Liberty Media Corporation
Annual Report
April 2004
CONTENTS
Letter to
Shareholders
Stock Performance
Company ProÑle
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 alter 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 Ñled documents of Liberty Media including the most recently Ñled Form 10-K of Liberty
Media 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 Ñnancial performance, including availability, terms and deployment
of capital: availability of qualiÑed 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, outcomes of litigation, changes in the nature of any strategic relationships with partners and joint ventures,
competitor responses to Liberty Media'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 expressly disclaims any obligation or undertaking to disseminate any updates
or revisions to any forward-looking statement contained herein to reÖect any change in Liberty Media's expectations with
regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Selected Ñnancial information included in this document with respect to certain of the equity aÇliates of Liberty Media was
obtained directly from those aÇliates. Liberty Media does not control the decision making processes or business
management practices of its equity aÇliates. Accordingly, we are reliant on the management of those aÇliates and their
independent accountants to provide us with accurate Ñnancial information prepared in accordance with generally accepted
accounting principles that we use in the application of the equity method. As a result, we make no representations as to
whether such information presented on a stand alone basis has been prepared in accordance with GAAP. We are not aware,
however, of any errors in or possible misstatements of the Ñnancial information provided to us by our equity aÇliates that
would have a material eÅect on our consolidated Ñnancial statements. Further, Liberty Media could not, among other things,
cause any non-controlled aÇliate to distribute to Liberty Media its proportionate share of the revenue or operating cash Öow
of such aÇliate.
To Our Fellow Shareholders
Much has changed at Liberty Media since our report to shareholders in 2003. In the
past year, we have completed a number of important transactions, revised our internal
organization and announced the spin-oÅ of one of our business units. In addition to these
activities, we delivered strong operating results, with substantially all of our businesses
performing at or above our expectations.
In general, we are quite pleased with the progress we made in 2003, and with our
Company's position as we move into 2004. Despite this, we do have one key
disappointment Ì namely, the continuing gap between the underlying value of Liberty
Media and the market value of our stock. As stewards for the shareholders, we have two
responsibilities: to maximize the equity value of the Company over a reasonable horizon
and within acceptable risk parameters, and to ensure that the resulting value is reÖected in
the price of the stock. We have been pretty successful in the Ñrst category and less so in
the second. We have taken a number of steps toward improving this part of our
performance, and it remains one of our principal objectives for 2004.
Transforming Transactions
At the beginning of 2003, we determined that Liberty Media's complex structure may
have been diÇcult for many investors to follow. We held a number of passive ownership
positions, resulting from transactions in which we sold interests in operating companies to
larger, consolidating companies in exchange for the stock of the buyer. These transactions
generated signiÑcant value for Liberty Media. However, the aggregate result was that a
large percentage of our value was in the form of stock positions that, though liquid, were
not large enough to permit us to be active participants in management. We were also
exposed to Öuctuations in the equity markets. While we did preserve a great deal of value
for our shareholders by very actively protecting our positions against downside market
risk, we also made the Company more complex and diÇcult to follow.
Last year, we embarked on a strategy to change this by transforming Liberty Media
from a relatively passive investor in a broad range of media and telecommunications
businesses, to an active owner and manager of businesses in which we are the controlling,
or at least, the largest shareholder. Having more direct inÖuence over our businesses
increases our ability to drive their direction and long-term strategy, and to instill a higher
level of cooperation among our businesses where there are inherent synergies and value-
creating opportunities.
QVC, Inc.
QVC is the largest and most proÑtable television shopping business in the world. It
reaches a total of 125 million homes in the U.S., Germany, Japan and the U.K. We had
owned 42 percent of QVC since 1995, when we and Comcast Corporation acquired the
company in a leveraged buyout. By last year, after eight years of superb performance, QVC
had paid oÅ all of the debt that was incurred in the original acquisition and was
accumulating signiÑcant amounts of cash. Consistent with our desire to increase our
holdings of active ownership stakes, we concluded we would rather own a controlling
position in QVC or sell our minority interest and reinvest the proceeds. After negotiating
with Comcast for several months, we ultimately agreed to acquire their interest in QVC in
1
exchange for 218 million shares of our Series A common stock and $5.35 billion of three-
year debt. We have subsequently repaid approximately $1.7 billion of that debt.
QVC is important to us for several reasons, both strategic and Ñnancial. Technological
change is increasing the availability of on-demand and interactive programming for
consumers. This change in television viewing habits threatens the eÅectiveness of
traditional advertising. One way for sellers of consumer goods and services to adapt to the
change is to put more emphasis on direct selling of their products, over the television and
the Internet. Given QVC's vast experience in direct product sales, as well as its tremendous
scale, we believe that the company is well positioned to participate in this very important
long-term change in the television business around the world.
From a Ñnancial perspective, in 2003 QVC generated more than $1 billion of operating
cash Öow1 (OCF), making it one of the largest and most proÑtable television networks in
the world. Owning QVC gives Liberty Media, for the Ñrst time, a substantial amount of
recurring free cash Öow that can be used for debt service, acquisition activity and share
repurchases. While we incurred signiÑcant debt to Ñnance the acquisition, we expect the
business itself will generate enough cash to repay substantially all of the remaining balance
over the next three years.
UnitedGlobalCom, Inc.
UnitedGlobalCom (UGC) is one of the largest providers of cable television and
broadband services in the world. Its operations are concentrated in Western and Eastern
Europe and Latin America. We acquired our original interest in UGC in 1999 and since that
time, we have acquired shares in a number of transactions increasing our ownership to
52 percent at the end of 2003. Although our shares represented approximately 90 percent
of the voting power in UGC, we had an agreement with the founders that gave them the
right to vote our shares. In 2003, UGC successfully completed its Ñnancial restructuring
and acquired all of the minority interests of its European subsidiary. As a result of this
acquisition and the exercise of our pre-emptive rights, our stake in UGC is now 54 percent
of the equity and 92 percent of the voting power. With the completion of these very
important corporate events we concluded it was the right time for us to consolidate control
1 Operating cash Öow (OCF), as deÑned by Liberty Media, represents revenue less
cost of sales, operating expenses and selling, general and administrative expenses
(excluding stock compensation). We use this measure of performance in conjunction with
other measures to evaluate our businesses and make decisions about allocating resources
among our businesses. We believe this is an important indicator of the operational strength
and performance of our businesses, including the ability to service debt and fund capital
expenditures. In addition, this measure allows us to view operating results, perform
analytical comparisons and benchmarking between businesses and identify strategies to
improve performance. This measure of performance excludes such costs as depreciation
and amortization, stock compensation and impairments of long-lived assets that are
included in the measurement of operating income pursuant to generally accepted
accounting principles (GAAP). Accordingly, OCF should be considered in addition to, but
not as a substitute for, operating income, net income, cash Öow provided by operating
activities and other measures of Ñnancial performance prepared in accordance with GAAP.
See footnote 18 to the accompanying consolidated Ñnancial statements for a reconciliation
of OCF to Earnings Before Income Taxes and Minority Interest.
2
of UGC and, in early 2004, we acquired the remaining control shares of UGC's founding
shareholders. In February of this year UGC conducted a very successful rights oÅering
raising $1 billion and, in April, UGC issued 0500 million of convertible bonds. These events
further solidiÑed its balance sheet and provide Öexibility for future acquisitions and growth
opportunities.
Jupiter Telecommunications Co., Ltd.
Jupiter Telecommunications (J-COM) is the largest cable television company in
Japan. In 2003, we increased our ownership in J-COM from 36 percent to 45 percent by
acquiring a portion of the interest held by our partner, Sumitomo Corporation, and by
converting to equity a portion of our shareholder loans to J-COM. As a result, we are the
largest single shareholder in J-COM. We are contemplating an IPO of J-COM within the
next twelve months in order to provide access to public equity markets. We expect this
access would facilitate accelerated internal growth of J-COM as well as future acquisitions.
Public Investments
Over the course of the past year, we took advantage of opportunities to increase our
positions in two of our strategic public assets, InterActiveCorp (IAC) and News
Corporation (News).
In the case of IAC, we exercised pre-emptive rights to maintain our ownership position
at 19 percent. During the summer of 2003, we exercised pre-emptive rights on a total of
48.7 million IAC shares for a total cost of approximately $1.2 billion (a weighted average
cost of $24 per share). At April 14, 2004, the paper gain related to these shares was
approximately $425 million.
In a series of transactions over a 13-month period, we eÅectively converted 21 million
of our News non-voting shares, plus $693 million of cash, into 48 million voting shares in
News. We did this by using the proceeds from the sale of the non-voting shares, as well as
the proceeds from unwinding in the money derivative instruments, to acquire the voting
securities. We also entered into a derivative transaction to reduce our downside risk on
38 million of the newly acquired voting securities. As a result, we are now the largest single
shareholder in News with a 17 percent interest, and we own the second largest voting
position, after the Murdoch family, with just over 9 percent of the voting power. We
continue to be strong believers in the future growth prospects of News. In addition, the
shares that we own could some day be used in possible transactions between News and
us. For these reasons, we believe the additional voting shares add signiÑcant value to our
existing interest in News.
Our Operating Groups
As we increased our ownership stakes in these businesses and, in some cases, began
to consolidate the operating results in our Ñnancial statements, we also realigned our
management team and internal reporting processes. Our primary goal in these eÅorts was
to give our management team greater accountability along with the level of empowerment
required to propel the long-term success of each Group. In addition, we believe that our
new structure is a simpler one that makes our Company more transparent and easier for
investors to understand.
3
Our revised corporate structure encompasses four main Operating Groups Ì
Interactive, Networks, International and Tech/Ventures Ì as well as a collection of non-
strategic public and private assets that comprise a Corporate Group. Each of our Operating
Groups has a dedicated senior management team and a clearly articulated growth
strategy. In addition, all of our Operating Groups share the following characteristics:
‚ They have at least one large anchoring business in which Liberty Media is either the
control shareholder or the largest single shareholder.
‚ They encompass businesses that are leaders in their particular industries.
‚ They have high growth rates.
‚ They have free cash Öow or a path to near-term free cash Öow.
‚ They are run by entrepreneurial management teams.
We believe that our new structure will enable us to drive growth opportunities at each
of our businesses in the coming years. Following is a more detailed discussion of each of
our Operating Groups.
Interactive Group
Our Interactive Group is anchored by QVC and also includes our interest in IAC, as well
as Ascent Media, On Command and Open TV, among others. Our interactive businesses
represent leading companies in the areas of television and Internet-based commerce,
including the dominant home shopping network in the world and one of the worldwide
leaders in transactional commerce over the Internet. On a combined basis,2 excluding IAC,
the Interactive Group had revenue growth of 10 percent and OCF growth of 27 percent in
2003. Within the Group, QVC's revenue rose to $4.9 billion and, for the Ñrst time, OCF
eclipsed $1 billion. After a slow start in 2003, QVC turned in revenue and OCF growth of
12 percent and 18 percent, respectively, for the year. QVC's international operations
continue to be a primary source of OCF growth with $125 million of OCF in 2003 versus
$31 million in the prior year. All three of QVC's international businesses are reporting
positive OCF, with Japan contributing the highest level of OCF after only three years of
operations. QVC's domestic operations reported revenue growth of 4 percent and OCF
growth of 7 percent. IAC continued its very rapid growth with $6.3 billion of net revenue, a
38 percent increase over 2002, and $400 million of operating income, more than doubling
the 2002 level.
The Interactive Group is principally focused on global expansion in the areas of
commerce, gaming, interactive and targeted advertising, and other transaction-based
services. These are all areas where the Interactive Group has expertise and where we
believe signiÑcant growth opportunities exist in an increasingly interactive environment,
whether over the television or the Internet. We plan to use a combination of organic growth
2 Combined results for the Operating Groups are based on 100 percent of the revenue
and operating cash Öow (as deÑned) for each of the consolidated subsidiaries and equity
method investments included in the respective groups. Accordingly, this excludes the
results of IAC and of News Corporation. Please see footnote 18 to the accompanying
consolidated Ñnancial statements for complete tables and additional information.
4
and acquisition activity to drive growth across the Group. We also plan to drive synergies
within the Group and with the businesses in our other Groups.
Networks Group
Starz Encore Group (SEG) and Discovery Communications are the principal
businesses in our Networks Group. The Group also includes our holdings in News, as well
as our interests in Court TV, GSN (formerly the Game Show Network), and DMX Music. In
SEG, we have a leading provider of premium movie services to the multi-channel video
suppliers in the U.S., and in Discovery we have the global leader in non-Ñction
documentary programming networks. SEG and Discovery each own a number of
integrated networks from which to strengthen and extend their leadership positions in their
markets. In 2003, the Networks Group, excluding News, had combined revenue growth of
10 percent and combined OCF growth of 26 percent. News reported revenue growth of
19 percent and operating income growth of 20 percent for the twelve months ended
December 31, 2003.
SEG Ñnished 2003 with revenue of $906 million and OCF of $368 million, both down
slightly from 2002 levels. The decline in both revenue and OCF was due, in large part, to a
contract dispute in which our largest distributor de-emphasized SEG's services with its
customers. In September 2003, this dispute was settled when SEG entered into a new
long-term aÇliation agreement. This agreement established signiÑcant incentives for the
distributor to broadly deploy all of SEG's services throughout its customer base. While we
are encouraged by early results from the new agreement, we acknowledge that revenue
growth will not keep pace with expected programming cost increases in 2004 and 2005.
Thus, we expect reduced OCF in those years.
Discovery had another outstanding year, generating a revenue increase of 16 percent
to almost $2 billion and a 34 percent increase in OCF to just over $500 million. Discovery
now reaches more than 1 billion cumulative subscribers worldwide. The growth at
Discovery continues to be driven by international expansion and growth in advertising
revenue. Discovery's international networks now reach more than 310 million subscribers,
a 30 percent increase over the prior year, and advertising revenue for all of Discovery
increased by 23 percent for the year. In the coming years, we expect Discovery to further
strengthen its position as the global leader in non-Ñction documentary television
programming.
International Group
Our International Group includes our broadband distribution and content companies
operating outside the U.S., principally in Europe, Japan and Latin America. UGC and our
Japanese businesses, J-COM and Jupiter Programming (JPC), are the largest
components of the Group.
UGC had a very busy year. While completing the previously mentioned restructuring of
its European subsidiary, merger and rights oÅering, the management team was very
successful in the operation of the business. Revenue increased by 25 percent, and OCF
increased by 113 percent to $629 million. In addition, capital expenditures were
$333 million in 2003, compared with $335 million in 2002 and $996 million in 2001.
J-COM and JPC continued to turn in very strong growth in revenue and OCF. J-COM
Ñnished 2003 with 2.7 million revenue generating units (RGUs) and almost 1.8 million
5
homes receiving service. This equates to 1.55 services per home, an 8 percent increase
over 2002. Higher subscriber levels and increasing scale helped drive revenue growth of
32 percent for the year and OCF growth of more than 100 percent to $429 million. J-COM
was also net income positive for the Ñrst time in 2003. J-COM's expanding subscriber
base, along with increased carriage by other distributors, contributed to JPC's growth in
2003. In addition, continued growth at JPC's largest network, Shop Channel, and improved
advertising sales at the other networks resulted in JPC revenue growth of 50 percent and
OCF growth of 69 percent in 2003.
In 2003, the International Group turned in combined revenue growth of 26 percent and
combined OCF growth of 89 percent. Going forward, the International Group will continue
to pursue the organic growth opportunities that stem from the execution of its ""triple-play''
consumer oÅering: video, voice and data. The Group will also broaden the scope of its
business by pursuing acquisition opportunities in markets where it can take advantage of
its existing management and operational scale.
Another important component of the International Group's strategy is to own and
develop programming content in those markets where it owns distribution systems. We
already have sizable programming operations in Japan and Latin America, and we are
exploring opportunities to take advantage of UGC's signiÑcant presence in Europe to
launch new and exciting programming alternatives for our European customers.
Tech/Ventures Group
We recently created a fourth Operating Group to focus on our interests in several
communications and technology companies. The Tech/Ventures Group consists primarily
of True Position and our non-controlling interests in Net2Phone, WildBlue, Liberty
Associated Partners (including its interest in Current Communications) and IDT
Corporation. True Position is a location based service provider to the wireless industry and
is currently deploying its technology in the U.S. under exclusive contracts with Cingular and
T-Mobile, covering both of these carriers' nationwide networks. This technology permits
emergency and emerging location based service providers to determine the location of an
individual mobile telephone caller. Net2Phone is one of the leading providers of voice over
Internet protocol (VOIP) services using both packet cable and session initiation protocol
(SIP) technologies. Net2Phone has contracted with or is in discussions with a number of
cable television operators, both domestically and internationally, about enabling VOIP
products and services on their networks, and they have an existing arrangement with our
cable operations in Puerto Rico. WildBlue, where our partners include Intelsat, Ltd. and the
National Rural Telephone Co-op (NRTC), is deploying a high-speed Internet access
service over Ka-band satellite. WildBlue's Ñrst satellite is scheduled for launch during the
summer of 2004 with commercial service planned for early 2005. Current Communications
is deploying its technology for high-speed Internet access using existing power lines,
initially in Cincinnati in a joint venture with Cinergy. We are aggressively evaluating
synergies and joint business opportunities among True Position, Net2Phone, WildBlue and
Current. Finally, IDT, in addition to being our partner in Net2Phone, is a leading provider of
wholesale and retail telecommunications services over their own nationwide network. IDT's
common stock appreciated more than 50 percent in 2003. All of these businesses are
focused on services that take advantage of the technological, business and environmental
changes occurring across the communications market.
6
Corporate Group
Our Corporate Group holds our non-strategic and Ñnancial assets. These consist
primarily of our holdings in Sprint, Motorola, Time Warner and Viacom, together with
associated Ñnancial instruments designed to protect us against declines in the market price
of the stocks. For the most part, these instruments were entered into when the stock prices
were much higher than today, making the value of our combined positions substantially
higher than the current market value of the securities. Certain of the shares we hold are
associated with exchangeable debt securities that we have issued in recent years. These
long-term debt instruments carry very low interest rates and are exchangeable by the
holder into the underlying shares at a Ñxed price.
For the most part, we view these assets as future liquidity that we will draw upon to
repay our debt as it comes due. We have approximately $5.6 billion of debt maturing
between now and the end of 2013. This is less than the $6.4 billion of minimum proceeds
we are entitled to receive from the sale of hedged securities during the same period. The
remaining $6.2 billion in principal amount of our debt matures after 2022. Of this amount,
$4.6 billion is in the form of the exchangeable securities described above. Assuming the
price of the underlying shares reaches the exchange price before maturity, we would be
able to use those shares to settle the debt obligation. Thus, we have only $1.6 billion of
debt, maturing in 2029 and 2030, for which we have not identiÑed a speciÑc means of
repayment.
In November 2003, we announced our intention to repay $4.5 billion of debt by the end
of 2005. We accomplished $2.5 billion of that reduction in 2003, in part with the $1.6 billion
in proceeds from the sale of our shares in Corus, Vivendi, Cendant and Arris. These
positions represented three relatively large non-strategic public positions and, therefore,
were not critical to the future growth of the Company.
In order to highlight the Operating Groups and the strong underlying growth rates at
each of them, we have expanded our Ñnancial disclosure in our annual report on
Form 10-K. We will add Ñnancial disclosure related to the newly created Tech/Ventures
Group in subsequent Ñlings.
Liberty Media International
In March 2004, we decided to distribute the assets of the International Group to our
shareholders, creating a new company that will be called Liberty Media International
(LMI). The objective of the spin-oÅ is to give investors the opportunity to beneÑt in a more
direct manner from the growth opportunities we see in the LMI businesses. Creating a
separate equity security will give existing Liberty Media shareholders and new investors
the ability to concentrate their investment in either LMI, the remaining Liberty Media
businesses, or both. We expect that this will increase the trading value of both securities,
thereby reducing the discount in the current Liberty Media stock and creating better
currencies for both entities to use in pursuit of acquisition activity. In addition, by their
nature the LMI businesses can support higher levels of debt, which should generate higher
equity returns. Separating LMI from Liberty Media will allow LMI to act outside of Liberty
Media's bond ratings in optimizing its own capital structure. Shares in the new LMI will be
distributed to shareholders in a tax-free transaction that we expect to complete in June
of 2004.
7
With more than 13.5 million RGUs, LMI will be the largest cable television company
outside the U.S. and its programming companies will be among the largest providers of
multi-channel programming in Japan and Latin America. Many of the LMI markets are at an
early stage of development and we believe there are signiÑcant opportunities for internal
growth. In addition, with its substantial scale in many countries and its very strong capital
structure, LMI will be in a good position to expand the scope of its operations through
acquisitions. This combination of factors will allow LMI to be a leader in the creation and
deployment of new technology and content services.
The Future
As always, our objective as management and shareholders of Liberty Media is to
maximize the value of our company. We do that through three primary means: internal
growth, acquisitions and capital structure management. We were very active and
successful in all three areas in 2003 and the Ñrst quarter of 2004.
We are aware that the progress we have made in the past year has not been reÖected
in the price of our stock, and we are taking steps to address that disparity. We continue our
movement out of passive investments and into operating businesses that complement and
extend the strengths of our existing Operating Groups. We are working hard to simplify our
structure and improve our communications with investors. Finally, we are taking structural
steps, such as the creation of LMI, and we are reviewing others, all with the objective of
obtaining fuller recognition of the value of our Company.
As we look to the remainder of this year and beyond, we are conÑdent in our ability to
build on the successes of last year. We own businesses that are global leaders in their
markets. We see continuing opportunities for them to expand and improve their current
businesses, and to invest in or acquire new ones. We also own a number of smaller
businesses that have the ability to add signiÑcantly to our value in the years ahead. We
have a very strong capital position and ample Ñnancial resources. We have a highly
motivated and dedicated group of employees, including several new people who have
joined us to facilitate our broader operating responsibilities. In short, we look forward with
optimism and conÑdence to the opportunities ahead of us.
Thank you for your continued support of Liberty Media Corporation.
Very Truly Yours,
Robert R. Bennett
President and Chief Executive OÇcer
Dr. John C. Malone
Chairman of the Board
8
STOCK PERFORMANCE
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.
Liberty Media Compared with S&P 500 & Nasdaq Composite Indices
1200%
1000%
800%
600%
400%
200%
0%
-200%
A ug-95
D ec-95
A pr-96
A ug-96
D ec-96
A pr-97
A ug-97
D ec-97
A pr-98
A ug-98
D ec-98
A pr-99
A ug-99
D ec-99
A pr-00
A ug-00
D ec-00
A pr-01
A ug-01
D ec-01
A pr-02
A ug-02
D ec-02
A pr-03
A ug-03
D ec-03
L
S&P 500
Nasdaq
9
Liberty Media Compared with Peers
1200%
1000%
800%
600%
400%
200%
0%
-200%
A ug-95
D ec-95
A pr-96
A ug-96
D ec-96
A pr-97
A ug-97
D ec-97
A pr-98
A ug-98
D ec-98
A pr-99
A ug-99
D ec-99
A pr-00
A ug-00
D ec-00
A pr-01
A ug-01
D ec-01
A pr-02
A ug-02
D ec-02
A pr-03
A ug-03
D ec-03
L
Via B
DIS
NWS
TWX (converted)
10
COMPANY PROFILE
Liberty Media holds interests in a broad range of domestic and international video programming,
broadband distribution, interactive technology services and communications 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 Media'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 Media and, to the extent known by Liberty Media, other
holders. In some cases, Liberty Media's interest may be subject to buy/sell procedures, repurchase
rights or, under certain circumstances, dilution.
ENTITY
CUMULATIVE
SUBSCRIPTION UNITS(1)
AT 12/31/03
(000's)
ATTRIBUTED
OWNERSHIP AT
12/31/03
NETWORKS GROUP
Court TV
Discovery Communications, Inc.
DMX MUSIC, Inc.
E! Entertainment Television
GSN (f.k.a. Game Show Network)
Hallmark Entertainment Investments Co.
79,000
1,065,000
5,035
113,141
53,615
International Channel
11,770
MacNeil/Lehrer Productions
The News Corporation Limited
(NYSE: NWS, NWS.A; ASX: NCPDP)
50%
50%
56%
10%
50%
18%(2)
90%
67%
17%
Starz Encore Group LLC
150,969
100%
11
ENTITY
TOTAL RGUs(3)
12/31/03
(000's)
ATTRIBUTED
OWNERSHIP AT
12/31/03
INTERNATIONAL GROUP
1,307
205
2,715
138
268
Cablevisi πon S.A. (Argentina)
Chorus Communications Limited (Ireland)
Jupiter Telecommunications Co., Ltd.(5) (Japan)
Liberty Cablevision of Puerto Rico, Inc.
Metr πopolis-Intercom, S.A. (Chile)
Sky Latin America
Telewest Communications plc (UK)
(LN: TWT) (Nasdaq: TWSTY)
The Wireless Group
(LN: TWG)
UnitedGlobalCom, Inc.
(Nasdaq: UCOMA)
39%
50%(4)
45%
100%
50%
9%
25%
30%
53%
ENTITY
CUMULATIVE
SUBSCRIPTION UNITS(1)
AT 12/31/03
(000's)
ATTRIBUTED
OWNERSHIP AT
12/31/03
INTERNATIONAL GROUP
Jupiter Programming Co., Ltd. (Japan)
Pramer S.C.A. (Argentina)
The Premium Movie Partnership (Australia)
Torneos y Competencias, S.A. (Argentina)
41,610
82,559
850
50%
100%
20%
40%
12
ENTITY
BUSINESS DESCRIPTION
ATTRIBUTED
OWNERSHIP AT
12/31/03
Ascent Media Group, Inc.
IAC/InterActiveCorp
(Nasdaq: IACI)
On Command Corporation
OpenTV Corp.
(Nasdaq: OPTV)
INTERACTIVE GROUP
Provides a wide range of traditional audio
and video post-production, transmission,
library services, and audio/video
distribution services via satellite and Ñber
to worldwide clients in the feature Ñlm,
television and advertising industries.
IAC/InterActiveCorp is comprised of the
following operating businesses:
Expedia, Inc., which oversees Interval
International and TV Travel Shop;
Hotels.com; HSN; Ticketmaster, which
oversees Evite and ReserveAmerica;
Match.com, which oversees uDate.com;
Entertainment Publications; Citysearch; and
Precision Response Corporation.
Provider of in-room interactive
entertainment, Internet access, business
information and guest services for the
lodging industry.
OpenTV provides a comprehensive suite of
iTV solutions including operating
middleware, web browser software,
interactive applications, content creation
tools, professional support services and
strategic consulting.
priceline.com, Incorporated
(Nasdaq: PCLN)
E-commerce service allowing consumers to
make oÅers on products and services.
QVC, Inc.
QVC, Inc. is an e-commerce leader,
marketing a wide variety of brand name
products in such categories as home
furnishing, licensed products, fashion,
beauty, electronics and Ñne jewelry.
100%
19%
100%
31%(6)
1%
98%
13
ENTITY
BUSINESS DESCRIPTION
ATTRIBUTED
OWNERSHIP AT
12/31/03
IDT Corporation
(Nasdaq: IDT)
TECH/VENTURES GROUP
A leading provider of wholesale and retail
telecommunications services, using their
own network infrastructure to route calls
worldwide. IDT developed NET2Phone, a
leading provider of Internet telephony,
along with other innovative telecom and
Internet-related businesses.
Liberty Associated Partners/
Current Communications
Current oÅers high speed broadband
access using electrical power lines
Net2Phone Inc.
(Nasdaq: NTOP)
Provider of voice and enhanced services
over IP networks to consumers,
businesses and carriers worldwide.
TruePosition, Inc.
Provider of wireless location technology
and services.
Wildblue Communications, Inc. Building a ka-band satellite network that
will focus on providing broadband services
to homes and small oÇces in North and
South America.
13%
16%
22%
89%
32%
14
ENTITY
BUSINESS DESCRIPTION
ATTRIBUTED
OWNERSHIP AT
12/31/03
CORPORATE/FINANCING ASSETS
ABC Family Worldwide, Inc. ABC Family oÅers fun, light-hearted
programming with a twist for kids, teens and
adults. The channel features original series
and movies, major theatrical releases, and
repurposed programming from the ABC
Television Network.
Motorola, Inc.
(NYSE: MOT)
Provider of integrated communications
solutions and embedded electronic solutions.
Omnipoint
Communications, Inc.
Holds one of three ""Pioneer's Preferences''
from the FCC allowing construction and
operation of a broadband PCS system in the
New York Major Trading Area. Omnipoint was
acquired by Deutsche Telecom and is a part
of the T-Mobile business.
Sprint PCS Group
(NYSE: PCS)
Provider of domestic wireless mobile phone
services. Operates the only 100% digital PCS
wireless network in the U.S.
Time Warner Inc.
(NYSE: TWX)
Viacom Inc.
(NYSE: VIA)
Time Warner Inc. is one of the world's leading
media and entertainment companies, whose
businesses include Ñlmed entertainment,
interactive services, television networks, cable
systems, music and publishing.
A leading global media company, with
preeminent positions in broadcast and cable
television, radio, outdoor advertising, and
online. Well-known brands include CBS, MTV,
Nickelodeon, Nick at Nite, VH1, BET,
Paramount Pictures, InÑnity Broadcasting,
Viacom Outdoor, UPN, TV Land, Comedy
Central, CMT: Country Music Television,
Spike TV, Showtime, Blockbuster, and
Simon & Schuster.
(7)
3%
4%
20%(8)
4%
G1%
XM Satellite Radio
Holdings, Inc.
(Nasdaq: XMSR)
Transmits 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.
G1%
15
(1) Cumulative subscription units represent the total of all subscribers to all of the programming
services oÅered by the respective company.
(2) On March 11, 2003, Liberty consummated a transaction in which Liberty contributed all of its
Class A Common Stock of Crown Media Holdings, Inc. to Hallmark Entertainment Investments
Co. in exchange for an approximate 18% ownership in Hallmark Entertainment.
(3) Revenue Generating Unit (or RGU) is separately a basic cable subscriber, DTH subscriber,
digital cable subscriber, Internet subscriber or telephony subscriber. A home may contain one
or more RGUs. For example, if a single residential customer subscribed to our basic cable
service, digital cable service, high-speed Internet access service and telephony service, the
customer would constitute four RGUs. Total RGUs is the sum of basic cable subscribers, DTH
subscribers, digital cable subscribers, Internet subscribers and telephony subscribers.
(4) On January 29, 2004, Chorus entered Examinership (Irish equivalent of Bankruptcy) and is
currently undergoing a restructuring under Irish insolvency laws. The restructuring plan
includes a proposal whereby Liberty Media would make additional investments in Chorus and
acquire the other 50% ownership interest. Liberty Media's proposal is conditioned upon,
among other things, approval of the restructuring plan by the Irish court.
(5) All data presented for Jupiter Telecomunications, Co., Ltd. includes managed franchises only.
(6) On July 1, 2003, OpenTV completed its previously announced acquisition of ACTV, Inc. As a
result, Liberty Media received approximately 6,456,969 Class A Ordinary additional OpenTV
shares for its previous 16% stake in ACTV, Inc.
(7) 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.
(8) Less than 1% of voting power. Liberty beneÑcially owns shares of Sprint PCS Group Stock
and instruments convertible into Sprint PCS Group Stock.
16
Market for Registrant's Common Equity and Related Stockholder Matters.
We have two series of common stock, Series A and Series B, which trade on the New York Stock
Exchange under the symbols L and LMC.B, respectively. 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 years ended December 31, 2003
and 2002.
2003
First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2002
First quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Second quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Third quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Fourth quarter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Series A
Series B
High
Low
High
Low
$10.38
$12.25
$12.27
$12.20
$15.03
$12.80
$ 9.60
$10.75
$ 8.45
$ 9.52
$ 9.86
$ 9.78
$11.90
$ 7.70
$ 6.16
$ 6.29
$10.60
$12.25
$12.47
$14.05
$15.90
$13.49
$ 9.75
$11.00
$ 8.65
$ 9.50
$10.11
$ 9.90
$12.65
$ 8.23
$ 6.38
$ 6.40
As of January 30, 2004, there were approximately 12,000 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, Ñnancial condition and other relevant considerations.
On November 28, 2003, we acquired all of the outstanding stock of TP Investment, Inc. in exchange for
5,281,739 shares of our Series B Common Stock. TP Investment is a corporation that, prior to the acquisition,
was wholly owned by a limited liability company in which the sole member is John C. Malone, the chairman
of our board of directors. The agreed value of the TP Investment stock acquired was $60,740,000. We believe
this transaction was exempt from the registration requirements of the Securities Act by virtue of Section 4(2)
of the Securities Act since it was not a public oÅering.
F-1
Selected Financial Data.
The following tables present selected historical information relating to our Ñnancial condition and results
of operations for the past Ñve years. The following data should be read in conjunction with our consolidated
Ñnancial statements. We were a wholly-owned subsidiary of Tele-Communications, Inc. from August 1994 to
March 9, 1999. On March 9, 1999, AT&T Corp. acquired TCI in a merger transaction. For Ñnancial 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. Selected Ñnancial data for the two months ended February 28, 1999 has been excluded from the
following table.
2003(1)
2002
December 31,
2001
(Amounts in millions)
2000
1999
Summary Balance Sheet Data:
Investments in available-for-sale securities and other
cost investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investment in aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$19,949
$ 5,354
$54,013
$ 9,482
$28,842
$14,369
$ 7,390
$39,685
$ 4,316
$24,682
$21,152
$10,076
$48,539
$ 4,764
$30,123
$16,774
$20,464
$54,268
$ 5,269
$34,109
$27,906
$15,922
$58,658
$ 2,723
$38,408
Summary Statement of Operations Data:
Revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating income (loss)(2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Share of earnings (losses) of aÇliates, net(3) ÏÏ
Nontemporary declines in fair value of
Years Ended December 31,
2003(1)
2002
2001
2000
Ten Months
Ended
December 31,
1999
(Amounts in millions, except per share amounts)
$ 4,028
$ (956)
$
58
$ 2,084
$ (184)
$ (453)
$ 2,059
$(1,127)
$(4,906)
$ 1,526
$
436
$(3,485)
$
729
$(2,214)
$ (904)
investmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(29)
$(6,053)
$(4,101)
$(1,463)
$ Ì
Realized and unrealized gains (losses) on
Ñnancial instruments, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gains (losses) on dispositions, net ÏÏÏÏÏÏÏÏÏÏÏÏ
Net earnings (loss)(2)(3) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic and diluted net earnings (loss) per
$ (649) $ 2,122
$ 1,128
$ (415)
$(1,222) $(5,330)
$ (174)
$ (310)
$(6,203)
$
223
$ 7,340
$ 1,485
$ (153)
$
4
$(2,021)
common share(4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(.44)
$ (2.06)
$ (2.40)
$
.57
$
(.78)
(1) On September 17, 2003, we completed our acquisition of Comcast Corporation's approximate 56.5%
ownership in QVC, Inc. for approximately $7.9 billion, comprised of cash, Floating Rate Senior Notes
and shares of our Series A common stock. When combined with our previous ownership of approximately
41.7% of QVC, we owned 98.2% of QVC upon consummation of the transaction, which is deemed to
have occurred on September 1, 2003, and we have consolidated QVC's Ñnancial position and results of
operations since that date.
(2) EÅective January 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill
and Other Intangible Assets, which among other matters, provides that goodwill and other indeÑnite-lived
assets no longer be amortized. Amortization expense for such assets aggregated $627 million,
$598 million and $438 million for the years ended December 31, 2001 and 2000 and the ten months
ended December 31, 1999, respectively.
(3) Included in share of losses of aÇliates are other-than-temporary declines in value aggregating
$84 million, $148 million and $2,396 million for the years ended December 31, 2003, 2002, and 2001,
respectively. In addition, share of losses of aÇliates includes excess basis amortization of $798 million,
$1,058 million and $463 million for the years ended December 31, 2001, 2000 and the ten months ended
F-2
December 31, 1999, respectively. Pursuant to Statement 142, excess costs that are considered equity
method goodwill are no longer amortized, but are evaluated for impairment under APB Opinion No. 18.
(4) The basic and diluted net earnings (loss) per common share for periods prior to August 10, 2001, the date
of our split oÅ from AT&T, is based upon 2,588 million shares of our Series A and Series B common
stock issued upon consummation of the split oÅ.
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
Ñnancial condition. This discussion should be read in conjunction with our accompanying consolidated
Ñnancial statements and the notes thereto.
Overview
We are a holding company that owns majority and minority interests in a broad range of electronic
retailing, video programming, broadband distribution and other communications companies. During the
second half of 2003, we started changing our corporate focus to control more of our aÇliated companies. The
Ñrst step in this process was our September 2003 acquisition of Comcast Corporation's approximate 56%
ownership interest in QVC, Inc., which when combined with our previous 42% ownership interest, gave us
over 98% control of QVC, and we now consolidate the Ñnancial position and results of operations of QVC. In
January 2004, we acquired all of the outstanding shares of Class B common stock of UnitedGlobalCom, Inc.
from UGC's founding shareholders. Previously in December 2003, UGC completed the acquisition of all of
the outstanding shares of UGC Europe, Inc. that it did not already own. As a result of these two transactions
and our exercise of certain pre-emptive rights, UGC owns 100% of the outstanding common stock of UGC
Europe and we own approximately 55% of the outstanding common stock of UGC representing approximately
92% of the voting power of UGC's shares. We began consolidating the operations of UGC eÅective January 1,
2004. In the fourth quarter of 2003, to further align our corporate structure with our operating assets, we
organized our businesses into four Groups: Interactive Group, International Group, Networks Group and
Corporate and Other. See ""Business Ì Narrative Description of Business'' included in Part I of this Annual
Report on Form 10-K for a description of the more signiÑcant businesses in each of these Groups.
Our primary businesses in the Interactive Group are QVC and Ascent Media Group, Inc. In addition, we
own approximately 20% of InterActiveCorp, which we account for as an available-for-sale security. In
evaluating the prospects and risks for QVC, our primary focus is currently on the following: potential
opportunities to expand the QVC footprint in international markets, and new domestic marketing concepts to
capitalize on the growing Internet market. During 2003, the growth in QVC's domestic revenue leveled oÅ, as
compared to recent years. During 2004, our goal will be to continue QVC's international expansion by
increasing (1) the number of customers who have access to and use our service and (2) the average sales per
customer. In addition we hope to Ñnd new opportunities for domestic growth, including Internet sales.
Our primary businesses in the International Group are UGC, which provides broadband services
primarily in Europe; Jupiter Telecommunications (""J-COM''), which provides broadband services in Japan
and Jupiter Programming (""JPC''), which provides video programming in Japan, all of which were equity
aÇliates at December 31, 2003. Our consolidated subsidiaries in the International Group at December 31,
2003 are Liberty Cablevision of Puerto Rico and Pramer S.C.A. We believe our primary opportunities in our
international markets include continued growth in subscribers; increasing the average revenue per unit by
continuing to rollout telephony, Internet and digital video; developing foreign programming businesses,
including international expansion of our domestic networks, to distribute over our broadband systems; and
maximizing operating eÇciencies on a regional basis. Potential impediments to achieving these goals include
increasing price competition for broadband services; alternative video technologies; and available capital to
Ñnance the proposed rollout of new services.
Our primary businesses in the Networks Group are Starz Encore Group LLC, Discovery
Communications, Inc., Courtroom Television Network, LLC and GSN (formerly, Game Show Network). In
addition we own approximately 18% of The News Corporation Limited, which we account for as an
F-3
available-for-sale security. We view the development of digital and interactive services, our ability to expand
these networks and increase distribution over our international distribution footprint, as mentioned above, and
our ability to increase advertising rates relative to broadcast networks and other cable networks as key
opportunities for growth in the coming months and years. We face several key obstacles in our attempt to meet
these goals, including: continued consolidation in the broadband and satellite distribution industries; the
impact on viewer habits of new technologies such as video on demand and personal video recorders; and
alternative movie and programming sources.
Certain of our subsidiaries and aÇliates are dependent on the entertainment industry for entertainment,
educational and informational programming. In addition, a signiÑcant portion of the revenue of certain of our
subsidiaries and aÇliates is generated by the sale of advertising on their networks. A prolonged downturn in
the economy has had and could continue to have a negative impact on the revenue and operating income of
these businesses. A slow economy could reduce (i) the development of new television and motion picture
programming, thereby adversely impacting their supply of service oÅerings; (ii) consumer disposable income
and consumer demand for their products and services; and (iii) the amount of resources allocated for network
and cable television advertising by major corporations.
Our businesses that operate in countries other than the United States are subject to a number of risks
including Öuctuations in currency exchange rates and political unrest. In addition, the economies in many of
the regions where our international businesses operate have recently experienced moderate to severe
recessionary conditions, including among others, Argentina, Chile, the United Kingdom, Germany and Japan.
These recessionary conditions have strained consumer and corporate spending and Ñnancial systems and
Ñnancial institutions in these areas. As a result, our aÇliates have experienced a reduction in consumer
spending and demand for services.
In addition to the businesses included in the foregoing Groups, we continue to maintain signiÑcant
investments in public companies such as Time Warner Inc., Viacom, Inc. and Sprint Corporation, which are
accounted for as available-for-sale (""AFS'') securities. We view these holdings as Ñnancial assets that we can
monetize and deploy the resulting proceeds into any of our operating Groups.
F-4
Summary of Operations
To assist you in understanding and analyzing our business in the same manner we do, we have organized
the following discussion of our results of operations into two parts: Consolidated Operating Results, and
Operating Results by Business Group. The Operating Results by Business Group section includes a discussion
of the more signiÑcant businesses within each Group.
Consolidated Operating Results
2003
Years Ended December 31,
2002
(Amounts in millions)
2001
Revenue
Interactive Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
International Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Networks Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate and OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,798
107
1,114
9
$ 794
100
1,145
45
$
832
138
1,030
59
Consolidated revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,028
$2,084
$ 2,059
Operating Cash Flow
Interactive Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
International Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Networks Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate and OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
496
27
381
(72)
$
61
26
374
(37)
76
42
327
(68)
Consolidated operating cash Öow ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
832
$ 424
$
377
Operating Income (Loss)
Interactive Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
International Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Networks Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Corporate and OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
139
12
248
(1,355)
$ (339)
11
189
(45)
$ (528)
(36)
49
(612)
Consolidated operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (956)
$ (184)
$(1,127)
Revenue. Our consolidated revenue increased 93.3% and 1.2% in 2003 and 2002, respectively, as
compared to the corresponding prior year. The 2003 increase is due primarily to QVC, which recognized
$1,973 million of revenue since our acquisition in September. In addition, revenue for the Interactive Group
increased $45 million due to our acquisition of OpenTV Corp. in August 2002 and decreased $30 million at
Ascent Media. The Networks Group revenue decreased due primarily to a reduction in rates in former AT&T
Broadband systems resulting from the re-negotiation of Starz Encore's aÇliation agreement with Comcast in
2003. The increase in consolidated revenue in 2002 was primarily the net result of a 9.5% increase in Starz
Encore's revenue partially oÅset by a 9.3% decrease in Ascent Media's revenue. See ""Operating Results by
Business Group'' below for a more complete discussion of these Öuctuations.
Operating Cash Flow. We deÑne Operating Cash Flow as revenue less cost of sales, operating expenses
and selling, general and administrative (""SG&A'') expenses (excluding stock compensation). Our chief
operating decision maker and management team use this measure of performance in conjunction with other
measures applied on a Group by Group basis to evaluate our businesses and make decisions about allocating
resources among our businesses. We believe this is an important indicator of the operational strength and
performance of our businesses, including the ability to service debt and fund capital expenditures. In addition,
this measure allows us to view operating results, perform analytical comparisons and benchmarking between
businesses and identify strategies to improve performance. This measure of performance excludes such costs
as depreciation and amortization, stock compensation and impairments of long-lived assets that are included
F-5
in the measurement of operating income pursuant to general accepted accounting principles (""GAAP'').
Accordingly, Operating Cash Flow should be considered in addition to, but not as a substitute for, operating
income, net income, cash Öow provided by operating activities and other measures of Ñnancial performance
prepared in accordance with GAAP. See footnote 18 to the accompanying consolidated Ñnancial statements
for a reconciliation of Operating Cash Flow to Earnings Before Income Taxes and Minority Interest.
Consolidated Operating Cash Flow increased 96.2% and 12.5% in 2003 and 2002, respectively, as
compared to the corresponding prior year. The increase in 2003 is due primarily to our acquisition of QVC,
which contributed $434 million to our consolidated Operating Cash Flow. This increase was partially oÅset by
a decrease in our Corporate and Other Group, which resulted from lower revenue from ancillary sources and
higher legal and consulting expenses. The 2002 increase is primarily the net eÅect of a $58 million increase in
Starz Encore's Operating Cash Flow and lower corporate SG&A expenses of $28 million, partially oÅset by a
$44 million operating cash Öow deÑcit at OpenTV, which was acquired in 2002. The decrease in corporate
SG&A expenses in 2002 resulted from the sale of certain business units in 2002 and expenses incurred in 2001
related to our split-oÅ from AT&T Corp.
Stock compensation. Stock compensation includes compensation related to (1) options and stock
appreciation rights for shares of our common stock that are granted to certain of our oÇcers and employees,
(2) phantom stock appreciation rights (""PSARs'') granted to oÇcers and employees of certain of our
subsidiaries pursuant to private equity plans and (3) amortization of restricted stock grants. In connection
with our rights oÅering in the fourth quarter of 2002 and pursuant to the antidilution provisions of the stock
incentive plans we administer, the number of shares and the applicable exercise prices of all of our options
were adjusted as of October 31, 2002, the record date for the rights oÅering. As a result of these modiÑcations,
all of our outstanding options are now accounted for as variable plan awards. 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, as well as the vesting of PSARs and
the equity value of the related subsidiary. The decrease in stock compensation in 2003 is primarily a result of a
decrease in the equity value of Starz Encore. The expense reÖected in the table is based on the market price of
the underlying common stock as of the date of the Ñnancial statements and is subject to future adjustment
based on market price Öuctuations, vesting percentages and, ultimately, on the Ñnal determination of market
value when the options are exercised.
Depreciation and Amortization. The increase in depreciation in 2003 is due to increases in our
depreciable asset base resulting from (1) the acquisition of QVC and (2) capital expenditures. The increase
in amortization in 2003 is due primarily to the acquisition of QVC and amortization of the related intangible
assets. EÅective January 1, 2002, Liberty and its subsidiaries adopted Statement of Financial Accounting
Standards No. 142, Goodwill and Other Intangible Assets. Statement 142 provides that goodwill and indeÑnite
lived intangibles are no longer amortized, but are evaluated periodically for impairment. The decrease in
amortization in 2002 is due to the adoption of Statement 142 and the resulting elimination of goodwill
amortization.
Impairment of Long-lived Assets. Starz Encore received an independent third party valuation in
connection with its annual year-end evaluation of the recoverability of its goodwill. The result of this valuation,
which was based on a discounted cash Öow analysis of projections prepared by the management of Starz
Encore, indicated that the fair value of this reporting unit was less than its carrying value including goodwill.
This reporting unit fair value was then used to calculate an implied value of the goodwill related to Starz
Encore. The $1,352 million excess of the carrying amount of the goodwill (including $1,195 million of
allocated enterprise-level goodwill) over its implied value has been recorded as an impairment charge in the
fourth quarter of 2003. Starz Encore's operating income includes $157 million of the foregoing impairment
charge and $1,195 million is included in Corporate and Other. The reduction in the value of Starz Encore
reÖected in the third party valuation is believed to be attributable to a number of factors. Those factors include
the reliance placed in that valuation on projections by management reÖecting a lower rate of revenue growth
compared to earlier projections based, among other things, on the possibility that revenue growth may be
negatively aÅected by (1) a reduction in the rate of growth in total digital video subscribers and in the
subscription video on demand business as a result of cable operators' increased focus on the marketing and
F-6
sale of other services, such as high speed internet access and telephony, and the uncertainty as to the success
of marketing eÅorts by distributors of Starz Encore's services and (2) lower per subscriber rates under the new
aÇliation agreement with Comcast, as compared to the payments required under the 1997 AT&T Broadband
AÇliation Agreement (including the programming pass through provision).
During the years ended December 31, 2002 and 2001, we determined that the carrying value of certain of
our subsidiaries' assets exceeded their respective fair values. Accordingly, in 2002 we recorded impairments of
goodwill related to OpenTV ($92 million), Ascent Media ($84 million), our Latin American consolidated
and equity investments ($46 million), DMX Music ($44 million) and On Command Corporation
($9 million). Such impairments were calculated as the diÅerence between the carrying value and the
estimated fair value of the related assets. In 2001, we recorded impairments of (1) Ascent Media's property
and equipment and goodwill of $313 million and (2) goodwill of $75 million primarily related to the
devaluation of the Argentine peso and the impact of such devaluation on Pramer, our wholly-owned Argentine
programming subsidiary.
Operating Income (Loss). Consolidated operating loss increased $772 million in 2003 and decreased
$943 million in 2002, as compared to the corresponding prior year. The increase in 2003 is due to the
impairment of Starz Encore's goodwill partially oÅset by the operating income of QVC from the date of its
acquisition. The decrease in 2002 is due primarily to (1) our adoption of Statement 142 and the resulting
elimination of amortization on indeÑnite lived intangible assets and goodwill, (2) a decrease in stock
compensation expense and (3) lower impairment charges.
Other Income and Expense
Interest expense.
Interest expense was $539 million, $423 million and $525 million, for the years ended
December 31, 2003, 2002 and 2001, respectively, including $61 million, $7 million and $6 million,
respectively, of accretion of our exchangeable debentures. The remaining increase in interest expense in 2003
is due primarily to an increase in our debt balance in 2003. The decrease in 2002 is due to a lower average debt
balance in 2002 and lower interest rates on certain variable-rate subsidiary and parent company bank debt.
Dividend and interest income. Dividend and interest income was $189 million, $209 million and
$272 million for the years ended December 31, 2003, 2002 and 2001, respectively. The 2002 decrease is the
net eÅect of lower interest rates on invested cash balances, oÅset by increases due to dividends from our
Vivendi Universal and News Corp. investments. In 2001, we also earned interest on certain debt securities that
we purchased in the second and third quarter of 2001. The majority of these debt securities were contributed
to UGC in January 2002. Interest and dividend income for the year ended December 31, 2003 was comprised
of interest income earned on invested cash ($61 million), dividends on News Corp. American Depository
Shares (""ADSs'') ($40 million), dividends on ABC Family Worldwide preferred stock ($31 million) and
other ($57 million).
F-7
Investments in AÇliates Accounted for Using the Equity Method. Our share of earnings (losses) of
aÇliates was $58 million, ($453) million and ($4,906) million during the years ended December 31, 2003,
2002 and 2001, respectively. A summary of our share of losses of aÇliates, including nontemporary declines in
value and excess cost amortization, is included below:
Discovery ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
J-COM ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVCÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UGC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Telewest Communications plcÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cablevisi πon S.A. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ASTROLINK International LLC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
50% $
45%
*
52%
*
39%
*
Various
Percentage
Ownership at
December 31,
2003
2003
Years Ended December 31,
2002
2001
(Amounts in millions)
$ (32)
38
(22)
20
107
154
(198)
Ì
(92)
Ì
Ì
Ì
Ì
(1)
(262)
(107)
$ (293)
(90)
36
(751)
(2,538)
(476)
(417)
(377)
$
58
$(453)
$(4,906)
* No longer an equity aÇliate
At December 31, 2003, the aggregate carrying amount of our investments in aÇliates exceeded our
proportionate share of our aÇliates' net assets by $7,021 million. Prior to the adoption of Statement 142, this
excess basis was being amortized over estimated useful lives of up to 20 years based on the useful lives of the
intangible assets represented by such excess costs. Such amortization was $798 million for the year ended
December 31, 2001, and is included in our share of losses of aÇliates. Upon adoption of Statement 142, we
discontinued amortizing equity method excess costs in existence at the adoption date due to their
characterization as equity method goodwill. Also included in share of losses for the years ended December 31,
2003, 2002 and 2001, are adjustments for nontemporary declines in value aggregating $84 million,
$148 million and $2,396 million, respectively. See ""Operating Results by Business Group'' below for a
discussion of our more signiÑcant equity method aÇliates.
Nontemporary declines in fair value of investments. During 2003, 2002 and 2001, we determined that
certain of our cost investments experienced other-than-temporary declines in value. As a result, the cost bases
of such investments were adjusted to their respective fair values based primarily on quoted market prices at
the balance sheet date. These adjustments are reÖected as nontemporary declines in fair value of investments
in the consolidated statements of operations. The following table identiÑes such adjustments attributable to
each of the individual investments as follows:
Investments
Years Ended December 31,
2001
2003
2002
(Amounts in millions)
Time Warner Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
News Corp. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Sprint PCS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Vivendi ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
29
OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì $2,567
1,393
1,077
409
607
$2,052
915
Ì
Ì
1,134
$29
$6,053
$4,101
F-8
Gains (losses) on dispositions. Aggregate gains (losses) from dispositions during the years ended
December 31, 2003, 2002 and 2001, are comprised of the following.
Transaction
Sale of investment in Cendant Corporation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sale of investment in Vivendi ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sale of News Corp. non-voting shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UGC Transaction ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exchange of USAI equity securities for Vivendi common stock ÏÏÏÏÏ
Sale of Telemundo Communications Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Merger of Viacom and BET Holdings II, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exchange of our Gemstar-TV Guide International, Inc. common
stock for News Corp. ADSs ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years Ended December 31,
2001
2002
2003
(Amounts in millions)
$ 510
262
236
Ì
Ì
Ì
Ì
$ Ì $ Ì
Ì
Ì
Ì
Ì
Ì
559
Ì
Ì
123
(817)
344
Ì
Ì
120
Ì
(65)
(965)
96
$1,128
$(415)
$(310)
In all of the above exchange transactions, the gains or losses were calculated based upon the diÅerence
between the carrying value of the assets relinquished, as determined on an average cost basis, compared to the
fair value of the assets received. See notes 5 and 6 to the accompanying consolidated Ñnancial statements for a
discussion of the foregoing transactions.
Realized and unrealized gains (losses) on derivative instruments. Realized and unrealized gains
(losses) on derivative instruments during the years ended December 31, 2003, 2002 and 2001 are comprised of
the following:
2003
Years Ended December 31,
2002
(Amounts in millions)
2001
Change in fair value of exchangeable debenture call option
features ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in fair value of hedged AFS securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in fair value of AFS derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in fair value of other derivatives(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(158)
Ì
(535)
44
$
784
(2,378)
3,665
51
$
167
(1,531)
1,177
13
Total realized and unrealized gains (losses), net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(649)
$ 2,122
$ (174)
(1) Comprised primarily of forward foreign exchange contracts and interest rate swap agreements.
During 2001 and 2002, we had designated our equity collars as fair value hedges. Pursuant to Statement
of Financial Accounting Standards No. 133, ""Accounting for Derivative Instruments and Hedging Activities,''
the equity collars were recorded on the balance sheet at fair value, and changes in the fair value of the equity
collars and of the hedged security were recognized in earnings. EÅective December 31, 2002, we elected to
dedesignate our equity collars as fair value hedges. This election had no impact on our Ñnancial position at
December 31, 2002 or our results of operations for the year ended December 31, 2002. Subsequent to
December 31, 2002, changes in the fair value of our available-for-sale securities that previously had been
reported in earnings due to the designation of equity collars as fair value hedges are now reported as a
component of other comprehensive income on our balance sheet. Changes in the fair value of the equity
collars continue to be reported in earnings.
Income taxes. Our eÅective tax rate was not meaningful in 2003 and was 33% and 36% for the years
ended December 31, 2002 and 2001, respectively. Although we had a loss before tax expense for book
purposes in 2003, we recorded tax expense of $374 million primarily due to our impairment of goodwill, which
F-9
is not deductible for tax purposes. In addition, we incurred state and foreign taxes and an increase in our
valuation allowance for losses of subsidiaries that we do not consolidate for tax purposes. The eÅective tax
rates in 2002 and 2001 diÅered from the U.S. Federal income tax rate of 35% primarily due to state and local
taxes and amortization for book purposes that is not deductible for income tax purposes.
Cumulative eÅect of accounting change. We and our subsidiaries adopted Statement 142 eÅective
January 1, 2002. Upon adoption, we determined that the carrying value of certain of our reporting units
(including allocated goodwill) was not recoverable. Accordingly, in the Ñrst quarter of 2002, we recorded an
impairment loss of $1,869 million, net of related taxes, as the cumulative eÅect of a change in accounting
principle. This transitional impairment loss includes an adjustment of $325 million for our proportionate share
of transition adjustments that our equity method aÇliates have recorded.
EÅective January 1, 2001, we adopted Statement 133, which established accounting and reporting
standards for derivative instruments. 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 not designated as a hedge, changes in the fair value of the derivative
are recognized in earnings.
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.
Operating Results by Business Group
The tables in this section present 100% of each business' revenue, operating cash Öow and operating
income even though we own less than 100% of many of these businesses. These amounts are combined on an
unconsolidated basis and are then adjusted to remove the eÅects of the equity method investments to arrive at
the consolidated amounts for each group. This presentation is designed to reÖect the manner in which
management reviews the operating performance of individual businesses within each group regardless of
whether the investment is accounted for as a consolidated subsidiary or an equity investment. It should be
noted, however, that this presentation is not in accordance with GAAP since the results of operations of equity
method investments are required to be reported on a net basis. Further, we could not, among other things,
cause any noncontrolled aÇliate to distribute to us our proportionate share of the revenue or operating cash
Öow of such aÇliate.
F-10
The Ñnancial information presented below for equity method aÇliates was obtained directly from those
aÇliates. We do not control the decision-making process or business management practices of our equity
aÇliates. Accordingly, we rely on the management of these aÇliates and their independent auditors to provide
us with Ñnancial information prepared in accordance with GAAP. As a result, we make no representations as
to whether such information has been prepared in accordance with GAAP. We are not aware, however, of any
errors in or possible misstatements of the Ñnancial information provided by our equity aÇliates that would
have a material eÅect on our consolidated Ñnancial statements.
Interactive Group
2003
Years Ended December 31,
2002
(Amounts in millions)
2001
Revenue
QVC(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ascent Media ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,889
508
317
88
$ 4,362
538
256
138
$ 3,894
593
239
Ì
Combined Interactive Group revenueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate revenue of equity method aÇliates(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5,802
(3,004)
5,294
(4,500)
4,726
(3,894)
Consolidated Interactive Group revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,798
Operating Cash Flow
QVC(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ascent Media ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,013
75
(13)
(20)
Combined Interactive Group operating cash Öow ÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate operating cash Öow of equity method aÇliates(1) ÏÏÏÏ
1,055
(559)
Consolidated Interactive Group operating cash ÖowÏÏÏÏÏÏÏÏÏÏ
$
496
Operating Income (Loss)
QVC(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ascent Media ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Combined Interactive Group operating incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate operating income of equity method aÇliates(1) ÏÏÏÏÏÏ
785
1
(154)
(50)
582
(443)
$
$
$
$
794
861
87
(26)
(91)
831
(770)
61
737
(65)
(274)
(258)
140
(479)
$
$
$
$
832
722
89
(13)
Ì
798
(722)
76
582
(363)
(165)
Ì
54
(582)
Consolidated Interactive Group operating income (loss)ÏÏÏÏÏÏ
$
139
$ (339)
$ (528)
(1) QVC was an equity method aÇliate until September 2003 when it became a consolidated subsidiary.
QVC. QVC is a retailer of a wide range of consumer products, which are marketed and sold primarily
by merchandise-focused televised shopping programs. In the United States, the programs are aired through its
nationally televised shopping network Ì 24 hours a day, 7 days a week (""QVC-US''). Internationally, QVC
has electronic retailing program services based in the United Kingdom (""QVC-England''), Germany (""QVC-
Deutschland'') and Japan (""QVC-Japan''). As more fully described in note 4 to the accompanying
consolidated Ñnancial statements, we acquired a controlling interest in QVC on September 17, 2003. For
Ñnancial reporting purposes, the acquisition is deemed to have occurred on September 1, 2003, and we have
F-11
consolidated QVC's results of operations since that date. Accordingly, increases in the Interactive Group's
revenue and expenses for the year ended December 31, 2003 are primarily the result of the September 2003
acquisition of QVC.
The following discussion describes QVC's results of operations for the full years ended December 31,
2003, 2002 and 2001. Depreciation and amortization for periods prior and subsequent to Liberty's acquisition
of Comcast's interest in QVC are not comparable as a result of the eÅects of purchase accounting. However,
in order to provide a more meaningful basis for comparing the 2003, 2002 and 2001 periods, the operating
results of QVC for the four months ended December 31, 2003 have been combined with the eight months
ended August 31, 2003 in the following table and discussion. The combining of predecessor and successor
accounting periods is not permitted by GAAP.
Net revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cost of sales ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003
Years Ended December 31,
2002
(Amounts in millions)
$ 4,362
(2,784)
$ 4,889
(3,107)
2001
$ 3,894
(2,503)
Gross proÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
SG&A expenses ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,782
(447)
(322)
(6)
(222)
1,578
(413)
(304)
(5)
(119)
1,391
(383)
(286)
(2)
(138)
Operating income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
785
$
737
$
582
Net revenue for the years ended December 31, 2003, 2002 and 2001 includes the following revenue by
geographical area:
QVC-US ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVC-England ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVC-DeutschlandÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVC-Japan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years Ended December 31,
2002
2001
2003
(Amounts in millions)
$3,705
296
275
86
$3,845
370
429
245
$3,409
272
198
15
Consolidated ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,889
$4,362
$3,894
QVC's consolidated net revenue increased 12.1% during the year ended December 31, 2003 as compared
to the year ended December 31, 2002. Such increase is due primarily to increases in average sales per
customer for both QVC-Deutschland and QVC-Japan of 48.4% and 73.0%, respectively. In addition, the
number of homes receiving the QVC-Deutschland and QVC-Japan service increased 5.6% and 64.6%,
respectively, from December 31, 2002 to December 31, 2003. Additional increases in net revenue were due to
a 2.8% and a 6.3% increase in net sales per customer in the U.S. and the U.K., respectively. QVC's net
revenue increased 12.0% for the year ended December 31, 2002, as compared to 2001. Such increase was due
to a 3.6% increase in the average number of U.S. homes receiving the QVC service and a 5.3% increase in net
sales to existing U.S. subscribers. Additional increases in net revenues were due to a 252.7% and 29.1%
increase in net sales per customer for QVC-Japan and QVC-Deutschland, respectively. As the QVC service is
already received by substantially all of the cable television and direct broadcast satellite homes in the U.S.,
future growth in U.S. sales will depend on continued additions of new customers from homes already receiving
the QVC service and continued growth in sales to existing customers. QVC's future sales may also be aÅected
by the willingness of cable and satellite distributors to continue to carry QVC's programming service as well as
general economic conditions.
F-12
During the years ended December 31, 2003, 2002 and 2001 the increases in revenue were also impacted
by changes in the exchange rates for the UK pound sterling, the euro and the Japanese yen. The percentage
increase in revenue for each of QVC's geographic areas in dollars and in local currency is as follows:
Percentage Increase in Net Revenue
Year Ended
December 31, 2003
Year Ended
December 31, 2002
US Dollars
Local Currency
US Dollars
Local Currency
QVC-US ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVC-EnglandÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVC-Deutschland ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVC-Japan ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3.8%
25.0%
56.0%
184.9%
14.2%
31.0%
170.2%
8.7%
8.8%
38.9%
473.3%
5.8%
31.6%
485.1%
Gross proÑt increased from 35.7% of net revenue for the year ended December 31, 2001 to 36.2% for the
year ended December 31, 2002 and to 36.4% for 2003. The 2003 increase in gross proÑt percentage is primarily
the result of a higher product margin due to a shift in the product mix from lower margin home products to
higher margin apparel and accessory categories. In addition, QVC had a lower inventory obsolescence
provision in 2003. The increase in the 2002 gross proÑt percentage is primarily the result of increased product
margin.
QVC's operating expenses are comprised of commissions and license fees, order processing and customer
service, provision for doubtful accounts, and credit card processing fees. Operating expenses increased 8.2%
and 7.8% for the years ended December 31, 2003 and 2002, respectively, as compared to the corresponding
prior year period. These increases are primarily due to the increases in sales volume. As a percentage of net
revenue, operating expenses were 9.1%, 9.5% and 9.8% for 2003, 2002 and 2001, respectively. As a percent of
net revenue, commissions and license fees decreased in 2003, as compared to 2002, and remained constant
over the 2002 and 2001 periods. The 2003 decrease is due to an increase in Internet sales, for which lower
commissions are required to be paid. In addition, commissions and license fee expense decreased as a
percentage of net revenue in 2003 for QVC-Japan where certain distributors receive payments based on
number of subscribers rather than sales volume. As a percent of net revenue, order processing and customer
service expenses remained constant in 2003 and decreased in each geographical segment in 2002. Such
decrease is a result of reduced personnel expense due to increased Internet sales, increased use of QVC's
automated telephone system and operator eÇciencies in call handling and staÇng. Credit card processing fees
remained constant at 1.4% of net revenue for the years ended December 31, 2003, 2002 and 2001.
QVC's SG&A expenses increased 5.9% and 6.3% during the years ended December 31, 2003 and 2002,
respectively, as compared to the corresponding prior year periods. The 2003 increase is primarily the net result
of increases in personnel, transponder and occupancy costs, partially oÅset by decreases in advertising and
marketing costs. Personnel cost increases reÖect the addition of personnel to support the increased sales of the
foreign operations. The increase in transponder fees is primarily the result of QVC-UK purchasing greater
band-width as well as incurring a full year of digital transmission fees. Occupancy costs increased primarily as
the result of higher costs for expanded oÇce space in QVC-Japan. Decreases in advertising and marketing
were primarily due to decreased domestic spending related to U.S. infomercial ventures as well as lower
payments to aÇliates for short-term carriage and incentive programs. The increase in SG&A in 2002 is due
primarily to higher personnel costs due to the expansion of the international businesses.
QVC's depreciation and amortization expense increased for the year ended December 31, 2003 due to the
amortization of intangible assets recorded in connection with our purchase of QVC.
Ascent Media. Ascent Media 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.
Accordingly, Ascent Media is dependent on the television and movie production industries and the
commercial advertising market for a substantial portion of its revenue.
Ascent Media's revenue decreased 5.6% and 9.3% during the years ended December 31, 2003 and 2002,
respectively, as compared to the corresponding prior year. The 2003 decrease is due primarily to a decrease in
F-13
revenue for Ascent Media's Networks Group ($29 million) due to the sale of a business unit in December
2002 and the re-negotiation of certain contracts resulting in lower rates for services. The 2002 decrease is the
net eÅect of decreases due to reduced television and motion picture production activity and lower television
advertising production, which were partially oÅset by an increase due to acquisitions in the second half of
2001.
Ascent Media's operating expenses decreased $21 million or 6.5% and $48 million or 13.0% during the
years ended December 31, 2003 and 2002, respectively, as compared to the corresponding prior year. These
decreases are due to decreases in variable expenses such as personnel and material costs. In addition, the 2003
decrease is due to the sale of the Networks Group business unit referred to above.
Ascent Media's general and administrative expenses were relatively comparable over the 2001, 2002 and
2003 periods.
Ascent Media's depreciation and amortization increased 4.8% and decreased 47.7% in 2003 and 2002,
respectively. The decrease in depreciation and amortization in 2002 is due primarily to the adoption of
Statement 142 and the resulting elimination of goodwill amortization.
In connection with its 2002 Statement 142 impairment analysis, Ascent Media recorded an $84 million
charge to write oÅ a portion of the goodwill related to its Entertainment Television reporting unit. As a result
of the weakness in the economy and in the entertainment and advertising industries during 2001, Ascent
Media did not meet its 2001 operating objectives and reduced its 2002 expectations. Accordingly, at
December 31, 2001, Ascent Media 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 of
2001, Ascent Media made the decision to consolidate its operations and close certain facilities. In connection
with these initiatives, Ascent Media 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 for the year ended December 31, 2001. No
signiÑcant impairments were recorded by Ascent Media in 2003.
Other. Consolidated subsidiaries included in the Interactive Group are On Command, which provides
in-room, on demand video entertainment and information services to hotels, motels and resorts;
TruePosition, Inc., which provides equipment and technology that deliver location-based services to wireless
users; and OpenTV, which provides interactive television solutions, including operating middleware, web
browser software, interactive applications, and consulting and support services. Other consolidated subsidiary
revenue increased $61 million in 2003 due primarily to the operations of OpenTV ($46 million), which we
acquired in August 2002 and True Position ($20 million), which began deploying its networks in 2003. The
improvements in operating cash Öow and operating income in 2003 are due to the same factors. The increase
in other consolidated subsidiary revenue in 2002 is due to our acquisition of OpenTV. The changes in
operating cash Öow and operating income in 2002 are due to improvements in the operations of On Command
and True Position, oÅset by OpenTV losses.
F-14
International Group
The following table includes information regarding our equity method aÇliates, which presentation is not
in accordance with GAAP. See Ì ""Operating Results by Business Group'' above.
2003
Years Ended December 31,
2002
(Amounts in millions)
2001
Revenue
Consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UGC(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
J-COM(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
JPC(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other equity method aÇliates(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
107
1,892
1,233
412
614
$
100
1,515
931
274
568
$
138
1,562
629
207
854
Combined International Group revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate revenue of equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4,258
(4,151)
3,388
(3,288)
3,390
(3,252)
Consolidated International Group revenueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
107
Operating Cash Flow
Consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UGC(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
J-COM(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
JPC(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other equity method aÇliates(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
27
629
429
54
91
Combined International Group operating cash Öow ÏÏÏÏÏÏÏÏÏÏ
Eliminate operating cash Öow of equity method aÇliates ÏÏÏÏÏÏÏ
1,230
(1,203)
Consolidated International Group operating cash Öow ÏÏÏÏÏÏÏÏ
$
27
Operating Income (Loss)
Consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UGC(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
J-COM(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
JPC(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other equity method aÇliates(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Combined International Group operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate operating income of equity method aÇliates ÏÏÏÏÏÏÏÏÏ
12
(656)
114
44
(36)
(522)
534
$
$
$
$
100
26
296
211
32
87
652
(626)
26
11
(899)
(29)
23
(296)
$
$
$
$
138
42
(191)
57
19
61
(12)
54
42
(36)
(2,872)
(195)
12
(88)
(1,190)
1,201
(3,179)
3,143
Consolidated International Group operating income (loss) ÏÏÏÏ
$
12
$
11
$
(36)
(1) Represents an equity method aÇliate. Equity ownership percentages for signiÑcant equity aÇliates at
December 31, 2003 are as follows:
UGC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
J-COM ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
JPC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
52%
45%
50%
Consolidated Subsidiaries. Our international consolidated subsidiaries are Liberty Cablevision of Puerto
Rico, Inc., which provides cable television and other broadband services in Puerto Rico, and Pramer, which
owns and distributes programming services throughout Latin America. Consolidated International Group
revenue, operating cash Öow and operating income was relatively consistent from 2002 to 2003. The decrease
F-15
in revenue and operating cash Öow from 2001 to 2002 is due to the devaluation of the Argentine peso during
2002.
UGC. UGC's revenue increased 24.9% and decreased 3.0% for the years ended December 31, 2003 and
2002, respectively. The increase in 2003 is due primarily to an increase in subscribers, revenue per subscriber
and the strengthening of the euro against the U.S. dollar (approximately 16.1%). The decrease in 2002 is due
to the sale of UGC's Australian operations partially oÅset by increases in Europe and Chile. UGC's operating
expenses decreased $4 million or less than 1% in 2003 and $290 million or 27.3% in 2002. These decreases are
due primarily to cost control initiatives, including restructurings. The 2002 expenses were also impacted by the
sale of UGC's Australian operations. UGC's SG&A expenses increased $48 million or 10.7% in 2003 and
decreased $244 million or 35.4% in 2002. The 2003 increase is due primarily to the strengthening of the euro
against the U.S. dollar. The 2002 decrease is the result of cost control initiatives and the sale of UGC's
Australian operations.
Also included in UGC's operating losses are (i) impairments of long-lived assets of $1,321 million in
2001, compared to $436 million in 2002 and $402 million in 2003, and (ii) restructuring charges of
$204 million in 2001, compared to $1 million in 2002 and $36 million in 2003.
J-COM.
J-COM's revenue increased 32.5% and 48.0% for the years ended December 31, 2003 and
2002, respectively, as compared to the corresponding prior year. The increase in revenue in 2003 was due to a
10.3% increase in the number of homes receiving at least one service, a 8.4% increase in the average number of
services per home and a 9.6% increase in the average revenue per household receiving at least one service
(""ARPH''). Revenue increased in 2002 due to a 23.2% increase in homes receiving at least one service, a
11.7% increase in average number of services per home and a 9.2% increase in ARPH. In addition, changes in
the exchange rate also positively impacted revenue in 2003 and 2002. On a local currency basis, J-COM's
revenue increased 22.7% and 52.3% in 2003 and 2002, respectively.
J-COM's operating expenses increased 17.0% and 22.2% in 2003 and 2002, respectively. These increases
are due to the increase in subscribers and growth of J-COM's business. As a percent of revenue, operating
expenses decreased from 40.3% in 2002 to 35.5% in 2003 due to the realization of economies of scale from the
growth of the business. SG&A expenses increased 6.2% and 30.1% in 2003 and 2002, respectively. The
increase in SG&A expenses are due to the growth of the business in 2002 and exchange rate Öuctuations in
2003.
JPC.
JPC's revenue increased 50.4% and 32.2% for the years ended December 31, 2003 and 2002,
respectively, as compared to the corresponding prior years. The increase in 2003 was largely due to increases in
revenue for Shop Channel, which experienced an 17.5% increase in full time equivalent homes (""FTE's'') and
a 14% increase in sales per FTE. In 2002, Shop Channel had a 30.4% increase in FTE's and a 8.2% increase in
sales per FTE. AÇliate revenue and advertising revenue at JPC's other networks also contributed to the
overall revenue increase in both years due to continued subscriber growth at those networks. Shop Channel
revenue accounted for 81%, 80% and 78% of JPC's revenue in 2003, 2002 and 2001, respectively. In addition,
changes in the exchange rate also positively impacted revenue in 2003 and 2002. On a local currency basis,
JPC's revenue increased 39.4% and 36.1% in 2003 and 2002, respectively.
JPC's operating expenses increased 50.5% and 43.0% in 2003 and 2002, respectively. These increases are
primarily due to higher cost of goods sold at Shop Channel resulting from revenue increases of 41.3% and
38.9% during 2003 and 2002, respectively. JPC's SG&A expenses increased 29.8% and 25.1% in 2003 and
2002, respectively. The increases in SG&A were due to growth in the business resulting from additional sales
volume at Shop Channel and additional channel oÅerings.
Other Equity Method AÇliates. The decreases in revenue, operating cash Öow and operating income in
2002 are due primarily to the devaluation of the Argentine peso and the resulting impact on the Ñnancial
results of Cablevisi πon S.A., which provides broadband services in Argentina.
F-16
Networks Group
The following table includes information regarding our equity method aÇliates, which presentation is not
in accordance with GAAP. See ""Ì Operating Results by Business Group'' above.
2003
Years Ended December 31,
2002
(Amounts in millions)
2001
Revenue
Starz Encore ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discovery(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Court TV(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GSN(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
906
1,995
193
76
208
$
945
1,717
148
53
200
$
863
1,517
118
37
167
Combined Networks Group revenueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate revenue of equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,378
(2,264)
3,063
(1,918)
2,702
(1,672)
Consolidated Networks Group revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,114
$ 1,145
$ 1,030
Operating Cash Flow
Starz Encore ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discovery(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Court TV(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GSN(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
368
508
44
1
13
Combined Networks Group operating cash Öow ÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate operating cash Öow of equity method aÇliates ÏÏÏÏÏÏÏ
934
(553)
Consolidated Networks Group operating cash ÖowÏÏÏÏÏÏÏÏÏÏÏ
$
381
Operating Income (Loss)
Starz Encore ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discovery(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Court TV(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GSN(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
Combined Networks Group operating incomeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate operating income of equity method aÇliates ÏÏÏÏÏÏÏÏÏ
266
314
14
(1)
(18)
575
(327)
$
$
$
371
379
(1)
(11)
3
741
(367)
374
297
169
(18)
(12)
(108)
328
(139)
$
$
$
313
286
(3)
(17)
14
593
(266)
327
68
69
(13)
(17)
(19)
88
(39)
Consolidated Networks Group operating income ÏÏÏÏÏÏÏÏÏÏÏÏ
$
248
$
189
$
49
(1) Represents an equity method aÇliate. Equity ownership percentages for signiÑcant equity aÇliates at
December 31, 2003 are as follows:
Discovery ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Court TV ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GSN ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
50%
50%
50%
Starz Encore. Starz Encore provides premium programming distributed by cable operators, direct-to-
home satellite providers and other distributors throughout the United States. The majority of Starz Encore's
revenue is derived from the delivery of movies to subscribers under aÇliation agreements with these video
programming distributors. Prior to 2001, Starz Encore had entered into an aÇliation agreement with AT&T
Broadband LLC (previously known as Tele-Communications, Inc.), which provided for AT&T Broadband's
F-17
unlimited access to all of the existing Encore and STARZ! services in exchange for Ñxed monthly payments to
Starz Encore (the ""1997 AÇliation Agreement''). The payment from AT&T Broadband was to be adjusted if
AT&T acquired or disposed of cable systems, or if Starz Encore's cash programming costs increased or
decreased, as the case may be, above or below amounts speciÑed in the agreement. In such cases, AT&T
Broadband's payments under the 1997 AÇliation Agreement would have been increased or decreased in an
amount equal to a proportion of the excess or shortfall.
In November 2002, AT&T Broadband completed a transaction with Comcast Corporation and Comcast
Holdings Corporation in which AT&T Broadband and Comcast Holdings became wholly-owned subsidiaries
of Comcast, and AT&T Broadband was renamed Comcast Cable Holdings, LLC. Upon completion of this
transaction, Comcast challenged the validity and enforceability of the 1997 AÇliation Agreement. In
September 2003, Starz Encore and Comcast entered into a seven-year agreement (the ""2003 Comcast
AÇliation Agreement'') for the carriage of the STARZ! and Encore movie services on all Comcast owned and
operated cable systems (including those of Comcast Cable Holdings). This agreement resolved all of the
disputes and litigation that were pending between Starz Encore and Comcast with respect to the 1997
AÇliation Agreement.
Pursuant to the terms of the 2003 Comcast AÇliation Agreement, Comcast made payments to Starz
Encore for Comcast Cable Holdings subscribers for the period from November 2002 to December 31, 2003
based on the per-subscriber rates included in the Comcast consignment agreement that was in eÅect prior to
the execution of the 2003 Comcast AÇliation Agreement. The 2003 Comcast AÇliation Agreement also
includes provisions for the distribution of new Starz Encore products in select Comcast systems and provisions
for co-operative marketing eÅorts between Comcast and Starz Encore. Unlike the 1997 AÇliation Agreement,
the 2003 Comcast AÇliation Agreement does not include any provision permitting Starz Encore to pass
through a portion of its programming costs.
Starz Encore's revenue decreased 4.1% and increased 9.5% for the years ended December 31, 2003 and
2002, respectively, as compared to the corresponding prior years. The 2003 decrease is primarily the net eÅect
of a $77 million reduction in revenue from Comcast Cable Holdings partially oÅset by a $35 million increase
in revenue from other distributors resulting from a 13.6% increase in the number of average subscription units
to Starz Encore's services. Substantially all of the increase in the average number of subscription units is
attributable to Starz Encore's Thematic Multiplex service, which has lower subscription rates than the other
Starz Encore services. The reduction in revenue from Comcast Cable Holdings is the result of a lower
eÅective per-subscriber fee under the Comcast consignment agreement and a decrease in STARZ!
subscription units in the Comcast Cable Holdings system partially oÅset by an increase in subscription units to
Starz Encore's other services. The decrease in STARZ! subscription units in these systems is due to the
negative eÅects of changes in marketing eÅorts and packaging of STARZ! that Comcast implemented prior to
the execution of the 2003 Comcast AÇliation Agreement. Comcast, DirecTV and Echostar Communications
generated 24.2%, 23.3% and 11.0%, respectively, of Starz Encore's revenue for the year ended December 31,
2003. The 2002 increase in revenue is primarily due to a 24.7% increase in average subscription units from all
forms of distribution. Subscription units grew at a faster rate than revenue primarily due to a disproportionate
increase in units of Thematic Multiplex channels.
Starz Encore's average subscription units increased at a slower rate in 2003 as compared to 2002. This
trend reÖects the impact of the dispute with Comcast described above, as well as the impact of promotional
eÅorts on the part of certain other DTH and cable operators to sell other premium movie services to their
customers instead of Starz Encore's oÅerings. During the third and fourth quarters of 2003, Starz Encore
entered into new aÇliation agreements with certain multichannel video program distributors, including
Comcast and Charter Communications. Under these new aÇliation agreements, Starz Encore has obtained
more favorable positioning and increased co-operative marketing commitments. Starz Encore is negotiating
with its other multichannel video programming distributors to obtain similar positioning and increased co-
operative marketing commitments. However, no assurance can be given that these negotiations will be
successful.
F-18
Starz Encore's subscription units at December 31, 2003, 2002 and 2001 are presented in the table below.
Subscription units for December 31, 2002 reÖect certain minor adjustments to conform with the policy
adopted by Starz Encore in 2003 of only presenting paying subscription units. Prior to 2003, Starz Encore had
included certain of its subscribers receiving the services during free promotional campaigns.
Service OÅering
2003
Thematic Multiplex ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Encore ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Starz! ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Movieplex ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
111.4
21.9
12.3
5.4
Subscriptions at
December 31,
2002
(In millions)
96.8
20.9
13.2
5.0
2001
76.0
18.6
13.0
6.5
151.0
135.9
114.1
At December 31, 2003, cable, direct broadcast satellite, and other distribution represented 65.5%, 33.7%
and 0.8%, respectively, of Starz Encore's total subscription units.
Starz Encore's operating expenses increased $22 million or 5.4% and $5 million or 1.2% for the years
ended December 31, 2003 and 2002, respectively, as compared to the corresponding prior year. Such increases
are due primarily to increases in programming costs, which increased from $358 million in 2002 to
$398 million in 2003. In the Ñrst quarter of 2003, Starz Encore entered into a settlement agreement regarding
the payment of certain music license fees, which resulted in the reversal of a related accrual in the amount of
$8 million. This reversal partially oÅset the programming cost increase in 2003. In 2002, Starz Encore's uplink
costs decreased $5 million as a result of the completion of Starz Encore's new uplink facility. This decrease
partially oÅset the increase in programming costs.
Starz Encore estimates that its 2004 programming expense will increase between $170 million and
$190 million over amounts expensed in 2003. In addition, Starz Encore expects that programming costs in
2005 will exceed the 2004 costs by approximately $125 million to $175 million. Such increases are based on
increases in the expected box oÇce performance of movie titles that will become available to Starz Encore
during these periods through its output arrangements with various movie studios. In addition, Starz Encore
expects a higher cost per title due to a new rate card for movie titles under certain of its license agreements
that will be eÅective for movies made available to Starz Encore in 2004 and thereafter and amortization of
deposits previously made under the output agreements. The portion of increased programming costs that
would otherwise have been eligible to be passed through under the 1997 AÇliation Agreement cannot be
passed through under the 2003 Comcast AÇliation Agreement. In 2004, Starz Encore is not expected to
generate increases in revenue or reductions in other costs in 2004 suÇcient to fully oÅset these cost increases.
Accordingly, these increased programming costs are expected to result in a direct reduction to Starz Encore's
operating income in 2004. These estimates are subject to a number of assumptions that could change
depending on the number of movie titles actually becoming available to Starz Encore and their ultimate box
oÇce performance. Accordingly, the actual amount of cost increases experienced by Starz Encore may diÅer
from the amounts noted above.
Starz Encore's selling, general and administrative expenses decreased $58 million or 35.0% and increased
$19 million or 12.7% during 2003 and 2002, respectively, as compared to the corresponding prior year. The
decrease in 2003 is due primarily to a $57 million decrease in sales and marketing expenses and a $7 million
decrease in bad debt expense. The decrease in sales and marketing expenses is due to the reduced number of
co-operative promotions by certain multichannel television distributors discussed above and the reversal of an
accrual recorded in prior years. As noted above, during the third and fourth quarters of 2003, Starz Encore
entered into new aÇliation agreements with certain multichannel television distributors, including Comcast
and Charter Communications. Consequently, Starz Encore anticipates that its co-operative promotions and its
sales and marketing expenses will increase in 2004. The higher bad debt expense in 2002 resulted from the
F-19
bankruptcy Ñling of Adelphia Communications Corporation. The increase in SG&A expenses in 2002 is due
primarily to increases in marketing support, salaries and related payroll expenses, and bad debt expense.
The decrease in Starz Encore's depreciation and amortization in 2002 is due to the adoption of Statement
142 and the resulting elimination of goodwill amortization.
Starz Encore has granted phantom stock appreciation rights to certain of its oÇcers and employees.
Compensation relating to the phantom stock appreciation rights has been recorded based upon the fair value
of Starz Encore 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. Starz Encore's stock compensation decreased in 2003 as a result of a decrease in the estimated
equity value of Starz Encore.
As more fully described above under ""Ì Consolidated Operating Results Ì Impairment of Long-lived
Assets,'' we recorded a $1,352 million impairment charge in 2003 related to Starz Encore, of which
$1,195 million relates to enterprise-level goodwill and is included in Corporate and Other.
Discovery. Discovery's revenue increased 16.2% and 13.2% for the years ended December 31, 2003 and
2002, respectively, as compared to the corresponding prior year. The 2003 revenue increase was driven by a
22.8% increase in gross advertising revenue and a 11.9% increase in gross aÇliate revenue. The increase in
advertising revenue in 2003 was primarily due to increased audience delivery in the United States and Europe
due to improved ratings and an increase in overall subscribers. AÇliate revenue increased due to the overall
subscriber growth combined with subscribers moving from free preview status to paying subscribers at the
developing domestic networks. The revenue increase in 2002 was due to a 10.9% increase in gross advertising
revenue and a 14.0% increase in gross aÇliate revenue. The growth in advertising revenue was caused by an
increase in audience delivery both domestically and in Europe combined with an increase in the percentage of
advertising spots that were sold. AÇliate revenue grew due to the conversion of free preview subscribers to
paying subscribers at various developing networks.
Discovery's operating expenses increased 7.4% and 13.1% in 2003 and 2002, respectively. Such increases
were due primarily to 11.9% and 18.5% increases in programming costs, respectively, as the company
continues to invest in newer and more dramatic programming. Discovery's SG&A expenses increased 15.1%
and 4.3% in 2003 and 2002, respectively. The increase in 2003 was primarily driven by increased personnel and
general and administrative expense domestically, combined with increased marketing and sales related
expenses. The 2002 increase was due to growth in personnel and administrative expenses combined with
higher domestic sales related expenses.
Court TV. Court TV's revenue increased 30.4% and 25.4% for the years ended December 31, 2003 and
2002, respectively, as compared to the corresponding prior year. The 2003 increase is due to a 26.8% increase
in aÇliate revenue and a 45.4% increase in advertising revenue. Advertising revenue increased as a result of a
13.0% increase in primetime ratings combined with a 7.5% increase in subscribers, which also drove the
increase in aÇliate revenue. The revenue increase in 2002 was due to a 3.7% and 44.2% increase in aÇliate
and advertising revenue, respectively. The increase in advertising revenue was mainly due to a 6.3% increase in
subscribers and a 16.7% increase in primetime ratings.
Court TV's operating expenses, which are comprised primarily of programming costs, decreased 11.8% in
2003 and increased 32.9% in 2002. The increase in operating costs in 2002 was due to increased programming
investments. Operating costs decreased in 2003 due to a reduction in various acquired programming costs
combined with a delay in the release of certain original programming. Court TV's SG&A expenses increased
11.0% and 15.6% in 2003 and 2002, respectively. The increases in Court TV's expenses are due to the growth
of the business. As a percent of revenue, SG&A expenses decreased from 49.9% in 2002 to 42.5% in 2003 as
the company's size is creating more economies of scale.
GSN. GSN's revenue increased 43.4% and 43.2% for the years ended December 31, 2003 and 2002,
respectively, as compared to the corresponding prior year. These increases are due to 30.8% and 30.8%
increases in advertising revenue and 60.7% and 71.9% increases in net aÇliate revenue. AÇliate revenue
increased in both years due to 13.2% and 25.8% growth in subscribers combined with modest rate increases
F-20
and a decrease in amortized subscriber launch costs. Advertising revenue increased due to an improved
audience delivery, stemming from subscriber growth and improved delivery of key demographics, as well as
improved sales eÅorts yielding an increased percentage of inventory sold to advertisers.
GSN's operating expenses, which are comprised primarily of programming costs, increased 46.7% and
14.8% in 2003 and 2002, respectively, and represented 46.6% and 45.0% of revenue. The increase in operating
costs in both years is due to continued investments in programming and interactive functionality. GSN's
SG&A expenses decreased 1.1% in 2003 and increased 57.5% in 2002, as compared to the corresponding prior
year. As a percent of revenue, SG&A expenses decreased from 75.4% in 2002 to 52.6% in 2003. The increase
in SG&A in 2002 was due primarily to increased marketing costs associated with branding the business
combined with an increase in general and administrative costs related to the growth in the business.
Other.
Included in the Networks Group consolidated subsidiaries is Maxide Acquisition, Inc. (d/b/a
DMX Music), which is principally engaged in programming, distributing, and marketing digital and analog
music services to homes and businesses. Operating results for our other Networks consolidated subsidiaries
were fairly consistent during the three years presented. The higher operating loss in 2002 is due primarily to a
$44 million impairment of long-lived assets related to DMX Music.
Liquidity and Capital Resources
Corporate
Although our sources of funds include our available cash balances, net cash from operating activities, and
dividend and interest receipts, historically we have been dependent upon our Ñnancing activities, proceeds
from asset sales and monetization of our public investment portfolio, including derivative instruments, to
generate suÇcient cash resources to meet our future cash requirements and planned commitments. During
2003, we issued $1,750 million principal amount of 0.75% Senior Exchangeable Debentures due 2023. Each
$1,000 debenture is exchangeable at the holder's option for the value of 57.4079 shares of Time Warner
common stock. We received cash proceeds of $1,715 million upon issuance of the exchangeable debentures
after related oÅering costs. In addition, during 2003 we (i) issued $1,000 million face amount of senior notes
with an interest rate of 5.70% for net cash proceeds of approximately $990 million, (ii) received cash proceeds
of $3,629 million upon the sale of assets and the settlement of Ñnancial instruments related to certain of our
available-for-sale securities and (iii) received premium proceeds of $783 million from the origination of
Ñnancial instruments.
Our uses of cash in recent years include investments in and advances to aÇliates and debt repayments. In
this regard, our investments in and advances to cost and equity method aÇliates aggregated $2,593 million and
$458 million, respectively, during the year ended December 31, 2003. Included in the foregoing amounts is
$1,166 million invested in InterActiveCorp pursuant to contractual pre-emptive rights and $388 million
invested in J-COM. Other uses of cash in 2003 include debt repayments of $3,508 million, cash paid for
acquisitions of $711 million and stock repurchases of $437 million.
In November 2003, we announced our intention to reduce our outstanding consolidated debt balance by
approximately $4.5 billion by the end of 2005. We initiated the debt reduction plan during the fourth quarter
of 2003 by (i) redeeming $1.0 billion of Öoating rate notes that had been issued to Comcast, (ii) repaying
$934 million of outstanding bank debt of our wholly-owned subsidiaries, and (iii) retiring approximately
$578 million of other outstanding corporate indebtedness.
Our liquidity needs in 2004 include an approximate $1.0 billion reduction in our corporate indebtedness
pursuant to our debt reduction plan, as well as continued funding of our existing investees as they develop and
expand their businesses. We currently anticipate such cash investments to aggregate $1,400 million to
$1,700 million in 2004. Included in the foregoing estimate is approximately $600 million that we invested in
UGC in the Ñrst quarter of 2004 to (1) exercise our pre-emptive rights and (2) participate in UGC's rights
oÅering and approximately $450 million that we invested in News Corp. We may also invest additional
amounts in new or existing ventures. However, we are unable to quantify such investments at this time. We
F-21
also expect our subsidiaries to spend approximately $340 million for capital expenditures in 2004, including
$180 million by QVC, which amounts we expect to be funded by the cash Öows of the respective subsidiary.
We expect that these investing and Ñnancing activities will be funded with a combination of cash on
hand, cash provided by operating activities, proceeds from equity collar expirations and dispositions of non-
strategic assets. In this regard, we expect to receive cash proceeds of $547 million in 2004, $1,311 million in
2005, $744 million in 2006, $389 million in 2007, $405 million in 2008, and $4,267 million thereafter upon
settlement of our AFS Derivatives. The foregoing amounts assume we physically settle all derivatives and
exclude any provision for income taxes. With the repayment of the bank debt of our wholly-owned subsidiaries
and our acquisition of the controlling interest in QVC, we also expect to have access to the cash generated by
the operating activities of our subsidiaries to the extent such cash exceeds the working capital needs of the
subsidiaries and is not otherwise restricted.
Prior to the maturity of our equity collars, the terms of certain of our equity and narrow-band collars
allow us to borrow funds equal to the present value of future put option proceeds (which we refer to as the PV
Amount) at a rate equal to LIBOR at the time of borrowing. As of December 31, 2003, such amount
aggregated approximately $3,922 million. We may also borrow the diÅerence between the PV Amount and
future put option proceeds at a rate equal to LIBOR plus our applicable credit spread at the time of borrowing.
As of December 31, 2003, this amount aggregated approximately $936 million.
Subsequent to our November 2003 announcement regarding our intention to reduce our outstanding
indebtedness, Standard and Poor's Securities, Inc., Fitch Investors Service, L.P. and Moody's Investors
Service, Inc. each aÇrmed its respective rating for our senior debt at the lowest level of investment grade with
a stable outlook. None of our existing indebtedness includes any covenant under which a default could occur
as a result of a downgrade in our credit rating. However, any such downgrade could adversely aÅect our access
to the public debt markets and our overall cost of future borrowings.
Based on currently available information, we expect to receive approximately $100 million in dividend
and interest income during the year ended December 31, 2004. Based on current debt levels and current
interest rates, we expect to make interest payments of approximately $470 million during the year ended
December 31, 2004, primarily all of which relates to parent company debt.
Subsidiaries
At December 31, 2003, Starz Encore had no amounts outstanding and $325 million available pursuant to
its bank credit facility. This bank credit facility contains provisions which limit additional indebtedness, sale of
assets, liens, guarantees, and distributions by Starz Encore. At December 31, 2003, our subsidiary that
operates the DMX Music service was not in compliance with three covenants contained in its bank loan
agreement. The subsidiary and the participating banks have entered into a forbearance agreement whereby the
banks have agreed to forbear from exercising certain default-related remedies against the subsidiary through
March 31, 2004. The subsidiary will not be able to repay its debt when the forbearance agreement expires and
is currently considering its Ñnancing options. The outstanding balance of the subsidiary's bank facility was
$89 million at December 31, 2003. All other consolidated subsidiaries were in compliance with their debt
covenants at December 31, 2003. Starz Encore's ability to borrow the unused capacity noted above is
dependent on its continuing compliance with its covenants at the time of, and after giving eÅect to, a requested
borrowing.
Equity AÇliates
Various partnerships and other aÇliates of ours accounted for using the equity method Ñnance 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
aÇliates may require additional capital to Ñnance their operating or investing activities. In the event our
aÇliates require additional Ñnancing 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
F-22
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.
UGC. UGC and its signiÑcant operating subsidiaries have incurred losses since their formation, as they
have attempted to expand and develop their businesses and introduce new services.
On September 3, 2003, United Pan-Europe Communications N.V. (""UPC''), a consolidated subsidiary
of UGC, completed a restructuring of its debt instruments and emerged from bankruptcy. Under the terms of
the restructuring, approximately $5.4 billion of UPC's debt was exchanged for equity of UGC Europe, Inc., a
new holding company of UPC. Upon consummation, UGC received approximately 65.5% of UGC Europe's
equity in exchange for UPC debt securities that it owned; third-party noteholders received approximately
32.5% of UGC Europe's equity; and existing preferred and ordinary shareholders, including UGC, received 2%
of UGC Europe's equity. In January 2004, UGC also amended the 43,500 million bank facility of UGC
Europe to, among other things, adjust certain Ñnancial covenants which require UGC Europe to maintain
speciÑed minimum or maximum Ñnancial ratios, reschedule payment maturities, reset interest rates on various
tranches of indebtedness and to permit additional borrowings in certain instances. At December 31, 2003 there
was approximately 42,900 million outstanding on this facility.
On December 18, 2003, UGC completed its oÅer to exchange shares of its Class A common stock for
13 million outstanding shares of UGC Europe common stock that it did not already own. Upon completion of
the exchange oÅer, UGC owned 92.7% of the outstanding shares of UGC Europe common stock. On
December 19, 2003, UGC eÅected a ""short-form'' merger with UGC Europe. In the short-form merger each
share of UGC Europe common stock not tendered in the exchange oÅer was converted into the right to
receive the same consideration oÅered in the exchange oÅer, and UGC acquired the remaining 7.3% of UGC
Europe.
At December 31, 2003, we owned approximately 307 million shares of UGC common stock, which
represents an approximate 52% economic interest and a 90% voting interest in UGC. Due to certain voting and
standstill arrangements, we were unable to exercise control of UGC, and accordingly, we used the equity
method of accounting for our investment.
On January 5, 2004, we completed a transaction pursuant to which UGC's founding shareholders (the
""Founders'') transferred 8.2 million shares of UGC Class B common stock to us in exchange for 12.6 million
shares of our Series A common stock and a cash payment of approximately $13 million. Upon closing of the
exchange, the restrictions on the exercise by us of our voting power with respect to UGC terminated, and we
gained voting control of UGC. Accordingly, UGC will be included in our consolidated Ñnancial position and
results of operations beginning January 2004. We have entered into a new Standstill Agreement with UGC
that limits our ownership of UGC common stock to 90 percent of the outstanding common stock unless we
make an oÅer or eÅect another transaction to acquire all outstanding UGC common stock. Under certain
circumstances, such an oÅer or transaction would require an independent appraisal to establish the price to be
paid to stockholders unaÇliated with us.
In January 2004, we also purchased an additional 18.3 million shares of UGC Class A common stock
pursuant to certain pre-emptive rights granted to us pursuant to our standstill agreement with UGC. The
$140 million purchase price for such shares was comprised of (1) the cancellation of indebtedness due from
subsidiaries of UGC to certain of our subsidiaries in the amount of $104 million (including accrued interest)
and (2) $36 million in cash.
Also in January 2004, UGC initiated a rights oÅering pursuant to which holders of each of UGC's
Class A, Class B and Class C common stock received .28 transferable subscription rights to purchase a like
class of common stock for each share of common stock owned by them on January 21, 2004. The rights
oÅering originally expired on February 6, 2004, but was subsequently extended to February 12, 2004. UGC
received cash proceeds of approximately $1.02 billion from the rights oÅering and expects to use such cash
proceeds for working capital and general corporate purposes, including future acquisitions and repayment of
F-23
outstanding indebtedness. As a holder of UGC Class A, Class B and Class C common stock, we participated
in the rights oÅering and exercised our rights to purchase 94.1 million shares for a total cash purchase price of
$565 million. Subsequent to the foregoing transactions, we own approximately 55% of UGC's common stock
representing approximately 92% of the voting power of UGC's shares.
OÅ-Balance Sheet Arrangements and Aggregate Contractual Obligations
Starz Encore has entered into agreements with a number of motion picture producers which obligate
Starz Encore to pay fees for the rights to exhibit certain Ñlms that are released by these producers. The unpaid
balance under agreements for Ñlm rights related to Ñlms that were available at December 31, 2003 is reÖected
as a liability in the accompanying consolidated balance sheet. The balance due as of December 31, 2003 is
payable as follows: $177 million in 2004 and $48 million in 2005.
Starz Encore has also contracted to pay fees for the rights to exhibit Ñlms that have been released
theatrically, but are not available for exhibition by Starz Encore until some future date. These amounts have
not been accrued at December 31, 2003. Starz Encore's estimate of amounts payable under these agreements
is as follows: $558 million in 2004; $231 million in 2005; $140 million in 2006; $112 million in 2007;
$108 million in 2008 and $233 million thereafter.
Starz Encore is also obligated to pay fees for Ñlms that are released by certain producers through 2010
when these Ñlms meet certain criteria described in the studio output agreements. The actual contractual
amount to be paid under these agreements is not known at this time. However, such amounts are expected to
be signiÑcant. Starz Encore's total Ñlm rights expense aggregated $398 million, $358 million and $354 million
for the years ended December 31, 2003, 2002 and 2001, respectively.
In addition to the foregoing contractual Ñlm obligations, two motion picture studios that have output
contracts with Starz Encore through 2006 and 2010, respectively, have the right to extend their contracts for
an additional three years. If the Ñrst studio elects to extend its contract, Starz Encore has agreed to pay the
studio $60 million within Ñve days of the studio's notice to extend. The studio is required to exercise its option
by December 31, 2004. If the second studio elects to extend its contract, Starz Encore has agreed to pay the
studio a total of $190 million in four annual installments. The studio is required to exercise this option by
December 31, 2007. If made, Starz Encore's payments to the studios would be amortized ratably over the
term of the respective output agreement extension.
Liberty guarantees Starz Encore's Ñlm licensing obligations under certain of its studio output agreements.
At December 31, 2003, Liberty's guarantee for studio output obligations for Ñlms released by such date
aggregated $799 million. While the guarantee amount for Ñlms not yet released is not determinable, such
amount is expected to be signiÑcant. As noted above, Starz Encore has recognized the liability for a portion of
its obligations under the output agreements. As this represents a commitment of Starz Encore, a consolidated
subsidiary of ours, we have not recorded a separate liability for our guarantee of these obligations.
At December 31, 2003, Liberty guaranteed Í14.4 billion ($134 million) of the bank debt of J-COM, an
equity aÇliate that provides broadband services in Japan. Liberty's guarantees expire as the underlying debt
matures and is repaid. The debt maturity dates range from 2004 to 2018. In addition, Liberty has agreed to
fund up to Í10 billion ($93 million at December 31, 2003) to J-COM in the event J-COM's cash Öow (as
deÑned in its bank loan agreement) does not meet certain targets. In the event J-COM meets certain
performance criteria, this commitment expires on September 30, 2004.
We have also guaranteed various leases, loans, notes payable, letters of credit and other obligations (the
""Guaranteed Obligations'') of certain other aÇliates. At December 31, 2003, the Guaranteed Obligations
aggregated approximately $160 million and are not reÖected in our balance sheet at December 31, 2003.
Currently, we are not certain of the likelihood of being required to perform under such guarantees.
F-24
Information concerning the amount and timing of required payments under our contractual obligations is
summarized below:
Contractual Obligations
Long-term debt(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term derivative instrumentsÏÏÏÏÏÏÏÏÏ
Operating lease obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Film licensing obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Purchase orders and other obligations ÏÏÏÏÏ
Other long-term liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total
$12,034
1,756
402
1,607
788
108
Payments Due by Period
Less than
1 Year
4-5 Years
1-3 Years
(Amounts in millions)
$3,684
472
122
419
Ì
108
$ 117
Ì
82
735
788
Ì
$1,770
555
78
220
Ì
Ì
After
5 Years
$6,463
729
120
233
Ì
Ì
Total contractual paymentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$16,695
$1,722
$4,805
$2,623
$7,545
(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 diÅer 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.
Pursuant to a tax sharing agreement between us and AT&T when we were a subsidiary of AT&T, we
received a cash payment from AT&T in periods when we generated taxable losses and such taxable losses
were utilized by AT&T to reduce the consolidated income tax liability. To the extent such losses were not
utilized by AT&T, such amounts were available to reduce federal taxable income generated by us in future
periods, similar to a net operating loss carryforward. During the period from March 10, 1999 to December 31,
2002, we received cash payments from AT&T aggregating $555 million as payment for our taxable losses that
AT&T utilized to reduce its income tax liability. In the event AT&T generates ordinary losses in 2003 or
capital losses in 2003 or 2004 and is able to carry back such losses to oÅset taxable income previously oÅset by
our losses, we may be required to refund as much as $333 million of these cash payments. We are currently
unable to determine the likelihood that we will be required to make any refund payments to AT&T.
AT&T, as the successor to TCI, was the subject of an Internal Revenue Service (""IRS'') audit for the
1993-1999 tax years. The IRS notiÑed AT&T and us that it was proposing income adjustments and assessing
certain penalties in connection with TCI's 1994 tax return. The IRS, AT&T and we have reached an
agreement whereby AT&T will recognize additional income of $94 million with respect to this matter, and no
penalties will be assessed. Pursuant to the tax sharing agreement between us and AT&T, we may be obligated
to reimburse AT&T for any tax that is ultimately assessed as a result of this agreement. We are currently
unable to estimate any such tax liability and resulting reimbursement, but we believe that any such
reimbursement will not be material to our Ñnancial position.
In connection with agreements for the sale of certain assets, we typically retain liabilities that relate to
events occurring prior to the sale, such as tax, environmental, litigation and employment matters. We generally
indemnify the purchaser in the event that a third party asserts a claim against the purchaser that relates to a
liability retained by us. These types of indemniÑcation guarantees typically extend for a number of years. We
are unable to estimate the maximum potential liability for these types of indemniÑcation guarantees as the
sale agreements typically do not specify a maximum amount and the amounts are dependent upon the
outcome of future contingent events, the nature and likelihood of which cannot be determined at this time.
Historically, we have not made any signiÑcant indemniÑcation payments under such agreements and no
amount has been accrued in the accompanying consolidated Ñnancial statements with respect to these
indemniÑcation guarantees.
We have contingent liabilities related to legal and tax 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
F-25
that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the
accompanying consolidated Ñnancial statements.
Critical Accounting Policies
The preparation of our Ñnancial statements in conformity with accounting principles generally accepted
in the United States requires us to make estimates and assumptions that aÅect the reported amounts of assets
and liabilities at the date of the Ñnancial statements and the reported amounts of revenue and expenses during
the reporting period. Listed below are the accounting policies that we believe are critical to our Ñnancial
statements due to the degree of uncertainty regarding the estimates or assumptions involved and the
magnitude of the asset, liability, revenue or expense being reported. All of these accounting policies, estimates
and assumptions, as well as the resulting impact to our Ñnancial statements, have been discussed with our
audit committee.
Carrying Value of Investments. Our cost and equity method investments comprise 36.9% and 9.9%,
respectively, of our total assets at December 31, 2003 and 36.2% and 18.6%, respectively, at December 31,
2002. We account for these investments pursuant to Statement of Financial Accounting Standards No. 115,
Statement of Financial Accounting Standards No. 142 and Accounting Principles Board Opinion No. 18.
These accounting principles require us to periodically evaluate our investments to determine if decreases in
fair value below our cost bases are other than temporary or ""nontemporary.'' If a decline in fair value is
determined to be nontemporary, we are required to reÖect such decline in our statement of operations.
Nontemporary declines in fair value of our cost investments are recognized on a separate line in our statement
of operations, and nontemporary declines in fair value of our equity method investments are included in share
of losses of aÇliates in our statement of operations.
The primary factors we consider in our determination of whether declines in fair value are nontemporary
are the length of time that the fair value of the investment is below our carrying value; and the Ñnancial
condition, operating performance and near term prospects of the investee. In addition, we consider the reason
for the decline in fair value, be it general market conditions, industry speciÑc or investee speciÑc; analysts'
ratings and estimates of 12 month share price targets for the investee; changes in stock price or valuation
subsequent to the balance sheet date; and our intent and ability to hold the investment for a period of time
suÇcient to allow for a recovery in fair value. Fair value of our publicly traded investments is based on the
market price of the security at the balance sheet date. We estimate the fair value of our other cost and equity
investments using a variety of methodologies, including cash Öow multiples, discounted cash Öow, per
subscriber values, or values of comparable public or private businesses. Impairments are calculated as the
diÅerence between our carrying value and our estimate of fair value. As our assessment of the fair value of our
investments and any resulting impairment losses requires a high degree of judgment and includes signiÑcant
estimates and assumptions, actual results could diÅer materially from our estimates and assumptions.
Our evaluation of the fair value of our investments and any resulting impairment charges are determined
as of the most recent balance sheet date. Changes in fair value subsequent to the balance sheet date due to the
factors described above are possible. Subsequent decreases in fair value will be recognized in our statement of
operations in the period in which they occur to the extent such decreases are deemed to be nontemporary.
Subsequent increases in fair value will be recognized in our statement of operations only upon our ultimate
disposition of the investment.
At December 31, 2003, we had no unrealized losses related to our available-for-sale securities.
Accounting for Acquisitions. We acquired QVC in 2003 and OpenTV in 2002. We account for all
acquisitions of companies such as these pursuant to Statement of Financial Accounting Standards No. 141,
""Business Combinations,'' which prescribes the purchase method of accounting for business combinations.
Pursuant to Statement 141, the purchase price is allocated to all of the assets and liabilities of the acquired
company, based on their respective fair values. Any excess purchase price over the estimated fair value of the
net assets is recorded as goodwill.
F-26
In determining fair value, we are required to make estimates and assumptions that aÅect the recorded
amounts. To assist in this process, we often engage third party valuation specialists to value certain of the
assets and liabilities. Estimates used in these valuations may include expected future cash Öows (including
timing thereof), market rate assumptions for contractual obligations, expected useful lives of tangible and
intangible assets and appropriate discount rates. Our estimates of fair value are based on assumptions believed
to be reasonable, but which are inherently uncertain.
The allocation of the purchase price to tangible and intangible assets impacts our statement of operations
due to the amortization of these assets. With respect to the acquisition of QVC, the total purchase price of
$7.9 billion was allocated to QVC's net assets based on their estimated fair values as determined by an
independent valuation Ñrm. QVC's more signiÑcant intangible assets included customer relationships and
cable and satellite distribution rights, which are amortized over their respective useful lives, and trademarks,
which have an indeÑnite useful life and are not amortized. We also allocated a portion of the purchase price to
goodwill, which is not amortized. We estimate that amortization expense related to the amortizable intangible
assets will be $312 million annually. If the allocation to QVC's amortizable assets had been 10% or
$436 million more and the allocation to trademarks and goodwill had been $436 million less, our annual
amortization expense would be $31 million higher.
Accounting for Derivative Instruments. We use various derivative instruments, including equity collars,
narrow-band collars, put spread collars, written put and call options, interest rate swaps and foreign exchange
contracts, to manage fair value and cash Öow risk associated with many of our investments, some of our debt
and transactions denominated in foreign currencies. We account for these derivative instruments pursuant to
Statement 133 and Statement of Financial Accounting Standards No. 149 ""Amendment of Statement No. 133
on Derivative Instruments and Hedging Activities.'' Statement 133 and Statement 149 require that all
derivative instruments be recorded on the balance sheet at fair value. Changes in derivatives designated as
cash Öow hedges are recorded in other comprehensive income. Changes in derivatives designated as fair value
hedges and changes in derivatives not designated as hedges are included in realized and unrealized gains
(losses) on derivative instruments in our statement of operations.
We use the Black-Scholes model to estimate the fair value of our derivative instruments that we use to
manage market risk related to certain of our available-for-sale securities. 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 obtain volatility rates from independent sources
based on the expected volatility of the underlying security over the term of the derivative instrument. The
volatility assumption is evaluated annually to determine if it should be adjusted, or more often if there are
indications that it should be adjusted. We obtain a discount rate at the inception of the derivative instrument
and update such rate each reporting period based on our estimate of the discount rate at which we could
currently settle the derivative instrument. At December 31, 2003, the expected volatilities used to value our
AFS Derivatives generally ranged from 25% to 56% and the discount rates ranged from 1.46% to 4.86%.
Considerable management judgment is required in estimating the Black-Scholes variables. Actual results
upon settlement or unwinding of our derivative instruments may diÅer materially from these estimates.
F-27
Changes in our assumptions regarding (1) the discount rate and (2) the volatility rates of the underlying
securities that are used in the Black-Scholes model would have the most signiÑcant impact on the valuation of
our AFS Derivatives. The table below summarizes changes in these assumptions and the resulting impacts on
our estimate of fair value.
Assumption
As recorded at December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
25% increase in discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
25% decrease in discount rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
25% increase in expected volatilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
25% decrease in expected volatilitiesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Estimated Aggregate
Fair Value of AFS
Derivatives
Dollar Value
Change
(Amounts in millions)
$2,605
$2,403
$2,818
$2,569
$2,646
$(202)
$ 213
$ (36)
41
$
Utilization of the Equity Method of Accounting for our Investment in UGC. At December 31, 2003, we
owned approximately 52% of UGC's outstanding equity representing approximately 90% of the voting power
of UGC's common stock. UGC's operating and Ñnancial decisions are controlled by its Board of Directors.
We held substantially all of our voting interest in UGC through Class C common shares of which we were the
only Class C shareholder. Under UGC's certiÑcate of incorporation, the Class C shareholders are entitled to
elect only 4 of the 12 directors. The UGC Founders had eÅective control to elect the remaining 8 directors
through their ownership of UGC's Class B shares. Our ability to convert our Class C shares into Class B
shares and to elect a majority of UGC's Board of Directors following such conversion was limited by the terms
of such shares and by a standstill agreement which was in eÅect until June 2010. While an earlier termination
of the standstill agreement was possible in the event that the UGC Founders reduce their interests in Class B
shares below certain speciÑed levels, it was outside our control to eÅect such an early termination. The Class C
shares had approval rights over certain material transactions and related party matters which were considered
protective in nature.
As a result of the aforementioned governance arrangements, we determined that our voting interest was
not suÇcient to allow us to control UGC and therefore apply consolidation accounting with respect to our
investment in UGC. We did consider our Class C shareholder rights suÇcient to exert signiÑcant inÖuence
over the Ñnancial and operating policies of UGC, and accordingly, we applied the equity method of accounting
for this investment.
On January 5, 2004, we completed a transaction pursuant to which the UGC Founders transferred
8.2 million shares of UGC Class B common stock to us in exchange for 12.6 million shares of our Series A
common stock and a cash payment of approximately $13 million. Upon closing of the exchange, the
restrictions on our right to exercise our voting power with respect to UGC were terminated, and we gained
voting control of UGC. Accordingly, we will begin consolidating UGC's results of operations and Ñnancial
position in January 2004. We are currently in the process of quantifying the appropriate purchase accounting
and consolidation adjustments related to UGC, and we expect the application of consolidation accounting for
UGC will have a signiÑcant eÅect on our Ñnancial position and results of operations.
Carrying Value of Long-lived Assets. Our property and equipment, intangible assets and goodwill
(collectively, our ""long-lived assets'') also comprise a signiÑcant portion of our total assets at December 31,
2003 and 2002. We account for our long-lived assets pursuant to Statement of Financial Accounting
Standards No. 142 and Statement of Financial Accounting Standards No. 144. These accounting standards
require that we periodically, or upon the occurrence of certain triggering events, assess the recoverability of our
long-lived assets. If the carrying value of our long-lived assets exceeds their estimated fair value, we are
required to write the carrying value down to fair value. Any such writedown is included in impairment of long-
lived assets in our consolidated statement of operations. A high degree of judgment is required to estimate the
fair value of our long-lived assets. We may use quoted market prices, prices for similar assets, present value
techniques and other valuation techniques to prepare these estimates. In addition, we may obtain independent
appraisals in certain circumstances. We may need to make estimates of future cash Öows and discount rates as
F-28
well as other assumptions in order to implement these valuation techniques. Accordingly, any value ultimately
derived from our long-lived assets may diÅer from our estimate of fair value. As each of our operating
segments has long-lived assets, this critical accounting policy aÅects the Ñnancial position and results of
operations of each segment.
Starz Encore received an independent third party valuation in connection with its annual year-end
evaluation of the recoverability of its goodwill. The result of this valuation, which was based on a discounted
cash Öow analysis of projections prepared by the management of Starz Encore, indicated that the fair value of
this reporting unit was less than its carrying value including goodwill. This reporting unit fair value was then
used to calculate an implied value of the goodwill related to Starz Encore. The $1,352 million excess of the
carrying amount of the goodwill (including $1,195 million of allocated enterprise-level goodwill) over its
implied value has been recorded as an impairment charge in the fourth quarter of 2003. The reduction in the
value of Starz Encore reÖected in the third party valuation is believed to be attributable to a number of factors.
Those factors include the reliance placed in that valuation on projections by management reÖecting a lower
rate of revenue growth compared to earlier projections based, among other things, on the possibility that
revenue growth may be negatively aÅected by (1) a reduction in the rate of growth in total digital video
subscribers and in the subscription video on demand business as a result of cable operators' increased focus on
the marketing and sale of other services, such as high speed internet access and telephony, and the uncertainty
as to the success of marketing eÅorts by distributors of Starz Encore's services and (2) lower per subscriber
rates under the new aÇliation agreement with Comcast, as compared to the payments required under the 1997
AT&T Broadband AÇliation Agreement (including the programming pass through provision).
Due to the slow-down in the movie and television industries in 2002 and 2001, Ascent Media recorded
long-lived asset impairment charges of $84 million and $313 million, respectively. In 2002 and 2001, we also
recorded impairment charges of $99 million and $75 million, respectively, the majority of which is due to
adverse economic conditions that aÅected our subsidiaries and aÇliates in South America; and we recorded a
$92 million impairment charge in 2002 related to OpenTV Corp due to slower than expected growth in the
interactive television industry and cutbacks in capital expenditures by broadband service providers.
Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risk in the normal course of business due to our ongoing investing and Ñnancial
activities and our investments in diÅerent foreign countries. Market risk refers to the risk of loss arising from
adverse changes in stock prices, interest rates and foreign currency exchange rates. The risk of loss can be
assessed from the perspective of adverse changes in fair values, cash Öows and future earnings. We have
established policies, procedures and internal processes governing our management of market risks and the use
of Ñnancial instruments to manage our exposure to such risks.
We are exposed to changes in interest rates primarily as a result of our borrowing and investment
activities, which include investments in Ñxed and Öoating 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 Ñxed and variable rate
debt. We believe this best protects us from interest rate risk. We have achieved this mix by (i) issuing Ñxed
rate debt that we believe has a low stated interest rate and signiÑcant 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,
2003, the face amount of our Ñxed rate debt (considering the eÅects of interest rate swap agreements) was
$8,168 million, which had a weighted average stated interest rate of 4.68%. Our variable rate debt of
$3,807 million had a weighted average interest rate of 2.31% at December 31, 2003. Had market interest rates
been 100 basis points higher (representing an approximate 43% increase over our variable rate debt eÅective
cost of borrowing) throughout the year ended December 31, 2003, we would have recognized approximately
$27 million of additional interest expense. Had the estimated value of the call option obligations associated
with our senior exchangeable debentures been 10% higher during the year ended December 31, 2003, we
would have recognized an additional unrealized loss on derivative instruments of $99 million. For additional
F-29
information regarding the impacts of changes in discount rates and volatilities on our derivative instruments,
see ""Critical Accounting Policies-Accounting for Derivatives.''
We are exposed to changes in stock prices primarily as a result of our signiÑcant holdings in publicly
traded securities. We continually monitor changes in stock markets, in general, and changes in the stock prices
of our holdings, speciÑcally. We believe that changes in stock prices can be expected to vary as a result of
general market conditions, technological changes, speciÑc industry changes and other factors. We use equity
collars, put spread collars, narrow-band collars, written put and call options and other Ñnancial 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 speciÑed number of shares of the underlying security at a speciÑed price (the
""Company Put Price'') at a speciÑed 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 speciÑed price at a speciÑed
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. Narrow-band collars are equity collars in which the put and call
prices are set so that the call option has a relatively higher fair value than the put option at the time of
origination. In these cases we receive cash equal to the diÅerence between such fair values.
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.
Among other factors, changes in the market prices of the securities underlying the AFS Derivatives aÅect
the fair market value of the AFS Derivatives. The following table illustrates the impact that changes in the
market price of the securities underlying Liberty's AFS Derivatives would have on the fair market value of
such derivatives. Such changes in fair market value would be included in realized and unrealized gains
(losses) on Ñnancial instruments in the accompanying consolidated statement of operations.
Estimated Aggregate Fair Value
Equity
Collars(1)
Put
Spread
Collars
Put
Options
(Amounts in millions)
Call
Options
Fair value at December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏ
5% increase in market prices ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10% increase in market prices ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5% decrease in market prices ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10% decrease in market prices ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,066
$2,940
$2,815
$3,190
$3,315
$331
$330
$327
$333
$334
$(774)
$(742)
$(709)
$(807)
$(840)
$(18)
$(24)
$(30)
$(12)
$ (7)
Total
$2,605
$2,504
$2,403
$2,704
$2,802
(1) Includes narrow-band collars.
At December 31, 2003, the fair value of our available-for-sale securities was $19,875 million. Had the
market price of such securities been 10% lower at December 31, 2003, the aggregate value of such securities
would have been $1,988 million lower resulting in an increase to unrealized losses in other comprehensive
earnings. Such decrease would be partially oÅset by an increase in the value of our AFS Derivatives as noted
in the table above. Had the stock price of our publicly traded investments accounted for using the equity
method been 10% lower at December 31, 2003, there would have been no impact on the carrying value of such
investments assuming that the decline in value is deemed to be temporary.
Investments in and advances to our foreign aÇliates 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 aÇliates. However, in order
to reduce our foreign currency exchange risk related to our recent investment in J-COM, we have entered into
F-30
forward sale contracts with respect to Í20,802 million ($194 million at December 31, 2003). In addition to the
forward sale contracts, we entered into collar agreements with respect to Í28,785 million ($268 million at
December 31, 2003). These collar agreements have a remaining term of approximately one year, an average
call price of 108 yen/U.S. dollar and an average put price of 125 yen/U.S. dollar. During 2003, we had
unrealized losses of $23 million related to our yen contracts. We continually evaluate our foreign currency
exposure based on current market conditions and the business environment in each country in which we
operate.
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
speciÑed amount of the underlying debt security for our beneÑt. We initially 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 underlying 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 debt securities
declines 10%, we are required to post cash collateral for the decline, and we record an unrealized loss on
Ñnancial instruments. The cash collateral is further adjusted up or down for subsequent changes in fair value of
the underlying debt security. At December 31, 2003, the aggregate purchase price of debt securities underlying
total return debt swap arrangements was $314 million ($200 million of which related to our senior notes and
debentures). As of such date, we had posted cash collateral equal to $35 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
$279 million.
We periodically assess the eÅectiveness of our derivative Ñnancial instruments. With regard to interest
rate swaps, we monitor the fair value of interest rate swaps as well as the eÅective 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 oÅset by the eÅects of interest rate movements on the underlying debt facilities.
With regard to equity collars, we monitor historical market 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 oÅset
by the eÅects 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.
Our derivative instruments are executed with counterparties who are well known major Ñnancial
institutions with high credit ratings. While we believe these derivative instruments eÅectively 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 ourselves against credit risk associated with these counterparties we
generally:
‚ execute our derivative instruments with several diÅerent counterparties, and
‚ execute equity 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 beneÑt, if the respective counterparty's credit rating for its senior secured debt were to
reach certain levels, generally a rating that is below Standard & Poor's rating of A- and/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 currently consider
nonperformance by any of our counterparties to be unlikely.
F-31
Our counterparty credit risk by Ñnancial institution is summarized below:
Counterparty
Counterparty A ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Counterparty B ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Counterparty C ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Counterparty D ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Counterparty E ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Aggregate Fair Value of
Derivative Instruments at
December 31, 2003
(Amounts in millions)
$ 998
784
692
500
316
523
$3,813
Controls and Procedures.
In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried out an evaluation,
under the supervision and with the participation of management, including its chief executive oÇcer, principal
accounting oÇcer and principal Ñnancial oÇcer (the ""Executives''), of the eÅectiveness of its disclosure
controls and procedures as of the end of the period covered by this report. Based on that evaluation, the
Executives concluded that the Company's disclosure controls and procedures were eÅective as of
December 31, 2003 to provide reasonable assurance that information required to be disclosed in its reports
Ñled or submitted under the Exchange Act is recorded, processed, summarized and reported within the time
periods speciÑed in the Securities and Exchange Commission's rules and forms.
There has been no change in the Company's internal controls over Ñnancial reporting that occurred
during the three months ended December 31, 2003 that has materially aÅected, or is reasonably likely to
materially aÅect, its internal controls over Ñnancial reporting.
F-32
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 as of December 31, 2003 and 2002, and the related consolidated statements of operations,
comprehensive earnings (loss), stockholders' equity, and cash Öows for each of the years in the three-year
period ended December 31, 2003. These consolidated Ñnancial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these consolidated Ñnancial 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 Ñnancial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the Ñnancial statements. An audit also includes
assessing the accounting principles used and signiÑcant estimates made by management, as well as evaluating
the overall Ñnancial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated Ñnancial statements referred to above present fairly, in all material
respects, the Ñnancial position of Liberty Media Corporation and subsidiaries as of December 31, 2003 and
2002, and the results of their operations and their cash Öows for each of the years in the three-year period
ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of
America.
As discussed in note 2 to the consolidated Ñnancial statements, the Company changed its method of
accounting for intangible assets in 2002 and for derivative Ñnancial instruments in 2001.
Denver, Colorado
March 12, 2004
KPMG LLP
F-33
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2003 and 2002
ASSETS
Current assets:
Cash and cash equivalents ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Short-term investments (note 6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Trade and other receivables, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and program rights ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Derivative instruments (note 7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax assets (note 10)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investments in available-for-sale securities and other cost investments (note 6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term derivative instruments (note 7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investments in aÇliates, accounted for using the equity method, and related receivables (note 5) ÏÏÏÏÏÏÏÏÏÏÏ
Property and equipment, at cost ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated depreciation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets not subject to amortization (notes 2 and 4):
Goodwill ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
TrademarksÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Franchise costsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets subject to amortization (note 4) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets, at cost, net of accumulated amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued interest payableÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other accrued liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued stock compensation (note 13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Program rights payable ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Derivative instruments (note 7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Current portion of debt (note 9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term debt (note 9) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long-term derivative instruments (note 7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax liabilities (note 10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minority interests in equity of subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Obligation to redeem common stock (note 11)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stockholders' equity (note 11):
Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued and outstandingÏÏÏÏÏÏÏÏÏÏÏ
Series A common stock $.01 par value. Authorized 4,000,000,000 shares; issued and outstanding
2,669,835,166 shares at December 31, 2003 and 2,476,953,566 shares at December 31, 2002 ÏÏÏÏÏÏÏÏÏÏÏ
Series B common stock $.01 par value. Authorized 400,000,000 shares; issued and outstanding
217,100,515 shares at December 31, 2003 and 212,044,128 shares at December 31, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Additional paid-in capital ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated other comprehensive earnings, net of taxes (note 15)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unearned compensation (note 13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accumulated deÑcit ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2003
2002
(Amounts in
millions)
$
3,063
265
1,100
588
533
543
256
71
6,419
19,949
3,270
5,354
2,076
(568)
1,508
$
2,170
107
362
Ì
355
1,165
286
55
4,500
14,369
4,392
7,390
1,219
(304)
915
9,437
2,385
163
11,985
5,672
(733)
4,939
589
$ 54,013
6,812
Ì
163
6,975
1,246
(632)
614
530
$ 39,685
$
431
153
878
205
177
875
117
2,836
9,482
1,756
10,506
298
24,878
293
Ì
Ì
27
$
133
125
308
659
128
19
655
2,027
4,316
1,469
6,751
189
14,752
219
32
Ì
25
2
39,001
3,201
(98)
(13,291)
28,842
2
36,498
226
Ì
(12,069)
24,682
Commitments and contingencies (note 17)
Total liabilities and stockholders' equity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 54,013
$ 39,685
See accompanying notes to consolidated Ñnancial statements.
F-34
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2003, 2002 and 2001
2003
2002
(Amounts in millions,
except per share amounts)
2001
Revenue:
Net sales from electronic retailing ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Programming and other services ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,973
2,055
Operating costs and expenses:
Cost of sales Ì electronic retailing servicesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Selling, general and administrative (""SG&A'') ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock compensation Ì SG&A (note 13) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
DepreciationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment of long-lived assets (note 2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4,028
1,258
1,298
640
(84)
225
285
1,362
4,984
$ Ì $
2,084
2,084
Ì
1,077
583
(51)
193
191
275
2,268
Ì
2,059
2,059
Ì
1,103
579
132
209
775
388
3,186
Operating loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(956)
(184)
(1,127)
Other income (expense):
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Dividend and interest income ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Share of earnings (losses) of aÇliates, net (note 5) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Nontemporary declines in fair value of investments (note 6) ÏÏÏÏÏÏÏÏÏ
Realized and unrealized gains (losses) on derivative instruments, net
(note 7) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gains (losses) on dispositions, net (notes 5 and 6) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(539)
189
58
(29)
(649)
1,128
(52)
(423)
209
(453)
(6,053)
2,122
(415)
(4)
(525)
272
(4,906)
(4,101)
(174)
(310)
(11)
106
(5,017)
(9,755)
Loss before income taxes and minority interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax beneÑt (expense) (note 10) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minority interests in losses of subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(850)
(374)
2
Loss before cumulative eÅect of accounting changeÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change, net of taxes (note 2)ÏÏÏÏÏÏÏÏÏÏ
(1,222)
Ì
(5,201)
1,702
38
(3,461)
(1,869)
(10,882)
3,908
226
(6,748)
545
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(1,222)
(5,330)
(6,203)
Loss per common share (note 2):
Basic and diluted loss before cumulative eÅect of accounting change ÏÏ
Cumulative eÅect of accounting change, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(.44)
Ì
$ (1.34)
(.72)
$
(2.61)
.21
Basic and diluted net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(.44)
$ (2.06)
$ (2.40)
Number of common shares outstandingÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,748
2,590
2,588
See accompanying notes to consolidated Ñnancial statements.
F-35
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)
Years Ended December 31, 2003, 2002 and 2001
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive earnings (loss), net of taxes (note 15):
2003
2002
(Amounts in millions)
$(5,330)
$(1,222)
2001
$(6,203)
Foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized holding gains (losses) arising during the period ÏÏÏÏÏÏÏÏÏÏÏ
Recognition of previously unrealized losses (gains) on available-for-sale
securities, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cumulative eÅect of accounting change (note 2)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
149
3,454
(101)
(4,111)
(357)
(1,013)
(628)
Ì
3,598
Ì
2,694
(87)
Other comprehensive earnings (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,975
(614)
1,237
Comprehensive earnings (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 1,753
$(5,944)
$(4,966)
See accompanying notes to consolidated Ñnancial statements.
F-36
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 2003, 2002 and 2001
Preferred
Stock
Common Stock
Series A
Series B
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Earnings (Loss),
Net of Taxes
Unearned
Compensation
Accumulated
DeÑcit
(Amounts in millions)
$Ì
Ì
Ì
$Ì $35,042
Ì
Ì
Ì
Ì
$ (397)
Ì
1,237
$ Ì
Ì
Ì
Balance at January 1, 2001ÏÏÏÏÏÏÏÏÏ
$Ì
Net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Other comprehensive earnings ÏÏÏÏ Ì
Issuance of common stock upon
consummation of Split OÅ
Transaction (note 8) ÏÏÏÏÏÏÏÏÏÏ Ì
Contribution from AT&T upon
consummation of Split OÅ
Transaction (note 8) ÏÏÏÏÏÏÏÏÏÏ Ì
Accrual of amounts due to AT&T
for taxes on deferred
intercompany gains (note 8) ÏÏÏ Ì
Losses in connection with
issuances of stock by subsidiaries
and aÇliates, net of taxes ÏÏÏÏÏÏ Ì
Utilization of net operating losses
of Liberty by AT&T prior to
Split OÅ Transaction (note 8)ÏÏ Ì
Stock option exercises and
issuance of restricted stock prior
to Split OÅ Transaction ÏÏÏÏÏÏÏ Ì
Balance at December 31, 2001 ÏÏÏÏÏ Ì
Net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Other comprehensive loss ÏÏÏÏÏÏÏÏ Ì
Issuance of common stock for
acquisitions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Issuance of common stock
pursuant to rights oÅeringÏÏÏÏÏÏ Ì
Purchases of Liberty Series A
common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Liberty Series A common stock
put options, net of cash received
(note 11) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Balance at December 31, 2002 ÏÏÏÏÏ Ì
Net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Other comprehensive earnings ÏÏÏÏ Ì
Issuance of Series A common
stock for acquisitions ÏÏÏÏÏÏÏÏÏÏ Ì
Issuance of Series A common
stock for cash ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Purchases of Liberty Series A
common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Issuance of restricted stockÏÏÏÏÏÏÏ Ì
Amortization of deferred
compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Liberty Series A common stock
put options, net of cash received
(note 11) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Gain in connection with the
issuance of stock of a subsidiary
Balance at December 31, 2003 ÏÏÏÏÏ
Ì
$Ì
24
Ì
Ì
Ì
Ì
Ì
24
Ì
Ì
Ì
1
Ì
Ì
25
Ì
Ì
2
Ì
Ì
Ì
Ì
2
Ì
Ì
Ì
Ì
Ì
2
Ì
Ì
Ì
Ì
Ì
Ì
2
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
$27
Ì
Ì
$ 2
(26)
803
(115)
(8)
(2)
302
35,996
Ì
Ì
195
617
(281)
(29)
36,498
Ì
Ì
2,654
141
(437)
102
Ì
37
Ì
Ì
Ì
Ì
Ì
Ì
840
Ì
(614)
Ì
Ì
Ì
Ì
226
Ì
2,975
Ì
Ì
Ì
Ì
Ì
Ì
6
$39,001
Ì
$3,201
Total
Stockholders'
Equity
$34,109
(6,203)
1,237
Ì
803
(115)
(8)
(2)
302
30,123
(5,330)
(614)
195
618
(281)
(29)
24,682
(1,222)
2,975
2,656
141
(437)
Ì
4
37
6
$28,842
$
(536)
(6,203)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(6,739)
(5,330)
Ì
Ì
Ì
Ì
Ì
(12,069)
(1,222)
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
Ì
(102)
4
Ì
Ì
$ (98)
$(13,291)
See accompanying notes to consolidated Ñnancial statements.
F-37
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2003, 2002 and 2001
2003
2002
(Amounts in millions)
(see note 3)
2001
Cash Öows from operating activities:
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to reconcile net loss to net cash provided (used) by operating
$(1,222) $(5,330) $(6,203)
activities:
Cumulative eÅect of accounting change, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment of long-lived assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments of stock compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Share of losses (earnings) of aÇliates, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Nontemporary decline in fair value of investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Realized and unrealized losses (gains) on derivative instruments, netÏÏÏÏÏÏ
Losses (gains) on disposition of assets, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minority interests in losses of subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income tax expense (beneÑt) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intergroup tax allocation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payments from (to) AT&T pursuant to tax sharing agreement ÏÏÏÏÏÏÏÏÏÏÏ
Other noncash chargesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Changes in operating assets and liabilities, net of the eÅect of acquisitions
and dispositions:
Receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Prepaid expenses and other current assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Payables and other current liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided (used) by operating activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Öows from investing activities:
Cash proceeds from dispositions ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Premium proceeds from origination of derivative instruments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds from settlement of derivative instruments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investments in and loans to equity aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Investments in and loans to cost investees ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash paid for acquisitions, net of cash acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Capital expended for property and equipmentÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net sales of short term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other investing activities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net cash provided (used) by investing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash Öows from Ñnancing activities:
Borrowings of debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Proceeds attributed to call option obligations upon issuance of senior
Ì
510
1,362
(84)
(360)
(58)
29
649
(1,128)
(2)
312
Ì
Ì
136
(184)
(14)
(141)
183
(12)
2,457
783
1,172
(458)
(2,593)
(711)
(178)
162
(40)
594
3,793
406
exchangeable debentures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(3,508)
Repayments of debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(437)
Purchases of Liberty Series A common stockÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
141
Proceeds from issuance of common stock ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Payment from AT&T related to Split OÅ Transaction ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ì
Cash transfers to related parties ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(84)
Other Ñnancing activities, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
311
Net cash provided (used) by Ñnancing activities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
893
Net increase in cash and cash equivalentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash and cash equivalents at beginning of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,170
Cash and cash equivalents at end of year ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ $ 3,063
1,869
384
275
(51)
(117)
453
6,053
(2,122)
415
(38)
(1,711)
Ì
(26)
32
(22)
Ì
(77)
14
1
1,040
521
410
(736)
(491)
(44)
(189)
148
19
678
189
Ì
(1,110)
(281)
618
Ì
Ì
(2)
(586)
93
2,077
$ 2,170
(545)
984
388
132
(244)
4,906
4,101
174
310
(226)
(3,613)
(222)
166
40
30
Ì
(148)
(4)
26
471
383
366
(1,031)
(1,548)
(113)
(358)
346
(5)
(1,489)
1,639
1,028
(1,048)
Ì
Ì
803
(157)
(20)
2,245
782
1,295
$ 2,077
See accompanying notes to consolidated Ñnancial statements.
F-38
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2003, 2002 and 2001
(1) Basis of Presentation
The accompanying consolidated Ñnancial statements include the accounts of Liberty Media Corporation
and its controlled subsidiaries (""Liberty'' or the ""Company,'' unless the context otherwise requires). All
signiÑcant intercompany accounts and transactions have been eliminated in consolidation.
Liberty is a holding company which, through its majority and minority ownership of interests in
subsidiaries and other companies, is primarily engaged in (i) electronic retailing, (ii) international cable
television distribution, telephony and programming, and (iii) the production, acquisition and distribution
through all available formats and media of branded entertainment, educational and informational
programming and software. In addition, companies in which Liberty owns interests are engaged in, among
other things, (i) interactive commerce via the Internet, television and telephone, (ii) domestic cable and
satellite broadband distribution services, and (iii) wireless domestic telephony and other technology ventures.
Liberty, through its aÇliated companies, operates in the United States, Europe, South America and Asia.
(2) Summary of SigniÑcant 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 reÖected net of an allowance for doubtful accounts. Such allowance aggregated
$109 million and $45 million at December 31, 2003 and 2002, respectively. A summary of activity in the
allowance for doubtful accounts is as follows:
Balance
Beginning
of Year
$45
$32
$27
2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Inventory
Additions
Charged
to Expense
Acquisitions
(Amounts in millions)
$62
$26
$23
$13
$ 1
$Ì
Deductions-
Write-OÅs
$(24)
$(11)
$ (8)
Balance
End of
Year
$109
$ 45
$ 32
Inventory, consisting primarily of products held for sale, is stated at the lower of cost or market. Cost is
determined by the average cost method, which approximates the Ñrst-in, Ñrst-out method.
Program Rights
Prepaid program rights are amortized on a Ñlm-by-Ñlm 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 Ñlm is available for airing less prepayments. These amounts are amortized on a Ñlm-by-Ñlm basis
over the anticipated number of exhibitions.
Investments
All marketable equity and debt securities held by the Company are classiÑed as available-for-sale and are
carried at fair value (""AFS Securities''). Unrealized holding gains and losses on AFS Securities are carried
F-39
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
net of taxes as a component of accumulated other comprehensive earnings in stockholders' 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 cost.
For those investments in aÇliates in which the Company has the ability to exercise signiÑcant inÖuence,
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 aÇliates as they occur rather then
as dividends or other distributions are received, limited to the extent of the Company's investment in,
advances to and commitments for the investee. If the Company's investment in the common stock of an
aÇliate is reduced to zero as a result of recording its share of the aÇliate's net losses, and the Company holds
investments in other more senior securities of the aÇliate, the Company would continue to record losses from
the aÇliate to the extent of these additional investments. The amount of additional losses recorded would be
determined based on changes in the hypothetical amount of proceeds that would be received by the Company
if the aÇliate were to experience a liquidation of its assets at their current book values. Prior to the Company's
January 1, 2002 adoption of Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (""Statement 142''), the Company's share of net earnings or losses of aÇliates included the
amortization of the diÅerence between the Company's investment and its share of the net assets of the
investee. Upon adoption of Statement 142, the portion of excess costs on equity method investments that
represents goodwill (""equity method goodwill'') is no longer amortized, but continues to be considered for
impairment under Accounting Principles Board Opinion No. 18. The Company's share of net earnings or loss
of aÇliates also includes any other-than-temporary declines in fair value recognized during the period.
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 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 primary factors the Company considers in its
determination are the length of time that the fair value of the investment is below the Company's carrying
value; and the Ñnancial condition, operating performance and near term prospects of the investee. In addition,
the Company considers the reason for the decline in fair value, be it general market conditions, industry
speciÑc or investee speciÑc; analysts' ratings and estimates of 12 month share price targets for the investee;
changes in stock price or valuation subsequent to the balance sheet date; and the Company's intent and ability
to hold the investment for a period of time suÇcient to allow for a recovery in fair value. If the decline in fair
value is deemed to be nontemporary, 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 diÅer 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 earnings (losses) of
aÇliates.
Derivative Instruments and Hedging Activities
The Company uses various derivative instruments including equity collars, narrow-band collars, put
spread collars, written put and call options, bond swaps, interest rate swaps and foreign exchange contracts to
manage fair value and cash Öow risk associated with many of its investments, some of its variable rate debt and
transactions denominated in foreign currencies. Liberty's derivative instruments are executed with
counterparties who are well known major Ñnancial institutions. While Liberty believes these derivative
instruments eÅectively manage the risks highlighted above, they are subject to counterparty credit risk.
F-40
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 generally:
‚ executes its derivative instruments with several diÅerent counterparties, and
‚ executes equity 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 beneÑt, if the respective counterparty's credit rating for its senior unsecured
debt were to reach certain levels, generally a rating that is below Standard & Poor's rating of A- and/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 its counterparties. Based on its analysis, the Company currently
considers nonperformance by any of its counterparties to be unlikely.
EÅective January 1, 2001, Liberty adopted Statement of Financial Accounting Standards No. 133
""Accounting for Derivative Instruments and Hedging Activities'' (""Statement 133''). All derivatives, whether
designated in hedging relationships or not, are 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 Öow hedge,
the eÅective portions of changes in the fair value of the derivative are recorded in other comprehensive
earnings. IneÅective portions of changes in the fair value of cash Öow 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.
During 2001 and 2002, the only derivative instruments designated as hedges were the Company's equity
collars, which were designated as fair value hedges. EÅective December 31, 2002, the Company elected to
dedesignate its equity collars as fair value hedges. Such election had no eÅect on the Company's Ñnancial
position at December 31, 2002 or its results of operations for the year ended December 31, 2002. Subsequent
to December 31, 2002, changes in the fair value of the Company's AFS Securities that previously had been
reported in earnings due to the designation of equity collars as fair value hedges are reported as a component of
other comprehensive earnings (loss) on the Company's consolidated balance sheet. Changes in the fair value
of the equity collars continue to be reported in earnings.
The fair value of derivative instruments is estimated using third party estimates or 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 obtains volatility
rates from independent sources based on the expected volatility of the underlying security over the term of the
derivative instrument. The volatility assumption is evaluated annually to determine if it should be adjusted, or
more often if there are indications that it should be adjusted. A discount rate is obtained at the inception of the
derivative instrument and updated each reporting period based on the Company's estimate of the discount rate
at which it could currently settle the derivative instrument. Considerable management judgment is required in
estimating the Black-Scholes variables. Actual results upon settlement or unwinding of derivative instruments
may diÅer materially from these estimates.
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 AFS Securities.
F-41
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The Company assesses the eÅectiveness 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
eÅectiveness, are recognized currently in earnings as a component of realized and unrealized gains (losses) on
derivative instruments. Hedge ineÅectiveness, determined in accordance with Statement 133, had no impact
on earnings for the years ended December 31, 2002 and 2001.
Property and Equipment
Property and equipment, including signiÑcant 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.
Intangible Assets
EÅective January 1, 2002, the Company adopted Statement 142. Statement 142 requires that goodwill
and other intangible assets with indeÑnite useful lives (collectively, ""indeÑnite lived intangible assets'') no
longer be amortized, but instead be tested for impairment at least annually in accordance with the provisions
of Statement 142. Equity method goodwill is also no longer amortized, but continues to be considered for
impairment under Accounting Principles Board Opinion No. 18. Statement 142 also requires 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 Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (""Statement 144'').
Statement 142 required the Company to perform an assessment of whether there was an indication that
goodwill was impaired as of the date of adoption. To accomplish this, the Company identiÑed its reporting
units and determined 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. Statement 142
requires the Company to consider equity method aÇliates as separate reporting units. As a result, a portion of
the Company's enterprise-level goodwill balance was allocated to various reporting units which included a
single equity method investment as its only asset. For example, goodwill was allocated to a separate reporting
unit which included only the Company's investment in Discovery Communications, Inc. This allocation is
performed for goodwill impairment testing purposes only and does not change the reported carrying value of
the investment. However, to the extent that all or a portion of an equity method investment which is part of a
reporting unit containing allocated goodwill is disposed of in the future, the allocated portion of goodwill will
be relieved and included in the calculation of the gain or loss on disposal.
The Company determined the fair value of its reporting units using independent appraisals, public trading
prices and other means. The Company then compared the fair value of each reporting unit to the reporting
unit's carrying amount. To the extent a reporting unit's carrying amount exceeded its fair value, the Company
performed the second step of the transitional impairment test. In the second step, the Company compared 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, to
its carrying amount, both of which were measured as of the date of adoption.
In situations where the implied fair value of a reporting unit's goodwill was less than its carrying value,
Liberty recorded a transition impairment charge. In total, the Company recognized a $1,869 million
transitional impairment loss, net of taxes of $127 million, as the cumulative eÅect of a change in accounting
principle in 2002. The foregoing transitional impairment loss includes an adjustment of $325 million for the
Company's proportionate share of transition adjustments that its equity method aÇliates recorded.
F-42
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
As noted above, indeÑnite lived intangible assets are no longer amortized. Adjusted net loss and loss per
common share, exclusive of amortization expense related to goodwill, franchise costs and equity method
goodwill, for periods prior to the adoption of Statement 142 are as follows (amounts in millions, except per
share amounts):
Net loss, as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments:
Year Ended
December 31,
2001
$(6,203)
Goodwill amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Franchise costs amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity method excess costs amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax eÅect ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
617
10
798
(333)
Net loss, as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(5,111)
Basic and diluted loss per common share, as reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments:
$ (2.40)
Goodwill amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Franchise costs amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity method excess costs amortization ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Income tax eÅect ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
.24
Ì
.31
(.13)
Basic and diluted loss per common share, as adjusted ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (1.98)
Amortization of intangible assets with Ñnite useful lives was $285 million and $191 million for the years
ended December 31, 2003 and 2002, respectively. Based on its current amortizable intangible assets, Liberty
expects that amortization expense will be as follows for the next Ñve years (amounts in millions):
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$489
$468
$424
$395
$363
Changes in the carrying amount of goodwill for the year ended December 31, 2003 are as follows:
QVC, Inc.
Starz
Encore
Group LLC
Ascent
Media
Group
Other(3)
Total
(Amounts in millions)
Balance at December 31, 2002 ÏÏÏÏÏÏÏÏÏÏ
2003 acquisitions(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment of goodwill(2) ÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ Ì
3,896
Ì
(7)
$1,540
Ì
(157)
Ì
Balance at December 31, 2003 ÏÏÏÏÏÏÏÏÏÏ
$3,889
$1,383
$327
11
Ì
Ì
$338
$ 4,945
77
(1,195)
Ì
$ 6,812
3,984
(1,352)
(7)
$ 3,827
$ 9,437
(1) During the year ended December 31, 2003 and excluding the acquisition of QVC, Inc. (""QVC''), Liberty
completed several small acquisitions for aggregate consideration of $167 million. In connection with these
F-43
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
acquisitions, Liberty recorded additional goodwill of $88 million, which represents the excess of the
purchase price over the estimated fair value of tangible and identiÑable intangible assets acquired.
(2) Starz Encore Group LLC (""Starz Encore'') received an independent third party valuation in connection
with its annual year-end evaluation of the recoverability of its goodwill. The result of this valuation, which
was based on a discounted cash Öow analysis of projections prepared by the management of Starz Encore,
indicated that the fair value of this reporting unit was less than its carrying value including goodwill. This
reporting unit fair value was then used to calculate an implied value of the goodwill (including $1,195 of
allocated enterprise-level goodwill) related to Starz Encore. The $1,352 million excess of the carrying
amount of the goodwill over its implied value has been recorded as an impairment charge in the fourth
quarter of 2003. The reduction in the value of Starz Encore reÖected in the third party valuation is
believed to be attributable to a number of factors. Those factors include the reliance placed in that
valuation on projections by management reÖecting a lower rate of revenue growth compared to earlier
projections based, among other things, on the possibility that revenue growth may be negatively aÅected
by (1) a reduction in the rate of growth in total digital video subscribers and in the subscription video on
demand business as a result of cable operators' increased focus on the marketing and sale of other
services, such as high speed internet access and telephony, and the uncertainty as to the success of
marketing eÅorts by distributors of Starz Encore's services and (2) lower per subscriber rates under the
new aÇliation agreement with Comcast, as compared to the payments required under the 1997 AT&T
Broadband AÇliation Agreement (including the programming pass through provision).
(3) As noted above, the Company's enterprise-level goodwill is allocable to reporting units, whether they are
consolidated subsidiaries or equity method investments. The following table summarizes these allocations
at December 31, 2003 (amounts in millions).
Entity
Discovery Communications, Inc. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Jupiter Telecommunications Co., Ltd. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Jupiter Programming ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Courtroom Television Network, LLCÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Game Show Network, LLCÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Allocable
Goodwill
$1,789
1,231
203
127
125
17
335
$3,827
In August 2002, Liberty purchased 38% of the common equity and 85% of the voting power of OpenTV
Corp. (""OpenTV''), which when combined with Liberty's previous ownership interest in OpenTV, brought
Liberty's total ownership to 41% of the equity and 86% of the voting power of OpenTV. During the period
between the execution of the purchase agreement in May 2002 and the consummation of the acquisition in
August 2002, OpenTV disclosed that it was lowering its revenue and cash Öow projections for 2002 and
extending the time before it would be cash Öow positive. As a result, OpenTV wrote oÅ all of its separately
recorded goodwill. In light of the announcement by OpenTV and the adverse impact on its stock price, as well
as other negative factors arising in its industry sector, Liberty determined that the goodwill initially recorded in
purchase accounting ($92 million) was not recoverable. This assessment is supported by an appraisal
performed by an independent third party. Accordingly, Liberty recorded an impairment charge for the entire
amount of the goodwill during the third quarter of 2002.
F-44
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
In addition to the goodwill impairment related to OpenTV, the Company recorded 2002 impairments of
$84 million related to Ascent Media and $99 million primarily related to its equity method aÇliates in South
America.
Impairment of Long-lived Assets
Statement 144 requires that the Company periodically review the carrying amounts of its property and
equipment and its intangible assets (other than goodwill) 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 Öows 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 value by considering sale prices for similar assets or by
discounting estimated future cash Öows using an appropriate discount rate. Considerable management
judgment is necessary to estimate the fair value of assets. Accordingly, actual results could vary signiÑcantly
from such estimates. Assets to be disposed of are carried at the lower of their Ñnancial 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 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 of 2001, a subsidiary made the decision to
consolidate 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.
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 eÅect 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 aÇliates are translated at
the average exchange rates in eÅect 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 stockholders' 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 reÖected in the accompanying consolidated statements of operations and
comprehensive loss as unrealized (based on the applicable period-end exchange rate) or realized upon
settlement of the transactions.
F-45
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Revenue Recognition
Revenue is recognized as follows:
‚ Revenue from electronic retail sales is recognized at the time of shipment to customers. An allowance
for returned merchandise is provided as a percentage of sales based on historical experience. The total
reduction in sales due to returns for the four months ended December 31, 2003 aggregated
$340 million.
‚ Programming revenue is recognized in the period during which programming is provided, pursuant to
aÇliation 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.
‚ Revenue from sales and licensing of software and related service and maintenance is recognized
pursuant to Statement of Position No. 97-2 ""Software Revenue Recognition.'' For multiple element
contracts with vendor speciÑc objective evidence, the Company recognizes revenue for each speciÑc
element when the earnings process is complete. If vendor speciÑc objective evidence does not exist,
revenue is deferred and recognized on a straight-line basis over the term of the maintenance period.
‚ 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.
Cost of Sales-Electronic Retailing
Cost of sales primarily includes actual product cost, provision for obsolete inventory, buying allowances
received from suppliers, shipping and handling costs and warehouse costs.
Advertising Costs
Advertising costs generally are expensed as incurred. Advertising expense aggregated $26 million,
$43 million and $43 million for the years ended December 31, 2003, 2002 and 2001, respectively. Co-operative
marketing costs are recognized as advertising expense to the extent an identiÑable beneÑt is received and fair
value of the beneÑt can be reasonably measured. Otherwise, such costs are recorded as a reduction of revenue.
Stock Based Compensation
As more fully described in note 13, the Company has granted to its employees options, stock appreciation
rights (""SARs'') and options with tandem SARs to purchase shares of Liberty Series A and Series B common
stock. The Company accounts for these grants pursuant to the recognition and measurement provisions of
Accounting Principles Board Opinion No. 25, ""Accounting for Stock Issued to Employees'' (""APB Opinion
No. 25''). Under these provisions, options are accounted for as Ñxed plan awards and no compensation
expense is recognized because the exercise price is equal to the market price of the underlying common stock
on the date of grant; whereas options with tandem SARs are accounted for as variable plan awards unless
there is a signiÑcant disincentive for employees to exercise the SAR feature. Compensation for variable plan
awards is recognized based upon the percentage of the options that are vested and the diÅerence between the
market price of the underlying common stock and the exercise price of the options at the balance sheet date.
The following table illustrates the eÅect on net income and earnings per share if the Company had applied the
fair value recognition provisions of Statement of Financial Accounting Standards No. 123, ""Accounting for
F-46
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Stock-Based Compensation,'' (""Statement 123'') to its options. Compensation expense for options with
tandem SARs is the same under APB Opinion No. 25 and Statement 123.
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Add stock compensation as determined under the intrinsic
value method, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deduct stock compensation as determined under the fair value
method, net of taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years Ended December 31,
2003
2001
2002
(Amounts in millions, except per
share amounts)
$(5,330)
$(1,222)
$(6,203)
5
Ì
Ì
(56)
(79)
(129)
Pro forma net lossÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(1,273)
$(5,409)
$(6,332)
Basic and diluted net loss per share:
As reported ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Pro formaÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
(.44)
(.46)
$ (2.06)
$ (2.09)
$ (2.40)
$ (2.45)
Agreements that require Liberty to reacquire interests in subsidiaries held by oÇcers 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.
Earnings (Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing net earnings (loss) by the number of
common shares outstanding. The number of outstanding common shares for periods prior to the Company's
August 2001 split oÅ from AT&T Corp. is based upon the number of shares of Series A and Series B Liberty
common stock issued upon consummation of the Split OÅ Transaction. Diluted earnings (loss) per common
share presents the dilutive eÅect 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 years ended
December 31, 2003, 2002 and 2001, are 84 million, 78 million and 76 million potential common shares
because their inclusion would be anti-dilutive.
ReclassiÑcations
Certain prior period amounts have been reclassiÑed for comparability with the 2003 presentation.
Estimates
The preparation of Ñnancial statements in conformity with accounting principles generally accepted in the
United States of America (""GAAP'') requires management to make estimates and assumptions that aÅect
the reported amounts of assets and liabilities at the date of the Ñnancial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could diÅer from those estimates. Liberty
considers the fair value of its derivative instruments and its assessment of nontemporary declines in value of its
investments to be its most signiÑcant estimates.
Liberty holds a signiÑcant number of investments that are accounted for using the equity method. Liberty
does not control the decision making process or business management practices of these aÇliates.
Accordingly, Liberty relies on management of these aÇliates and their independent accountants to provide it
with accurate Ñnancial information prepared in accordance with GAAP that Liberty uses in the application of
the equity method. The Company is not aware, however, of any errors in or possible misstatements of the
F-47
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Ñnancial information provided by its equity aÇliates that would have a material eÅect on Liberty's
consolidated Ñnancial statements.
(3) Supplemental Disclosures to Consolidated Statements of Cash Flows
Years Ended December 31,
2002
2003
(Amounts in millions)
2001
Cash paid for acquisitions:
Fair value of assets acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net liabilities assumed ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Long term debt issued ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred tax liabilityÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minority interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Common stock issuedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 9,996
(968)
(4,000)
(1,612)
(49)
(2,656)
$ 424
(57)
Ì
(14)
(114)
(195)
$ 264
(136)
Ì
(7)
(8)
Ì
Cash paid for acquisitions, net of cash acquired ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash paid for interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cash paid for income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
711
433
$
44
$ 113
$ 426
$ 451
62
$ Ì $
9
(4) Acquisition of Controlling Interest in QVC, Inc.
On September 17, 2003, Liberty completed its acquisition of Comcast Corporation's (""Comcast'')
approximate 56.5% ownership interest in QVC for an aggregate purchase price of approximately $7.9 billion.
QVC markets and sells a wide variety of consumer products in the U.S. and several foreign countries primarily
by means of televised shopping programs on the QVC networks and via the Internet through its domestic and
international websites. Prior to the closing, Liberty owned approximately 41.7% of QVC. Subsequent to the
closing, Liberty owned approximately 98% of QVC's outstanding shares, and the remaining shares of QVC are
held by members of the QVC management team.
Liberty's purchase price for QVC was comprised of 217.7 million shares of Liberty's Series A common
stock valued, for accounting purposes, at $2,555 million, Floating Rate Senior Notes due 2006 in an aggregate
principal amount of $4,000 million (the ""Floating Rate Notes'') and approximately $1,358 million in cash
(including acquisition costs). The foregoing value of the Series A common stock issued was based on the
average closing price for such stock for the Ñve days surrounding July 3, 2003, which was the date that Liberty
announced that it had reached an agreement with Comcast to acquire Comcast's interest in QVC.
Substantially all of the cash component of the purchase price was funded with the proceeds from the
Company's issuance of its 3.50% Senior Notes due 2006 in the aggregate principal amount of $1.35 billion.
Subsequent to the closing, QVC is a consolidated subsidiary of Liberty. For Ñnancial reporting purposes,
the acquisition is deemed to have occurred on September 1, 2003, and since that date QVC's results of
operations have been consolidated with Liberty's. Prior to its acquisition of Comcast's interest, Liberty
accounted for its investment in QVC using the equity method of accounting. Liberty has recorded the
acquisition of QVC as a step acquisition, and accordingly, QVC's assets and liabilities have been recorded at
amounts equal to (1) 56.5% of estimated fair value at the date of acquisition plus (2) 43.5% of historical cost.
The $2,048 million excess of the purchase price over the estimated fair value of 56.5% of QVC's assets and
liabilities combined with Liberty's historical equity method goodwill of $1,848 million has been recorded as
goodwill in the accompanying condensed consolidated balance sheet. The excess of the purchase price for
Comcast's interest in QVC over the estimated fair value of QVC's assets and liabilities is attributable to the
F-48
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
following: (i) QVC's position as a market leader in its industry, (ii) QVC's ability to generate signiÑcant cash
from operations and Liberty's ability to obtain access to such cash, and (iii) QVC's perceived signiÑcant
international growth opportunities.
Liberty's total investment in QVC of $10,717 million is comprised of $2,804 million attributable to its
historical equity method investment and $7,913 million representing the purchase price for Comcast's interest.
This total investment has been allocated based on a third party appraisal to QVC's assets and liabilities as
follows (amounts in millions):
Current assets, including cash and cash equivalents of $632 million ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Property and equipment ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets subject to amortization:
$ 1,764
631
Customer relationships(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cable and satellite television distribution rights(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,336
2,022
Intangible assets not subject to amortization:
Trademarks ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GoodwillÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Minority interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred income taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,385
3,896
269
(888)
(101)
(1,597)
$10,717
(1) Customer relationships are being amortized over 10-14 years. Cable and satellite television distribution
rights are being amortized primarily over 14 years.
The following unaudited pro forma information for Liberty and its consolidated subsidiaries for the years
ended December 31, 2003 and 2002 was prepared assuming the acquisition of QVC occurred on January 1,
2002. These pro forma amounts are not necessarily indicative of operating results that would have occurred if
the QVC acquisition had occurred on January 1, 2002.
Revenue ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss before cumulative eÅect of accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Loss per common share ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years Ended December 31,
2003
2002
(Amounts in millions,
except per share amounts)
$ 6,465
$ 6,943
$(3,444)
$(1,175)
$(5,313)
$(1,175)
$ (1.89)
(.41)
$
F-49
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(5)
Investments in AÇliates 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 signiÑcant investments in aÇliates at
December 31, 2003 and the carrying amount at December 31, 2002:
Discovery Communications, Inc. (""Discovery'')ÏÏÏÏÏÏÏÏÏÏ
Jupiter Telecommunications Co., Ltd. (""J-COM'')ÏÏÏÏÏÏÏ
QVCÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UnitedGlobalCom, Inc. (""UGC'') ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 31,
2003
Percentage
Ownership
December 31,
2002
Carrying
Amount
Carrying
Amount
(Dollar amounts in millions)
$2,864
50%
1,331
45%
Ì
*
Ì
52%
1,159
$2,817
782
2,712
Ì
1,079
various
* A consolidated subsidiary since September 2003.
The following table reÖects Liberty's share of earnings (losses) of aÇliates including excess basis
amortization in 2001 and nontemporary declines in value:
$5,354
$7,390
Discovery ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
J-COMÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
QVC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UGCÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Telewest Communications plc (""Telewest'')ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Cablevisi πon S.A. (""Cablevisi πon'') ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
ASTROLINK International LLC (""Astrolink'') ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
2003
Years Ended December 31,
2002
2001
(Amounts in millions)
$ (32)
38
(22)
20
107
154
Ì (198)
(92)
Ì
Ì
Ì
Ì
(1)
(262)
(107)
$ (293)
(90)
36
(751)
(2,538)
(476)
(417)
(377)
$
58
$(453)
$(4,906)
UGC
UGC is a global broadband communications provider of video, voice and data services with operations in
over 25 countries throughout the world. On January 30, 2002, the Company and UGC completed a transaction
(the ""UGC Transaction'') pursuant to which UGC was formed to own UGC Holdings, Inc. (""UGC
Holdings''). Upon consummation of the UGC Transaction, all shares of UGC Holdings common stock were
exchanged for shares of common stock of UGC. In addition, the Company contributed (i) cash consideration
of $200 million; (ii) a note receivable from Belmarken Holding B.V., a subsidiary of UGC Holdings, with an
accreted value of $892 million and a carrying value of $496 million (the ""Belmarken Loan'') and (iii) Senior
Notes and Senior Discount Notes of United-Pan Europe Communications N.V. (""UPC''), a subsidiary of
UGC Holdings, with an aggregate carrying amount of $270 million to UGC in exchange for 281.3 million
shares of UGC Class C common stock with a fair value of $1,406 million. Liberty has accounted for the UGC
Transaction as the acquisition of an additional noncontrolling interest in UGC in exchange for monetary
F-50
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Ñnancial instruments. Accordingly, Liberty calculated a $440 million gain on the transaction based on the
diÅerence between the estimated fair value of the Ñnancial instruments and their carrying value. Due to its
continuing indirect ownership in the assets contributed to UGC, Liberty limited the amount of gain it
recognized to the minority shareholders' attributable share (approximately 28%) of such assets or
$123 million (before deferred tax expense of $48 million).
Because Liberty had no commitment to make additional capital contributions to UGC, Liberty
suspended recording its share of UGC's losses when its carrying value was reduced to zero in 2002.
At December 31, 2003, Liberty owned approximately 307 million shares of UGC common stock, or an
approximate 52% economic interest and a 90% voting interest in UGC. The closing price of UGC's Class A
common stock was $8.48 on December 31, 2003. Pursuant to certain voting and standstill arrangements,
Liberty was unable to exercise control of UGC, and accordingly, Liberty used the equity method of accounting
for its investment through December 31, 2003.
On September 3, 2003, UPC completed a restructuring of its debt instruments and emerged from
bankruptcy. Under the terms of the restructuring, approximately $5.4 billion of UPC's debt was exchanged for
equity of UGC Europe, Inc., a new holding company of UPC (""UGC Europe''). Upon consummation, UGC
receive approximately 65.5% of UGC Europe's equity in exchange for UPC debt securities that it owned;
third-party noteholders received approximately 32.5% of UGC Europe's equity; and existing preferred and
ordinary shareholders, including UGC, received 2% of UGC Europe's equity.
On December 18, 2003, UGC completed its oÅer to exchange its Class A common stock for the
outstanding shares of UGC Europe common stock that it did not already own. Upon completion of the
exchange oÅer, UGC owned 92.7% of the outstanding shares of UGC Europe common stock. On
December 19, 2003, UGC eÅected a ""short-form'' merger with UGC Europe. In the short-form merger, each
share of UGC Europe common stock not tendered in the exchange oÅer was converted into the right to
receive the same consideration oÅered in the exchange oÅer, and UGC acquired the remaining 7.3% of UGC
Europe. In connection with UGC's acquisition of the minority interest in UGC Europe, Liberty calculated a
$680 million gain due to the dilutive eÅect on its investment in UGC and the implied per share value of the
exchange oÅer. However, as Liberty had suspended recording losses of UGC in 2002 and these suspended
losses exceeded the aforementioned gain, Liberty did not recognized the gain in its consolidated Ñnancial
statements.
On January 5, 2004, Liberty completed a transaction pursuant to which UGC's founding shareholders
(the ""Founders'') transferred 8.2 million shares of UGC Class B common stock to Liberty in exchange for
12.6 million shares of Liberty Series A common stock and a cash payment of approximately $13 million. Upon
closing of the transaction with the Founders, the restrictions on the exercise by Liberty of its voting power with
respect to UGC terminated, and Liberty gained voting control of UGC. Accordingly, UGC will be included in
Liberty's consolidated Ñnancial position and results of operations beginning January 2004. Liberty has entered
into a new Standstill Agreement with UGC that limits Liberty's ownership of UGC common stock to
90 percent of the outstanding common stock unless it makes an oÅer or eÅects another transaction to acquire
all outstanding UGC common stock. Under certain circumstances, such an oÅer or transaction would require
an independent appraisal to establish the price to be paid to stockholders unaÇliated with Liberty.
In January 2004, Liberty also purchased an additional 18.3 million shares of UGC Class A common stock
pursuant to certain pre-emptive rights granted to it pursuant to a standstill agreement with UGC. The
$140 million purchase price for such shares was comprised of (1) the cancellation of indebtedness due from
subsidiaries of UGC to certain subsidiaries of Liberty in the amount of $104 million (including accrued
interest) and (2) $36 million in cash.
Also in January 2004, UGC initiated a rights oÅering pursuant to which holders of each of UGC's
Class A, Class B and Class C common stock received .28 transferable subscription rights to purchase a like
F-51
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
class of common stock for each share of common stock owned by them on January 21, 2004. The rights
oÅering originally expired on February 6, 2004, but was subsequently extended to February 12, 2004. UGC
received cash proceeds of approximately $1.02 billion from the rights oÅering and expects to use such cash
proceeds for working capital and general corporate purposes, including future acquisitions and repayment of
outstanding indebtedness. As a holder of UGC Class A, Class B and Class C common stock, Liberty
participated in the rights oÅering and exercised its rights to purchase 94.1 million shares for a total cash
purchase price of $565 million. Subsequent to the foregoing transactions, Liberty owns approximately 55% of
UGC's common stock representing approximately 92% of the voting power of UGC's shares.
Telewest
Telewest operates cable television and telephone systems in the United Kingdom, and develops and sells
a variety of television programming also in the U.K.
Telewest has disclosed that it has reached an agreement in principle, subject to certain conditions,
relating to a restructuring of a signiÑcant portion of its notes and debentures. The agreement provides for the
cancellation of all outstanding notes and debentures issued by Telewest and one of its subsidiaries, as well as
certain other unsecured foreign exchange contracts, in exchange for new ordinary shares representing 98.5% of
the issued share capital of a new holding company immediately after the restructuring. Existing shareholders
will receive a 1.5% interest in the new holding company under the proposed restructuring. As a result of
Telewest's proposed restructuring, which Liberty expects will reduce its ownership in Telewest to below 10%,
Liberty determined that beginning in 2003 it no longer has the ability to exercise signiÑcant inÖuence over the
operations of Telewest. In addition, Liberty has removed its representatives from the Telewest board of
directors. Accordingly, eÅective January 1, 2003, Liberty no longer accounts for its investment in Telewest
using the equity method.
At December 31, 2003, Liberty's accumulated other comprehensive earnings includes $287 million
(before related deferred taxes) of unrealized foreign currency losses related to its investment in the equity of
Telewest. These unrealized foreign currency losses will only be recognized by Liberty upon the sale of its
Telewest investment.
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 recognized a charge of $1,801 million. Such charge is included in share
of losses of aÇliates.
Cablevisi πon
Cablevisi πon provides cable television and high speed data services in Argentina. At December 31, 2003,
the Company has a 39% economic ownership in Cablevisi πon. As a result of deteriorating economic conditions
and the devaluation of the Argentine peso, Cablevisi πon 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 Cablevisi πon 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 aÇliates. 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 Cablevisi πon to zero
as of December 31, 2001. Included in accumulated other comprehensive earnings at December 31, 2003 is
$201 million (before related deferred taxes) of unrealized foreign currency translation losses related to the
Company's investment in Cablevisi πon. These unrealized foreign currency losses will only be recognized by
Liberty upon the sale of its Cablevisi πon investment.
F-52
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Astrolink
Astrolink 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 signiÑcant
additional Ñnancing over the next several years. During the fourth quarter of 2001, two of the members of
Astrolink informed Astrolink that they did not intend to provide any of Astrolink's required Ñnancing. Based
on an assessment of Astrolink's remaining sources of liquidity and Astrolink's inability to obtain Ñnancing for
its business plan, the Company concluded that the carrying value of its investment in Astrolink should be
reduced to reÖect a fair value that assumed the liquidation of Astrolink. Accordingly, the Company wrote-oÅ
all of its remaining investment in Astrolink during the fourth quarter of 2001. 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. As Liberty had no obligation to make additional
contributions to Astrolink, its share of losses in 2002 was limited to amounts advanced to Astrolink by Liberty.
Liberty sold its interest in Astrolink in the fourth quarter of 2003 for cash proceeds of $5 million.
Other
In April 2002, Liberty sold its 40% interest in Telemundo Communications Group for cash proceeds of
$679 million, and recognized a gain of $344 million (before related tax expense of $134 million) based upon
the diÅerence between the cash proceeds and Liberty's basis in Telemundo, including allocated goodwill of
$25 million.
During the years ended December 31, 2003, 2002 and 2001, Liberty recorded nontemporary declines in
fair value aggregating $84 million, $148 million and $2,396 million, respectively, related to certain of its other
equity method investments. Such amounts are included in share of losses of aÇliates.
F-53
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(6)
Investments in Available-for-Sale Securities and Other Cost Investments
Investments in available-for-sale securities, which are recorded at their respective fair market values, and
other cost investments are summarized as follows:
The News Corporation (""News Corp.'')ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
InterActiveCorp (""IAC'') ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Time Warner Inc. (""Time Warner'') ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Sprint Corporation (""Sprint PCS'') ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Motorola(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Viacom, Inc. (""Viacom'')ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Vivendi Universal (""Vivendi'') ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other AFS equity securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other AFS debt securities(2) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other cost investments and related receivables ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 31,
2003
2002
(Amounts in millions)
$ 5,254
$ 7,633
2,057
4,697
2,243
3,080
968
1,134
660
1,068
619
674
604
Ì
551
382
1,302
1,207
218
339
20,214
14,476
Less short-term investments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(265)
(107)
$19,949
$14,369
(1) Includes $533 million of shares pledged as collateral for share borrowing arrangements at December 31,
2003.
(2) At December 31, 2003, other available-for-sale securities include $493 million of investments in certain
third-party marketable debt securities held by Liberty parent and $26 million of such securities held by
Liberty subsidiaries. At December 31, 2002, such investments aggregated $622 million and $49 million,
respectively.
News Corp.
During the year ended December 31, 2003, Liberty increased its economic and voting interest in News
Corp. EÅective October 14, 2003, pursuant to a put/call arrangement with News Corp., Liberty acquired
$500 million of American Depository Shares (""ADSs'') for News Corp. preferred limited voting shares at
$21.50 per ADR. In addition during 2003, Liberty sold certain of its News Corp. non-voting ADSs in the open
market and purchased voting New Corp. ADSs in the open market. Liberty recognized a gain of $236 million
(before related tax expense of $92 million) on the sale of its non-voting ADSs. Subsequent to December 31,
2003, Liberty purchased additional voting ADSs and sold additional non-voting ADSs in the open market.
Subsequent to these transactions, Liberty owns 210.8 million non-voting News Corp. ADSs and 48 million
voting ADSs. On a net basis, Liberty eÅectively exchanged 21.2 million non-voting ADSs and $693 million in
cash for the 48 million voting ADSs, taking into account proceeds from sales of, and unwinding of collars on,
non-voting News Corp. ADSs.
In May 2001, Liberty consummated a transaction with News Corp. whereby Liberty exchanged
70.7 million shares of Gemstar-TV Guide International, Inc. (""Gemstar'') for 121.5 million News Corp.
ADSs. Included in losses on dispositions in the accompanying consolidated statement of operations for the
year ended December 31, 2001 is a loss of $764 million recognized in connection with this transaction based
on the diÅerence between the fair value of the securities received by Liberty and the carrying value of the
F-54
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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. Liberty accounts for its
investment in News Corp. as an available-for-sale security.
Vivendi and InterActiveCorp
Prior to May 7, 2002, Liberty held 74.4 million shares of IAC's common stock and shares and other
equity interests in certain subsidiaries of IAC that were exchangeable for an aggregate of 79.0 million shares of
IAC common stock. On an ""as-converted basis,'' Liberty owned an approximate 20% voting interest in IAC
and applied the equity method of accounting for its investment. IAC owned and operated businesses in
television production, electronic retailing, ticketing operations and Internet services.
On May 7, 2002, Liberty, IAC, and Vivendi consummated the following transactions. Liberty exchanged
7.1 million shares of USANi LLC (a subsidiary of IAC) for a like number of shares of IAC common stock.
Vivendi then acquired from Liberty 25 million shares of IAC common stock, approximately 38.7 million
shares of USANi LLC, and Liberty's approximate 30% interest in multiThematiques S.A., together with
certain liabilities with respect thereto, in exchange for 37.4 million Vivendi ordinary shares, which at the date
of the transaction had an aggregate fair value of $1,013 million. Liberty recognized a loss of $817 million
based on the diÅerence between the fair value of the Vivendi shares received and the carrying value of the
assets relinquished, including goodwill of $514 million which was allocated to the reporting unit holding the
IAC interests. Following this exchange, IAC contributed substantially all of its entertainment assets to
Vivendi Universal Entertainment (""VUE''), a partnership controlled by Vivendi, in exchange for, among
other consideration, common and preferred interests in VUE. After this contribution, Liberty exchanged its
remaining equity interests in subsidiaries of IAC for 33.2 million shares of common stock of IAC.
During the year ended December 31, 2003 and pursuant to contractual pre-emptive rights, Liberty
acquired an aggregate 48.7 million shares of IAC for cash consideration of $1,166 million. At December 31,
2003, Liberty owns approximately 20% of IAC common stock representing an approximate 47% voting
interest. However, due to certain governance arrangements which limit its ability to exert signiÑcant inÖuence
over IAC, Liberty accounts for such investment as an available-for-sale security. Liberty also owned
approximately 3% of Vivendi and accounted for such investment as an available-for-sale security. During the
fourth quarter of 2003, Liberty sold all of its shares of Vivendi common stock in the open market for aggregate
cash proceeds of $838 million and recognized a $262 million gain (before tax expense of $102 million).
Time Warner
On January 11, 2001, America Online, Inc. completed its merger with Time Warner to form AOL Time
Warner (now known as Time Warner Inc.). 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.
Liberty recognized a $253 million gain (before deferred tax expense of $100 million) based upon the
diÅerence between the carrying value of Liberty's interest in Time Warner and the fair value of the AOL
Time Warner securities received.
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 2001 based upon the diÅerence between the carrying value of
Liberty's interest in BET and the value of the Viacom securities received.
F-55
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Nontemporary Declines in Fair Value of Investments
During the years ended December 31, 2003, 2002 and 2001, Liberty determined that certain of its AFS
Securities and cost investments experienced nontemporary declines in value. The primary factors considered
by Liberty in determining the timing of the recognition for the majority of these impairments was the length of
time the investments traded below Liberty's cost bases and the lack of near-term prospects for recovery in the
stock prices. As a result, the carrying amounts of such investments were adjusted to their respective fair values
based primarily on quoted market prices at the balance sheet date. These adjustments are reÖected as
nontemporary declines in fair value of investments in the consolidated statements of operations.
The following table identiÑes the realized losses attributable to each of the individual investments as
follows:
Investment
Years Ended December 31,
2001
2003
2002
(Amounts in millions)
Time Warner ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
News Corp. ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Sprint PCS ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
Vivendi ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ Ì
29
Others ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$Ì $2,567
1,393
1,077
409
607
$2,052
915
Ì
Ì
1,134
$29
$6,053
$4,101
Unrealized Holdings Gains and Losses
Unrealized holding gains and losses related to investments in available-for-sale securities that are
included in accumulated other comprehensive earnings are summarized below.
Gross unrealized holding gains ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gross unrealized holding lossesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 31, 2002
December 31, 2003
Debt
Equity
Debt
Equity
Securities
Securities
Securities
Securities
(Amounts in millions)
$1,357
$212
$ (87)
$ Ì
$5,779
$ Ì
$77
$Ì
Management estimates that the fair market value of all of its other cost investments approximated
$497 million and $342 million at December 31, 2003 and 2002, respectively. Management calculates market
values of its other cost investments using a variety of approaches including multiple of cash Öow, per
subscriber value, or a value of comparable public or private businesses. No independent appraisals were
conducted for those cost investment assets.
F-56
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(7) Derivative Instruments
The Company's derivative instruments are summarized as follows:
Type of
Derivative
ASSETS
December 31,
2003
2002
(Amounts in millions)
Equity collars(1) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Put spread collarsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$3,358
331
124
$ 5,014
478
65
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less current portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
3,813
(543)
5,557
(1,165)
$3,270
$ 4,392
LIABILITIES
Exchangeable debenture call option obligations ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Put options ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity collars ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Borrowed shares ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 990
774
293
533
41
$
536
929
Ì
Ì
23
Total ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less current portionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,631
(875)
1,488
(19)
$1,756
$ 1,469
(1) Includes narrow-band collars.
Equity Collars, Narrow-Band Collars, Put Spread Collars and Put Options
The Company has entered into equity collars, narrow-band collars, put spread collars, written put options
and other Ñnancial 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
speciÑed number of shares of the underlying security at a speciÑed price (the ""Company Put Price'') at a
speciÑed 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 speciÑed price at a speciÑed 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. Narrow-band collars are equity collars in which the put and call prices are set so that the
call option has a relatively higher fair value than the put option at the time of origination. In these cases the
Company receives cash equal to the diÅerence between such fair values.
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. However, the inclusion of the secondary put exposes the
Company to market risk if the underlying security trades below the put spread price.
F-57
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Exchangeable Debenture Call Option Obligations
Liberty has issued senior exchangeable debentures which are exchangeable for the value of a speciÑed
number of shares of Sprint PCS Group common stock, Motorola common stock, Viacom Class B common
stock or Time Warner common stock, as applicable. (See note 9 for a more complete description of the
exchangeable debentures.)
Prior to the adoption of Statement 133, the exchangeable debenture call option feature and the long-term
debt were reported together in the Company's consolidated balance sheet. Under 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 reÖect the call option
obligations at fair value ($459 million) and to recognize in net earnings the diÅerence 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 eÅect 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 derivative instruments in Liberty's
consolidated statements of operations.
Realized and Unrealized Gains on Derivative Instruments
Realized and unrealized gains (losses) on derivative instruments during the years ended December 31,
2003, 2002 and 2001 are comprised of the following:
2003
Years Ended December 31,
2002
(Amounts in millions)
2001
Change in fair value of exchangeable debenture call option feature
Change in fair value of hedged AFS Securities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in fair value of AFS derivatives ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in fair value of other derivatives(1)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(158)
Ì
(535)
44
$
784
(2,378)
3,665
51
$
167
(1,531)
1,177
13
Total realized and unrealized gains (losses), net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(649)
$ 2,122
$ (174)
(1) Comprised primarily of forward foreign exchange contracts and interest rate swap agreements.
(8) 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'').
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 were tracking stocks of AT&T designed to reÖect the economic
performance of the businesses and assets of AT&T attributed to the Liberty Media Group, which was
comprised of the businesses and assets of Liberty and its subsidiaries.
EÅective August 10, 2001, AT&T eÅected the split-oÅ of Liberty pursuant to which Liberty's common
stock was recapitalized, and each outstanding share of AT&T Liberty Media Group tracking stock was
redeemed for one share of Liberty common stock (the ""Split OÅ Transaction''). Subsequent to the Split OÅ
Transaction which was accounted for at historical cost, Liberty is no longer a subsidiary of AT&T.
In connection with the Split OÅ Transaction, Liberty was also deconsolidated from AT&T for federal
income tax purposes. Pursuant to an agreement entered into at the time of the AT&T Merger, AT&T was
F-58
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
required to pay Liberty an amount equal to 35% of the amount of the net operating loss carryforward reÖected
in TCI's Ñnal federal income tax return that had not been used as an oÅset to Liberty's obligations under a tax
sharing agreement and that had been, or was reasonably expected to be, utilized by AT&T. The $803 million
payment was received by Liberty prior to the Split OÅ Transaction and has been reÖected as an increase to
additional paid-in-capital in the accompanying consolidated statement of stockholders' equity. In addition,
certain deferred intercompany gains were includible in AT&T's taxable income as a result of the Split OÅ
Transaction, and AT&T was entitled to reimbursement from Liberty for the resulting tax liability of
approximately $115 million. Such tax liability has been reÖected as a reduction in additional paid-in-capital in
the accompanying consolidated statement of stockholders' equity.
(9) Long-Term Debt
Debt is summarized as follows:
Weighted Average
Interest Rate
2003
Parent company debt:
Senior notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior debentures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior exchangeable debentures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Bank debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
4.29%
8.33%
1.84%
Debt of subsidiaries:
Bank credit facilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other debt, at varying rates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Various
Total debtÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Less current maturities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Total long-term debt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior Notes and Debentures
December 31,
2003
2002
(Amounts in
millions)
$5,627
1,487
2,227
Ì
$ 983
1,486
865
325
9,341
3,659
143
115
258
1,242
70
1,312
9,599
(117)
4,971
(655)
$9,482
$4,316
In September 2003, Liberty issued $1,350 million principal amount of 3.5% senior notes due 2006 for net
cash proceeds of $1,347 million. Liberty used the proceeds from this oÅering to partially Ñnance its purchase
of Comcast's interest in QVC. See note 4.
Also as part of the consideration for QVC, Liberty issued $4,000 million of Floating Rate Notes due 2006
to Comcast. The Floating Rate Notes accrue interest at LIBOR plus a margin. The margin on the
$2,500 million principal amount of Floating Rate Notes sold by Comcast on September 24, 2003 is Ñxed at
1.5%. On September 24, 2003 and December 12, 2003, Liberty repurchased from subsidiaries of Comcast
$500 million and $1,000 million, respectively, principal amount of the Floating Rate Notes at a purchase price
equal to 100% of the principal amount plus accrued interest.
During the second quarter of 2003, Liberty issued $1,000 million principal amount of senior notes due
2013 with an interest rate of 5.70% for cash proceeds of $990 million net of oÅering discount and underwriting
fees.
F-59
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
In prior years, Liberty issued $750 million of 77/8% Senior Notes due 2009, $237.8 million of 73/4% Senior
Notes due 2009, $500 million of 81/2% Senior Debentures due 2029, and $1 billion of 81/4% Senior Debentures
due 2030. Interest on these obligations is payable semi-annually.
The senior notes and senior debentures are stated net of an aggregate unamortized discount of $24 million
and $19 million at December 31, 2003 and 2002, respectively, which is being amortized to interest expense in
the accompanying consolidated statements of operations.
Senior Exchangeable Debentures
In November 1999, Liberty issued $869 million of 4% Senior Exchangeable Debentures due 2029. 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 date Liberty's ownership level of Sprint PCS Group common stock falls below 10%, 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. Liberty's ownership in Sprint PCS was approximately
17% at December 31, 2003. Liberty, at its option, may redeem the debentures, in whole or in part, for cash.
In February and March 2000, Liberty issued an aggregate of $810 million of 33/4% Senior Exchangeable
Debentures due 2030. 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 date Liberty's ownership level of Sprint PCS Group
stock falls below 10%, 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. Liberty, at its option, may
redeem the debentures, in whole or in part, for cash.
In January 2001, Liberty issued $600 million of 31/2% Senior Exchangeable Debentures due 2031. 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, in whole or in part, for cash.
In March 2001, Liberty issued $817.7 million of 31/4% Senior Exchangeable Debentures due 2031. 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, in whole or in part, for cash.
In March and April 2003, Liberty issued an aggregate principal amount of $1,750 million of 0.75% Senior
Exchangeable Debentures due 2023 and received net cash proceeds of $1,715 million after expenses. Each
$1,000 debenture is exchangeable at the holder's option for the value of 57.4079 shares of Time Warner
common stock. Liberty may, at its election, pay the exchange value in cash, Time Warner common stock,
shares of Liberty Series A common stock or a combination thereof. On or after April 5, 2008, Liberty, at its
option, may redeem the debentures, in whole or in part, for shares of Time Warner common stock, cash or any
combination thereof. On March 30, 2008, March 30, 2013 or March 30, 2018, each holder may cause Liberty
to purchase its exchangeable debentures, and Liberty, at its election, may pay the purchase price in shares of
Time Warner common stock, cash, Liberty Series A common stock, or any combination thereof.
Interest on the Company's exchangeable debentures is payable semi-annually based on the date of
issuance. At maturity, all of the Company's exchangeable debentures are payable in cash.
In accordance with Statement 133, the call option feature of the exchangeable debentures is reported at
fair value and separately from the long-term debt in the consolidated balance sheet.
The reported amount of the long-term debt portion of the exchangeable debentures is calculated as the
diÅerence 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 $1,750 million of exchangeable
F-60
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
debentures issued during the year ended December 31, 2003, aggregated $406 million on the date of issuance.
Accordingly, the long-term debt portion was recorded at $1,344 million. The long-term debt is accreted to its
face amount over the expected term of the debenture using the eÅective interest method. Accretion related to
all of the Company's exchangeable debentures aggregated $61 million, $7 million and $6 million during the
years ended December 31, 2003, 2002 and 2001, respectively, and is included in interest expense in the
accompanying consolidated statements of operations.
Subsidiary Bank Credit Facilities
At December 31, 2003, Starz Encore had no amounts outstanding and $325 million available pursuant to
its bank credit facility. The bank credit facility contains restrictive covenants which require, among other
things, the maintenance of certain Ñnancial ratios, and include limitations on indebtedness, liens,
encumbrances, acquisitions, dispositions, guarantees and dividends. Additionally, the bank credit facility
requires the payment of fees of .2% per annum on the average unborrowed portion of the total commitment.
Such fees were not signiÑcant in 2003, 2002 and 2001. Starz Encore's ability to borrow the unused capacity
noted above is dependent on its continuing compliance with its covenants at the time of, and after giving eÅect
to, a requested borrowing.
At December 31, 2003, the subsidiary of Liberty that operates the DMX Music service was not in
compliance with three covenants contained in its bank loan agreement. The subsidiary and the participating
banks have entered into a forbearance agreement whereby the banks have agreed to forbear from exercising
certain default-related remedies against the subsidiary through March 31, 2004. The subsidiary will not be
able to repay its debt when the forbearance agreement expires and is currently considering its Ñnancing
options. The outstanding balance of the subsidiary's bank facility was $89 million at December 31, 2003, all of
which is included in current portion of debt. All other consolidated borrowers were in compliance with their
debt covenants at December 31, 2003.
Five Year Maturities
The U.S. dollar equivalent of the annual maturities of Liberty's debt for each of the next Ñve years is as
follows (amounts in millions):
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 117
$
24
$3,660
11
$
$1,759
Fair Value of Debt
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 oÅered to Liberty for debt of the same remaining maturities. The fair value of
Liberty's publicly traded debt at December 31, 2003 is as follows (amounts in millions):
Fixed rate senior notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Floating Rate Notes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior debentures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Senior exchangeable debentures, including call option liability ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$2,198
$2,500
$1,805
$4,368
Liberty believes that the carrying amount of its subsidiary debt approximated fair value at December 31,
2003.
F-61
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Add:
$ 9,599
Unamortized issue discount on senior notes and debentures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unamortized discount attributable to call option feature of exchangeable debentures
24
2,411
Face amount at maturity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$12,034
(10)
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
Liberty 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 beneÑt. 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 beneÑt. During the period from
March 10, 1999 to December 31, 2002, Liberty received cash payments from AT&T aggregating $555 million
as payment for Liberty's taxable losses that AT&T utilized to reduce its income tax liability. In the event
AT&T generates ordinary losses in 2003 or capital losses in 2003 or 2004 and is able to carry back such losses
to oÅset taxable income previously oÅset by Liberty's losses, Liberty may be required to refund as much as
$333 million of these cash payments.
Income tax beneÑt (expense) consists of:
Current:
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Deferred:
Federal ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
State and local ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years Ended December 31,
2002
2001
2003
(Amounts in millions)
$
$
10
(30)
(42)
(62)
(7)
(1)
(1)
(9)
$ 296
(2)
1
295
(251)
(52)
(9)
1,449
259
3
(312)
1,711
3,166
444
3
3,613
Income tax beneÑt (expense)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(374)
$1,702
$3,908
F-62
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Income tax beneÑt (expense) diÅers from the amounts computed by applying the U.S. federal income
tax rate of 35% as a result of the following:
Computed expected tax beneÑt ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment charges and amortization of goodwill not deductible for
income tax purposes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Disposition of nondeductible goodwill in sales transactions ÏÏÏÏÏÏÏÏÏ
State and local income taxes, net of federal income taxes ÏÏÏÏÏÏÏÏÏÏ
Foreign taxes ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Change in valuation allowance aÅecting tax expense ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments to dividend received deductionÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
EÅect of change in estimated state tax rate ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years Ended December 31,
2002
2001
2003
(Amounts in millions)
$1,820
$ 298
$3,809
(477)
Ì
(51)
(46)
(65)
(21)
Ì
(12)
(90)
(185)
169
(8)
(13)
16
Ì
(7)
(260)
Ì
289
13
(70)
17
91
19
Income tax beneÑt (expense)ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(374)
$1,702
$3,908
The tax eÅects of temporary diÅerences that give rise to signiÑcant portions of the deferred tax assets and
deferred tax liabilities at December 31, 2003 and 2002 are presented below:
December 31,
2003
2002
(Amounts in millions)
Deferred tax assets:
Net operating and capital loss carryforwards ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Accrued stock compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other future deductible amounts ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
830
102
143
Deferred tax assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Valuation allowance ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
1,075
(386)
Net deferred tax assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
689
Deferred tax liabilities:
InvestmentsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Intangible assets ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discount on exchangeable debentures ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
7,235
2,664
849
191
Deferred tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
10,939
$ 635
265
16
916
(363)
553
6,057
120
803
38
7,018
Net deferred tax liabilities ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$10,250
$6,465
The Company's valuation allowance increased $23 million in 2003, including a $65 million charge to tax
expense partially oÅset by a $42 million reversal of valuation allowance recorded in connection with
acquisitions.
At December 31, 2003, Liberty had net operating and capital loss carryforwards for income tax purposes
aggregating approximately $2,304 million which, if not utilized to reduce taxable income in future periods, will
expire as follows: 2004: $1 million; 2005: $14 million; 2006: $51 million; 2007: $78 million; 2008: $12 million;
F-63
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
2009: $64 million; 2010: $5 million; and beyond 2010: $2,079 million. Of the foregoing net operating and
capital loss carryforward amount, approximately $1,281 million is subject to certain limitations and may not be
currently utilized. The remaining $1,023 million is currently available to be utilized to oÅset future taxable
income of Liberty's consolidated tax group.
AT&T, as the successor to TCI, is the subject of an Internal Revenue Service (""IRS'') audit for the
1993-1999 tax years. The IRS notiÑed AT&T and Liberty that it was proposing income adjustments and
assessing certain penalties in connection with TCI's 1994 tax return. The IRS, AT&T and Liberty have
reached an agreement whereby AT&T will recognize additional income of $94 million with respect to this
matter, and no penalties will be assessed. Pursuant to the tax sharing agreement between Liberty and AT&T,
Liberty may be obligated to reimburse AT&T for any tax that AT&T is ultimately assessed as a result of this
agreement. Liberty is currently unable to estimate any such tax liability and resulting reimbursement, but
believes that any such reimbursement will not be material to its Ñnancial position.
(11) Stockholders' Equity
Preferred Stock
Liberty's preferred stock is issuable, from time to time, with such designations, preferences and relative
participating, option or other special rights, qualiÑcations, 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 Liberty's
Board of Directors. As of December 31, 2003, no shares of preferred stock were issued.
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, 2003, there were 56 million shares of Liberty Series A common stock and 28 million
shares of Liberty Series B common stock reserved for issuance under exercise privileges of outstanding stock
options and warrants.
Purchases of Common Stock
During the years ended December 31, 2003 and 2002, the Company purchased 42.3 million and
25.7 million shares of its common stock for aggregate cash consideration of $437 million and $281 million,
respectively. These purchases have been accounted for as retirements of common stock and have been
reÖected as a reduction of stockholders' equity in the accompanying consolidated balance sheet.
During 2002, Liberty sold put options on 7.0 million shares of its Series A common stock, 4.0 million of
which were outstanding at December 31, 2002. Liberty sold another 9.3 million put options in the Ñrst quarter
of 2003. All of these options expired unexercised prior to December 31, 2003. The Company accounted for
these put options pursuant to EITF 00-19, ""Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company's Own Stock'' and recorded a net increase to additional paid-in-capital of
$37 million during the year ended December 31, 2003.
(12) Transactions with OÇcers and Directors
Chairman's Employment Agreement
In connection with the AT&T Merger, an employment agreement between the Company's Chairman and
TCI was assigned to the Company.
F-64
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The Chairman's employment agreement provides for, among other things, deferral of a portion (not in
excess of 40%) of the monthly compensation payable to him for all employment years commencing on or after
January 1, 1993. The deferred amounts will be payable in monthly installments over a 20-year period
commencing on the termination of the Chairman's employment, together with interest thereon at the rate of
8% per annum compounded annually from the date of deferral to the date of payment. The aggregate liability
under this arrangement at December 31, 2003 is $1.6 million, and is included in other liabilities in the
accompanying consolidated balance sheet.
The Chairman's employment agreement also provides that in the event of termination of his employment
with Liberty, he will be entitled to receive 240 consecutive monthly payments equal to $15,000 increased at
the rate of 12% per annum compounded annually from January 1, 1988 to the date payment commences
($82,103 per month as of December 31, 2003). Such payments would commence on the Ñrst day of the month
succeeding the termination of employment. In the event of the Chairman's death, his beneÑciaries would be
entitled to receive the foregoing monthly payments. The aggregate liability under this arrangement at
December 31, 2003 is $19.7 million, and is included in other liabilities in the accompanying consolidated
balance sheet.
The Company's Chairman deferred a portion of his monthly compensation under his previous
employment agreement with TCI. The Company assumed the obligation to pay that deferred compensation in
connection with the AT&T Merger. The deferred obligation (together with interest at the rate of 13% per
annum compounded annually), which aggregated $10.9 million at December 31, 2003 and is included in other
liabilities, is payable on a monthly basis, following the occurrence of speciÑed events, under the terms of the
previous employment agreement. The rate at which interest accrues on the deferred obligation was established
in 1983 pursuant to the previous employment agreement.
Other
EÅective November 28, 2003, Liberty acquired all the outstanding stock of TP Investment, Inc.
(""TPI''), a corporation wholly owned by TP-JCM, LLC, a limited liability company in which the sole
member is the Company's Chairman. In exchange for the stock of TPI, TP-JCM received 5,281,739 shares of
the Company's Series B common stock, valued in the agreement at $11.50 per share. As prescribed by the
Agreement and Plan of Merger pursuant to which the acquisition was eÅected, that per share value equals
110% of the average of the closing sale prices of the Company's Series A Common Stock for the ten trading
days ended November 28, 2003. TPI owns 10,602 shares of Series B Preferred Stock of Liberty TP
Management, Inc. (""Liberty TP Management''), a subsidiary of the Company. Those shares of Series B
Preferred Stock represent 12% of the voting power of Liberty TP Management. TPI also owns a 5%
membership interest (representing a 50% voting interest) in Liberty TP LLC, a limited liability company
which owns approximately 20.6% of the common equity and 27.2% of the voting power of Liberty TP
Management. As a result of the acquisition, the Company beneÑcially owns all the equity and voting interests
in Liberty TP Management. Liberty TP Management owns our interest in True Position and certain equity
interests in Sprint PCS Group, IDT Investments, Inc. and priceline.com.
In connection with the acquisition of TPI, the Company entered into a registration rights agreement.
That agreement provides for the registration by the Company under applicable federal and state securities
laws, at the holder's request, of the sale of shares of the Company's Series A Common Stock issuable upon
conversion of shares of the Series B Common Stock that were issued to TP-JCM.
The shares of Series B Common Stock issued to TP-JCM are subject to the Company's rights to
purchase such shares pursuant to a call agreement entered into in February 1998 by the chairman and his
spouse. Pursuant to the call agreement, Liberty has the right to acquire all of the Series B Liberty common
stock held by the Chairman and his spouse 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-65
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
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 the Chairman and
Chief Executive OÇcer of On Command, who at the time was 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 diÅerence 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 August 2000, On Command sold shares of its Series A Convertible Participating Preferred Stock (the
""Preferred Shares'') to a former director of Liberty, who was also the Chairman and Chief Executive OÇcer
of On Command, for a $21 million note. The Preferred Shares are convertible into 236,250 shares of Liberty
Series A common stock. The note is secured by the Preferred Shares or the proceeds from the sale of such
shares and the former 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. This
arrangement has been treated as a Ñxed plan option for accounting purposes.
(13) Stock Options and Stock Appreciation Rights
Liberty
EÅective with the Split OÅ 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 to current and former Liberty employees of
options and options with tandem 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 OÅ 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 of the foregoing.
EÅective February 28, 2001 (the ""EÅective 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 oÇcers of the Company. Pursuant to such
restructuring, all Restructured Options became exercisable on the EÅective Date, and each executive oÇcer
was given the choice to exercise all of his Restructured Options. Each executive oÇcer who opted to exercise
his Restructured Options received consideration equal to the excess of the closing price of the subject
securities on the EÅective Date over the exercise price. The exercising oÇcers received (i) a combination of
cash and AT&T Liberty Media Group tracking stock for Restructured Options that were vested prior to the
EÅective Date and (ii) cash for Restructured Options that were previously unvested. The executive oÇcers
used the cash proceeds from the previously unvested options to purchase restricted shares of AT&T Liberty
Media Group tracking stock which were converted into shares of Liberty common stock upon completion of
the Split OÅ Transaction. Such restricted shares vested according to a schedule that corresponded to the
vesting schedule applicable to the previously unvested options. As of December 31, 2003, all of the restricted
shares were vested.
In addition, each executive oÇcer 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 Ñve. The free-
standing SARs were granted with an exercise price of $14.70 ($15.35 in the case of Liberty Series B options)
F-66
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
and had a fair value of $9.56 on the date of the grant. Upon completion of the Split OÅ Transaction, the free-
standing SARs automatically converted to options to purchase Liberty Series A common stock (and in some
cases Liberty Series B common stock). Prior to the EÅective 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 signiÑcant impact on Liberty's results of operations.
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 oÇcers and key employees of the Company. Such options have a 10-year term, 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.
During the Ñrst quarter of 2002, the Company reduced the exercise price of 2.3 million stock options
previously granted to three executive oÇcers from a weighted average exercise price of $21.66 to $14.70,
which new exercise price exceeded the closing market price of Liberty Series A common stock on the date of
repricing. As a result of such repricing, these options are now accounted for as variable plan awards. Options
held by Liberty's Chairman, Chief Executive OÇcer and Chief Operating OÇcer were not included in the
foregoing repricing.
In connection with the Company's Rights OÅering, which expired on December 2, 2002, and pursuant to
the Liberty Incentive Plan antidilution provisions, the number of shares and the applicable exercise prices of
all Liberty options granted pursuant to the Liberty Incentive Plan were adjusted as of October 31, 2002, the
record date for the Rights OÅering. As a result of the foregoing modiÑcations, all of the Company's
outstanding options are now accounted for as variable plan awards.
During the year ended December 31, 2003, Liberty awarded 6,167,000 free standing SARs to its oÇcers
and employees. Such SARs have a 10-year term, exercise prices ranging from $11.09 to $14.33, vest as to 20%
on each of the Ñrst Ñve anniversaries of the respective grant date, and had a weighted average grant date fair
value of $5.57 per share.
On December 17, 2002, shareholders of the Company approved the Liberty Media Corporation 2002
Nonemployee Director Incentive Plan (the ""NDIP''). Under the NDIP, the Liberty Board of Directors (the
""Liberty Board'') has the full power and authority to grant eligible nonemployee directors stock options,
SARs, stock options with tandem SARs, and restricted stock. EÅective September 9, 2003, the Liberty Board
granted each nonemployee director of Liberty 11,000 free standing SARs at an exercise price of $11.85. These
options expire 10 years from the date of grant, vest on the Ñrst anniversary of the grant date and had a grant
date fair value of $5.93 per share.
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
F-67
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
date of grant; (b) a 32% 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.
The following table presents the number and weighted average exercise price (""WAEP'') of certain
options, SARs and options with tandem SARs to purchase Liberty Series A and Series B common stock
granted to certain oÇcers, employees and directors of the Company.
Liberty
Series A
Common
Stock
Liberty
Series B
Common
Stock
WAEP
WAEP
(Numbers of options in thousands)
Outstanding at January 1, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GrantedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CanceledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
77,516
21,625
(50,315)
(1,167)
Outstanding at December 31, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GrantedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CanceledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Options issued in mergersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Adjustments pursuant to antidilution provisions ÏÏÏÏÏÏ
Outstanding at December 31, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GrantedÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Exercised ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
CanceledÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Options issued in mergersÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
47,659
525
(488)
(995)
744
1,216
48,661
6,233
(323)
(619)
1,142
$ 7.20
$14.72
$ 7.62
$16.88
$11.69
$12.38
$ 3.51
$25.70
$34.55
$ 9.60
$11.88
$ 4.68
$17.22
$78.53
Ì
27,462
Ì
Ì
27,462
Ì
Ì
Ì
Ì
703
28,165
Ì
Ì
Ì
Ì
$15.35
$15.35
$14.96
Outstanding at December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
55,094
$11.23
28,165
$14.96
Exercisable at December 31, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
23,494
$ 4.66
Ì
Exercisable at December 31, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
30,402
$ 6.78
8,450
$14.96
Exercisable at December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
34,529
$ 9.12
13,378
$14.96
Vesting period ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
5 yrs
5 yrs
The following table provides additional information about the Company's outstanding options to purchase
Liberty Series A common stock at December 31, 2003.
No. of
Outstanding
Options
(000's)
17,356
1,007
34,776
470
1,485
55,094
Range of Exercise
Prices
1.06-$4.07
$
$
6.14-$9.70
$ 10.53-$14.37
$ 15.69-$15.95
$21.88-$305.25
Weighted
Average
Remaining
Life
2.0 years
3.3 years
7.3 years
6.1 years
6.3 years
No. of
Exercisable
Options
(000's)
17,356
1,007
14,822
347
997
34,529
WAEP of
Exercisable
Options
$ 1.97
$ 6.91
$13.61
$15.88
$66.73
WAEP of
Outstanding
Options
$ 1.97
$ 6.91
$13.56
$15.89
$66.27
F-68
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Junior Stock Plans
In July 2001, Liberty LWR, Inc. (""LWR''), a wholly-owned subsidiary of Liberty, formed Liberty
Livewire Holdings, Inc. (""Livewire Holdings'') as a wholly owned subsidiary. LWR then sold to certain
oÇcers and a director of Liberty 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 could require Liberty to purchase, after Ñve 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 had the right to purchase, in exchange for its common stock, their common stock interests in
Livewire Holdings for fair market value at any time. EÅective May 9, 2003, all of the assets of Livewire
Holdings were distributed to LWR as the holder of all of the preferred stock interest in Livewire Holdings, and
Livewire Holdings was dissolved.
In September 2000, certain oÇcers 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 oÇcers entered into a shareholders agreement in
which the oÇcers could require Liberty to purchase, after Ñve years, all or part of their common stock interest
in exchange for Series A Liberty common stock at the then fair market value. The shareholders agreement
also provides that upon termination of employment, Liberty will repurchase the oÇcers' interest for the
original purchase price plus 6%. In addition, Liberty has the right to purchase, in exchange for Series A
Liberty common stock, the common stock interests held by the oÇcers at fair market value at any time.
During 2001, two of the oÇcers resigned their positions with the Company, and the Company purchased their
respective interests in the subsidiary pursuant to the terms of the agreement. No compensation related to this
stock plan was recognized by Liberty in 2003, 2002 or 2001.
In May 2000, Liberty's President and Chief Executive OÇcer, certain oÇcers 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 J-COM. Liberty and the individuals entered into a shareholders agreement in which the
individuals could require Liberty to purchase, after Ñve 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 oÇcers at
fair market value at any time. Liberty recognized $1 million, less than $1 million, and $4 million of
compensation expense related to changes in the market value of its contingent liability to reacquire the
common stock interests held by these oÇcers during the years ended December 31, 2003, 2002 and 2001,
respectively.
QVC
QVC has a qualiÑed and nonqualiÑed combination stock option/stock appreciation rights plan
(collectively, the ""Tandem Plan'') for employees, oÇcers, directors and other persons designated by the Stock
Option Committee of QVC's board of directors. Under the Tandem Plan, the option price is generally equal to
the fair market value, as determined by an independent appraisal, of a share of the underlying common stock
of QVC at the date of the grant. The fair value of a share of QVC common stock as of the latest valuation date
is $2,270. If the eligible participant elects the SAR feature of the Tandem Plan, the participant receives 75%
of the excess of the fair market value of a share of QVC common stock over the exercise price of the option to
which it is attached at the exercise date. The holders of a majority of the outstanding options have stated an
intention not to exercise the SAR feature of the Tandem Plan. Because the exercise of the option component
is more likely than the exercise of the SAR feature, compensation expense is measured based on the stock
option component. As a result, QVC is applying Ñxed plan accounting in accordance with APB Opinion
No. 25. Under the Tandem Plan, option/SAR terms are ten years from the date of grant, with options/SARs
generally becoming exercisable over four years from the date of grant. At December 31, 2003, there were a
F-69
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
total of 142,671 options outstanding, 41,632 of which were vested at a weighted average exercise price of
$957.44 and 101,039 of which were unvested at a weighted average exercise price of $1,523.21.
In the fourth quarter of 2003, Liberty granted to certain oÇcers and employees of QVC a total of
10,098,978 restricted shares of Liberty Series A common stock. Such shares vest as to 33% on each of
January 1, 2005, 2006 and 2007. These shares had a grant date fair value of $10.08 per share.
Starz Encore
Starz Encore has granted Phantom Stock Appreciation Rights (""PSARS'') to certain of its oÇcers and
employees, including its chief executive oÇcer, under this plan. PSARS granted under the plan generally vest
over a Ñve year period. Substantially all of these PSARs are fully vested as of December 31, 2003.
Compensation under the PSARS is computed based upon the percentage of PSARS that are vested and a
formula derived from the appraised fair value of the net assets of Starz Encore. All amounts earned under the
plan are payable in cash, Liberty common stock or a combination thereof. At December 31, 2003 the amount
accrued pursuant to this plan was $94 million.
EÅective December 27, 2002, the chief executive oÇcer of Starz Encore elected to exercise 54% of his
outstanding PSARS. In July 2003, Starz Encore satisÑed the amount due the oÇcer with a cash payment of
$287 million.
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 signiÑcant to Liberty.
(14) Employee BeneÑt Plans
Liberty is the sponsor of the Liberty Media 401(k) Savings Plan (the ""Liberty 401(k) Plan''), which
provides its employees and the employees of certain of its subsidiaries an opportunity for ownership in the
Company and creates a retirement fund. The Liberty 401(k) Plan provides for employees to make
contributions to a trust for investment in Liberty common stock, as well as several mutual funds. The
Company and its subsidiaries make matching contributions to the Liberty 401(k) Plan based on a percentage
of the amount contributed by employees. In addition, certain of the Company's subsidiaries have their own
employee beneÑt plans. Employer cash contributions to all plans aggregated $16 million, $10 million and
$10 million for the years ended December 31, 2003, 2002 and 2001, respectively.
F-70
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(15) Other Comprehensive Earnings (Loss)
Accumulated other comprehensive earnings (loss) included in Liberty's consolidated balance sheets and
consolidated statements of stockholders' equity reÖect the aggregate of foreign currency translation
adjustments and unrealized holding gains and losses on AFS Securities. The change in the components of
accumulated other comprehensive earnings (loss), net of taxes, is summarized as follows:
Foreign
Currency
Translation
Adjustments
Unrealized
Holding Gains
(Losses) on
Securities
Accumulated
Other
Comprehensive
Earnings (Loss),
Net of Taxes
(Amounts in millions)
Balance at January 1, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive earnings (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(142)
(357)
Balance at December 31, 2001 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Balance at December 31, 2002 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other comprehensive earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other activity ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
(499)
(101)
(600)
149
1
$ (255)
1,594
1,339
(513)
826
2,826
(1)
Balance at December 31, 2003 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(450)
$3,651
$ (397)
1,237
840
(614)
226
2,975
Ì
$3,201
The components of other comprehensive earnings (loss) are reÖected in Liberty's consolidated
statements of comprehensive earnings (loss) net of taxes. The following table summarizes the tax eÅects
related to each component of other comprehensive earnings/loss.
Before-Tax
Amount
Tax
(Expense)
BeneÑt
(Amounts in millions)
Net-of-Tax
Amount
Year ended December 31, 2003:
Foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized holding gains on securities arising during period
ReclassiÑcation adjustment for gains realized in net loss ÏÏÏÏ
$
244
5,662
(1,030)
$
(95)
(2,208)
402
$
149
3,454
(628)
Other comprehensive earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,876
$(1,901)
$ 2,975
Year ended December 31, 2002:
Foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized holding losses on securities arising during period
ReclassiÑcation adjustment for losses realized in net lossÏÏÏÏ
$ (166)
(6,739)
5,898
$
65
2,628
(2,300)
$ (101)
(4,111)
3,598
Other comprehensive loss ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(1,007)
Year ended December 31, 2001:
Foreign currency translation adjustments ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Unrealized holding losses on securities arising during period
ReclassiÑcation adjustment for losses realized in net lossÏÏÏÏ
Cumulative eÅect of accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (585)
(1,661)
4,416
(143)
$
$
393
$ (614)
228
648
(1,722)
56
$ (357)
(1,013)
2,694
(87)
Other comprehensive earnings ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 2,027
$ (790)
$ 1,237
F-71
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(16) Transactions with AT&T and Other Related Parties
Subsidiaries of Liberty provide services to various equity aÇliates of Liberty, including Discovery
Communications. Total revenue recognized by Liberty subsidiaries for such services aggregated $19 million,
$6 million and $17 million for the years ended December 31, 2003, 2002 and 2001, respectively.
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 aÇliation agreements. Charges to
AT&T were based upon customary rates charged to others. Amounts included in revenue for services provided
to AT&T prior to the Split OÅ Transaction were $210 million for the seven months ended July 31, 2001.
Prior to the Split OÅ 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 were 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 during the seven months ended July 31, 2001 (the period immediately prior to the Split OÅ
Transaction) and are included in operating and SG&A expenses in the accompanying consolidated statement
of operations.
(17) Commitments and Contingencies
Film Rights
Starz Encore, a wholly-owned subsidiary of Liberty, provides premium video programming distributed by
cable operators, direct-to-home satellite providers and other distributors throughout the United States. Starz
Encore has entered into agreements with a number of motion picture producers which obligate Starz Encore
to pay fees for the rights to exhibit certain Ñlms that are released by these producers. The unpaid balance
under agreements for Ñlm rights related to Ñlms that were available to Starz Encore at December 31, 2003 is
reÖected as a liability in the accompanying consolidated balance sheet. The balance due as of December 31,
2003 is payable as follows: $177 million in 2004 and $48 million in 2005.
Starz Encore has also contracted to pay fees for the rights to exhibit Ñlms that have been released
theatrically, but are not available for exhibition by Starz Encore until some future date. These amounts have
not been accrued at December 31, 2003. Starz Encore's estimate of amounts payable under these agreements
is as follows: $558 million in 2004; $231 million in 2005; $140 million in 2006; $112 million in 2007;
$108 million in 2008; and $233 million thereafter.
Starz Encore is also obligated to pay fees for Ñlms that are released by certain producers through 2010
when these Ñlms meet certain criteria described in the studio output agreements. The actual contractual
amount to be paid under these agreements is not known at this time. However, such amounts are expected to
be signiÑcant. Starz Encore's total Ñlm rights expense aggregated $398 million, $358 million and $354 million
for the years ended December 31, 2003, 2002 and 2001, respectively.
In addition to the foregoing contractual Ñlm obligations, two motion picture studios that have output
contracts with Starz Encore through 2006 and 2010, respectively, have the right to extend their contracts for
an additional three years. If the Ñrst studio elects to extend its contract, Starz Encore has agreed to pay the
studio $60 million within Ñve days of the studio's notice to extend. The studio is required to exercise its option
by December 31, 2004. If the second studio elects to extend its contract, Starz Encore has agreed to pay the
studio a total of $190 million in four annual installments. The studio is required to exercise this option by
December 31, 2007. If made, Starz Encore's payments to the studios would be amortized ratably over the
term of the respective output agreement extension.
F-72
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Guarantees
Liberty guarantees Starz Encore's obligations under certain of its studio output agreements. At
December 31, 2003, Liberty's guarantee for obligations for Ñlms released by such date aggregated
$799 million. While the guarantee amount for Ñlms not yet released is not determinable, such amount is
expected to be signiÑcant. As noted above Starz Encore has recognized the liability for a portion of its
obligations under the output agreements. As this represents a commitment of Starz Encore, a consolidated
subsidiary of Liberty, Liberty has not recorded a separate liability for its guarantee of these obligations.
At December 31, 2003, Liberty has guaranteed Í14.4 billion ($134 million) of the bank debt of J-COM,
an equity aÇliate that provides broadband services in Japan. Liberty's guarantees expire as the underlying debt
matures and is repaid. The debt maturity dates range from 2004 to 2018. In addition, Liberty has agreed to
fund up to an additional Í10 billion ($93 million at December 31, 2003) to J-COM in the event J-COM's
cash Öow (as deÑned in its bank loan agreement) does not meet certain targets. In the event J-COM meets
certain performance criteria, this commitment expires on September 30, 2004.
Liberty has guaranteed various leases, loans, notes payable, letters of credit and other obligations (the
""Guaranteed Obligations'') of certain other aÇliates. At December 31, 2003, the Guaranteed Obligations
aggregated approximately $160 million and are not reÖected in Liberty's consolidated balance sheet at
December 31, 2003. Currently, Liberty is not certain of the likelihood of being required to perform under such
guarantees.
In connection with agreements for the sale of certain assets, Liberty typically retains liabilities that relate
to events occurring prior to its sale, such as tax, environmental, litigation and employment matters. Liberty
generally indemniÑes the purchaser in the event that a third party asserts a claim against the purchaser that
relates to a liability retained by Liberty. These types of indemniÑcation guarantees typically extend for a
number of years. Liberty is unable to estimate the maximum potential liability for these types of
indemniÑcation guarantees as the sale agreements typically do not specify a maximum amount and the
amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which
cannot be determined at this time. Historically, Liberty has not made any signiÑcant indemniÑcation
payments under such agreements and no amount has been accrued in the accompanying consolidated Ñnancial
statements with respect to these indemniÑcation guarantees.
Operating Leases
Liberty leases business oÇces, has entered into pole rental and transponder lease agreements and uses
certain equipment under lease arrangements. Rental expense under such arrangements amounted to
$74 million, $69 million and $76 million for the years ended December 31, 2003, 2002 and 2001, respectively.
A summary of future minimum lease payments under noncancelable operating leases as of December 31,
2003 follows (amounts in millions):
Years ending December 31:
2004 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2005 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2006 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2007 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2008 ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Thereafter ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 82
$ 67
$ 55
$ 44
$ 34
$120
F-73
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (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 2003.
Litigation
Liberty has contingent liabilities related to legal and tax 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 Ñnancial statements.
(18)
Information About Liberty's Operating Segments
Liberty is a holding company, which through its ownership of interests in subsidiaries and other
companies, is primarily engaged in the electronic retailing, media, communications and entertainment
industries. Each of these businesses is separately managed. Liberty has organized its businesses into four
Groups based upon each businesses' services or products: Interactive Group, International Group, Networks
Group and Corporate and Other. Liberty's chief operating decision maker and management team review the
combined results of operations of each of these Groups (including consolidated subsidiaries and equity
method aÇliates), as well as the results of operations of each individual business in each Group.
Liberty identiÑes its reportable segments as (A) those consolidated subsidiaries that (1) represent 10%
or more of its consolidated revenue, earnings before income taxes or total assets or (2) are signiÑcant to an
evaluation of the performance of a Group; and (B) those equity method aÇliates (1) whose share of earnings
represent 10% or more of Liberty's pre-tax earnings or (2) are signiÑcant to an evaluation of the performance
of a Group. The segment presentation for prior periods has been conformed to the current period segment
presentation. Liberty evaluates performance and makes decisions about allocating resources to its Groups and
operating segments based on Ñnancial measures such as revenue, operating cash Öow, gross margin, and
revenue or sales per customer equivalent. In addition, Liberty reviews non-Ñnancial measures such as average
prime time rating, prime time audience delivery, subscriber growth and penetration, as appropriate.
Liberty deÑnes operating cash Öow as revenue less cost of sales, operating expenses, and selling, general
and administrative expenses (excluding stock compensation). Liberty believes this is an important indicator of
the operational strength and performance of its businesses, including the ability to service debt and fund
capital expenditures. In addition, this measure allows management to view operating results and perform
analytical comparisons and benchmarking between businesses and identify strategies to improve performance.
This measure of performance excludes depreciation and amortization, stock compensation and restructuring
and impairment charges that are included in the measurement of operating income pursuant to GAAP.
Accordingly, operating cash Öow should be considered in addition to, but not as a substitute for, operating
income, net income, cash Öow provided by operating activities and other measures of Ñnancial performance
prepared in accordance with GAAP. Liberty generally accounts for intersegment sales and transfers as if the
sales or transfers were to third parties, that is, at current prices.
For the year ended December 31, 2003, Liberty has identiÑed the following consolidated subsidiaries and
equity method aÇliates as its reportable segments:
Interactive Group
‚ QVC Ì consolidated subsidiary that markets and sells a wide variety of consumer products in the US
and several foreign countries, primarily by means of televised shopping programs on the QVC networks
and via the Internet through its domestic and international websites.
F-74
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
‚ Ascent Media Group (""Ascent Media'') Ì consolidated subsidiary that provides sound, video and
ancillary post-production and distribution services to the motion picture and television industries in the
United States, Europe and Asia.
International Group
‚ UGC Ì 52% owned equity method aÇliate that provides broadband communications services,
including video, voice and data with operations in over 25 countries.
‚ J-COM Ì 45% owned equity method aÇliate that provides broadband communications services in
Japan.
‚ Jupiter Programming Co., Ltd. (""JPC'') Ì 50% owned equity method aÇliate that provides cable and
satellite television programming in Japan.
Networks Group
‚ Starz Encore Ì consolidated subsidiary that provides premium programming distributed by cable
operators, direct-to-home satellite providers and other distributors throughout the United States.
‚ Discovery Ì 50% owned equity method aÇliate that provides original and purchased cable television
programming in the U.S. and over 150 other countries.
‚ Courtroom Television Network, LLC (""Court TV'') Ì 50% owned equity method aÇliate that
operates a basic cable network that provides informative and entertaining programming based on the
American legal system.
‚ Game Show Network, LLC (""GSN'') Ì 50% owned equity method aÇliate that operates a basic
cable network dedicated to the world of games, game playing and game shows.
Liberty's reportable segments are strategic business units that oÅer diÅerent products and services. They
are managed separately because each segment requires diÅerent technologies, distribution channels and
marketing strategies. The accounting policies of the segments that are also consolidated subsidiaries are the
same as those described in the summary of signiÑcant policies.
The amounts presented below represent 100% of each business' revenue, operating cash Öow and
operating income. These amounts are combined on an unconsolidated basis and are then adjusted to remove
the eÅects of the equity method investments to arrive at the consolidated balances for each group. This
presentation is designed to reÖect the manner in which management reviews the operating performance of
individual businesses within each group regardless of whether the investment is accounted for as a
consolidated subsidiary or an equity investment. It should be noted, however, that this presentation is not in
accordance with GAAP since the results of equity method investments are required to be reported on a net
basis. Further, we could not, among other things, cause any noncontrolled aÇliate to distribute to us our
proportionate share of the revenue or operating cash Öow of such aÇliate.
F-75
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Performance Measures
2003
Revenue
Operating
Cash Flow
Years Ended December 31,
2002
Operating
Revenue
Cash Flow
(Amounts in millions)
2001
Revenue
Operating
Cash Flow
Interactive Group
QVC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ascent Media ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏ
Equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,889
508
317
88
Combined Interactive Group ÏÏÏÏÏÏ
Eliminate equity method aÇliatesÏÏÏÏ
5,802
(3,004)
Consolidated Interactive GroupÏÏÏÏ
2,798
International Group
Consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏ
UGCÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
J-COMÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
JPCÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other equity method aÇliates ÏÏÏÏÏÏÏ
$
107
1,892
1,233
412
614
$ 1,013
75
(13)
(20)
1,055
(561)
$
494
27
629
429
54
91
Combined International Group ÏÏÏÏ
Eliminate equity method aÇliatesÏÏÏÏ
4,258
(4,151)
1,230
(1,203)
Consolidated International Group ÏÏ
107
Networks Group
Starz Encore ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discovery ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Court TV ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GSN ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏ
$
906
1,995
193
76
208
Combined Networks Group ÏÏÏÏÏÏÏ
Eliminate equity method aÇliatesÏÏÏÏ
3,378
(2,264)
Consolidated Networks GroupÏÏÏÏÏ
1,114
Corporate and OtherÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
9
$
27
368
508
44
1
13
934
(553)
381
(70)
$ 4,362
538
256
138
5,294
(4,500)
794
$
100
1,515
931
274
568
3,388
(3,288)
100
$
945
1,717
148
53
200
3,063
(1,918)
1,145
45
$ 861
87
(26)
(91)
831
(770)
$
61
26
296
211
32
87
652
(626)
26
$ 371
379
(1)
(11)
3
741
(367)
374
(37)
$ 3,894
593
239
Ì
4,726
(3,894)
$ 722
89
(13)
Ì
798
(722)
832
76
$
138
1,562
629
207
854
3,390
(3,252)
138
$
863
1,517
118
37
167
2,702
(1,672)
1,030
59
$
42
(191)
57
19
61
(12)
54
42
$ 313
286
(3)
(17)
14
593
(266)
327
(68)
Consolidated LibertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 4,028
$
832
$ 2,084
$ 424
$ 2,059
$ 377
F-76
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
Balance Sheet Information
December 31,
2003
Total
Assets
Investments
in AÇliates
Total
Assets
(Amounts in millions)
2002
Investments
in AÇliates
Interactive Group
QVC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Ascent Media ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Equity method aÇliatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 13,806
741
592
548
$
Combined Interactive Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏ
15,687
(548)
Consolidated Interactive Group ÏÏÏÏÏÏÏÏÏÏÏÏ
15,139
International Group
Consolidated subsidiariesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
UGC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
J-COM ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
JPC ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
406
7,100
3,926
192
1,756
77
4
Ì
Ì
81
Ì
81
$ Ì
95
7
24
12
Combined International GroupÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏ
13,380
(12,974)
138
(138)
Consolidated International Group ÏÏÏÏÏÏÏÏÏÏ
406
Networks Group
Starz EncoreÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Discovery ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Court TV ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
GSN ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other consolidated subsidiaries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
2,745
3,143
272
101
228
Combined Networks Group ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Eliminate equity method aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏ
6,489
(3,516)
Consolidated Networks Group ÏÏÏÏÏÏÏÏÏÏÏÏÏ
2,973
$
Ì
50
80
Ì
Ì
1
131
(80)
51
Corporate and Other ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
35,495
5,222
$
$
2,886
778
704
176
4,544
(3,062)
1,482
388
5,932
3,485
132
1,184
11,121
(10,733)
388
$
3,090
3,068
248
95
236
6,737
(3,411)
3,326
34,489
$ Ì
4
Ì
Ì
4
Ì
4
$ Ì
154
3
12
7
176
(176)
Ì
$ 141
65
Ì
Ì
3
209
(65)
144
7,242
Consolidated Liberty ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ 54,013
$5,354
$ 39,685
$7,390
F-77
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
The following table provides a reconciliation of segment operating cash Öow to earnings before income
taxes:
2003
Years Ended December 31,
2002
(Amounts in millions)
2001
Consolidated segment operating cash Öow ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Stock compensation ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Depreciation and amortizationÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Impairment of long-lived assetsÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Interest expenseÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Share of earnings (losses) of aÇliates ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Nontemporary declines in fair value of investments ÏÏÏÏÏÏÏÏÏÏÏ
Realized and unrealized gains (losses) on derivative
instruments, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Gains (losses) on dispositions, net ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Other, netÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
832
84
(510)
(1,362)
(539)
58
(29)
$
424
51
(384)
(275)
(423)
(453)
(6,053)
(649)
1,128
137
2,122
(415)
205
377
(132)
(984)
(388)
(525)
(4,906)
(4,101)
(174)
(310)
261
Loss before income taxes and minority interest ÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$ (850)
$(5,201)
$(10,882)
Revenue by Geographic Area
United StatesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign countriesÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Years Ended December 31,
2002
2001
2003
(Amounts in millions)
$1,859
225
$3,343
685
$1,811
248
Consolidated LibertyÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$4,028
$2,084
$2,059
Long-Lived Assets by Geographic Area
United States ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Foreign countries ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
December 31,
2003
2002
(Amounts in millions)
$5,278
$15,290
256
1,419
Consolidated Liberty ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$16,709
$5,534
F-78
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Ì (Continued)
(19) Quarterly Financial Information (Unaudited)
4th
1st
Quarter
Quarter
(Amounts in millions, except per share amounts)
2nd
Quarter
3rd
Quarter
2003:
RevenueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Net earnings (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic and diluted net earnings (loss) per
common shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
2002:
RevenueÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Operating income (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Earnings (loss) before cumulative eÅect of
accounting change ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
$
$
$
$
$
$
505
10
132
$
$
500
(46)
$ (464)
$905
$147
$ 41
$ 2,118
$(1,067)
$ (931)
.05
$
(.17)
$ .02
$
(.32)
513
52
$
$
510
13
$525
$
536
$(39)
$ (210)
306
$(3,097)
$ 22
$ 22
$ (692)
$ (692)
Net earnings (loss) ÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$(1,563)
$(3,097)
Basic and diluted earnings (loss) before
cumulative eÅect of accounting change per
common shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
Basic and diluted net earnings (loss) per
$
.12
$ (1.20)
$ .01
$
(.26)
common shareÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏÏ
$
(.60)
$ (1.20)
$ .01
$
(.26)
(20) Subsequent Event
Liberty's Board of Directors has approved a resolution authorizing the Company to take the necessary
actions to eÅect the spin-oÅ of assets principally comprised of the International Group as a tax free
distribution to its shareholders. The completion of this transaction is subject to, among other things, a Ñnal
determination of the assets to be included in the spin-oÅ, the receipt of a favorable tax opinion and regulatory
and other third party approvals. Upon completion of this transaction, the International Group will be a
separate publicly traded company. This transaction is expected to be accounted for at historical cost due to the
pro rata nature of the distribution.
F-79
(This page intentionally left blank)
Board of Directors
OÇcers
CORPORATE DATA
John C. Malone
Robert R. Bennett
Donne F. Fisher
Paul A. Gould
Gary S. Howard
David E. Rapley
M. LaVoy Robison
Larry E. Romrell
Executive Committee
Robert R. Bennett
Paul A. Gould
John C. Malone
Compensation Committee
Donne F. Fisher
Paul A. Gould
John C. Malone
Larry E. Romrell
Audit Committee
Donne F. Fisher
Paul A. Gould
David E. Rapley
M. LaVoy Robison
Incentive Plan Committee
Donne F. Fisher
Paul A. Gould
Section 16 Exemption
Committee
Donne F. Fisher
Paul A. Gould
John C. Malone
Chairman of the Board
Robert R. Bennett
President and CEO
Mark D. Carleton
Senior Vice President
Miranda Curtis
Senior Vice President
William R. Fitzgerald
Senior Vice President
David J. A. Flowers
Senior Vice President
and Treasurer
David B. KoÅ
Senior Vice President
Elizabeth M. Markowski
Senior Vice President
Albert E. Rosenthaler
Senior Vice President
Christopher W. Shean
Senior Vice President
and Controller
Charles Y. Tanabe
Senior Vice President
Secretary
and General Counsel
Tony G. Werner
Senior Vice President
and Chief Technology OÇcer
Michael P. Zeisser
Senior Vice President
Corporate Headquarters
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 Number
LÌ530718 10 5
LMC.BÌ530718 20 4
Transfer Agent
Liberty Media Shareholder
Services
c/o EquiServe
P.O. Box 43023
Providence, RI 02940-3023
Phone: 781-575-3580
Tollfree: 866-367-6355
Fax: 781-575-3266
www.equiserve.com
Telecommunication Device
for the Deaf (TDD)
800-952-9245
Investor Relations
877-772-1518
Mike Erickson
Julie Ballantine
julie@libertymedia.com
Liberty on the Internet
Visit Liberty's web site at
www.libertymedia.com
Financial Statements
Liberty Media Corporation
Ñnancial statements are Ñled
with the Securities and
Exchange Commission.
Copies of these Ñnancial
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
LMA-AR-04