Liberty Media Corporation Third Quarter Earnings Release Important
Notice: Liberty Media Corporation ("Liberty") (NYSE: L, LMC.B)
President and CEO, Robert Bennett, will discuss Liberty's earnings
release in a conference call which will begin at 11:00 a.m. (ET)
November 9, 2004. The call can be accessed by dialing (719)
955-1564 or (888) 283-6901 at least 10 minutes prior to the start
time. Replays of the conference call can be accessed from 2:00 p.m.
(ET) on November 9, 2004 through 5:00 p.m (ET) November 16, 2004,
by dialing (719) 457-0820 plus the pass code 960649#. The call will
also be broadcast live across the Internet. To access the web cast
go to http://www.libertymedia.com/investor_relations/default.htm.
Links to this press release and replays of the call will also be
available on the Liberty web site. ENGLEWOOD, Colo., Nov. 9
/PRNewswire-FirstCall/ -- On November 9, 2004, Liberty filed its
Form 10-Q with the Securities and Exchange Commission for the three
months ended September 30, 2004. The following release is being
provided to supplement the information provided to investors in
Liberty's Form 10-Q as filed with the SEC. Liberty is a holding
company owning interests in a broad range of electronic retailing,
media, communications and entertainment businesses. Our businesses
are organized by operating groups with the two largest groups being
the Interactive Group and Networks Group, as shown below.
Interactive Group Networks Group Consolidated Subsidiaries
Consolidated Subsidiaries QVC, Inc. Starz Encore Group LLC (SEG)
Ascent Media Group Equity Affiliates On Command Corporation
Discovery Communications, Inc. OpenTV Corporation CourtTV Cost
Method Investments GSN InterActiveCorp Cost Method Investments The
News Corporation Limited The following discussion of the combined
results of our Groups presents 100% of the revenue, expenses and
operating cash flow of each of the consolidated subsidiaries and
equity affiliates in each Group even though we may own less than
100% of these businesses. The following discussion excludes
financial results from our cost method investments. Unless
otherwise noted, the following discussion compares financial
information for the three months ended September 30, 2004 to the
same period in 2003. Please see page 9 of this press release for
the definition of operating cash flow and a discussion of
management's use of this performance measure. Schedule 1 to this
press release provides a reconciliation of combined results for the
Groups to consolidated earnings from continuing operations before
income taxes and minority interests. INTERACTIVE GROUP Interactive
Group's combined revenue increased 12% and operating cash flow
increased 16% for the quarter. Increases in revenue and operating
cash flow were primarily due to increases at QVC and Ascent Media.
Following is a more detailed discussion of operating results at
QVC, Ascent Media and On Command. QVC QVC's total revenue and
operating cash flow increased 12% and 16%, respectively, for the
quarter. QVC's domestic revenue and operating cash flow increased
3% and 2%, respectively. The domestic revenue increase was
attributed to a 7% increase in units shipped. The increase in units
shipped was partially offset by a 3% decline in average selling
price as QVC domestic shipped more items in the apparel and
accessories categories compared to the jewelry and home categories
which generally carry higher average selling price points. The
domestic operating cash flow margin decreased 30 basis points over
the prior year primarily due to a minor decline in the gross profit
margin and higher customer service personnel expenses associated
with staffing challenges in QVC's Florida customer service center
as a result of Hurricanes Frances and Jeanne. Revenue from
international operations increased 43% as a result of a combination
of greater sales to existing subscribers, new subscriber growth and
favorable foreign currency exchange rates. Increased sales, higher
gross margins and improved operating leverage all contributed to
increased operating cash flow at the international operations from
$28 million to $61 million, or 118%. The international cash flow
margin increased from 11% to 17%. Excluding the effect of exchange
rates, QVC's international revenue and operating cash flow growth
was 31% and 93%. Ascent Media Ascent Media's revenue increased 26%
and operating cash flow increased 21% during the quarter. The
increase was primarily due to acquisitions and organic growth
related to new projects within Ascent Media's Networks Group.
Acquisitions made up 14% and 16%, respectively, of the increased
revenue and operating cash flow. Organic revenue growth was driven
by the networks origination business, the audio business worldwide
and the creative services business in the United Kingdom. Operating
cash flow increases associated with organic revenue growth were
lower as a result of lower margin projects during the quarter and
increased labor and facility costs to meet increased volumes.
Excluding the effects of the acquisitions, revenue and operating
cash flow increased 12% and 5%, respectively. On Command On Command
revenue and operating cash flow decreased 2% and 10%, respectively,
compared to the prior year. Revenue decreased due to lower buy
rates and fewer rooms receiving the On Command service as a result
of room losses associated with a large contract that was terminated
in 2000. On Command has signed several new agreements that are
expected to partially offset room losses associated with this
agreement. Operating cash flow decreased as a result of lower
revenue and increased cost of goods sold for On Command's equipment
sales business. NETWORKS GROUP Networks Group's combined revenue
increased 15% and operating cash flow increased 31% for the
quarter. The increase in revenue is primarily due to increases at
Starz Encore and Discovery. The increase in operating cash flow is
primarily due to an increase of 58% at Discovery partially offset
by a 14% decrease at Starz Encore. For further details of Starz
Encore's and Discovery's operating results see detailed discussion
below. Starz Encore SEG's revenue increased 13% for the quarter.
This increase was primarily due to an increase in the number of
subscription units. SEG's period-end subscription units have
increased 11% since the end of 2003 due to increases across all of
SEG's service offerings. Such increases in subscription units were
due in part to increased participation with distributors in
national marketing campaigns, new affiliation agreements with
certain distributors and other marketing strategies. Under these
new affiliation agreements, SEG obtained benefits such as more
favorable packaging of SEG's services and increased co-operative
marketing commitments. SEG's operating expenses increased 26% for
the quarter. The increases were due primarily to higher programming
costs, which increased from $100 million to $140 million. Such
increases were due to increased box office performance of movie
titles that became available to SEG in 2004, higher cost per title
due to new rate cards for certain of these movie titles and
amortization of deposits previously made under the output
agreements. SEG also had higher sales and marketing expenses as a
result of the aforementioned marketing campaigns. Increased
programming and sales and marketing costs were partially offset by
lower general and administrative costs, including bad debt expense.
Discovery DCI's third quarter revenue of $557 million and operating
cash flow of $183 million were 18% and 58%, respectively, ahead of
last year. DCI's affiliated networks now reach more than 1.2
billion cumulative worldwide subscribers. Domestic Networks revenue
increased 18% due to increases in both affiliate and advertising
revenue. Net affiliate revenue increased 48% as aggregate
subscribers increased 21%. Net affiliate revenue grew at a faster
rate than subscription units due to an increase in paying
subscribers, higher rates, and lower launch amortization. All of
the domestic networks experienced subscriber growth with
significant gains for Discovery's emerging networks. Net affiliate
revenue was net of launch support amortization and other items of
$26 million and $37 million for the quarters ended September 30,
2004 and 2003. Net advertising revenue increased 2% primarily due
to higher CPMs across most of the Domestic Networks. The impact of
higher CPMs was partially offset by a decline in ratings at TLC,
most specifically with the Trading Spaces franchise. Operating
expenses increased 2% due to an increase in programming and sales
related expenses partially offset by a decrease in personnel and
G&A costs. Operating cash flow increased 47% to $171 million.
International Networks revenue increased 18% due to increases in
both affiliate and advertising revenue and operating cash flow
increased 33%. Net advertising revenue increased 24% driven by
positive developments in advertising sales and subscriber growth in
all international regions. Net affiliate revenue increased 7% as
aggregate subscribers increased 33%. Subscription units grew at a
faster rate than revenue primarily due to a disproportionate
increase in subscribers in Asia which have free carriage. Operating
expenses increased 14% due primarily to increases in general and
administrative expenses associated with the continuing growth of
the business. Operating cash flow increased by 33% to $28 million.
Excluding the effect of exchange rates, revenue increased 11%,
operating expenses increased 10% and operating cash flow increased
16%. International Ventures revenue increased by 27% in the
quarter, and operating cash flow improved by 50% to a deficit of $2
million. Consumer Products operating cash flow improved by 18% to a
deficit of $14 million due to a reduction in store operating costs
and other overhead from the closure of underperforming stores in
2003. The consumer products division also experienced an increase
in third party licensing revenue. DCI's outstanding debt balance
was $2.6 billion at September 30, 2004. Fair Value of Public
Holdings and Derivatives (amounts in millions and include the value
September June 30, of derivatives) 30, 2004 2004 The News
Corporation Limited $8,037 8,401 InterActiveCorp $3,048 4,173 Non
Strategic Public Holdings $8,953 9,191 Cash and Debt The following
presentation is provided to separately identify cash and liquid
investments and debt information. September June 30, (amounts in
millions) 30, 2004 2004 Cash and Cash Related Investments:
Consolidated Cash (GAAP) $1,333 1,968 Consolidated Short-Term
Investments 27 38 Consolidated Long-Term Marketable Securities (1)
383 351 Total Consolidated Cash and Liquid Investments $1,743 2,357
Debt: Senior Notes and Debentures (2) $6,745 6,998 Senior
Exchangeable Debentures (3) 4,588 4,628 Other 207 208 Total Debt
11,540 11,834 Less: Unamortized Discount Attributable To Call
Option Obligations (2,310) (2,363) Unamortized Discount (22) (22)
Consolidated Debt (GAAP) $9,208 9,449 (1) Represents long-term
marketable debt securities which are included in investments in
available-for-sale securities and other cost investments in
Liberty's consolidated balance sheet. (2) Represents face amount of
Senior Notes and Debentures with no reduction for the unamortized
discount. (3) Represents face amount of Senior Exchangeable
Debentures with no reduction for the unamortized discount
attributable to the embedded call option obligation. Liberty's
Total Consolidated Cash and Liquid Investments decreased $614
million to $1,743 million and Total Debt decreased by $294 million
from June 30, 2004. Total Consolidated Cash and Liquid Investments
decreased due to repayments of debt and cash used in the Comcast
transaction, in which Liberty exchanged $547 million in cash and
certain assets for 120.3 million shares of Liberty Media Series A
common stock from Comcast. These cash outflows were partially
offset by cash flow from operations of Liberty's subsidiaries and
the proceeds from the expiration of certain equity collars. The
decrease in Total Debt was due to repayments of corporate debt as
part of the debt reduction plan announced in the fourth quarter of
2003. 2004 OUTLOOK QVC -- 2004 Guidance Increased The following
estimates assume primarily, among other factors, that the product
mix remains materially consistent with that experienced in 2003,
foreign currency exchange rates remain constant, continued
international growth and domestic sales trends are consistent with
that experienced in the last quarter of 2003. For full year 2004
versus 2003, QVC operating results are expected to be as follows: *
Revenue increase by low to mid teens %. * Operating cash flow
increase by high teens %. * Operating income decrease by low to mid
teens % due to the effects of purchase accounting adjustments.
STARZ ENCORE -- 2004 Guidance Increased The following estimates
assume, among other factors, that SEG continues to experience
positive trends under the new Comcast affiliation agreement, SEG's
distributors continue to see growth in digital subscribers
consistent with that experienced over the past 12 months, the
timing of receipt of output product from the studios does not
materially change, and Starz subscription units continue to
increase. These estimates further assume that SEG's 2004
programming costs increase between $160 million and $175 million
over amounts expensed in 2003. For full year 2004, SEG operating
results are expected as follows: * Revenue between $940 and $965
million. * Operating cash flow between $225 and $235 million. *
Operating income between $150 and $175 million. DCI -- 2004
Guidance Remains Unchanged The following estimates assume
primarily, among other factors, a U.S. advertising market
consistent with that experienced in the third quarter of 2004,
continued growth in international distribution, and a stable
national retail environment. For full year 2004 versus 2003, DCI
consolidated operating results are expected to increase as follows:
* Revenue by high teens %. * Operating cash flow by approximately
30%. * Operating income by over 30%. OUTSTANDING SHARES At
September 30, 2004, there were approximately 2.799 billion
outstanding shares of L and LMC.B and 92 million shares of L and
LMC.B reserved for issuance pursuant to warrants and employee stock
options. At September 30, 2004, 26 million options had a strike
price that was lower than the closing stock price. Exercise of
these options, would result in aggregate proceeds of approximately
$75 million. Certain statements in this press release 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 the operating
businesses of Liberty included herein or industry results, to
differ materially from any future results, performance or
achievements expressed or implied by such forward-looking
statements. Such risks, uncertainties and other factors include,
among others: the risks and factors described in the publicly filed
documents of Liberty, including the most recently filed Form 10-Q
of Liberty; general economic and business conditions and industry
trends including in the advertising and retail markets; spending on
domestic and foreign advertising; the continued strength of the
industries in which such businesses operate; continued
consolidation of the broadband distribution industry; uncertainties
inherent in proposed business strategies and development plans;
rapid technological changes; future financial performance,
including availability, terms and deployment of capital;
availability of qualified personnel; the development and provision
of programming for new television and telecommunications
technologies; 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; adverse outcomes in pending
litigation; changes in the nature of key strategic relationships
with partners and joint ventures; competitor responses to such
operating businesses' products and services, and the overall market
acceptance of such products and services, including acceptance of
the pricing of such products and services; and threatened terrorist
attacks and ongoing military action, including armed conflict in
the Middle East and other parts of the world. These forward-looking
statements speak only as of the date of this Release. Liberty
expressly disclaims any obligation or undertaking to disseminate
any updates or revisions to any forward-looking statement contained
herein to reflect any change in Liberty's expectations with regard
thereto or any change in events, conditions or circumstances on
which any such statement is based. SUPPLEMENTAL INFORMATION As a
supplement to Liberty's consolidated statements of operations, the
following is a presentation of quarterly financial information and
operating metrics on a stand-alone basis for Liberty's three
largest privately held businesses (QVC, Inc., Starz Encore Group
LLC and Discovery Communications, Inc.). Please see page 9 for the
definition of operating cash flow (OCF) and Schedule 2 at the end
of this document for reconciliations for the applicable periods in
2004 and 2003 of operating cash flow to operating income, as
determined under GAAP, for each identified entity. The selected
financial information presented for DCI was obtained directly from
DCI. Liberty does not control the decision-making processes or
business management practices of DCI. Accordingly, Liberty relies
on DCI's management and their independent auditors to provide
accurate financial information prepared in accordance with
generally accepted accounting principles that Liberty uses in the
application of the equity method. Liberty is not aware, however, of
any errors in or possible misstatements of the financial
information provided to it by DCI that would have a material effect
on Liberty's consolidated financial statements. Further, Liberty
could not, among other things, cause DCI to distribute to Liberty
its proportionate share of the revenue or OCF of DCI. (amounts in
millions) 3Q04 2Q04 1Q04 4Q03 3Q03 QVC, INC. (98.3%) Revenue --
Domestic $932 930 932 1,233 901 Revenue -- International 360 359
351 340 252 Revenue -- Total $1,292 1,289 1,283 1,573 1,153 OCF --
Domestic $210 221 212 292 206 OCF -- International 61 57 58 56 28
OCF -- Total $271 278 270 348 234 Operating Income $153 164 153 229
191 Gross Margin -- Domestic 36.8% 37.8% 36.6% 35.6% 36.9% Gross
Margin -- International 37.6% 37.0% 37.3% 37.0% 36.4% Homes Reached
-- Domestic 87.8 87.3 87.0 85.9 86.7 Homes Reached -- International
64.8 63.4 61.4 59.4 58.0 STARZ ENCORE GROUP LLC (100%) Revenue $245
238 232 235 217 OCF $62 62 69 99 72 Operating Income (Loss) $46 48
53 (2) 126 Subscription Units -- Starz! 13.7 13.3 12.3 12.3 12.0
Subscription Units -- Encore 23.9 23.4 21.9 21.9 21.0 Subscription
Units -- Thematic Multiplex & Other 129. 7 127. 2 120.1 116.8
110.7 Subscription Units -- Total 167.3 163.9 154.3 151.0 143.7
DISCOVERY COMMUNICATIONS, INC. (50.0%) Revenue -- U.S. Networks (1)
$386 423 382 374 326 Revenue -- International Networks (2) 126 123
109 120 107 Revenue -- International Ventures (3) 19 19 17 16 15
Revenue -- Consumer Products & Other (4) 26 23 19 94 26 Revenue
-- Total $557 588 527 604 474 OCF -- U.S. Networks (1) $171 169 139
117 116 OCF -- International Networks (2) 28 31 17 30 21 OCF --
International Ventures (3) (2) (1) (1) (7) (4) OCF -- Consumer
Products & Other (4) (14) (16) (18) 11 (17) OCF -- Total $183
183 137 151 116 Operating Income $129 118 78 103 78 Subscription
Units -- U.S. Networks (1) 663 648 625 625 548 Subscription Units
-- International Networks (2) 399 309 300 310 301 Subscription
Units -- International Ventures (3) 149 146 145 130 125
Subscription Units -- Total 1,211 1,103 1,070 1,065 974 (1) DCI --
Discovery Networks U.S.: Discovery Channel, TLC, Animal Planet,
Travel Channel, Discovery Health Channel, FIT TV, Discovery Kids
Channel, BBC-America Representation, The Science Channel, Discovery
Times Channel, Discovery Home & Leisure Channel, Discovery
Wings Channel, Discovery en Espanol, Discovery HD Theater and
online initiatives. Other Joint Ventures -- Discovery Times
Channel, Discovery Health Channel, Animal Planet (US) --
Consolidated: DCI owns a 50% interest in Discovery Times Channel, a
90% interest in Discovery Health Channel and a 60% interest in
Animal Planet (US). These ventures are controlled by DCI and
consolidated into the results of Discovery Networks U.S. Due to
certain contractual redemption rights of the outside partners in
the ventures, no losses of these ventures are allocated to the
outside partners. (2) DCI -- Discovery Networks International:
Discovery Channels in Europe, Latin America, Asia, India, Germany,
Italy/Africa and Kids Latin America, Travel & Adventure-Latin
America, Health-Latin America, Discovery Home & Leisure UK,
Showcase Europe, Travel & Adventure Asia, Animal Planet-United
Kingdom and Health Channel United Kingdom. (3) BBC/DCI Joint
Ventures -- Consolidated: The equity in the assets of the British
Broadcasting Corporation/DCI joint ventures are predominantly held
50/50 by DCI and BBC. Exceptions involve participants related to
the local market in which a specific network operates. Where DCI
exercises control of BBC/DCI joint ventures, DCI consolidates
financial results into International Ventures. Until such assets
reach breakeven, 100% of the economic interests are consolidated.
After DCI has fully recouped prior investment, the economic
interests will match the equity interests and will be accounted for
under the equity method. International Ventures -- Equity
Affiliates: DCI accounts for its interests in joint ventures it
does not control as equity method investments. The operating
results of joint ventures that DCI does not control, including
Discovery Channel Canada, Discovery Channel Japan, Animal Planet
Canada, Animal Planet Japan, and Joint Venture Programming, are not
consolidated and are not reflected in the results presented above.
(4) DCI -- Consumer Products and Other: Consumer Products &
Other is comprised of a North American chain of 120 Discovery
Channel retail stores, mail-order catalog business, an on-line
shopping site, a global licensing business, and an educational
business that reaches 36 million students in the U.S. NON-GAAP
FINANCIAL MEASURES This press release includes a presentation of
operating cash flow, which is a non-GAAP financial measure, for
each of the privately held assets of Liberty included herein
together with a reconciliation of that non-GAAP measure to the
privately held asset's operating income, determined under GAAP.
Liberty defines operating cash flow as revenue less cost of sales,
operating expenses, and selling, general and administrative
expenses (excluding stock compensation). Operating cash flow, as
defined by Liberty, excludes depreciation and amortization, stock
compensation and restructuring and impairment charges that are
included in the measurement of operating income pursuant to GAAP.
Liberty believes operating cash flow 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. Because operating cash flow is used as a measure of
operating performance, Liberty views operating income as the most
directly comparable GAAP measure. Operating cash flow is not meant
to replace or supercede operating income or any other GAAP measure,
but rather to supplement the information to present investors with
the same information as Liberty's management considers in assessing
the results of operations and performance of its assets. Please see
the attached schedules for a reconciliation of segment operating
cash flow to earnings before income taxes and minority interests
(Schedule 1) and a reconciliation, for our largest consolidated
subsidiaries and our largest equity affiliate, of operating cash
flow to operating income calculated in accordance with GAAP
(Schedule 2). LIBERTY MEDIA CORPORATION SCHEDULE 1 The following
table provides a reconciliation of consolidated segment operating
cash flow to earnings (loss) from continuing operations before
income taxes and minority interests for the quarters ended
September 30, 2004 and 2003. (amounts in millions) 3Q04 3Q03
INTERACTIVE GROUP Combined operating cash flow $306 264 Eliminate
equity method affiliates -- (149) Consolidated operating cash flow
306 115 NETWORKS GROUP Combined operating cash flow 263 201
Eliminate equity method affiliates (199) (128) Consolidated
operating cash flow 64 73 Corporate & Other consolidated
operating cash flow (24) (23) Consolidated segment operating cash
flow $346 165 Consolidated segment operating cash flow $346 165
Stock compensation (6) 90 Depreciation and amortization (187) (109)
Interest expense (152) (149) Share of earnings (losses) of
affiliates 20 29 Gains (losses) on dispositions of assets, net 389
7 Realized and unrealized gains (losses) on financial instruments,
net 239 48 Other, net 4 39 Earnings from continuing operations
before income taxes and minority interests $653 120 LIBERTY MEDIA
CORPORATION SCHEDULE 2 The following table provides a
reconciliation, for our largest consolidated subsidiaries and our
largest equity affiliate, of operating cash flow to operating
income calculated in accordance with GAAP for the quarters ended
September 30, 2004, June 30, 2004, March 31, 2004, December 31,
2003 and September 30, 2003. (amounts in millions) 3Q04 2Q04 1Q04
4Q03 3Q03 QVC, INC. (98.2%) Operating Cash Flow $271 278 270 348
234 Depreciation and Amortization (110) (106) (108) (114) (43)
Stock Compensation Expense (8) (8) (9) (5) -- Other Non Cash
Charges -- -- -- -- -- Operating Income $153 164 153 229 191 STARZ
ENCORE GROUP LLC (100%) Operating Cash Flow $62 62 69 99 72
Depreciation and Amortization (14) (14) (13) (20) (21) Stock
Compensation Expense (2) -- (3) 76 75 Other Non Cash Charges -- --
-- (157) -- Operating Income $46 48 53 (2) 126 DISCOVERY
COMMUNICATIONS, INC. (50.0%) Operating Cash Flow $183 183 137 151
116 Depreciation and Amortization (28) (38) (31) (32) (30) Stock
Compensation Expense (26) (27) (28) (16) (8) Other Non Cash Charges
-- -- -- -- -- Operating Income $129 118 78 103 78 DATASOURCE:
Liberty Media Corporation CONTACT: Mike Erickson of Liberty Media
Corporation, +1-877-772-1518
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