
795

(9,209)
(795)

48,539
10,076

49,934
20,299

10,707
377

(10,707)
(377)

54,268
20,464

The following table provides a reconciliation of segment operating cash flow to earnings before income

taxes:

New Liberty

Year ended
December 31,
2001

Year ended
December 31,
2000

Ten months
ended
December 31,
1999

Old Liberty

Two months
ended
February 28,
1999

Segment operating cash flow . . . . . . . . . . . . . . . . . . . .
Stock compensation . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
Impairment of long-lived assets . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share of losses of affiliates . . . . . . . . . . . . . . . . . . . . . .
Nontemporary declines in fair value of investments . . . .
Gains (losses) on dispositions, net
. . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other, net

Earnings (loss) before income taxes and minority

$

377
(132)
(984)
(388)
(525)
(4,906)
(4,101)
(310)
87

amounts in millions
340
950
(854)
—
(399)
(3,485)
(1,463)
7,340
527

133
(1,785)
(562)
—
(135)
(904)
—
4
85

47
(183)
(22)
—
(26)
(66)
—
14
373

interest

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(10,882)

2,956

(3,164)

137

F-69

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

During the year ended December 31, 2001, Liberty derived 13.6% its total revenue from a single

customer. Such revenue is attributable to the Starz Encore Group segment and the Other segment.

(16) Quarterly Financial Information (Unaudited)

1st
Quarter

2nd
Quarter

3rd
Quarter

4th
Quarter

amounts in millions

2001:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 504

513

521

521

Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(207)

(195)

(51)

(674)

Loss before cumulative effect of accounting change . . . . . . . . . . . . . . .

$(697)

(2,125)

(215)

(3,711)

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$(152)

(2,125)

(215)

(3,711)

Pro forma basic and diluted loss before cumulative effect of accounting
change per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (.27)

Pro forma basic and diluted net loss per common share . . . . . . . . . . . .

$ (.06)

2000:

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 235

Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ (83)

(.82)

(.82)

(.08)

(.08)

(1.43)

(1.43)

382

67

436

147

473

305

Net earnings (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$ 939

267

1,756

(1,477)

Pro forma basic and diluted net earnings (loss) per common share . . . .

$ .36

.10

.68

(.57)

F-70

CORPORATE DATA

Board of Directors

Officers

Corporate Headquarters

John C. Malone
Chairman of the Board
Liberty Media Corporation

Robert R. Bennett
President and CEO
Liberty Media Corporation

Donne F. Fisher
President
Fisher Capital Partners, Ltd.

Paul A. Gould
Managing Director
Allen & Company Incorporated

Gary S. Howard
Executive Vice President
and Chief Operating Officer
Liberty Media Corporation

Jerome H. Kern

Larry E. Romrell
Consultant

John C. Malone
Chairman of the Board

Robert R. Bennett
President and CEO

Gary S. Howard
Executive Vice President
and Chief Operating Officer

Miranda Curtis
Senior Vice President

William R. Fitzgerald
Senior Vice President

David J. A. Flowers
Senior Vice President
and Treasurer

David B. Koff
Senior Vice President

Elizabeth Markowski
Senior Vice President

Albert E. Rosenthaler
Senior Vice President

Chris Shean
Senior Vice President
and Controller

Charles Y. Tanabe
Senior Vice President
and General Counsel

Tony G. Werner
Senior Vice President
and Chief Technology Officer

12300 Liberty Boulevard
Englewood, CO 80112
(720) 875-5400

Stock Information

Liberty Media Corporation
Series A and Series B Common
Stock (ticker symbols L and
LMC.B) are listed on the New
York Stock Exchange.

CUSIP Numbers

L—530718 10 5
LMC.B—530718 10 4

Transfer Agent

Liberty Shareholder Services
c/o EquiServe Trust Company
P.O. Box 430007
Providence, RI 02940-3007
Phone: 781-575-3580
Tollfree: 866-367-6355
Fax: 781-575-3261
www.equiserve.com
Telecommunication Device
for the Deaf (TDD)
800-952-9245

Investor Relations

877-772-1518

Mike Erickson
Julie Gleichmann
julie@libertymedia.com

Liberty on the Internet

Visit Liberty’s Web Site at
www.libertymedia.com

Financial Statements

Liberty Media Corporation
financial statements are filed
with the Securities and
Exchange Commission.
Copies of these financial
statements can be obtained
from the Transfer Agent or
through Liberty’s Web site.

Liberty Media Corporation
12300 Liberty Boulevard
Englewood, CO 80112
720.875.5400
www.libertymedia.com

LM-AR-02