Liberty Media Corporation Second 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 1:30 p.m. (ET)
August 9, 2004. The call can be accessed by dialing (719) 457-2638
at least 10 minutes prior to the start time. Replays of the
conference call can be accessed from 6:30 p.m. (ET) on August 9,
2004 through 12:00 a.m (ET) August 16, 2004, by dialing (719)
457-0820 plus the pass code 269795#. 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 will also be available on the Liberty Media
web site. ENGLEWOOD, Colo., Aug. 9 /PRNewswire-FirstCall/ -- On
August 9, 2004, Liberty filed its Form 10-Q with the Securities and
Exchange Commission for the three months ended June 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 Consolidated QVC, Inc. Starz Encore Group LLC (SEG)
Ascent Media Group Equity Affiliates OnCommand 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 June 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 (loss) from continuing operations before
income taxes and minority interests INTERACTIVE GROUP Interactive
Group's combined revenue increased 18% and operating cash flow
increased 29% for the quarter. Increases in revenue and operating
cash flow are primarily due to increases at QVC and Ascent Media.
Following is a more detailed discussion of operating results at QVC
and Ascent Media. QVC QVC's total revenue and operating cash flow
increased 17% and 27%, respectively, for the quarter. QVC's
domestic revenue and operating cash flow increased 8% and 13%,
respectively. The domestic revenue increase is attributable to
increased sales to existing subscribers primarily in the areas of
apparel, accessories and cosmetics and, to a lesser extent, lower
returns as a percentage of sales. The domestic operations increased
sales per FTE by 8.4% to $12.29 and units shipped by 9%. The
domestic operating cash flow margin increased 102 basis points over
the prior year primarily due to a higher gross profit margin. Gross
margins increased during the quarter due to a shift in product mix
to higher margin apparel, accessories and cosmetics products as
well as decreased shipping costs. Revenue from international
operations increased 50% as a result of a combination of greater
sales to existing subscribers, new subscriber growth and favorable
foreign currency exchange rates. Fueled by the increase in sales,
higher gross margins and improved operating leverage, the operating
cash flow of the international operations increased from $23
million to $57 million, or 148%. The international cash flow margin
increased from 9.6% to 15.9%. Excluding the effect of exchange
rates, QVC's international revenue and operating cash flow growth
was 39% and 120%. Ascent Media Ascent Media's revenue increased 30%
and operating cash flow increased 53% during the quarter. The
increase is primarily due to acquisitions and new projects by
Ascent Media's Networks Group, as well as increases in projects for
feature films and episodic television in Ascent Media's Audio Group
and UK Creative Services Group. Ascent Media's operating expenses
increased 32% due, in part, to increases in variable expenses such
as personnel and material costs. The aforementioned acquisitions by
Ascent Media's Network Group also contributed to operating expense
increases as well as a 26% increase in selling, general and
administrative expenses. Excluding the effects of the acquisitions,
revenue and operating cash flow increased 17% and 30%,
respectively. OnCommand OnCommand revenue and operating cash flow
were flat compared to the prior year. Increases in hotel occupancy
and higher movie prices were offset by decreases in movie film buy
rates and decreases in rooms receiving the OnCommand service.
NETWORKS GROUP Networks Group's combined revenue increased 15% and
operating cash flow increased 9% 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 30% at Discovery partially offset by a 31% 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 6% for the quarter. This increase is
primarily due to an increase in the number of subscription units.
SEG's period-end subscription units have increased 9% since the end
of 2003 primarily due to increases across all of SEG's service
offerings. STARZ! added 950,000 new subscription units in the
second quarter of 2004, an 8% increase, their largest quarterly
increase since 1998. Such increases in subscription units are due
in part to new affiliation agreements between SEG and certain
distributors and participation with distributors in national
marketing campaigns and other marketing strategies. Under these new
affiliation agreements, SEG has obtained benefits such as more
favorable packaging of SEG's services and increased co-operative
marketing commitments. SEG is negotiating with its other
distributors to obtain similar packaging and increased co-operative
marketing commitments. SEG's operating expenses increased 30% for
the quarter. The increases are due primarily to higher programming
costs, which increased from $99 million to $133 million. Sales and
marketing expenses also increased and were partially offset by
decreases in bad debt expense. As noted above, SEG has entered into
new affiliation agreements with certain multichannel television
distributors. Consequently, SEG anticipates that its 2004
co-operative promotions and its sales and marketing expenses will
continue to be higher than in 2003. During the three months ended
June 30, 2004, SEG sold a portion of its pre-petition accounts
receivable from Adelphia Communications to an independent third
party. As a result, SEG recognized a one-time benefit of $8 million
as the proceeds from the sale exceeded SEG's carrying amount of the
receivable by $8 million. Discovery DCI's second quarter revenue of
$588 million and operating cash flow of $183 million were 20% and
30% ahead of last year. DCI's affiliated networks now reach more
than 1.1 billion cumulative worldwide subscribers. Domestic
Networks revenue increased 20% due to increases in both affiliate
and advertising revenue. Net advertising revenue increased 16%,
driven primarily by higher CPMs. Net affiliate revenue increased
28% as aggregate subscribers increased 20%. Net affiliate revenue
grew at a faster rate than subscription units primarily due to an
increase in paying subscribers and higher rates as compared to the
prior year. Subscriber growth was across all of the domestic
networks with significant gains for Discovery's emerging networks
(which includes Discovery's digital networks), Discovery Health
Channel and FitTV. Net affiliate revenue is net of launch support
amortization and other items of $30 million and $36 million for the
quarters ended June 30, 2004 and 2003, respectively. Operating
expenses increased 21% due to increases in programming and
marketing related expenses. Operating cash flow increased 19% to
$169 million. International Networks revenue increased 24% due to
increases in both affiliate and advertising revenue. Net
advertising revenue increased 31% driven by positive developments
in advertising sales and subscriber growth in all international
regions, with Asia and Europe showing continuing improvements. Net
affiliate revenue increased 14% as aggregate subscribers increased
4%. Net affiliate revenue grew at a faster rate than subscription
units primarily due to an increase in paying subscribers and higher
rates as compared to the prior year. Operating expenses increased
16% due to increases in programming, marketing, sales related,
personnel and G&A expenses associated with the favorable sales
results and continuing growth of the business. Operating cash flow
increased by 55% to $31 million. Excluding the effect of exchange
rates, revenue increased 18%, operating expenses increased 13% and
operating cash flow increased 37%. International Ventures revenue
increased by 36% in the quarter. The operating cash flow deficit
improved by 75%, from $4 million to $1 million. At the Consumer
Products division operating cash flow improved by $1 million
primarily due to a reduction in store operating costs, inventory
ownership and other overhead from the closure of underperforming
stores in 2003 in addition to increased third party licensing
revenue. DCI's outstanding debt balance at June 30, 2004 was $2.562
billion. Fair Value of Public Holdings and Derivatives June 30,
March 31, (amounts in millions) 2004 2004 The News Corporation
Limited, including derivatives (1) $8,401 8,504 InterActiveCorp
$4,173 4,379 Other Non Strategic Public Holdings, including
derivatives $9,191 10,317 (1) At March 31, 2004, includes 5 million
NWS. A shares that were contributed to Liberty Media International
on the June 7, 2004 spin-off date. Cash and Debt The following
presentation is provided to separately identify cash and liquid
investments and debt information. June 30, March 31, (amounts in
millions) 2004 2004 Cash and Cash Related Investments: Consolidated
Cash $1,968 1,834 Consolidated Short-Term Investments 38 72
Consolidated Long-Term Marketable Securities (1) 351 550 Total
Consolidated Cash and Liquid Investments $2,357 2,456 Debt: Senior
Notes and Debentures (2) $6,998 7,138 Senior Exchangeable
Debentures (3) 4,628 4,638 Other 208 194 Total Debt 11,834 11,970
Less: Unamortized Discount Attributable To Call Option Obligations
(2,363) (2,391) Unamortized Discount (22) (23) Consolidated Debt
(GAAP) $9,449 9,556 (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 $99 million to $2.4 billion and Total
Debt decreased by $136 million from March 31, 2004. Total
Consolidated Cash and Liquid Investments decreased due to
repayments of debt and funding to Liberty Media International, Inc.
prior to the spin-off which 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 Liberty's debt
reduction plan that was announced in 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 second half 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 mid to high teens %. *
Operating income decrease by low to mid teens % due to the effects
of purchase accounting adjustments. STARZ ENCORE -- 2004 Guidance
Remains Unchanged 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
historically, 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 $170 million and $190
million over amounts expensed in 2003. For full year 2004 versus
2003, SEG operating results are expected as follows: * Revenue
between $940 and $965 million. * Operating cash flow between $185
and $210 million. * Operating income between $125 and $150 million.
DCI -- 2004 Guidance Remains Unchanged The following estimates
assume primarily, among other factors, a stable advertising market,
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 approximately 30%. OUTSTANDING SHARES At
June 30, 2004, there were approximately 2.919 billion (2.799
billion as adjusted for the July 2004 share repurchase from
Comcast) outstanding shares of L and LMC.B and 88 million shares of
L and LMC.B reserved for issuance pursuant to warrants and employee
stock options. At June 30, 2004, 23 million options have a strike
price that was lower than the closing stock price. Exercise of
these options, would result in aggregate proceeds of approximately
$54 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 non-GAAP
financial measures of this press release 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) 2Q04 1Q04 4Q03 3Q03 2Q03 QVC, INC. (98.2%) Revenue -
Domestic $930 932 1,233 901 862 Revenue - International $359 351
340 252 239 Revenue - Total $1,289 1,283 1,573 1,153 1,101 OCF -
Domestic $221 212 292 206 196 OCF - International $57 58 56 28 23
OCF - Total $278 270 348 234 219 Operating Income $164 153 229 191
185 Gross Margin - Domestic 37.8% 36.6% 35.6% 36.9% 37.0% Gross
Margin - International 37.0% 37.3% 37.0% 36.4% 35.6% Homes Reached
- Domestic 87.3 87.0 85.9 86.7 86.7 Homes Reached - International
63.4 61.4 59.4 58.0 56.8 STARZ ENCORE GROUP LLC (100%) Revenue $238
232 235 217 225 OCF $62 69 99 72 90 Operating Income (Loss) $48 53
(2) 126 52 Subscription Units - Starz! 13.3 12.3 12.3 12.0 12.5
Subscription Units - Encore 23.4 21.9 21.9 21.0 20.9 Subscription
Units - Thematic Multiplex & Other 127.2 120.1 116.8 110.7
109.0 Subscription Units - Total 163.9 154.3 151.0 143.7 142.4
DISCOVERY COMMUNICATIONS, INC. (50.0%) Revenue - U.S. Networks(1)
$423 382 374 326 352 Revenue - International Networks(2) $123 109
120 107 99 Revenue - International Ventures(3) $19 17 16 15 14
Revenue - Consumer Products & Other(4) $23 19 94 26 25 Revenue
- Total $588 527 604 474 490 OCF - U.S. Networks(1) $169 139 117
116 142 OCF - International Networks(2) $31 17 30 21 20 OCF -
International Ventures(3) $(1) (1) (7) (4) (4) OCF - Consumer
Products & Other(4) $(16) (18) 11 (17) (17) OCF - Total $183
137 151 116 141 Operating Income $118 78 103 78 96 Subscription
Units - U.S. Networks(1) 648 625 625 548 540 Subscription Units -
International Networks(2) 309 300 310 301 295 Subscription Units -
International Ventures(3) 146 145 130 125 127 Subscription Units -
Total 1,103 1,070 1,065 974 962 (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 72% interest in The Health Channel
and a 60% interest in Animal Planet (US). These ventures are
controlled by DCI and therefore DCI consolidates the revenues and
operating expenses of the ventures as part 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. Upon expiration of these rights, the
economic interests will approximate the equity interests. (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. BBC/DCI Joint Ventures - Equity Affiliates: DCI
accounts for its interests in remaining joint ventures, including
interests in Discovery Channel Canada, Discovery Channel Japan,
Animal Planet Canada, Animal Planet Japan, and Joint Venture
Programming, as equity method investments. The operating results of
these entities are not reflected in the results presented above.
(4) DCI - Consumer Products and Other: The principal components of
Discovery Consumer Products include a proprietary retail business
comprised of a nationwide chain of 120 Discovery Channel stores,
mail-order catalogs, an on-line shopping site, a global licensing
and strategic partnerships business, and a supplementary education
business reaching over 35 million students, 1.5 million teachers
and 90,000 classrooms 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
June 30, 2004 and 2003. (amounts in millions) 2Q04 2Q03 INTERACTIVE
GROUP Combined operating cash flow $318 246 Eliminate equity method
affiliates -- (219) Consolidated operating cash flow 318 27
NETWORKS GROUP Combined operating cash flow 269 247 Eliminate
equity method affiliates (204) (153) Consolidated operating cash
flow 65 94 Corporate & Other consolidated operating cash flow
(5) (41) Consolidated segment operating cash flow $378 80
Consolidated segment operating cash flow $378 80 Stock compensation
(10) (42) Depreciation and amortization (186) (83) Interest expense
(150) (126) Share of earnings (losses) of affiliates 36 54 Gains
(losses) on dispositions of assets, net 13 27 Nontemporary declines
in fair value of investments (128) (2) Realized and unrealized
gains (losses) on financial instruments, net (374) (688) Other, net
23 50 Earnings (loss) from continuing operations before income
taxes and minority interests $(398) (730) 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 March 31, 2003, December 31, 2003,
March 31, 2004, and June 30, 2004. (amounts in millions) 2Q04 1Q04
4Q03 3Q03 2Q03 QVC, INC. (98.2%) Operating Cash Flow $278 270 348
234 219 Depreciation and Amortization (106) (108) (114) (43) (34)
Stock Compensation Expense (8) (9) (5) -- -- Other Non Cash Charges
-- -- -- -- -- Operating Income $164 153 229 191 185 STARZ ENCORE
GROUP LLC (100%) Operating Cash Flow $62 69 99 72 90 Depreciation
and Amortization (14) (13) (20) (21) (17) Stock Compensation
Expense -- (3) 76 75 (21) Other Non Cash Charges -- -- (157) -- --
Operating Income $48 53 (2) 126 52 DISCOVERY COMMUNICATIONS, INC.
(50.0%) Operating Cash Flow $183 137 151 116 141 Depreciation and
Amortization (38) (31) (32) (30) (31) Stock Compensation Expense
(27) (28) (16) (8) (14) Other Non Cash Charges -- -- -- -- --
Operating Income $118 78 103 78 96 DATASOURCE: Liberty Media
Corporation CONTACT: Mike Erickson of Liberty Media Corporation,
+1-877-772-1518
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