LIBERTY MEDIA CORP /DE/ - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-20421
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LIBERTY MEDIA CORPORATION
(Exact name of Registrant as specified in its charter)

STATE OF DELAWARE 84-1288730
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

12300 LIBERTY BOULEVARD
ENGLEWOOD, COLORADO 80112
(Address of principal executive (Zip Code)
offices)

Registrant's telephone number, including area code: (720) 875-5400

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: NONE

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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

Indicate by check mark whether the Registrant is an accelerated filer as
defined in Rule 12b-2 of the Exchange Act. Yes /X/ No / /

The aggregate market value of the voting stock held by nonaffiliates of
Liberty Media Corporation computed by reference to the last sales price of such
stock, as of the closing of trading on June 28, 2002, was approximately
$25,572,000,000.

The number of shares outstanding of Liberty Media Corporation's common stock
as of February 28, 2003 was:

Series A Common Stock--2,473,226,542 shares; and
Series B Common Stock--211,829,828 shares.

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LIBERTY MEDIA CORPORATION
2002 ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

PART I.

ITEM 1. BUSINESS.

(a) GENERAL DEVELOPMENT OF BUSINESS

Liberty Media Corporation owns interests in a broad range of video
programming, media, broadband distribution, interactive technology services and
communications businesses. Liberty Media and its affiliated companies operate in
the United States, Europe, South America and Asia. Our principal assets include
interests in Starz Encore Group LLC, Ascent Media Group, Inc. (formerly Liberty
Livewire Corporation), On Command Corporation, Discovery Communications, Inc.,
UnitedGlobalCom, Inc., Jupiter Telecommunications Co., Ltd., QVC, Inc., Court
Television Network, Game Show Network, AOL Time Warner Inc., USA Interactive,
Sprint PCS Group and The News Corporation Limited.

From March 9, 1999 through August 9, 2001 we were a wholly-owned subsidiary
of AT&T Corp. On March 9, 1999, AT&T acquired by merger our parent company at
that time, the former Tele-Communications, Inc. ("TCI"), which was converted to
a limited liability company and renamed AT&T Broadband, LLC. As part of that
merger, AT&T issued its Class A and Class B Liberty Media Group tracking stock,
which was designed to reflect the economic performance of the businesses and
assets of AT&T attributed to its "Liberty Media Group." Our businesses and
assets constituted all of the businesses and assets of Liberty Media Group.

Effective August 10, 2001, AT&T effected our split-off pursuant to which our
common stock was recapitalized, and each share of AT&T Class A Liberty Media
Group tracking stock was redeemed for one share of our Series A common stock,
and each share of AT&T Class B Liberty Media Group tracking stock was redeemed
for one share of our Series B common stock.

Following the split off, we are no longer a subsidiary of AT&T and no shares
of AT&T Liberty Media Group tracking stock remain outstanding.

RECENT DEVELOPMENTS

On January 30, 2002, we completed a transaction with UnitedGlobalCom, Inc.,
a corporation formed for purposes of the transactions described below. We refer
to UnitedGlobalCom, Inc. as UGC. UGC and its consolidated subsidiaries,
including United Pan-Europe Communications, N.V., ("UPC") provide broadband
communications services primarily in Europe, Asia/Pacific and Latin America. In
connection with the transaction and prior to the merger described below, we
contributed to UGC, all of the Class B common stock of UGC Holdings, Inc. and
some of the Class A common stock that we held in exchange for newly issued
shares of UGC's Class C common stock. Immediately after these contributions and
contributions to UGC by certain other major stockholders of UGC Holdings, UGC
acquired UGC Holdings by merger of a subsidiary of UGC with and into UGC
Holdings. As a result of the merger, UGC became a publicly traded company.
Immediately following the merger, we contributed to UGC (1) $200 million in
cash, (2) an exchangeable note issued by Belmarken Holding B.V., a subsidiary of
UPC, having an approximate accreted value on January 30, 2002 of $892 million,
and (3) senior notes and senior discount notes issued by UPC, having an
aggregate principal amount at maturity of approximately $1,435 million and euro
263 million, all in exchange for additional shares of UGC's common stock. After
giving effect to these transactions, subsequent open market purchases of UGC's
common stock and other transactions, we own approximately 74% of UGC's
outstanding equity and approximately 94% of the voting power of UGC's
outstanding common stock, subject to limitations on our voting rights.

Also on January 30, 2002, UGC acquired from us (1) all of the equity and
debt of IDT United, Inc., an indirect subsidiary of IDT Corporation, held by us
and (2) approximately $751 million principal amount at maturity of UGC Holdings'
$1,375 million principal amount at maturity 10 3/4%

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senior secured discount notes due 2008 (the "2008 Notes"), which amount of 2008
Notes had been distributed to us previously in redemption of a portion of our
equity interest in IDT United and as prepayment of a portion of IDT United's
debt held by us. The aggregate purchase price paid by UGC for all of the equity
and debt of IDT United held by us and the 2008 Notes held by us was
approximately $448 million, which amount was equal to the aggregate amount of
our investment in IDT United, plus interest. Approximately $305 million of the
purchase price was paid by the assumption by UGC of debt owed by us to a
subsidiary of UGC Holdings, and the remainder was credited against the
$200 million cash contribution by us to UGC described above. In connection with
the January 30 transaction, one of our subsidiaries made loans to a subsidiary
of UGC aggregating $103 million.

In April 2002, we sold our 40% interest in Telemundo Communications Group
for cash proceeds of $679 million.

On May 7, 2002, USA Interactive, Barry Diller and Vivendi Universal, S.A.,
consummated a series of transactions. Upon consummation of these transactions,
USA Interactive contributed substantially all of its entertainment assets to
Vivendi Universal Entertainment ("VUE"), a partnership controlled by Vivendi
Universal, in exchange for cash, common and preferred interests in VUE and the
cancellation of approximately 320.9 million shares of USANi LLC which were
exchangeable on a one-for-one basis for shares of USA Interactive common stock.
In connection with the transaction, we entered into a separate agreement with
Vivendi Universal, pursuant to which Vivendi Universal acquired from us
25 million shares of USA Interactive common stock, approximately 38.7 million
shares of USANi LLC, which were exchangeable for an equal number of shares of
USA Interactive common stock, and all of our 30% interest in multiThematiques
S.A., a European supplier of multichannel programming, together with certain
liabilities with respect thereto, in exchange for 37.4 million Vivendi Universal
ordinary shares. Upon completion, we own an approximate 3% equity interest in
Vivendi Universal and an approximate 20% equity interest in USA Interactive.

In August 2002, we acquired 43% of the common equity and 88% of the voting
power of OpenTV Corp. (bringing our ownership interest to 46% of OpenTV's equity
and 89% of OpenTV's voting power) for $133 million of our Series A common stock
and $32 million in cash. Also in August 2002, we purchased all of the
outstanding common stock of Wink Communications, Inc. for $101 million in cash
(including related acquisition costs). In October 2002, we sold Wink to OpenTV
for the same amount.

During the fourth quarter of 2002, we completed a rights offering pursuant
to which existing shareholders received .04 transferable subscription rights to
purchase shares of Liberty Series A common stock for each share of our common
stock held by them at the close of business on October 31, 2002. Under the basic
subscription privilege, each whole right entitled the holder to purchase one
share of Liberty's Series A common stock at a subscription price of $6.00 per
share. The rights offering expired on December 2, 2002. In connection with the
rights offering, we issued 103,426,000 shares of Series A common stock for cash
proceeds of $621 million before expenses of $3 million.

The private letter ruling issued by the IRS with respect to the tax
consequences of our split off from AT&T stated that within one year following
the split off, we intended to issue, subject to market and business conditions,
at least $250 million to $500 million of our equity for cash or other assets,
and, within two years following the split off, we intended to issue at least
$500 million to $1 billion of our equity (including any equity issued during the
first year) for cash or other assets. On May 20, 2002, the IRS issued a
supplemental ruling granting us a one-year extension to issue each of the
foregoing amounts of equity. On January 16, 2003, the IRS issued another
supplemental ruling stating that repurchases of our common stock do not affect
the amount of equity we were to issue under the

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original ruling. Accordingly, we believe that the issuance of stock pursuant to
the rights offering satisfies our requirement to issue equity as described
above.

On March 3, 2003, we announced that we had notified Comcast Corporation of
our election to trigger an exit process under the stockholders agreement
governing Comcast's and our interests in QVC, Inc. Under the QVC stockholders
agreement, we and Comcast are required to attempt to reach agreement on the fair
market value of QVC within 30 days after our notice to Comcast. If Comcast and
we cannot agree on a value, the value will be fixed pursuant to an appraisal
process prescribed by the stockholders agreement. Once the fair market value of
QVC has been established, Comcast will have 30 days to elect to purchase our
ownership interest in QVC (approximately 42%) at a purchase price based on the
established fair market value. If Comcast does not elect to purchase our
interest, we will have 30 days to elect to purchase Comcast's interest in QVC.
If we do not elect to purchase Comcast's interest, then the parties are required
to use their best efforts to sell 100% of QVC. In that case, each of Comcast and
we would be free to make an offer to purchase QVC. If Comcast elects to buy our
QVC interest pursuant to its 30-day option or if we elect to buy Comcast's
interest pursuant to our 30-day option, the purchase price payable by Comcast or
us for the other's QVC interest may be paid in cash, a promissory note with a
maturity not to exceed three years, publicly traded equity securities, or a
combination of the foregoing forms of consideration. The form or forms of
consideration are determined at the buyer's election, but are subject to the
seller's right to elect to be paid in equity securities of the buyer which may
be limited at the buyer's option to not issue more than 4.9% of the outstanding
common stock or voting power of the buyer. The parties are required to use
reasonable efforts to cause a transaction in which one of them sells its QVC
interest to the other to be completed as a tax-free transaction or, if that is
not available, by the most tax efficient method available, subject to any
applicable limitations on the form of consideration. The provisions prescribing
forms of consideration will not apply to a purchase by Comcast or us if neither
Comcast nor we exercise our 30-day purchase option. No assurance can be given
that the transaction described in this paragraph will be consummated on the
terms described, or at all.

* * * * *

Certain statements in this Annual Report on Form 10-K constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. To the extent that such statements are not
recitations of historical fact, such statements constitute forward-looking
statements which, by definition, involve risks and uncertainties. In particular,
statements under Item 1. "Business," Item 2. "Properties," Item 3. "Legal
Proceedings," Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Item 7A. "Quantitative and Qualitative
Disclosures About Market Risk" contain forward-looking statements. Where, in any
forward-looking statement, we express an expectation or belief as to future
results or events, such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no assurance that the
statement of expectation or belief will result or be achieved or accomplished.
The following include some but not all of the factors that could cause actual
results or events to differ materially from those anticipated:

- general economic and business conditions and industry trends;

- spending on domestic and foreign television advertising;

- the regulatory and competitive environment of the industries in which we,
and the entities in which we have interests, operate;

- continued consolidation of the broadband distribution industry;

- uncertainties inherent in new business strategies, new product launches
and development plans;

- rapid technological changes;

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- the acquisition, development and/or financing of telecommunications
networks and services;

- the development and provision of programming for new television and
telecommunications technologies;

- future financial performance, including availability, terms and deployment
of capital;

- the ability of vendors to deliver required equipment, software and
services;

- the outcome of any pending or threatened litigation;

- availability of qualified personnel;

- changes in, or failure or inability to comply with, government
regulations, including, without limitation, regulations of the Federal
Communications Commission ("FCC"), and adverse outcomes from regulatory
proceedings;

- changes in the nature of key strategic relationships with partners and
joint venturers;

- competitor responses to our products and services, and the products and
services of the entities in which we have interests, and the overall
market acceptance of such products and services; and

- threatened terrorists attacks and ongoing military action in the Middle
East and other parts of the world.

These forward-looking statements and such risks, uncertainties and other factors
speak only as of the date of this Annual Report, and we expressly disclaim any
obligation or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein, to reflect any change in our
expectations with regard thereto, or any other change in events, conditions or
circumstances on which any such statement is based.

This Annual Report includes information concerning Ascent Media
Group, Inc., On Command Corporation, OpenTV Corp., Liberty Satellite &
Technology, Inc., UnitedGlobalCom, Inc. and other public companies that file
reports and other information with the SEC in accordance with the Securities
Exchange Act of 1934. Information contained in this Annual Report concerning
those companies has been derived from the reports and other information filed by
them with the SEC. If you would like further information about these companies,
the reports and other information they file with the SEC can be accessed on the
Internet website maintained by the SEC at WWW.SEC.GOV. Those reports and other
information are not incorporated by reference in this Annual Report.

(b) FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS

We are a holding company with a variety of subsidiaries and investments
operating in the media, communications and entertainment industries. Each of
these businesses is separately managed. We identify our reportable segments as
those consolidated subsidiaries that represent 10% or more of our consolidated
revenue, earnings or loss before income taxes, or total assets and those equity
method affiliates whose share of earnings or losses represent 10% or more of our
pre-tax earnings or loss. Subsidiaries and affiliates not meeting this threshold
are aggregated together for segment reporting purposes. For the year ended
December 31, 2002, we had four operating segments: Starz Encore, Ascent Media,
On Command and Other. Financial information related to our operating segments
can be found in note 18 to our consolidated financial statements found in
Part II of this report.

(c) NARRATIVE DESCRIPTION OF BUSINESS

The first table below sets forth information concerning our consolidated
subsidiaries and certain of our more significant business affiliates, for which
a business description is provided in this Part I. The second table below sets
forth information concerning other public companies in which we hold minority
interests and account for as available-for-sale securities. We hold our
interests either directly or

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indirectly through partnerships, joint ventures, common stock investments or
instruments convertible or exchangeable into common stock. Attributed ownership
percentages in the table are approximate, calculated as of February 28, 2003,
and, where applicable and except as otherwise noted, assume conversion to common
equity by us and, to the extent known by us, other holders. In some cases, our
interest may be subject to buy/sell procedures, repurchase rights or, under
certain circumstances, dilution. In some cases our voting interest may be
greater than our ownership interest.

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(1) If we or any of our wholly owned subsidiaries hold a direct ownership
interest in an entity listed in the table, our attributed interest in the
listed entity equals our direct ownership interest therein. However, if we
or any of our wholly owned subsidiaries hold an indirect ownership interest
in an entity listed in the table, our attributed interest in the listed
entity is calculated by multiplying our direct interest in the applicable
intermediary entity (or entities) by such intermediary entity's (or
entities') direct interest in the listed entity. Please see the discussion
below for additional information, including pending transactions, with
respect to our interest in each of our consolidated subsidiaries and certain
of our more significant business affiliates.

(2) Our interest in AOL Time Warner is subject to a consent decree with the
Federal Trade Commission that was entered into in 1996 when Time Warner
acquired Turner Broadcasting Systems. Pursuant to that decree, we are
effectively prohibited from owning voting securities of AOL Time Warner
other than securities that have limited voting rights. As a result, we hold
shares of a low-vote series of AOL Time Warner common stock. Subject to
applicable communications laws and the consent decree, the shares are
convertible at our option into shares of ordinary AOL Time Warner common
stock on a one-for-one basis, and are mandatorily convertible into shares of
ordinary AOL Time Warner common stock upon transfer to a non-affiliate of
Liberty.

(3) We also own equity interests in one of IDT's operating subsidiaries and one
of its holding company subsidiaries. Pursuant to our subscription agreement
with IDT, we are entitled to nominate one member of IDT's board of
directors.

(4) In connection with a transaction in which we acquired certain of our News
Corp. ADSs, we agreed to restrictions on our ability to transfer certain of
the ADSs and the underlying News Corp. shares prior to May 2003. We have
also agreed to limitations on our ability to engage in the program guide
business, within or outside the United States, until July 2005, and on our
ability to engage in any sports programming service in the United States and
its territories (excluding Puerto Rico) or in Canada until July 2004, in
each case subject to certain exceptions.

(5) Sprint PCS stock is a tracking stock intended to reflect the performance of
Sprint Corporation's Sprint PCS Group. We own shares of Sprint PCS Group
common stock--Series 2 (which have limited voting rights and automatically
convert into full voting Sprint PCS Group common stock--Series 1 upon our
transfer of the shares to an unaffiliated third party) and warrants and
shares of convertible preferred stock exercisable for or convertible into
these shares. A portion of our interests in the Sprint PCS Group are held,
on our behalf, by a trust, which was formed pursuant to a final judgment
agreed to by TCI, AT&T and the United States Department of Justice in
connection with the merger of TCI and AT&T. The final judgment has been
terminated, and the

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Trustee is in the process of transferring direct ownership of the Sprint PCS
Group common stock to us.

(6) For so long as we hold 15% of the ordinary shares of Telewest, we are
entitled to prescribed governance rights, including the right to appoint 3
of Telewest's 16 directors, and consent rights with respect to certain
fundamental matters. In addition, we and Microsoft Corporation have agreed
to exercise our voting rights as stockholders (other than with respect to
fundamental matters), and to cause our representatives to Telewest's board
to vote (subject to their fiduciary duties), in such manner as we may agree
or, if we are unable to agree, in the manner most likely to continue the
status quo. We and Microsoft are also entitled to preemptive rights on
specified share issuances, have agreed to certain restrictions on our
ability to engage in businesses in the United Kingdom outside of cable
television, cable telephony and wireless telephony, and have granted to each
other rights of first refusal over transfer of our respective ordinary
shares of Telewest, subject to specified exceptions.

On September 30, 2002, Telewest disclosed that it had reached a non-binding
preliminary agreement relating to a restructuring of a significant portion
of its outstanding notes and debentures and certain other unsecured debt,
pursuant to which existing shareholders are expected to retain an aggregate
3% interest in Telewest immediately following the restructuring. Principally
as a result of this proposed restructuring, which we believe will reduce our
ownership in Telewest to below 10%, we have determined that we will no
longer have the ability to exercise significant influence over the
operations of Telewest. In addition, during the third quarter of 2002, we
removed our representatives from the Telewest board of directors.

(7) Due to certain governance arrangements which limit our ability to exercise
significant influence over USA Interactive, we account for our investment in
USA Interactive as an available-for-sale security.

BUSINESS OPERATIONS

We are engaged principally in two fundamental areas of business:

- Video Programming and Interactive Technology Services; and

- Communications and Broadband Distribution, consisting principally of
interests in cable television systems, telephone and satellite systems.

Our consolidated subsidiaries and principal equity method affiliates which
operate in our fundamental areas of business are described in greater detail
below.

VIDEO PROGRAMMING AND INTERACTIVE TECHNOLOGY SERVICES

Programming networks distribute their services through a number of
distribution technologies, including cable television, direct-to-home satellite,
broadcast television and the Internet. Programming services may be delivered to
subscribers as part of a video distributor's basic package of programming
services for a fixed monthly fee, or may be delivered as a "premium" programming
service for an additional monthly charge or on a pay-per-view basis. Whether a
programming service is on a basic or premium tier, the programmer generally
enters into separate multi-year agreements, known as "affiliation agreements,"
with those distributors that agree to carry the service. Basic programming
services derive their revenues principally from the sale of advertising time on
their networks and from per subscriber license fees received from distributors.
Premium services do not sell advertising and primarily generate their revenues
from subscriber fees.

Interactive technology services are offered by many digital television
network operators to subscribers with digital television set-top boxes.
Interactive service providers combine and market their

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software, content and applications to these operators, who in turn provide their
subscribers with such interactive television services as electronic commerce,
"video on demand" and multiplayer gaming. Interactive service providers derive
their revenue from software licenses and affiliation agreements with the network
operators that offer their services.

CONSOLIDATED SUBSIDIARIES

STARZ ENCORE GROUP LLC

Starz Encore Group LLC provides premium movie networks distributed by cable,
direct-to-home satellite, or DTH, and other distribution media in the United
States. It currently owns and operates 13 full-time domestic movie channels,
consisting of STARZ!, a first-run movie service; ENCORE, which airs first-run
movies and classic contemporary movies; a number of thematic multiplex channels,
a group of channels, each of which exhibits movies based upon individual themes;
and MOVIEPLEX, a "theme by day" channel featuring a different ENCORE or thematic
multiplex channel each day, on a weekly rotation. At December 31, 2002, Starz
Encore had 137.9 million subscription units of which approximately 71% were
subscription units for the thematic multiplex channels and the remainder were
comprised of subscription units for STARZ!, ENCORE and MOVIEPLEX. Subscription
units represent the number of Starz Encore services which are purchased by cable
and DTH customers.

The majority of Starz Encore's revenue is derived from the delivery of
movies to subscribers under long-term affiliation agreements with most cable
systems and direct broadcast satellite systems, including AOL Time Warner,
Charter Communications, Comcast Cable, AT&T Broadband, DirecTV, Echostar, Cox
Communications, Adelphia Communications, Cablevision Systems, Insight
Communications, Mediacom Communications, the National Cable Television
Cooperative and Superstar/Netlink Group. Some affiliation agreements, such as
the AT&T Broadband agreement, provide for fixed monthly payments in exchange for
unlimited access to all of the existing STARZ! and ENCORE services. These
payments may be adjusted, in certain instances, if cable systems are acquired or
sold by the applicable distributor. The AT&T Broadband agreement also provides
for the longest contract term, expiring in July 2022. Substantially all of Starz
Encore's other affiliation agreements, including its agreements with Comcast
Cable and DirecTV, provide for payments based on the number of subscribers that
receive Starz Encore's services and expire between December 2003 and May 2007.
The Comcast Cable agreement is scheduled to expire at the end of 2003, and the
DirecTV agreement is scheduled to expire at the end of March 2006.

The costs of acquiring rights to programming are Starz Encore's principal
expenses. In order to exhibit theatrical motion pictures, Starz Encore enters
into agreements to acquire rights from major and independent motion picture
producers. Starz Encore currently has access to approximately 6,500 movies
through long-term licensing agreements. Eighty seven percent of the first-run
output titles available to Starz Encore for airing are available pursuant to
exclusive licenses from Hollywood Pictures, Touchstone, Miramax, Revolution
Studios, Universal Studios, New Line Cinema and Fine Line Cinema. Starz Encore
also has exclusive rights to air first-run output from four independent studios
and has licensed the exclusive rights to first-run output from Sony's Columbia
Pictures, Screen Gems and Sony Classics for pay television availabilities
beginning on January 1, 2006. These output agreements expire between 2003 and
2011, with extensions, at the option of the respective studio, potentially
extending the expiration date in certain of these agreements to 2015. Starz
Encore is not committed to or dependent upon any one source of film productions,
and has affiliations with every major Hollywood studio, either through long-term
output agreements or library access arrangements.

Starz Encore uplinks its programming to eight transponders on three domestic
communications satellites. Starz Encore leases these transponders under
long-term lease agreements. At December 31, 2002, Starz Encore's transponder
leases had termination dates ranging from 2004 to 2006. In December 2002, Starz
Encore entered into new transponder agreements with effective dates beginning in
2004 and 2006 with fifteen year terms. Starz Encore transmits to these
transponders from its uplink center in Englewood, Colorado. Starz Encore
completed construction of its corporate headquarters and uplink center in the
first quarter of 2002. Prior to that time, Starz Encore leased uplink facilities
from a subsidiary of AT&T.

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For the year ended December 31, 2002, Starz Encore earned 24% of its total
revenue from AT&T Broadband and 21% of its total revenue from DirecTV.

By letter dated May 29, 2001, AT&T Broadband, among other things, has
disputed the enforceability of the programming costs pass through provisions of
the affiliation agreement with Starz Encore and questioned whether the
affiliation agreement, as whole, is "voidable." In November 2002, AT&T Broadband
completed a transaction with Comcast Corporation (formerly known as AT&T Comcast
Corporation) and Comcast Holdings Corporation (formerly know as Comcast
Corporation) in which AT&T Broadband and Comcast Holdings Corporation became
wholly owned subsidiaries of Comcast Corporation On the same day, Comcast
Corporation and Comcast Holdings filed an action for declaratory judgment
against Starz Encore in the U.S. District Court for the Eastern District of
Pennsylvania, alleging that Comcast Holdings' agreement with Starz Encore
permits Comcast Corporation to terminate AT&T Broadband's affiliation agreement
with Starz Encore and replace that agreement with the affiliation agreement
between Comcast Holdings and Starz Encore. See ITEM 3.--LEGAL PROCEEDINGS for a
complete description of this pending litigation.

ASCENT MEDIA GROUP, INC.

Ascent Media Group, Inc., through its Creative Services group, Media
Management Services group and Networks Services group, provides creative media
services to the media and entertainment industries. Its clients include the
major motion picture studios, independent producers, broadcast networks, cable
channels, advertising agencies and other companies that produce, own and/or
distribute entertainment, news, sports, corporate, educational, industrial and
advertising content. Its assets and operations are primarily composed of the
assets and operations of the following companies acquired during 2001 and 2000:
The Todd-AO Corporation, Four Media Company, certain assets and operations of
SounDelux Entertainment Group of Delaware, Soho Group Limited, Visiontext
Limited, Video Services Corporation, Ascent Network Services, Group W Network
Services, Asia Broadcast Centre Pte. Ltd., Group W Broadcast Pte. Ltd. and
Cinram-POP DVD Center LLC.

Ascent Media's Creative Services group provides services necessary to
complete the creation of original content, including feature films, mini-series,
television shows, television commercials, music videos, promotional and identity
campaigns and corporate communications programming. Among other things, the
group creates visual effects, sound effects and animation sequences and provides
three-dimension software tools, online dailies management, audio synchronization
for shooting high definition 24p and integrated interactive television
production. The Creative Services group has three divisions: Entertainment
Television, Commercial Television and Audio which operate in the United States
and Europe, primarily in California, New York and London. The Entertainment
Television and Commercial Television divisions provide to producers of episodic
television series, movies-of-the-week, specials, television commercials, music
videos, theatrical film trailers, interstitial and promotional material, and
identity and corporate image campaigns, services which include developing
negatives, transferring film to digital media, creating visual effects, and
editing and assembling source material into final form. The Audio division
provides music design, music supervision, script breakdown and budgeting, music
pre-recording, music composition and clearance, score production and song
placement.

The Media Management Services group provides owners of content libraries
with an entire complement of facilities and services necessary to optimize,
archive, manage and repurpose media assets for global distribution via freight,
satellite, fiber and the Internet. This segment's services include providing
access to all forms of content, duplication and formatting services, language
conversions and laybacks, restoration and preservation of old or damaged
content, mastering from motion picture film to high resolution or data formats,
digital audio and video encoding services and digital media management services
for global home video, broadcast, pay-per-view, video-on-demand (VOD), streaming
media and other emerging new media distribution channels.

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The Networks Services group provides the facilities and services necessary
to assemble and distribute programming content for cable and broadcast networks
via fiber, satellite and the Internet to viewers in North America, Europe and
Asia. These services principally include production support and facilities for
the timely creation of original programming such as hosted and news segments and
live shows; language translation and subtitling; assembly, origination and
distribution; on-air promotion; fiber transport; uplink and satellite
transponder services; designing, building, installing and servicing advanced
video systems; and broadcast and industrial video equipment rentals. For this
group, Ascent Media has production studios in Connecticut and Singapore,
satellite facilities in California, New York, New Jersey, Connecticut, London
and Singapore and Internet hosting facilities in New York and California, as
well as point-of-presence facilities in the top forty U.S. markets. Ascent Media
is implementing a new digital media management infrastructure that is expected
to provide asset management services to create, manage, process, catalog,
transport and deliver all forms of digital media content. Ascent Media is also
implementing initiatives through its newly-created New Products group which
include providing video-on-demand (VOD) and subscription video-on demand (SVOD)
services such as file encoding, metadata creation, promotional material
creation, file delivery and service reporting.

Ascent Media's groups earn revenue through the provision of the
aforementioned services. Ascent Media's primary expenses are personnel,
materials and equipment costs. No single customer accounted for more than 10% of
Ascent Media's consolidated revenue in 2002.

The demand for Ascent Media's core motion picture services has historically
been seasonal, with higher demand in the spring (second fiscal quarter) and fall
(fourth fiscal quarter) preceding the summer theatrical releases and Christmas
holiday season, respectively. Demand has been lower in the winter and summer,
corresponding to Ascent Media's first and third fiscal quarters, respectively.
Accordingly, Ascent Media has historically experienced, and expects to continue
to experience, quarterly fluctuations in its operating performance.

OWNERSHIP INTEREST. We own shares of Ascent Media's common stock, including
all of its outstanding Class B common stock, representing a 92% equity interest
and a 99% voting interest in Ascent Media. Each share of Ascent Media Class B
common stock has 10 votes per share and is convertible into one share of Ascent
Media Class A common stock, which has one vote per share. We have also made
$224 million of convertible subordinated loans to Ascent Media, of which
$206 million are convertible at our option into shares of Ascent Media Class B
common stock at a conversion price of $10.00 per share and $18 million are
convertible at prices ranging from $1.56 to 3.50 per share.

ON COMMAND CORPORATION

On Command Corporation is a leading provider (based on number of hotel rooms
served) of in-room video entertainment and information services to hotels,
motels and resorts (which we refer to as hotels) in the United States. On
Command's base of installed rooms was approximately 891,000 rooms at
December 31, 2002.

On Command provides in-room video entertainment and information services on
three technology platforms: the OCX video system, the OCV video system, and the
SpectraVision video system. The OCX video system is a digital platform that
provides enhanced multimedia applications, including an improved graphical
interface for movies and games, digital music, television-based Internet with a
wireless keyboard and other guest services. At December 31, 2002, On Command had
installed the OCX video system in approximately 291,000 hotel rooms. The OCV
video system is a video selection and distribution technology platform that
allows hotel guests to select, at any time, movies and games through the
television sets in their hotel rooms. At December 31, 2002, On Command had
installed OCV video systems in approximately 562,000 hotel rooms. The
SpectraVision video system, which provides in-room movie entertainment on a
rolling schedule basis, and in some upgraded variations on

I-11

an on-demand basis, was, as of December 31, 2002, installed in approximately
38,000 hotel rooms. The SpectraVision video system generally offers fewer movie
choices than the OCV or OCX video systems.

At December 31, 2002, approximately 89% of On Command's 891,000 installed
rooms were located in the United States, with the balance located primarily in
Canada and Mexico. In addition to installing systems in hotels that it serves,
On Command sells its systems to other providers of in-room entertainment,
including ALLIN Interactive, which is licensed to install On Command's systems
on cruise ships.

Charges for On Command's services are included on the hotel guest's bill
upon check out. The hotels collect fees from their guests and retain a
commission equal to a negotiated percentage of the net revenue generated from
the room. In addition to the services described above, On Command's platforms
provide for in-room viewing of select cable channels (such as HBO, Starz, ESPN,
Disney Channel and Discovery). On Command primarily provides its services under
long-term contracts to hotel chains, hotel management companies, and
individually owned and franchised hotel properties. On Command's services are
offered predominantly in the large deluxe, luxury, and upscale hotel categories
serving business travelers, such as Marriott, Hilton, Six Continents, Hyatt,
Wyndham, Starwood, Radisson, Fairmont, Four Seasons and other select hotels.

The amount of revenue realized by On Command each month is affected by a
variety of factors, including among others, hotel occupancy rates, the "buy
rate" or percentage of occupied rooms that buy movies or services, the quality
of On Command's pay-per-view movie offerings, business and leisure travel
patterns, changes in the number of rooms served, the number of business days in
a month and holidays. With the exception of December, which is generally On
Command's lowest month for revenue, On Command typically does not experience
significant variations in its monthly revenue that can be attributed solely to
seasonal factors.

On Command typically negotiates and enters into a separate contract with
each hotel for the service provided. However, for some of its large hotel
management customers, On Command negotiates and enters into a single master
contract for the provision of services for all of the corporate-owned hotels of
such management company. In the case of franchised, managed or independently
owned hotels, the contracts are generally negotiated separately with each hotel.
Existing contracts generally have a term of five to seven years from the date
the system becomes operational. Under these contracts, On Command installs its
system into the hotel at On Command's cost and On Command retains ownership of
all its equipment used in providing the service. In certain cases, On Command
provides hotels with televisions, but in other cases On Command requires the
hotels to provide televisions.

On Command's contracts with hotels generally provide that On Command will be
the exclusive provider of in-room, pay-per-view video entertainment services to
the hotel and generally permit On Command to set its prices. Under certain
circumstances, certain hotels may have the right to prior approval of the price
increases, which approval may not be unreasonably withheld. On Command's
contracts with hotels typically set forth the terms governing On Command's
provision of free-to-guest programming as well. Depending on the contract, On
Command may or may not be the exclusive provider of free-to-guest programming,
and in cases where On Command is not the exclusive provider, certain of On
Command's contracts require On Command to make payments to hotels to subsidize
the cost to the hotels of using another free-to-guest programming provider. Most
of On Command's contracts contain provisions that limit the amount of
programming cost increases that may be passed on to the hotels for the
free-to-guest service. As a result of these limitations, increases in
free-to-guest programming revenue have not kept pace with increases in the
corresponding programming costs, and the amount of revenue derived from On
Command's free-to-guest service has been less than the aggregate cost to On
Command of the corresponding programming during each of the past three years. On
Command is currently working with its programming vendors and hotels to mitigate
the short fall.

I-12

Some contracts also require On Command to upgrade systems to the extent that new
technologies and features are introduced during the term of the contract. At
December 31, 2002, contracts covering approximately 40% of On Command's
installed rooms have expired, or are scheduled to expire, if not otherwise
renewed, during the two-year period ending December 31, 2004.

On Command's master contract with Hilton Hotels Corporation expired on
April 27, 2000. In October 2000, Hilton announced that it would not be renewing
its master contract with On Command. On Command currently provides service to
approximately 126,200 rooms in 534 hotels that are owned, managed or franchised
by Hilton. Hotel contracts are written at the individual hotel level and
expirations occur over an extended period of time depending on the installation
date of the individual hotel. On Command expects that hotels owned by Hilton
will not renew their contracts as they expire. Hotels that are managed or
franchised by Hilton are not precluded from renewing their contracts with On
Command, but On Command cannot predict the number of managed and franchised
Hilton hotels that will renew.

In March 2001, On Command and Marriott International, Inc. entered into a
definitive agreement pursuant to which On Command will distribute its
interactive television platform in approximately 175,000 U.S. and Canadian hotel
rooms owned or managed by Marriott. In addition, On Command has the opportunity
to negotiate agreements to provide its interactive television platform to
approximately 167,000 additional U.S. and Canadian hotel rooms franchised by
Marriott.

Marriott, Hilton and Six Continents accounted for approximately 30%, 16% and
12% respectively, of On Command's room revenues for the year ended December 31,
2002. These revenue percentages represent all chain affiliations including
owned, managed and franchised hotels.

OWNERSHIP INTEREST. In connection with our acquisition of Ascent
Entertainment Group, Inc. in March 2000, we acquired an approximate 58%
ownership interest in On Command Corporation. In 2001, Ascent Entertainment
purchased from On Command shares of various series of preferred stock of On
Command for an aggregate cash purchase price of $85 million. Also in 2001,
Ascent Entertainment purchased from Jerome H. Kern, one of our directors and a
former officer and director of On Command, approximately 2.3 million shares of
On Command common stock for an aggregate purchase price of $25.2 million. In
April 2002, we contributed to Liberty Satellite & Technology, Inc. our 100%
ownership interest in Ascent Entertainment (which owns substantially all of our
interest in On Command) and other assets in exchange for 34 million shares of
Liberty Satellite Series B common stock. In November 2002 and February 2003,
Liberty Satellite purchased an additional 3.4 million shares of On Command
common stock in the open market bringing its ownership interest to approximately
80%. Of this ownership interest in On Command, approximately 6% is comprised of
immediately convertible shares of On Command Series D preferred stock.

DMX MUSIC

The DMX Music service is provided by Maxide Acquisition, Inc. and delivers
professionally programmed commercial-free music to homes and businesses around
the world via the Internet, satellite and broadband networks. The DMX Music
service offers a variety of music formats which are generally updated daily by a
full-time programming staff.

DMX Music distributes its service by satellite to cable operators and
directly to residential and commercial subscribers with satellite dishes. DMX
Music subleases satellite transponder capacity from seven satellite providers,
with the principal sublease from the National Digital Television Center. This
sublease extends to the earlier of the life of the satellite or November 2017.
Cable operators distribute the DMX Music service primarily through digital
compression technology through Comcast's Headend in the Sky. The DMX Music
service is included in digital cable packages distributed by multiple system
cable operators.

I-13

DMX Music's affiliation agreements with cable operators generally provide
for the cable operator to pay a fee per subscriber that purchases a digital
cable package including the DMX Music service. Cable operators also distribute
the DMX Music service through analog technology, in which case the service is
offered as a separate premium service to subscribers, and DMX Music is paid a
per subscriber license fee under its affiliation agreements with cable
operators. DMX Music also provides commercial service to businesses through
national, regional and local agreements, which generally have terms ranging from
three to five years. Commercial customers pay a monthly fee averaging $50 for
the DMX Music service, which is delivered via satellite or via an on-premise
platform to each business location. In addition, DMX Music sells or leases
source equipment (satellite decoders, dishes and on-premise equipment) to its
customers.

No single customer accounted for more than 10% of DMX Music's revenue in
2002.

OWNERSHIP INTEREST. We have an approximate 56% ownership interest in Maxide
Acquisition. Maxide Acquisition was formed in 2001 by combining DMX, Inc. a
subsidiary of Liberty, with AEI Music Network, Inc.

OPENTV CORP.

OpenTV provides technology, content and applications, and professional
services that enable digital television network operators to deliver and manage
interactive television services on all major digital television
platforms--cable, satellite and terrestrial--in all major geographic areas of
the world. OpenTV's software products, including its core middleware and its
Wink interactive service platform, have been shipped in more than 42 million
digital set-top boxes worldwide. More than 18 million digital set-top boxes
enabled with OpenTV's software products have been shipped in the United States.
OpenTV's interactive services and content offerings, including the Wink
interactive service and the PlayJam interactive games channel, are available to
over 19 million subscribers worldwide.

The products and services that OpenTV provides can be broken down into the
following categories:

- MIDDLEWARE SOLUTIONS. OpenTV's integrated and modular middleware products
enable network operators to manage the delivery and execution of
interactive television services within their digital television set-top
boxes.

- NETWORK AND ENTERPRISE SOLUTIONS. These software products, which are used
in conjunction with OpenTV's middleware solutions and generally reside at
a network operator's head-end or other central broadcasting facility,
manage the generation and delivery of interactive television services to
and from the set-top box and integrate and manage secure commerce and
advertising functions.

- INTERACTIVE CHANNELS. OpenTV develops and manages branded interactive
television channels, including PlayJam-TM-, the world's first interactive
television gaming and entertainment channel.

- MANAGED ITV SERVICES. OpenTV's Wink service allows advertisers, retail
merchants, broadcast and cable networks to create interactive enhancements
to traditional television advertisements and programs, and gives viewers
access to program-related information such as news, sports and weather.

- APPLICATIONS. OpenTV provides stand-alone interactive television
applications deployable by network operators utilizing OpenTV's
interactive television platform, as well as applications tools that allow
third-party developers to author interactive television applications for
our interactive television platform.

- PROFESSIONAL SERVICES AND SUPPORT. OpenTV's worldwide team of skilled and
experienced launch managers and software integration engineers help
network operators and set-top box

I-14

manufacturers build, integrate and deploy interactive services. OpenTV
also provides education services to meet the training needs of its
customers.

OpenTV derives revenue from (1) royalties from the sale of set-top boxes
that incorporate OpenTV software; (2) fees for consulting engagements for
set-top box manufacturers, network operators and system integrators and
maintenance and support for set-top box manufacturers; (3) channel fees from
consumers of the PlayJam interactive games channel who pay to play games and
register for prizes; and (4) license fees from the sale of products such as
Device Mosaic, OpenTV Streamer, OpenTV Software Developers Kit and various
applications, including OpenTV Publisher. Two customers collectively accounted
for approximately 22% of OpenTV's revenues in 2002, with each of Motorola, Inc.
and the Digital Interactive Television Group, a British telecommunications
company that supports the collection of premium rate telephony charges for the
PlayJam channel on BSkyB, accounting for approximately 11% of revenues during
the year.

While OpenTV is one of the world's leading interactive television companies,
the interactive television industry is still in its infancy. The growth of the
industry and of OpenTV is highly dependent upon a number of factors, including
(i) consumer acceptance of interactive services and products; (ii) deployment of
capital by broadband service providers for interactive hardware and software;
(iii) acceptance by broadband service providers of OpenTV's interactive
technology and products; and (iv) continued development of interactive
technology, products and services. These factors are not within OpenTV's control
and no assurance can be given that interactive television will expand beyond its
current state.

OWNERSHIP INTEREST. We own shares of OpenTV's Class A common stock and
Class B common stock, representing a 46% equity interest and an 89% voting
interest in OpenTV. Each share of OpenTV Class B common stock has 10 votes per
share and is convertible into one share of OpenTV Class A common stock, which
has one vote per share.

PRAMER S.C.A.

Pramer S.C.A., an Argentine programming company, supplies programming
services to cable television and DTH satellite distributors throughout Latin
America. Pramer currently owns 11 channels and represents 12 additional
channels, including two of Argentina's four terrestrial broadcast stations.
Total subscription units for 2002 (which equals the sum of the total number of
subscribers to each of Pramer's owned and represented channels) were
approximately 69 million, with the number of subscribers per channel ranging
from less than 16,000 for the smallest premium service to over 7.5 million for
the most popular basic service. Pramer's owned channels include CANAL (A), the
first Latin-American quality arts channel, FILM & ARTS, offering quality films,
concerts, operas and interviews with artists, and ELGOURMET.COM, a channel for
the lovers of "the good things in life", all of which are offered as basic
television services. Approximately 65% of Pramer's total revenue for 2002 was
generated by owned channels. Pramer's represented channels include USA NETWORKS,
HALLMARK and COSMO CHANNEL (in which we own a 50% interest). Pramer handles
affiliate sales for the 12 channels it represents and advertising sales for five
of such channels. Pramer collects the revenue for the represented channels and
pays the channel owners either a fixed fee or a fee based on amounts collected.
Representation agreements typically have terms of two to five years. Advertising
revenue accounted for approximately 10% of Pramer's total revenue for 2002.

Of the 23 channels owned and/or represented by Pramer, 15 channels are
distributed outside of Argentina, principally in Chile, Mexico and Venezuela.
For 2002, approximately 50% of Pramer's affiliate revenue was derived from the
distribution of channels outside of Argentina.

Pramer's affiliation agreements with cable television and satellite
distributors typically have terms of one to five years. Pramer's current
affiliation agreements expire between 2003 and 2005. The only distributor that
represented more than 10% of Pramer's total revenue for 2002 was Cablevision
S.A., an

I-15

Argentine cable provider in which we own an approximate 39% economic (and no
voting) interest. Pramer's affiliation agreement with Cablevision expires in
December 2003.

Pramer has two sources of content: rights that are purchased from various
distributors and its own productions. Contracts with producers or distributors
of films and shows usually have terms of two to four years. Pramer's own
productions are usually contracted with independent producers.

All of Pramer's satellite transponder capacity is provided pursuant to
contracts expiring in 2014.

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

EQUITY METHOD AFFILIATES

DISCOVERY COMMUNICATIONS, INC.

Discovery Communications, Inc. is a global media and entertainment company.
Discovery has grown from its core property, DISCOVERY CHANNEL, to current global
operations in over 155 countries across six continents, with over 700 million
total subscriptions, including over 80 million subscriptions to channels
distributed by ventures in which Discovery has less than a majority ownership.
Discovery's programming is tailored to the specific needs of viewers around the
globe, and distributed through 77 separate feeds in 33 languages. Discovery's 33
networks of distinctive programming represent 14 entertainment brands including
TLC, ANIMAL PLANET, TRAVEL CHANNEL, DISCOVERY HEALTH CHANNEL, DISCOVERY KIDS,
and a family of digital channels. Discovery's other properties consist of
DISCOVERY.COM and approximately 170 retail outlets. Discovery also distributes
BBC AMERICA in the United States.

OWNERSHIP INTEREST. We hold a 49.8% interest in Discovery. Cox
Communications, Inc., Advance/ Newhouse Communications and Discovery's founder
and Chairman, John S. Hendricks, hold interests in Discovery of 24.9%, 24.9% and
0.4%, respectively.

Discovery is managed by its stockholders rather than a board of directors.
Generally, all actions to be taken by Discovery require the approval of the
holders of a majority of Discovery's shares, subject to certain exceptions,
including certain fundamental actions, which require the approval of the holders
of at least 80% of Discovery's shares. The stockholders of Discovery have agreed
that they will not be required to make additional capital contributions to
Discovery unless they all consent. They have also agreed not to own another
basic programming service carried by domestic cable systems that consists
primarily of documentary, science and nature programming, subject to certain
exceptions.

Each stockholder has been granted preemptive rights on share issuances by
Discovery. Any proposed transfer of Discovery shares by a stockholder will be
subject to rights of first refusal in favor of the other stockholders, subject
to certain exceptions, with our right of first refusal being secondary under
certain circumstances. In addition, we are not permitted to hold in excess of
50% of Discovery's stock unless our increased ownership results from exercises
of our preemptive rights or rights of first refusal.

I-16

QVC, INC.

QVC, Inc. markets and sells a wide variety of consumer products and
accessories primarily by means of televised shopping programs on the QVC network
and via the Internet through IQVC. QVC operates shopping networks in the United
States, Germany, Japan and the United Kingdom. QVC purchases, or obtains on
consignment, products from domestic and foreign manufacturers and wholesalers,
often on favorable terms based upon the volume of the transactions. QVC does not
depend upon any one particular supplier for any significant portion of its
inventory.

QVC distributes its television programs, via satellite, to multichannel
video program distributors for retransmission to subscribers. In return for
carrying QVC, each domestic programming distributor receives an allocated
portion, based upon market share, of up to 5% of the net sales of merchandise
sold to customers located in the programming distributor's service area.

OWNERSHIP INTEREST. We own approximately 42% of QVC, and Comcast owns the
remaining 58%. QVC is managed on a day-to-day basis by Comcast, and Comcast has
the right to appoint all of the members of the QVC board of directors. We have
the right to appoint two members of QVC's five-member management committee.
QVC's management committee has the right to vote on every matter submitted, or
required to be submitted, to a vote of the QVC board, and we and Comcast are
required to use our respective best efforts to cause QVC to follow the direction
of any resolution of the management committee. We also have veto rights with
respect to certain fundamental actions proposed to be taken by QVC.

We have been granted a tag-along right that will apply if Comcast proposes
to transfer control of QVC, and Comcast may require us to sell our QVC stock as
part of the transaction, under certain circumstances and subject to certain
conditions. In addition, we have the right to initiate an exit process with
respect to our interest in QVC.

We and Comcast have certain mutual rights of first refusal and mutual rights
to purchase the other party's QVC stock following certain events, including
change of control events affecting either stockholder. We and Comcast also have
registration rights.

As further discussed under--"General Development of Business--Recent
Developments," on March 3, 2003, we announced that we had notified Comcast of
our election to trigger the exit process under the stockholders agreement
governing Comcast's and our interests in QVC. No assurance can be given that the
transaction contemplated by the exit process will be consummated on the terms
described, or at all.

JUPITER PROGRAMMING CO., LTD.

Jupiter Programming Co., Ltd. is a joint venture between us and Sumitomo
Corporation that was formed to develop, manage and distribute cable and
satellite television channels in Japan. As of December 31, 2002, Jupiter
Programming owned four channels through wholly- or majority-owned subsidiaries
and had investments ranging from approximately 10% to 50% in ten additional
channels. Jupiter Programming's majority owned channels are a movie channel
(CSN1), a golf channel (GOLF NETWORK), a shopping channel (SHOP CHANNEL, in
which Home Shopping Network has a 30% interest), and a women's channel (LALA
TV). Channels in which Jupiter Programming holds investments include three
sports channels owned by JSkySports, a joint venture with News Television B.V.,
Sony Broadcast Media Co. Ltd, Fuji Television Network, Inc. and SOFTBANK
Broadmedia Corporation; ANIMAL PLANET JAPAN, a one-third owned joint venture
with Discovery and BBC Worldwide; and DISCOVERY CHANNEL JAPAN, a 50% owned joint
venture with Discovery. Jupiter Programming provides affiliate sales services
and in some cases advertising sales and other services to channels in which it
has investments for a fee.

The market for multi-channel television services in Japan is highly complex
with multiple cable systems and direct-to-home satellite platforms. Cable
systems in Japan served approximately

I-17

13.1 million homes at December 31, 2002. A large percentage of these homes,
however, are served by systems (referred to as compensation systems) whose
service principally consists of retransmitting free TV services to homes whose
reception of such broadcast signals has been blocked. Higher capacity systems
and larger cable systems that offer a full complement of cable and broadcast
channels, of which Jupiter Telecommunications Co., Ltd. is the largest in terms
of subscribers, currently pass approximately 4.45 million households. All of the
channels in which Jupiter Programming holds a 20% or greater interest are
marketed as basic television services to cable system operators, with
distribution at December 31, 2002 ranging from approximately 11.5 million homes
for SHOP CHANNEL (which is carried in many compensation systems and on UHF as
well as in multi-channel cable systems) to approximately 1.4 million homes for
more recently launched channels, such as ANIMAL PLANET JAPAN.

All of the channels in which Jupiter Programming has interests are also
currently offered on Sky PerfecTV, a digital satellite platform that delivers
approximately 140 channels a-la-carte and in an array of basic and premium
packages, from two satellites operated by JSAT Corporation (which we refer to as
JSAT). Currently there are four other satellite platforms in Japan, delivering a
significantly smaller number of channels. Under Japan's complex regulatory
scheme for satellite broadcasting, each channel obtains a broadcast license
which is perpetual, although subject to revocation by the relevant governmental
agency, and leases from the satellite operator the bandwidth capacity on the
applicable satellites necessary to transmit the licensed channel to cable and
other distributors and direct-to-home satellite subscribers. In the case of
distribution of Jupiter Programming's 33% or greater owned channels to three of
the four satellite platforms, these licenses and satellite capacity leases are
held through its affiliate, Jupiter Satellite Broadcasting Corporation (which we
refer to as JSBC). The satellite broadcast licenses for Jupiter Programming's
33% or greater owned channels with respect to the fourth satellite platform are
held by two other companies that are majority owned by unaffiliated entities.
JSBC's leases with JSAT for bandwidth capacity on JSAT's two satellites expire
in 2007. JSBC and other licensed broadcasters then contract with the platform
operator, such as Sky PerfecTV, for customer management and marketing services
(sales and marketing, billing and collection) and for encoding services
(compression, encoding and multiplexing of signals for transmission) on behalf
of the licensed channels.

Approximately 80% of Jupiter Programming's consolidated revenues for 2002
were attributable to retail revenues generated by the SHOP CHANNEL. Cable
operators are paid distribution fees to carry the SHOP CHANNEL, which are either
a fixed rate per subscriber or the greater of a fixed rate per subscriber and a
percentage of revenue generated through sales in the cable operator's territory.
After SHOP CHANNEL, JSKY SPORTS generates the most revenues of the channels in
which Jupiter Programming has an interest, the majority of which revenues are
derived from satellite subscriptions. Currently, advertising sales are not a
significant component of Jupiter Programming's revenues.

OWNERSHIP INTEREST. We and Sumitomo each own a 50% interest in Jupiter
Programming. Pursuant to a stockholders agreement we entered into with Jupiter
Programming and Sumitomo, we and Sumitomo each have preemptive rights to
maintain our respective equity interests in Jupiter Programming, and we and
Sumitomo each have the right to elect and remove one director for each 16.6%
equity interest in Jupiter Programming that we or Sumitomo, as applicable, hold.
No board action may be taken with respect to certain material matters without
the unanimous approval of the directors appointed by us and Sumitomo, provided
that we and Sumitomo each own 30% of Jupiter Programming's equity at the time of
any such action. We and Sumitomo each hold a right of first refusal with respect
to the other's interests in Jupiter Programming, and we and Sumitomo have each
agreed to provide Jupiter Programming with a right of first opportunity with
respect to the acquisition of more than a 10% equity position in, or the
management of or any similar participation in, any programming business or
service in Japan and any other country to which Jupiter Programming distributes
its signals, in each case subject to specified limitations.

I-18

COURT TELEVISION NETWORK LLC.

Court Television Network LLC owns and operates COURT TV, a basic cable
network that provides informative and entertaining programming based on the
American legal system. Court TV's day-time programming focuses on trial
coverage. Night-time programming includes reality-based documentary specials,
off-network series such as NYPD BLUE and original programming such as FORENSIC
FILES. CourtTV was launched in 1991, and as of December 31, 2002 had more than
74 million subscribers. Court TV earns revenue from the sale of advertising on
its network and from affiliation agreements with cable television and
direct-to-home satellite operators.

OWNERSHIP INTEREST. We and Time Warner Entertainment each own 50% of Court
Television. Pursuant to Court Television's operating agreement, no action may be
taken with respect to certain material matters without our approval and that of
Time Warner Entertainment. Also pursuant to Court Television's operating
agreement, each member has a right of first offer with respect to any proposed
transfer by the other member of its interest in Court Television other than to
an affiliate of the transferring member or to NBC Cable Courtroom
Holdings, Inc. upon exercise of its option (as described below). In addition, at
any time after January 7, 2006, we may require Time Warner Entertainment to
purchase all but not less than all of our ownership interest, and Time Warner
Entertainment may require us to sell all but not less than all of our ownership
interest, in Court Television. Furthermore, pursuant to an option agreement
among us, Time Warner Entertainment, Court Television and NBC Cable Courtroom,
NBC Cable Courtroom has the option to purchase a 50.1% voting interest in Court
Television, if on or before August 31, 2005, we and Time Warner Entertainment
convert the service distributed by Court Television into a service that provides
regularly scheduled general business or financial news or personal finance
programming. In addition, at such time as NBC Cable Courtroom has exercised its
right under the option agreement and is a member of Court Television, neither we
nor Time Warner Entertainment may transfer all or any part of our interest to
the other, or more than 50% of our interest to a third party, without first
offering to include a portion of NBC Cable Courtroom's membership interest in
the sale.

GAME SHOW NETWORK, LLC

Game Show Network, LLC owns and operates the Game Show Network. With nearly
50 million subscribers as of December 31, 2002, Game Show Network is a basic
cable network dedicated exclusively to the world of games, game playing and game
shows. Game Show Network offers 24-hour cable programming consisting of
syndicated game show favorites from its library, original programming and new
interactive game shows where viewers can compete against each other from their
own homes. Game Show Network programs more than 55 hours of interactive
television each week.

OWNERSHIP INTEREST. We and Sony Pictures Entertainment, a division of Sony
Corporation of America, which is a subsidiary of Sony Corporation, each own 50%
of Game Show Network, LLC. Game Show Network's day-to-day operations are managed
by a management committee of its board of managers. Pursuant to Game Show
Network's operating agreement, we have the right to designate three of the
management committee's six members. Also pursuant to the operating agreement, we
and Sony have agreed not to transfer our interests in Game Show Network, other
than through an indirect transfer that does not result in a change of control of
the transferring party, until February 2004. After February 2004, direct
transfers and indirect transfers that result in a change of control of the
transferring party are permitted, subject to a right of first refusal in favor
of the non-transferring member.

COMMUNICATIONS AND BROADBAND DISTRIBUTION

Cable television systems deliver multiple channels of television programming
to subscribers who pay a monthly fee for the service. Video, audio and data
signals are received at the cable system

I-19

head-end over the air or via satellite delivery by antennas, microwave relay
stations and satellite earth stations and are modulated, amplified and
distributed over a network of coaxial and fiber optic cable to the subscribers'
television sets. Cable television providers in most markets are currently
upgrading their cable systems to deliver new technologies, products and services
to their customers. These upgraded systems may allow cable operators to expand
channel offerings, add new digital video services, offer high-speed data
services and, where permitted, provide telephony services. The implementation of
digital technology significantly enhances the quantity and quality of channel
offerings, and may allow the cable operator to offer video-on-demand, additional
pay-per-view offerings, premium services and incremental niche programming.
Upgraded systems also enable cable networks to transmit data and gain access to
the Internet at significantly faster speeds, up to 100 times faster, than data
can be transmitted over conventional dial-up connections. Lastly, many cable
providers have been developing the capability to provide telephony services to
residential and commercial users at rates well below those offered by incumbent
telephone providers. Each of these businesses represents an opportunity for
cable providers to increase their revenue and operating cash flow by providing
services in addition to the traditional pay television services that have
historically been offered.

Telephony providers offer local, long distance, switched services, private
line and advanced networking features to customers who pay a monthly fee for the
service, generally based upon usage. Wireless telecommunications networks use a
variety of radio frequencies to transmit voice and data in place of, or in
addition to, standard landline telephone networks. Wireless telecommunications
technologies include two-way radio applications, such as cellular, personal
communications services, specialized mobile radio and enhanced specialized
mobile radio networks, and one-way radio applications, such as paging services.
Each application operates within a distinct radio frequency block. As a result
of advances in digital technology, digital-based wireless system operators are
able to offer enhanced services, such as integrated voicemail, enhanced
custom-calling and short-messaging, high-speed data transmissions to and from
computers, advanced paging services, facsimile services and Internet access
service. Wireless subscribers generally are charged for service activation,
monthly access, air time, long distance calls and custom-calling features.
Wireless system operators pay fees to local exchange companies for access to
their networks and toll charges based upon standard or negotiated rates. When
wireless operators provide service to roamers from other systems, they generally
charge roamer air time usage rates, which usually are higher than standard air
time usage rates for their own subscribers, and additionally may charge daily
access fees.

CONSOLIDATED SUBSIDIARIES

LIBERTY CABLEVISION OF PUERTO RICO, INC.

Liberty Cablevision of Puerto Rico, Inc. is one of Puerto Rico's largest
cable television operators based on number of customers. Liberty Cablevision of
Puerto Rico operates three head ends, serving approximately 121,000 basic
subscribers in the communities of Luquillo, Arecibo, Florida, Caguas, Humacao,
Cayey and Barranquitas.

At December 31, 2002, 100% of Liberty Cablevision of Puerto Rico's network
had been rebuilt utilizing a minimum of 550 MHz bandwidth capacity. At
December 31, 2002, Liberty Cablevision of Puerto Rico provided subscribers with
63 analog channels. In some service areas, Liberty Cablevision of Puerto Rico
also offers 165 digital channels.

A significant portion of Liberty Cablevision of Puerto Rico's cable network
consists of fiber-optic and coaxial cable. This infrastructure allows Liberty
Cablevision of Puerto Rico to offer enhanced entertainment, information and
telecommunications services and, when and to the extent permitted by law, cable
telephony services. During 2002, Liberty Cablevision of Puerto Rico began
offering telephony service and high speed data transmission services and
Internet access using high speed cable modems to its subscribers.

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LIBERTY SATELLITE & TECHNOLOGY, INC.

At February 28, 2002, Liberty Satellite & Technology, Inc. indirectly owns
74% of the common stock of On Command, which is its primary operating
subsidiary. In addition, Liberty Satellite has strategic investments in and
contractual arrangements with various entities that operate, or are developing
satellite and terrestrial wireless networks for broadband distribution of
Internet access, video programming, streaming media and other data. Most of the
businesses in which Liberty Satellite has strategic investments are in the
development stage and operate at substantial losses.

These investments include beneficial interests representing 10% of Sky Latin
America, which operates a satellite delivered television platform serving
Mexico, Brazil, Colombia and Chile; 16% of the stock of Wildblue
Communications, Inc., which is building a Ka-band satellite network to provide
broadband data communications services to homes and small offices in North
America and Latin America; 31.5% of the membership interests in Astrolink
International LLC, which is building a Ka-band satellite network to provide
broadband data communications services to businesses; shares of or beneficial
interests in shares of General Motors Class H common stock, XM Satellite Radio
Holdings, Inc. and Sprint Corporation PCS Group common stock, in each case
representing less than 1% of the outstanding shares.

OWNERSHIP INTEREST. In April 2002, we contributed to Liberty Satellite our
100% ownership interest in Ascent Entertainment (which owns substantially all of
our interest in On Command) and our 89% ownership interest in Liberty Satellite
LLC, of which Liberty Satellite owned the remaining 11%, in exchange for
34 million shares of Liberty Satellite Series B common stock. Also during 2002
and the first quarter of 2003, we received approximately 7.5 million shares of
Liberty Satellite Series A common stock as payment for dividends on the Liberty
Satellite preferred stock. As of February 28, 2003, we hold 87% of the common
equity of Liberty Satellite and all of the preferred stock of Liberty Satellite,
which ownership interests collectively represented 98% of the voting power of
Liberty Satellite's outstanding equity securities. The preferred stock that we
own consists of Liberty Satellite's Series A 12% Cumulative Preferred Stock with
a liquidation value of $150 million and Liberty Satellite's Series B 8%
Cumulative Convertible Voting Preferred Stock with a liquidation value of
$150 million. This preferred stock is senior to all other classes and series of
capital stock of Liberty Satellite. The Series A preferred stock does not have
voting rights and is not convertible into common stock. The holders of the
Series B preferred stock have voting rights representing, in the aggregate,
approximately 85% of the total voting power of Liberty Satellite and vote
together with the holders of all other classes or series of voting stock of
Liberty Satellite, except as required by law. In addition, the Series B
preferred stock is convertible at the option of the holder into shares of
Series B common stock at a conversion price of $88.40 per share of Series B
common stock, subject to specified adjustments.

TRUEPOSITION, INC.

TruePosition, Inc. develops and markets technology for locating wireless
phones and other wireless devices, enabling wireless carriers, application
providers and other enterprises to provide E-911 and other location-based
services to mobile users worldwide. "E-911" or "Enhanced 911" refers to an FCC
mandate requiring wireless carriers to implement wireless location technology.
Although TruePosition entered into a deployment agreement with Cingular Wireless
in August 2001, Cingular did not begin deploying TruePosition's technology until
late in 2002.

The TruePosition-Registered Trademark- Wireless Location System-TM- is a
passive overlay system designed to enable mobile wireless service providers to
determine the location of any wireless device, including cellular and PCS
telephones. Using patented time difference of arrival (TDOA) and angle of
arrival (AOA) technology, the TruePosition Wireless Location System calculates
the latitude and longitude of any designated wireless telephone or transmitter
and forwards this information in real time to any desired application software.
TruePosition measures transmissions occurring on the reverse control or voice

I-21

channel of wireless telephones and uses TDOA and AOA techniques to calculate the
geographic location, as well as the direction of travel and velocity of a
telephone or other wireless transmitter. TruePosition technology offerings cover
all of the major wireless air interfaces such as Time Division Multiple Access
(TDMA), Code Division Multiple Access (CDMA), Analog Mobile Phone Service (AMPS)
and Global System Mobile (GSM).

OWNERSHIP INTEREST. We own 89% of the common equity of TruePosition. In
December 2002, TruePosition issued shares of Series A preferred stock with an
aggregate stated value of approximately $247 million to us and one of our
subsidiaries for inter-company advances previously made to TruePosition. In
addition, our board of directors authorized us to advance to TruePosition an
additional $25 million in exchange for additional shares of Series A preferred
stock, at such times as may be determined by management.

EQUITY METHOD AFFILIATES

UNITEDGLOBALCOM, INC.

UGC is one of the largest broadband communications providers outside the
United States based upon the number of customers served. UGC provides video
distribution services in over 20 countries worldwide and telephone and Internet
access services in a growing number of international markets. UGC's operations
are grouped into three major geographic regions: Europe, Asia/Pacific and Latin
America.

EUROPEAN OPERATIONS

UGC's European operations are conducted through its 53.1% owned, publicly
traded subsidiary UPC, which is one of the largest Pan-European broadband
communications companies (in terms of number of customers) providing video,
telephone and Internet access services to 13 countries in Europe. UPC offers
advanced analog video services, a range of pay-per-view services and a large
choice of radio programs to residential customers throughout its operating
regions. UPC also offers digital video services to residential customers in the
Netherlands, France, Austria, Norway and Sweden, with the rollout of these
services in other operating regions expected in the future subject to the
availability of sufficient capital and upgraded technology. As of December 31,
2002, UPC's operating systems had approximately 6.9 million aggregate
subscribers to their basic cable video services. UPC also offers local telephone
services, under its subsidiary's name, Priority Telecom, to residential and
business customers in its Austrian, Dutch, French and Norwegian systems and to
residential customers in its French systems. Priority Telecom manages UPC's
interconnection relationships with incumbent local telecommunications carriers.
UPC also has a traditional switched telephone network in Hungary and the Czech
Republic. As of December 31, 2002, UPC provided telephone services to
approximately 471,000 residential and business customers. UPC Media operates
UPC's Internet and video content and programming businesses, and also operates
all aspects of UPC's Internet business (CHELLO BROADBAND) for residential
customers in Austria, Belgium, France, the Netherlands, Norway, Sweden, Poland,
the Czech Republic and Hungary. UPC's local operating companies have entered
into franchise agreements with CHELLO BROADBAND, which provide UPC's local
systems with product development, customer support, local language broadband
portals, and marketing support for a fee based upon a percentage of subscription
revenue. At December 31, 2002, UPC's local operating systems had approximately
661,000 residential subscribers to its high speed Internet access service.

I-22

In February, May, August and November 2002, UPC failed to make required
interest payments on certain of its senior notes. Since that time, UPC has been
negotiating the restructuring of its debt instruments and a proposed
recapitalization, which if consummated as currently contemplated would result in
UGC receiving 65% of a new UPC holding company in exchange for UPC debt
securities that UGC owns; third-party noteholders receiving 33% of the new
holding company's equity; and existing preferred and ordinary shareholders,
including UGC, receiving 2% of the new holding company's equity. In
December 2002, UPC filed a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code and commenced a moratorium of payments in The Netherlands under
Dutch bankruptcy law. The U.S. Bankruptcy Court confirmed the plan of
reorganization as modified on February 21, 2003. The Dutch court ratified the
plan of compulsory composition (Akkord) on March 13, 2003. A UPC creditor has
appealed the Dutch decision. As a result, UPC can give no assurance as to when
the Dutch Akkord process will be completed, but expects that the restructuring
will be finalized in the second quarter of 2003.

LATIN AMERICAN OPERATIONS

UGC's primary Latin American operation is VTR GlobalCom S.A., a wholly owned
multi-channel television provider and a growing provider of voice services in
Chile. VTR is the largest provider (based on number of customers) of wireline
cable television, multichannel multipoint distribution service (or MMDS) and
direct-to-home technologies in Chile. Wireline cable television is VTR's primary
business. As of December 31, 2002, VTR had an estimated 66% market share of
cable television services throughout Chile, and approximately 57% of all of
VTR's television homes passed were able to use VTR's telephone services. VTR has
interconnect agreements with local carriers, cellular operators and long
distance carriers. In portions of its network, VTR also offers high speed
Internet access, with 70,000 customers at the end of 2002.

UGC also provides content to various Latin American countries through its
50% ownership interest in MGM Networks LA, which currently produces and
distributes three pan-regional channels that are currently distributed on most
major cable and satellite systems in 17 countries throughout Latin America.

VTR's $176 million bank credit facility, as amended, matures on April 29,
2003. Pursuant to the terms of the bank credit facility, VTR is required to
consummate a Chilean bank and/or bond financing of not less than $50 million. If
VTR completes a local financing, of which no assurance can be given, the
maturity of the bank credit facility is expected to be extended for
approximately four years. Without the proceeds from a local financing, VTR will
need to refinance the balance of the bank credit facility prior to its maturity
in April 2003. No assurance can be given that VTR will be able to secure such
refinancing on terms satisfactory to VTR, or at all.

ASIA/PACIFIC OPERATIONS

UGC's Asia/Pacific operations are primarily conducted through Austar United
Communications Limited, a 55.8% owned publicly traded affiliate. Austar United
is the largest provider (based on number of customers) of subscription
television services in regional Australia with a service area encompassing
approximately 2.1 million homes. In addition, Austar has an approximate 41.6%
interest in TelstraClear, New Zealand's second largest full service
communications company, providing telephone, cable television and Internet
services to its residential and commercial customers. Austar primarily uses
digital direct-to-home satellite and, to a lesser extent, wireless cable and
cable distribution technologies for delivery of subscription television
services. Austar has exclusive distribution rights in its service area with
respect to some of its programming, including SHOWTIME, ENCORE, FOX SPORTS,
DISCOVERY and NICKELODEON. Of UGC's interest in Austar, 25.5% is held through
its subsidiary, United Australia/Pacific, Inc. On March 29, 2002, voluntary and
involuntary petitions were filed under Chapter 11 of the United States
bankruptcy code with respect to United Australia/Pacific. If United

I-23

Australia/Pacific undergoes a reorganization in bankruptcy court, UGC's
ownership interest may be significantly diluted.

OWNERSHIP INTEREST. We currently own an approximate 74% common equity
interest, representing an approximate 94% voting interest, in UGC. UGC owns
99.5% of the common stock of UGC Holdings (as described above), which represents
50% of the voting power of the outstanding stock of UGC Holdings in the election
of directors and 99.5% of the voting power on all other matters.

Our interest in UGC is subject to the terms of UGC's restated certificate of
incorporation and bylaws, as well as certain stockholders and standstill
agreements entered into in connection with the consummation of the transactions
with UGC. Pursuant to those arrangements, until June 2010, unless the agreements
are earlier terminated, we will control the election of four members of UGC's
12-member board of directors, and the Founders will control the election of the
remaining eight members of UGC's board of directors. In addition, UGC may not
take certain actions without first receiving the consent of a majority of the
UGC directors elected, or designated for election, by us. Subject to certain
exceptions, we have agreed to vote our shares of UGC common stock either as
recommended by UGC's board of directors or in the same proportion as all other
holders of UGC common stock on all matters submitted to a vote of stockholders,
other than the election or removal of directors, or a merger, sale or similar
transaction involving UGC. We have agreed to vote our shares against any merger,
consolidation, dissolution or sale of all or substantially all of UGC's assets
not approved by UGC's board of directors. We are entitled to exchange shares of
low-vote UGC common stock held by us for high-vote shares on a one-for-one
basis. We are also entitled to exchange shares of common stock of UPC or any
other affiliate of UGC acquired from UPC or such affiliate for high-vote shares
of UGC common stock on terms specified in the stockholders agreement. We are
entitled to preemptive rights in the event of certain issuances of UGC common
stock that would dilute our economic interest in UGC by a specified amount, and
a proportional purchase right to acquire additional high-vote securities in the
event of certain issuances of shares of high-vote common stock by UGC. We have
agreed to certain limitations on our ability to acquire additional common stock
of UGC and to take certain other actions with respect to UGC, such as soliciting
proxies, soliciting or encouraging offers for UGC and exercising appraisal
rights. We have also agreed to certain limitations on our ability to transfer
equity securities of UGC, other than to our affiliates or in compliance with the
stockholders agreement, or to convert our high-vote stock to low-vote stock.
Pursuant to the stockholders agreement, we are subject to a right of first offer
in favor of the Founders in connection with proposed transfers by us of shares
of high-vote UGC common stock to a third party or proposed conversions by us of
high-vote UGC common stock to low-vote UGC common stock. We are entitled to a
right of first offer in connection with proposed transfers by the Founders of
shares of high-vote UGC common stock to a third party or proposed conversions by
the Founders of high-vote UGC common stock to low-vote UGC common stock. If we
or the Founders decline to exercise the right of first offer, then the party
proposing to transfer shares of high-vote UGC common stock must first convert
the shares to low-vote UGC common stock, unless in the case of a proposed
transfer by the Founders, the shares being transferred represent at least a
majority of all high-vote shares owned by the Founders, their permitted
transferees and any other person that the Founders have designated to purchase
shares from us under the Founders' right of first offer. If we propose to
transfer a majority of the shares of high-vote UGC common stock held by us to a
third party, the Founders are entitled to "tag-along" rights to sell a
proportional amount of the shares of high-vote UGC common stock held by them. We
are entitled to substantially similar "tag-along" rights if the Founders propose
to transfer a majority of the shares of high-vote UGC common stock held by them
to a third party. In addition, if the Founders propose to transfer a majority of
the shares of high-vote UGC common stock held by them to a third party, the
Founders may exercise "drag-along" rights to cause us to sell, at our election,
either all of the shares of high-vote UGC common stock held by us, all of the
shares of UGC common stock held by us, or a proportionate amount of each class
of UGC common stock that we own.

I-24

JUPITER TELECOMMUNICATIONS CO., LTD.

Jupiter is a broadband provider of integrated entertainment, information and
communication services in Japan and is currently the largest provider of cable
television services in Japan based upon the number of customers served.

Jupiter operates its broadband networks through 18 individually managed
cable franchises. Jupiter is the largest stockholder in each of these managed
franchises. Each managed franchise consists of headend facilities receiving
television programming from satellites, traditional terrestrial television
broadcasters and other sources. Jupiter's distribution network, which is
composed of a combination of fiber-optic and coaxial cable, transmits signals
between the headend facility and the customer locations. Of Jupiter's network,
98% operates at 750MHz capacity and 2% operates at 450MHz capacity. Jupiter
provides traditional analog cable services in all of its managed franchises and
provides digital and interactive television services in some of its franchises.
As of December 31, 2002, Jupiter's network passed approximately 5.8 million
homes and served approximately 1.4 million basic cable subscribers.

Jupiter currently offers telephony services over its own network in 14 of
its franchise areas. In the franchise areas where telephony services are
available, Jupiter's headend facilities contain equipment that routes calls from
the local network to Jupiter's telephony switches, which in turn transmit voice
signals and other information over the network. As of December 31, 2002, Jupiter
had 350,000 telephony subscribers. Jupiter currently provides only a single line
to its telephony customers, most of whom are residential customers.

Jupiter currently owns an 87.4% interest in @Home Japan Co., Limited, a
joint venture with Sumitomo Corporation. Jupiter also owns a 25.8% interest in
Kansai Multimedia Services, a provider of high-speed Internet access for cable
system operators in the Kansai region of Japan. In association with these joint
ventures, Jupiter offers high-speed Internet access in all of its managed
franchises. As of December 31, 2002, Jupiter had 505,000 subscribers to its high
speed Internet access service.

In addition to its 18 managed franchises, Jupiter owns non-controlling
equity interests, between 11% and 20%, in four cable franchises that are
operated and managed by third-party franchise operators. As of December 31,
2002, the non-managed investments passed approximately 1.3 million homes and
served 235,000 cable television and 94,000 high-speed Internet customers.

Jupiter sources its programming through multiple suppliers including its
affiliate, Jupiter Programming Co., Ltd. Jupiter's relationship with Jupiter
Programming enables Jupiter to provide cost effective programming to its
customers. We own 50% of Jupiter Programming. See "Jupiter Programming
Co., Ltd." above for more information on Jupiter Programming.

OWNERSHIP INTEREST. At December 31, 2002, we and Sumitomo each held an
approximate 36% interest in Jupiter, and Microsoft Corporation held an
approximate 23% interest in Jupiter. On February 14, 2003, we sold 13,336,976
shares of our Series A common stock to Sumitomo in a private placement for
aggregate cash proceeds of Y17 billion ($141 million). In March 2003, we intend
to acquire from Sumitomo and another shareholder, by means of a tender offer, an
additional 8% equity interest in Jupiter for approximately Y17 billion
($141 million). As a result of this acquisition, our equity interest in Jupiter
would increase to approximately 44% and Sumitomo's interest would decrease to
29%. In addition, we and Sumitomo have entered into an agreement with Microsoft
pursuant to which we and Sumitomo would convert into equity Y16,130 million
(approximately $135 million) of subordinated loans provided to Jupiter by us and
Sumitomo. As a result of this conversion, we would hold a 45% interest in
Jupiter, Microsoft would hold a 19%, interest in Jupiter, and Sumitomo would
hold a 32% interest in Jupiter. The conversion is subject to certain closing
conditions, and no assurance can be given that the conversion will be
consummated.

We are party to certain stockholder arrangements relating to our interest in
Jupiter. We and Sumitomo have agreed not to transfer our shares to a third party
until the earlier of February 12, 2008 or an initial public offering of Jupiter
stock. In addition, we, Sumitomo and Microsoft have each

I-25

granted to the other a right of first refusal with respect to our respective
interests in Jupiter until an initial public offering of Jupiter stock.
Microsoft has tag-along rights with respect to certain sales of Jupiter stock by
us, and we have drag-along rights as to Microsoft with respect to certain sales
of Jupiter stock. We are also entitled to certain preemptive rights with respect
to any new issuance of Jupiter securities.

We have the right to appoint three of Jupiter's 13 directors and to nominate
persons to (and remove persons from) the positions of chief operating officer
and chief financial officer. Sumitomo holds similar rights with respect to the
chief executive officer and another executive position of Jupiter. We and
Sumitomo have also agreed that certain specified actions by Jupiter will require
our mutual consent, while Microsoft has the right to challenge certain types of
transactions and require review by an independent advisor based on specified
criteria. We and Sumitomo have agreed not to acquire or invest, to the extent of
more than a 10% equity interest, in any broadband businesses serving residential
customers in Japan without first offering the opportunity to Jupiter.

The foregoing arrangements expire upon an initial public offering of Jupiter
stock, except that, if an initial public offering has not occurred by
February 12, 2008, the arrangements relating to Microsoft will expire on that
date.

REGULATORY MATTERS

DOMESTIC VIDEO PROGRAMMING, INTERACTIVE TELEVISION SERVICES AND
COMMUNICATIONS

PROGRAMMING

In the United States, the FCC regulates the providers of satellite
communications services and facilities for the transmission of programming
services, the cable television systems that carry such services, and, to some
extent, the availability of the programming services themselves through its
regulation of program licensing. Cable television systems in the United States
are also regulated by municipalities or other state and local government
authorities. Cable television companies are currently subject to federal rate
regulation on the provision of basic service, and continued rate regulation or
other franchise conditions could place downward pressure on the fees cable
television companies are willing or able to pay for programming services in
which we have interests. Regulatory carriage requirements also could adversely
affect the number of channels available to carry the programming services in
which we have an interest.

REGULATION OF PROGRAM LICENSING. The Cable Television Consumer Protection
and Competition Act of 1992 (the 1992 Cable Act) directed the FCC to promulgate
regulations regarding the sale and acquisition of cable programming between
multi-channel video programming distributors (including cable operators) and
satellite-delivered programming services in which a cable operator has an
attributable interest. The legislation and the implementing regulations adopted
by the FCC preclude virtually all exclusive programming contracts between cable
operators and satellite programmers affiliated with any cable operator (unless
the FCC first determines the contract serves the public interest) and generally
prohibit a cable operator that has an attributable interest in a satellite
programmer from improperly influencing the terms and conditions of sale to
unaffiliated multi-channel video programming distributors. Further, the 1992
Cable Act requires that such affiliated programmers make their programming
services available to cable operators and competing multi-channel video
programming distributors such as multi-channel multi-point distribution systems,
which we refer to as MMDS, and direct broadcast satellite distributors on terms
and conditions that do not unfairly discriminate among distributors. The
Telecommunications Act of 1996 extended these rules to programming services in
which telephone companies and other common carriers have attributable ownership
interests. The FCC revised its program licensing rules by implementing a damages
remedy in situations where the defendant knowingly violates the regulations and
by establishing a timeline for the resolution of complaints, among other things.
Our ownership of Liberty Cablevision of Puerto

I-26

Rico, Inc. presently subjects us and satellite-delivered programming services in
which we have an interest to these rules.

REGULATION OF CARRIAGE OF PROGRAMMING. Under the 1992 Cable Act, the FCC
has adopted regulations prohibiting cable operators from requiring a financial
interest in a programming service as a condition to carriage of such service,
coercing exclusive rights in a programming service or favoring affiliated
programmers so as to restrain unreasonably the ability of unaffiliated
programmers to compete.

REGULATION OF OWNERSHIP. The 1992 Cable Act required the FCC, among other
things, (1) to prescribe rules and regulations establishing reasonable limits on
the number of channels on a cable system that will be allowed to carry
programming in which the owner of such cable system has an attributable interest
and (2) to consider the necessity and appropriateness of imposing limitations on
the degree to which multi-channel video programming distributors (including
cable operators) may engage in the creation or production of video programming.
In 1993, the FCC adopted regulations limiting carriage by a cable operator of
national programming services in which that operator holds an attributable
interest to 40% of the first 75 activated channels on each of the cable
operator's systems. The rules provided for the use of two additional channels or
a 45% limit, whichever is greater, provided that the additional channels carried
minority-controlled programming services. The regulations also grandfathered
existing carriage arrangements that exceeded the channel limits, but required
new channel capacity to be devoted to unaffiliated programming services until
the system achieved compliance with the regulations. These channel occupancy
limits applied only up to 75 activated channels on the cable system, and the
rules did not apply to local or regional programming services. However, on
March 2, 2001, the United States Court of Appeals for the District of Columbia
Circuit found that the FCC had failed to justify adequately the channel
occupancy limit, vacated the FCC's decision and remanded the rule to the FCC for
further consideration. In response to the Court's decision, the FCC issued a
further notice of proposed rulemaking in 2001 to consider channel occupancy
limitations. Even if these rules were readopted by the FCC, they would have
little impact on programming companies in which we have interests based upon our
current attributable ownership interests in cable systems. In the original
rulemaking, the FCC concluded that additional restrictions on the ability of
multi-channel distributors to engage in the creation or production of video
programming were then unwarranted.

In its March 2, 2001 decision, the Court of Appeals also vacated the FCC's
rule imposing a thirty percent limit on the number of subscribers served by
systems nationwide in which a multiple system operator can have an attributable
ownership interest. The FCC presently is conducting a rulemaking regarding this
ownership limitation and its ownership attribution standards.

The FCC's rules also generally had prohibited common ownership of a cable
system and broadcast television station with overlapping service areas. On
February 19, 2002, the United States Court of Appeals for the District of
Columbia Circuit held that the FCC's decision to retain the cable/broadcast
cross-ownership rule was arbitrary and capricious and vacated the rule. The FCC
did not seek Supreme Court review of this decision or initiate a new rulemaking
proceeding. Again, any such restrictions would have little impact on us based on
our present limited ownership of cable systems. The FCC rules continue to
prohibit common ownership of a cable system and MMDS with overlapping service
areas.

REGULATION OF CARRIAGE OF BROADCAST STATIONS. The 1992 Cable Act granted
broadcasters a choice of must carry rights or retransmission consent rights. The
rules adopted by the FCC generally provided for mandatory carriage by cable
systems of all local full-power commercial television broadcast signals
selecting must carry rights and, depending on a cable system's channel capacity,
non-commercial television broadcast signals. Such statutorily mandated carriage
of broadcast stations coupled with the provisions of the Cable Communications
Policy Act of 1984, which require cable television systems with 36 or more
"activated" channels to reserve a percentage of such channels for commercial use
by unaffiliated third parties and permit franchise authorities to require the
cable operator to provide

I-27

channel capacity, equipment and facilities for public, educational and
government access channels, could adversely affect some or substantially all of
the programming companies in which we have interests by limiting the carriage of
such services in cable systems with limited channel capacity. On January 18,
2001, the FCC adopted rules relating to the cable carriage of digital television
signals. Among other things, the rules clarify that a digital-only television
station can assert a right to analog or digital carriage on a cable system. The
FCC initiated a further proceeding to determine whether television stations may
assert rights to carriage of both analog and digital signals during the
transition to digital television and to carriage of all digital signals. The
imposition of such additional must carry regulation, in conjunction with the
current limited cable system channel capacity, would make it likely that cable
operators will be forced to drop some cable programming services, which may have
an adverse impact on the programming companies in which we have interests.

CLOSED CAPTIONING AND VIDEO DESCRIPTION REGULATION. The Telecommunications
Act of 1996 also required the FCC to establish rules and an implementation
schedule to ensure that video programming is fully accessible to the hearing
impaired through closed captioning. The rules adopted by the FCC will require
substantial closed captioning over an eight to ten year phase-in period, which
began in 2000, with only limited exemptions. As a result, the programming
companies in which we have interests are expected to incur significant
additional costs for closed captioning. In July 2000, the FCC also adopted rules
requiring certain broadcasters and the largest national video programming
services to begin to provide audio descriptions of visual events for the
visually impaired on the secondary audio program. However, the United States
Court of Appeals for the District of Columbia Circuit held that the description
rules were unauthorized by statute and vacated them on November 8, 2002.

COPYRIGHT REGULATION. DMX Music's service involves the distribution of
copyrighted music. DMX Music has entered into a number of license agreements for
distribution of copyrighted music. Under these agreements, DMX Music pays
royalties for all music played on its services in the United States through
residential, commercial or Internet distribution. DMX Music also has obtained
the applicable licenses for distribution of commercial and residential music
services outside the United States through various licensing agencies located in
the foreign territories where its services are distributed. Certain license
agreements with major music licensing organizations are being negotiated on an
industry-wide basis and may require retroactive rate increases.

SATELLITES AND UPLINK. In general, authorization from the FCC must be
obtained for the construction and operation of a communications satellite. The
FCC authorizes utilization of satellite orbital slots assigned to the United
States by the World Administrative Radio Conference. Such slots are finite in
number, thus limiting the number of carriers that can provide satellite
transponders and the number of transponders available for transmission of
programming services. At present, however, there are numerous competing
satellite service providers that make transponders available for video services
to the cable industry. The FCC also regulates the earth stations uplinking to
and/or downlinking from such satellites.

INTERACTIVE TELEVISION. On January 18, 2001, the FCC released a Notice of
Inquiry regarding interactive television services over cable television. The FCC
sought comment on, among other things, an appropriate definition of interactive
television services, whether access to a high speed connection is necessary to
realize interactive television capabilities, and whether a nondiscrimination
rule is necessary and/or appropriate. The outcome of this proceeding and any
rules ultimately adopted by the FCC could affect carriage of our contemplated
interactive television services and the implementation of certain agreements
entered into with AT&T Broadband prior to our split off from AT&T.

SATELLITE

We have interests in companies licensed by the FCC to provide Ka-band
satellite services. Ka-band licensees must, among other requirements, comply
with FCC implementation milestones for the

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construction, launch and operation of their systems. Failure to meet any of
these milestones would render the satellite authorization null and void.

INTERNATIONAL VIDEO PROGRAMMING, INTERACTIVE TELEVISION SERVICES AND
COMMUNICATIONS

Some of the foreign countries in which we have, or may make, an investment
regulate, in varying degrees, (1) the granting of cable and telephony
franchises, the construction of cable and telephony systems and the operations
of cable, other multi-channel television operators and telephony operators and
service providers, as well as the acquisition of, and foreign investments in,
such operators and service providers, (2) the granting of broadcast licenses and
the applicable terms and regulations, and (3) the distribution and content of
programming and Internet services and foreign investment in programming
companies. Regulations or laws may cover wireline and wireless telephony,
satellite and cable communications and Internet services, among others.
Regulations or laws that exist at the time we make an investment in a foreign
subsidiary or business affiliate may thereafter change, and there can be no
assurance that material and adverse changes in the regulation of the services
provided by our subsidiaries and business affiliates will not occur in the
future. Regulation can take the form of price controls, service requirements,
programming and other content restrictions, and restrictions on permissible
levels of foreign ownership among others. Moreover, some countries do not issue
exclusive licenses to provide multi-channel television services within a
geographic area, and in those instances we may be adversely affected by an
overbuild by one or more competing cable operators. In certain countries where
multi-channel television is less developed, there is minimal regulation of cable
television, and, hence, the protections of the cable operator's investment
available in the United States and other countries (such as rights to renewal of
franchises and utility pole attachment) may not be available in these countries.
Foreign regulation, and changes in foreign regulation, could have an adverse
effect on our business and the value of our investments.

PROPOSED CHANGES IN REGULATION

The regulation of programming services, cable television systems and
satellite licensees is subject to the political process and has been in constant
flux over the past decade. Further material changes in the law and regulatory
requirements must be anticipated and there can be no assurance that our business
will not be adversely affected by future legislation, new regulation or
deregulation.

COMPETITION

VIDEO PROGRAMMING AND INTERACTIVE TELEVISION SERVICES

The business of distributing programming for cable and satellite television
is highly competitive, both in the United States and in foreign countries. The
programming companies in which we have interests directly compete with other
programmers for distribution on a limited number of channels. Increasing
concentration in the multichannel video distribution industry, including the
recent combination of AT&T Broadband and Comcast Cable, could adversely affect
the programming companies in which we have interests by reducing the number of
distributors to whom they sell their programming, subjecting more of their
programming sales to volume discounts and increasing the distributors'
bargaining power in negotiating new affiliation agreements. Once distribution is
obtained, our programming services and our business affiliates' programming
services compete, in varying degrees, for viewers and advertisers with other
cable and off-air broadcast television programming services as well as with
other entertainment media, including home video (generally video rentals),
pay-per-view services, online activities, movies and other forms of news,
information and entertainment. The programming companies in which we have
interests also compete, to varying degrees, for creative talent and programming
content. Our management believes that important competitive factors include the
prices charged for programming, the quantity, quality and variety of the
programming offered and the effectiveness of marketing efforts. In the U.S., QVC
and Home Shopping Network operate in direct competition with each other and
other businesses that are engaged in retail merchandising. In the U.K.,

I-29

QVC operates in direct competition with sit-up Limited, the operator of the
U.K.'s home shopping channel, SCREENSHOP, and BID-UP.TV, an interactive auction
channel.

The creative media services industry is highly competitive. Much of the
competition is centered in Los Angeles, California, the largest and most
competitive market, particularly for domestic television and feature film
production as well as for the management of content libraries. We expect that
competition will increase as a result of industry consolidation and alliances,
as well as the emergence of new competitors. In particular, although major
motion picture studios such as Paramount Pictures, Sony Pictures Corporation,
Twentieth Century Fox, Universal Pictures, The Walt Disney Company, Metro-
Goldwyn-Mayer and Warner Brothers are customers of these services, they can also
perform similar services in-house with substantially greater financial,
technical, creative, marketing and other resources. These studios could devote
substantially greater resources to the development and marketing of services
that compete with those of our affiliates. Our affiliates also actively compete
with certain industry participants that may be smaller but have a unique
operating niche or specialty business.

There are numerous providers of in-room entertainment services to the hotel
industry. Market participants include, but are not limited to, (i) other full
service in-room providers, (ii) cable television companies, (iii) direct
broadcast satellite services, (iv) television networks and programmers,
(v) Internet service providers, (vi) broadband connectivity companies, and
(vii) other telecommunications companies. In addition, On Command's services
compete for a guest's time and entertainment resources with other forms of
entertainment and leisure activities. On Command anticipates that it will
continue to face substantial competition from traditional as well as new
competitors, and that certain of these competitors have greater financial
resources and better access to the capital markets than On Command. Many of On
Command's potential competitors are developing ways to use their existing
infrastructure to provide in-room entertainment and/or informational services.
Certain of these competitors are already providing guest programming services
and are beginning to provide video-on-demand, Internet and high-speed
connectivity services to hotels.

The business of providing interactive applications is becoming increasingly
competitive. Companies that develop and launch applications on middleware
platforms include dedicated applications providers, independent third parties
that develop and provide applications for middleware platforms, and other
middleware providers. Competition is also faced from media companies that have
publicly announced interactive television initiatives, such as The Discovery
Channel (in which we also own an interest) and CNN. In addition, certain network
operators such as BSkyB in the United Kingdom have entered into agreements,
joint ventures, and other relationships with technology and entertainment
companies. We expect competition in the interactive content and applications
area to intensify as the general market for interactive television services
further develops, particularly in the case of independent third parties that
have the ability to develop applications for middleware platforms at relatively
modest expense through the use of applications development tools.

In the interactive television professional services area, competition is
faced primarily from third party system integrators, as well as from internal
information technology staffs at our network operator customers. Other
interactive television technology providers also provide a level of professional
services in conjunction with their product offerings.

COMMUNICATIONS AND BROADBAND DISTRIBUTION

The cable television systems and other forms of media distribution in which
we have interests directly compete for viewer attention and subscriptions in
local markets with other providers of entertainment, news and information,
including other cable television systems in those countries that do not grant
exclusive franchises, broadcast television stations, direct-to-home satellite
companies, satellite master antenna television systems, multi-channel
multi-point distribution systems and telephone companies, other sources of video
programs (such as DVDs and videocassettes) and additional sources for
entertainment news and information, including the Internet. Cable television
systems also face

I-30

strong competition from all media for advertising dollars. Our management
believes that important competitive factors include fees charged for basic and
premium services, the quantity, quality and variety of the programming offered,
the quality of signal reception, customer service and the effectiveness of
marketing efforts.

In addition, there is substantial competition in the domestic wireless
telecommunications industry, and it is expected that such competition will
intensify as a result of the entrance of new competitors and the increasing pace
of development of new technologies, products and services. Each of the markets
in which the Sprint PCS Group competes is served by other two-way wireless
service providers, including cellular and PCS operators and resellers. A
majority of the markets will have five or more commercial mobile radio service
providers and each of the top 50 metropolitan markets have at least one other
PCS competitor in addition to two cellular incumbents. Many of these competitors
have been operating for a number of years and currently service a significant
subscriber base.

EMPLOYEES

As of December 31, 2002, we had approximately 60 employees, and our
consolidated subsidiaries had an aggregate of approximately 7,400 employees. We
believe that our employee relations are good.

(d) FINANCIAL INFORMATION ABOUT GEOGRAPHIC AREAS

Not applicable.

(e) AVAILABLE INFORMATION

All of our filings with the Securities and Exchange Commission (the "SEC"),
including our Form 10-Ks, Form 10-Qs and Form 8-Ks, as well as amendments to
such filings are available on our Internet website free of charge generally
within 48 hours after we file such material with the SEC. Our website address is
WWW.LIBERTYMEDIA.COM. The information contained on our website is not
incorporated by reference herein.

ITEM 2. PROPERTIES

We own our corporate headquarters in Englewood, Colorado. All of our other
real or personal property is owned or leased by our subsidiaries and business
affiliates.

Ascent Media owns or leases over 100 facilities throughout the world.
Domestically, Ascent Media leases facilities with approximately 1.1 million
square feet and owns facilities with approximately 400,000 square feet. Outside
of the United States, Ascent Media leases facilities with approximately 200,000
square feet and owns facilities with 50,000 square feet. Nearly all of Ascent
Media's facilities are built specifically for their technical and creative
service operations.

On Command leases its corporate headquarters in Denver, Colorado; and has
leased 77,000 square feet and 131,000 square feet of light manufacturing and
storage space in Denver, Colorado and San Jose, California, respectively. On
Command also has a number of small leases throughout the United States, Canada
and Mexico.

Starz Encore owns its corporate headquarters in Englewood, Colorado. In
addition, Starz Encore leases office space for its sales staff at 10 locations
throughout the United States.

Our other subsidiaries and business affiliates own or lease the fixed assets
necessary for the operation of their respective businesses, including office
space, transponder space, headends, cable television and telecommunications
distribution equipment, telecommunications switches and customer equipment
(including converter boxes). Our management believes that our current facilities
are suitable and adequate for our business operations for the foreseeable
future.

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ITEM 3. LEGAL PROCEEDINGS

KLESCH & COMPANY LIMITED V. LIBERTY MEDIA CORPORATION, JOHN C. MALONE AND
ROBERT R. BENNETT. On September 4, 2001, we entered into agreements with
Deutsche Telekom AG pursuant to which we would purchase its entire interest in
six of nine regional cable television companies in Germany. In February 2002, we
failed to receive regulatory approval for our proposed acquisition. On July 27,
2001, Klesch & Company Limited initiated a lawsuit against us, our chairman,
John C. Malone, and our chief executive officer, Robert R. Bennett, in the
United States District Court for the District of Colorado alleging, among other
things, breach of fiduciary duty, fraud and breach of contract in connection
with actions alleged to have been taken by us with respect to what then was a
proposed transaction with Deutsche Telekom. Klesch is seeking damages in an
unspecified amount. We believe all such claims to be without merit and, together
with Messrs. Malone and Bennett, have filed an answer denying any liability to
Klesch. We also have asserted counterclaims against Klesch seeking, among other
things, a declaratory judgment to the effect that because Klesch has breached
and repudiated an agreement that we entered into with Klesch in June 2001, we
are relieved of any obligations that we might have to Klesch under that
agreement. Those obligations would include, among other things, the obligation
in certain events to pay to Klesch, as its sole compensation, fees equal to 3%
of the value of specified assets acquired by us from Deutsche Telekom before the
second anniversary of the date of that agreement, subject to an aggregate cap of
Euro 165 million. Klesch has filed a reply denying all our counterclaims. In
September 2002, we asserted counterclaims against Klesch's principal owner, A.
Gary Klesch, alleging fraud and negligent misrepresentation. Mr. Klesch has
filed a motion to dismiss the counterclaims, alleging lack of personal
jurisdiction. The parties are currently engaged in discovery.

STARZ ENCORE GROUP LLC V. AT&T BROADBAND LLC AND SATELLITE
SERVICES, INC. In 1997, Starz Encore entered into a 25-year affiliation
agreement with TCI. TCI cable systems subsequently acquired by AT&T in the TCI
merger operate under the name AT&T Broadband. Under this affiliation agreement,
AT&T Broadband makes fixed monthly payments to Starz Encore in exchange for
unlimited access to all of the existing Encore and STARZ! services. The payment
from AT&T Broadband can be adjusted if AT&T acquires or disposes of cable
systems, or if Starz Encore's programming costs increase or decrease, as the
case may be, above or below amounts specified in the agreement. In such cases,
AT&T Broadband's payments under the affiliation agreement would be increased or
decreased in an amount equal to a proportion of the excess or shortfall. Starz
Encore requested payment from AT&T Broadband of its proportionate share of
excess programming costs during the first quarter of 2001.

By letter dated May 29, 2001, AT&T Broadband has disputed the enforceability
of the excess programming costs pass through provisions of the affiliation
agreement and questioned whether the affiliation agreement, as a whole, is
"voidable." In addition, AT&T Broadband raised certain issues concerning the
interpretation of the contractual requirements associated with the treatment of
acquisitions and dispositions. Starz Encore believes the position expressed by
AT&T Broadband in that letter to be without merit. On July 10, 2001, Starz
Encore Group initiated a lawsuit against AT&T Broadband and Satellite
Services, Inc., a subsidiary of AT&T Broadband that is also a party to the
affiliation agreement, in Arapahoe County District Court, Colorado for breach of
contract and collection of damages and costs.

On October 19, 2001, the parties to the Colorado action entered into a
standstill and tolling agreement whereby the parties agreed to move the court to
stay the lawsuit until August 31, 2002 to permit the parties an opportunity to
resolve their dispute. The court granted the stay on October 30, 2001. In
conjunction with this agreement, we and AT&T Broadband entered into various
agreements whereby Starz Encore indirectly received full compensation for AT&T
Broadband's proportionate share of the programming costs pass through for 2001.

On September 5, 2002, Starz Encore and AT&T Broadband jointly moved the
court to extend the stay pending further negotiations in light of the proposed
corporate transaction in which AT&T

I-32

Broadband and Comcast Corporation would become subsidiaries of a new entity,
AT&T Comcast Corporation. On October 2, 2002, the court granted the parties'
joint request that the stay be extended to and including January 31, 2003, on
condition that the parties undertake efforts to settle the dispute through a
third-party mediator. The parties also extended their standstill and tolling
agreement through to the conclusion of the extended stay, which expired without
further extension.

On November 18, 2002, AT&T Broadband completed a transaction with Comcast
Corporation (formerly known as AT&T Comcast Corporation) and Comcast Holdings
Corporation (formerly known as Comcast Corporation) in which AT&T Broadband and
Comcast Holdings Corporation became wholly owned subsidiaries of Comcast
Corporation. On the same day, Comcast Corporation and Comcast Holdings
Corporation filed an action for declaratory judgment against Starz Encore in the
U.S. District Court for the Eastern District of Pennsylvania, alleging that
Comcast Holdings' agreement with Starz Encore permits Comcast Corporation to
terminate AT&T Broadband's affiliation agreement with Starz Encore and to
replace that agreement with the affiliation agreement entered into by Comcast
Holdings with Starz Encore. Comcast Holdings' affiliation agreement with Starz
Encore provides for a per subscriber fee rather than the fixed monthly payments
prescribed by the AT&T Broadband agreement and has no provision for the pass
through of excess programming costs. Starz Encore has filed a motion to dismiss
this case on grounds that the claims made by the plaintiffs should be made in
the Colorado state court proceeding described above.

On January 31, 2003, Starz Encore amended its complaint in the Colorado
action to add Comcast Corporation and Comcast Holdings Corporation as
defendants, claiming, among other things, breach of contract and intentional
interference with contractual relations by those parties. On March 3, 2003,
Starz Encore filed a motion seeking leave to file a second amended complaint
adding related claims arising from those parties' ongoing actions with respect
to Starz Encore.

AT&T Broadband has stopped making payments under its affiliation agreement
with Starz Encore. Instead, Comcast Corporation has made payments to Starz
Encore related to distribution of Starz Encore's services on AT&T Broadband's
cable systems based on its claim that the lower rates payable under Comcast
Holdings' affiliation agreement are applicable, which has resulted in lower
aggregate payments to Starz Encore. In addition, both AT&T Broadband and Comcast
have limited their cooperation with Starz Encore on various matters, including,
for example, promotion of Starz Encore's channels.

Starz Encore is vigorously contesting Comcast's claims in the Pennsylvania
federal court proceeding and believes that it will succeed in its defense of
those claims. Starz Encore is also vigorously prosecuting its claims in the
Colorado state court proceeding and believes that it will succeed in obtaining a
judgment against the defendants in that proceeding. However, because both
actions are at an early stage, it is not possible to predict with a high degree
of certainty the outcome of either action, and there can be no assurance that
those actions will ultimately be resolved in favor of Starz Encore. If Starz
Encore were to fail in its efforts to enforce its affiliation agreement with
AT&T Broadband, that failure would have a material adverse effect on Starz
Encore's revenue and operating income.

LIBERTY DIGITAL, INC. V. AT&T BROADBAND, LLC AND COMCAST CORPORATION. In
November 1997, our subsidiary, Liberty Digital, Inc. (then known as TCI
Music, Inc.), entered into an amended and restated contribution agreement with
AT&T Broadband (then known as Tele-Communications, Inc.). That agreement, which
was effective as of July 1, 1997, provided for the making of monthly payments by
AT&T Broadband over a 20-year term, initially at the annual rate of
$18 million, increased to reflect increases in the consumer price index. The
amended and restated agreement replaced a prior agreement that had been entered
into in connection with Liberty Digital's acquisition of DMX Inc. In that
acquisition, DMX shareholders received Liberty Digital shares and the right to
require AT&T Broadband to purchase those shares upon satisfaction of specified
conditions. In addition to granting those put rights, AT&T Broadband also agreed
to cause its cable system subsidiaries to assign to Liberty Digital revenue from
the sale of DMX music services to their customers. AT&T Broadband

I-33

received 62.5 million shares of Liberty Digital common stock and a $40 million
note payable by Liberty Digital in exchange for granting the put rights and
causing its subsidiaries to make the revenue assignment.

The amended and restated contribution agreement modified the prior agreement
in various respects, including, among others, providing a more limited
definition of the revenue assigned by the TCI cable system subsidiaries,
imposing a requirement for payments in a fixed amount with respect to the
revenue assignment obligation and extending the term during which such payments
would be required. The amended and restated agreement was entered into in
connection with our acquisition of substantially all of AT&T Broadband's Liberty
Digital stock in exchange for an $80 million promissory note and our agreement
to indemnify AT&T Broadband for costs incurred by it in satisfying its
obligation to honor the put rights granted to DMX shareholders.

AT&T Broadband made all the monthly payments required under the amended and
restated contribution agreement until its combination with Comcast Corporation
in November 2002, when it ceased to make any of the required payments. On
January 8, 2003, Liberty Digital filed a lawsuit against AT&T Broadband and
Comcast Corporation in district court in Arapahoe County, Colorado, seeking,
among other things, damages for breach of contract, intentional interference
with contractual relations and a declaratory judgment to the effect that the
amended and restated contribution agreement is valid and binding. On March 5,
2003, the defendants filed an answer denying all of Liberty Digital's claims.

Liberty Digital will vigorously prosecute its claims against AT&T Broadband
and Comcast Corporation and believes that it will be successful in enforcing its
rights under the amended and restated contribution agreement. There is, however,
no assurance that Liberty Digital will achieve a favorable result in this
litigation.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

At the Company's annual meeting of stockholders held on December 17, 2002,
the following matters were voted upon and approved by the stockholders of the
Company:

Election of the following to the Company's Board of Directors:

The foregoing nominees also served on our board of directors prior to the
annual meeting. The term of the following directors continued following the
annual meeting: John C. Malone, Robert R. Bennett, Gary S. Howard, Donne F.
Fisher and Paul A. Gould. Broker non-votes had no effect on voting for the
election of directors.

Approval of the Liberty Media Corporation 2000 Incentive Plan (As Amended
and Restated Effective September 11, 2002) (3,211,668,552 votes For; 267,708,847
votes Against (including broker non-votes); and 1,171,965 Abstentions).

Approval of the Liberty Media Corporation Nonemployee Director Incentive
Plan (3,211,828,174 votes For; 267,380,392 votes Against (including broker
non-votes); and 1,340,798 Abstentions).

Ratification of KPMG LLP as the Company's independent public accountants for
the fiscal year ended December 31, 2002 (3,416,990,441 votes For; 62,868,534
votes Against (including broker non-votes); and 690,389 Abstentions).

I-34

PART II.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

From March 9, 1999 to August 10, 2001, we were a wholly-owned subsidiary of
AT&T Corp. ("AT&T") Effective August 10, 2001, AT&T effected our split-off
pursuant to which our capital stock was recapitalized, and each outstanding
share of AT&T Class A Liberty Media Group tracking stock was redeemed for one
share of Liberty Series A common stock and each outstanding share of AT&T
Class B Liberty Media Group tracking stock was redeemed for one share of Liberty
Series B common stock. As a result of this split-off, our common stock began
trading on the New York Stock Exchange on August 10, 2001 under the symbols
LMC.A and LMC.B. Effective January 2, 2002, we changed the ticker symbol for our
Series A common stock to "L." The following table sets forth the range of high
and low sales prices of shares of our Series A and Series B common stock for the
year ended December 31, 2002 and the period from August 10, 2001 to
December 31, 2001; and for AT&T Class A and Class B Liberty Media Group tracking
stock for the period from January 1, 2001 to August 9, 2001.

As of February 28, 2003, there were approximately 6,200 and 400 record
holders of our Series A common stock and Series B common stock, respectively
(which amounts do not include the number of shareholders whose shares are held
of record by banks, brokerage houses or other institutions, but include each
such institution as one shareholder).

We have not paid any cash dividends on our Series A common stock and
Series B common stock, and we have no present intention of so doing. Payment of
cash dividends, if any, in the future will be determined by our Board of
Directors in light of our earnings, financial condition and other relevant
considerations.

ITEM 6. SELECTED FINANCIAL DATA.

The following tables present selected historical information relating to our
financial condition and results of operations for the past five years. The
following data should be read in conjunction with our consolidated financial
statements. We were a wholly-owned subsidiary of Tele-Communications, Inc.
("TCI") from August 1994 to March 9, 1999. On March 9, 1999, AT&T Corp. acquired
TCI in a merger transaction (the "AT&T Merger"). For financial reporting
purposes, the AT&T Merger is deemed to have occurred on March 1, 1999. In
connection with the merger, our assets and liabilities were adjusted to their
respective fair values pursuant to the purchase method of accounting. For
periods prior to March 1, 1999, our assets and liabilities and the related
consolidated results of operations are referred to below as "Old Liberty," and
for periods subsequent to February 28, 1999,

II-1

our assets and liabilities and the related consolidated results of operations
are referred to as "New Liberty." In connection with the merger, TCI effected an
internal restructuring as a result of which certain assets and approximately
$5.5 billion in cash were contributed to us.

- ------------------------

(1) Effective January 1, 2002, we adopted Statement of Financial Accounting
Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("Statement 142"),
which among other matters, provides that goodwill and other indefinite-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, and was not significant in prior periods.

(2) Included in share of losses of affiliates are other-than-temporary declines
in value aggregating $148 million, $2,396 million and $1,324 million for the
years ended December 31, 2002, 2001, and 2000, respectively. In addition,
share of losses of affiliates 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 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.

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

II-2

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

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

From March 9, 1999 through August 9, 2001, AT&T Corp. ("AT&T") owned 100% of
our outstanding common stock. During such time, the AT&T Class A Liberty Media
Group common stock and the AT&T Class B Liberty Media Group common stock
(together, the AT&T Liberty Media Group tracking stock) were tracking stocks of
AT&T designed to reflect the economic performance of the businesses and assets
of AT&T attributed to the Liberty Media Group. We were included in the Liberty
Media Group, and our businesses and assets and those of our subsidiaries
constituted all of the businesses and assets of the Liberty Media Group.

Effective August 10, 2001, AT&T effected our split-off pursuant to which our
common stock was recapitalized, and each outstanding share of AT&T Class A
Liberty Media Group tracking stock was redeemed for one share of Liberty
Series A common stock and each outstanding share of AT&T Class B Liberty Media
Group tracking stock was redeemed for one share of Liberty Series B common stock
(the "Split Off Transaction"). Subsequent to the Split Off Transaction, we are
no longer a subsidiary of AT&T and no shares of AT&T Liberty Media Group
tracking stock remain outstanding. The Split Off Transaction has been accounted
for at historical cost.

We own interests in a broad range of video programming, media, broadband
distribution, interactive technology services and communications businesses. We
and our affiliated companies operate in the United States, Europe, South America
and Asia.

Our most significant consolidated subsidiaries at December 31, 2002, were
Starz Encore Group LLC ("Starz Encore"), Ascent Media Group (formerly known as
Liberty Livewire Corporation) ("Ascent Media") and On Command Corporation ("On
Command"). These businesses are either wholly or majority owned and are
controlled by us and, accordingly, the results of operations of these businesses
are included in our consolidated results for the periods in which they are
wholly or majority owned and controlled.

A significant portion of our operations are conducted through entities in
which we do not have a controlling financial interest but in which we do have
the ability to exercise significant influence over the investee's operating and
financial policies. These businesses are accounted for using the equity method
of accounting. Accordingly, our share of the results of operations of these
businesses is reflected in our consolidated results as earnings or losses of
affiliates. Included in our investments in affiliates at December 31, 2002 were
Discovery Communications, Inc. ("Discovery"), QVC, Inc. ("QVC"),
UnitedGlobalCom, Inc. ("UGC") and Jupiter Telecommunications Co., Ltd.
("Jupiter").

We also hold ownership interests in companies in which we do not have
significant influence. The most significant of these include AOL Time
Warner Inc. ("AOL Time Warner"), Sprint Corporation ("Sprint PCS"), The News
Corporation Limited ("News Corp."), Vivendi Universal, S.A. ("Vivendi"), USA
Interactive ("USAI"), Viacom, Inc. ("Viacom") and Motorola, Inc. ("Motorola")
These investments are classified as available-for-sale securities and are
carried at fair value.

CRITICAL ACCOUNTING POLICIES

The preparation of our financial statements in conformity with accounting
principles generally accepted in the United States requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting period. Listed below are the accounting policies
that we believe are critical to our financial 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.

II-3

All of these accounting policies, estimates and assumptions, as well as the
resulting impact to our financial statements, have been discussed with our audit
committee.

CARRYING VALUE OF INVESTMENTS. Our cost and equity method investments
comprise 36% and 19%, respectively, of our total assets at December 31, 2002 and
44% and 21%, respectively, at December 31, 2001. 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 reflect 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 affiliates in our statement of operations.

We consider a number of factors in our determination of whether declines in
fair value are nontemporary including (i) the financial condition, operating
performance and near term prospects of the investee; (ii) the reason for the
decline in fair value, be it general market conditions, industry specific or
investee specific; (iii) analysts' ratings and estimates of 12 month share price
targets for the investee; (iv) changes in stock price or valuation subsequent to
the balance sheet date; (v) the length of time that the fair value of the
investment is below our carrying value; and (vi) our intent and ability to hold
the investment for a period of time sufficient 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 investments using a variety of methodologies, including cash flow
multiples, per subscriber values, or values of comparable public or private
businesses. Impairments are calculated as the difference 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 significant estimates and assumptions, actual results
could differ 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 upon our ultimate
disposition of the investment.

Primarily all of our cost and equity method investments and the related
impairment charges are included in our "Other" operating segment.

ACCOUNTING FOR DERIVATIVE INSTRUMENTS. We use various derivative
instruments, including equity collars, narrow-band collars, put spread collars,
written put and call options, total return swaps, interest rate swaps and
foreign exchange contracts, to manage fair value and cash flow risk associated
with many of our investments, some of our variable rate debt and transactions
denominated in foreign currencies. We account for these derivative instruments
pursuant to Statement of Financial Accounting Standards No. 133 "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("Statement 133"). Statement 133
requires that all derivative instruments be recorded on the balance sheet at
fair value. Changes in derivatives designated as cash flow 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 ("AFS Derivatives").

II-4

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 generally evaluated annually
to determine if it should be adjusted. We select 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, 2002, the expected
volatilities used to value our AFS Derivatives generally ranged from 40% to 90%
and the discount rates ranged from 1.5% to 4%. Considerable management judgment
is required in estimating the Black-Scholes variables. Actual results upon
settlement or unwinding of our derivative instruments may differ materially from
these estimates.

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 significant impact on the valuation of our AFS
Derivatives. The table below summarizes changes in these assumptions and the
resulting impacts on valuation.

We also use the Black-Scholes model to estimate the fair value of the
imbedded call option in our exchangeable debentures. These exchangeable
debentures are publicly traded debt securities that are exchangeable for the
value of a specified number of shares of Sprint PCS Group common stock, Motorola
common stock or Viacom Class B common stock, as applicable. The volatility and
discount rates are selected in the same manner as for our AFS Derivatives
described above. At December 31, 2002, the volatility rates ranged from 1% to
55% and the discount rate was 4.96%. The following table summarizes the impacts
of changes in these assumptions:

Primarily all of all our derivative instruments are included in our "Other"
operating segment.

UTILIZATION OF THE EQUITY METHOD OF ACCOUNTING FOR OUR INVESTMENT IN
UGC. We own approximately 74% of UGC's outstanding equity and approximately 94%
of the voting power of UGC's common stock. UGC's operating and financial
decisions are controlled by its Board of Directors. We hold substantially all of
our voting interest in UGC through Class C common shares of which we are the
only Class C shareholder. Under UGC's certificate of incorporation, the Class C
shareholders are entitled to elect only 4 of the 12 directors. Certain long-term
shareholders of UGC (the "UGC Founders"), have effective 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

II-5

UGC's Board of Directors following such conversion is limited by the terms of
such shares and by a standstill agreement which is in effect until June 2010.
While an earlier termination of the standstill agreement is possible in the
event that the UGC Founders reduce their interests in Class B shares below
certain specified levels, it is outside our control to effect such an early
termination. The Class C shares have approval rights over certain material
transactions and related party matters that are considered protective in nature.

As a result of the aforementioned governance arrangements, we have
determined that our voting interest is not sufficient to allow us to control UGC
and therefore apply consolidation accounting with respect to our investment in
UGC. We do consider our Class C shareholder rights sufficient to exert
significant influence over the financial and operating policies of UGC, and
accordingly, we apply the equity method of accounting for this investment. If
these governance arrangements were terminated we would then exercise control
over UGC and consolidation accounting would be appropriate. We expect that the
application of consolidation accounting for UGC would result in material changes
to our financial statements.

CARRYING VALUE OF LONG-LIVED ASSETS. Our property and equipment, intangible
assets and goodwill (collectively, our "long-lived assets") also comprise a
significant portion of our total assets at December 31, 2002 and 2001. 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, and 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 flows and
discount rates as well as other assumptions in order to implement these
valuation techniques. Accordingly, any value ultimately derived from our
long-lived assets may differ from our estimate of fair value.

As each of our operating segments has long-lived assets, this critical
accounting policy affects the financial position and results of operations of
each segment. In this regard, due to the slow-down in the movie and television
industries in 2002 and 2001, our Ascent Media segment 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, in our Other segment the majority of which is due to adverse
economic conditions that affected our subsidiaries in South America, and we
recorded a $92 million impairment charge in 2002 related to OpenTV Corp., which
is also included in our Other segment.

SUMMARY OF OPERATIONS

Starz Encore provides premium programming distributed by cable operators,
direct-to-home satellite providers and other distributors throughout the United
States. 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. On Command provides in-room, on-demand
video entertainment and information services to hotels, motels and resorts
primarily in the United States. Due to the significance of their operations and
to enhance the reader's understanding of our financial performance, separate
financial data has been provided in the table below for Starz Encore, Ascent
Media and On Command. The table sets forth, for the periods indicated, certain
financial information and the percentage relationship that certain items bear to
revenue, and includes purchase accounting adjustments related to On Command that
have not been "pushed down" to On Command's publicly available financial
statements. The other category includes our other consolidated subsidiaries and
corporate expenses. Some of our significant other consolidated subsidiaries
include DMX Music,

II-6

TruePosition, Inc., OpenTV Corp., Pramer S.C.A. and Liberty Cablevision of
Puerto Rico. DMX Music is principally engaged in programming, distributing and
marketing digital and analog music services to homes and businesses.
TruePosition provides equipment and technology that deliver location-based
services to wireless users. OpenTV provides interactive television solutions,
including operating middleware, web browser software, interactive applications,
and consulting and support services. Pramer is an owner and distributor of video
programming services throughout Latin America. Liberty Cablevision of Puerto
Rico provides cable television and other broadband services in Puerto Rico. We
hold significant equity investments, the results of which are not a component of
operating income, but are discussed below under "Investments in Affiliates
Accounted for Under the Equity Method." Other items of significance are also
discussed separately below.

- ------------------------

(a) Not meaningful.

Certain of our consolidated subsidiaries and equity affiliates (the
"Programming Affiliates") are dependent on the entertainment industry for
entertainment, educational and informational programming. In addition, a
significant portion of certain of the Programming Affiliates' revenue is
generated by the sale of advertising on their networks. The downturn in the
economy has had and could continue to have a negative impact on the revenue and
operating income of the Programming Affiliates. A slow economy could reduce
(i) the development of new television and motion picture

II-7

programming, thereby adversely impacting the Programming Affiliates' supply of
service offerings; (ii) consumer disposable income and consumer demand for the
products and services of the Programming Affiliates; and (iii) the amount of
resources allocated for network and cable advertising by major corporations.

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

CONSOLIDATED SUBSIDIARIES

STARZ ENCORE. The majority of Starz Encore's revenue is derived from the
delivery of movies to subscribers under affiliation agreements with cable
operators and satellite direct-to-home distributors. In 1997, Starz Encore
entered into a 25-year affiliation agreement with Tele-Communications, Inc.
("TCI"). TCI cable systems (referred to herein as AT&T Broadband) were acquired
by AT&T in the AT&T Merger. Under this affiliation agreement, AT&T Broadband
makes fixed monthly payments to Starz Encore in exchange for unlimited access to
all of the existing Encore and STARZ! services. The payment from AT&T Broadband
can be adjusted, in certain instances, if cable systems are acquired or sold or
if Starz Encore's programming costs increase above certain specified levels.
Substantially all of Starz Encore's other affiliation agreements generally
provide for payments based on the number of subscribers that receive Starz
Encore's services.

Starz Encore's revenue increased 10% and 18% in 2002 and 2001, respectively,
as compared to the corresponding prior year. Such increases are primarily due to
25% and 38% increases 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,
which have lower subscription fee rates than other channels.

Starz Encore's subscription units at December 31, 2002, 2001 and 2000 are as
follows:

At December 31, 2002, cable, direct broadcast satellite, and other
distribution represented 62%, 37% and 1%, respectively, of Starz Encore's total
subscription units. AT&T Broadband generated 24% and DirecTV generated 21%,
respectively, of Starz Encore's revenue for the year ended December 31, 2002.

II-8

Starz Encore's operating, selling, general and administrative expenses
increased 4% and 10% during 2002 and 2001, respectively, as compared to the
corresponding prior year. The 2002 increase is due primarily to increases in
marketing support, salaries and related payroll expenses, and bad debt expense.
The 2001 increase is due to an increase in programming expenses. Programming
expenses increased due to an increase in programming license fees resulting from
increased use of more expensive first-run films from certain movie studios.
Higher marketing expenses and higher salaries and related payroll expenses also
contributed to the increase in operating, selling, general and administrative
expenses in 2001.

Effective January 1, 2002, Liberty and its subsidiaries, including Starz
Encore, adopted Statement of Financial Accounting Standards No. 142, GOODWILL
AND OTHER INTANGIBLE ASSETS ("Statement 142"). Statement 142 provides that
goodwill and indefinite lived intangibles are no longer amortized, but are
evaluated periodically for impairment. The decrease in Starz Encore's
depreciation and amortization in 2002 is due to the adoption of Statement 142.

Starz Encore has granted phantom stock appreciation rights to certain of its
officers. Compensation relating to the phantom stock appreciation rights has
been recorded based upon the fair value of Starz Encore 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.

As described in ITEM 3. "LEGAL PROCEEDINGS" of this Form 10-K, AT&T
Broadband has disputed the enforceability of various provisions of its
affiliation agreement with Starz Encore. That dispute is the subject of a
lawsuit brought in a Colorado state court by Starz Encore in which AT&T
Broadband, Comcast Corporation and Comcast Holdings Corporation have been named
as defendants. Comcast Corporation and Comcast Holdings Corporation have filed a
lawsuit against Starz Encore in a federal district court in Pennsylvania,
alleging that Comcast Corporation is entitled to terminate AT&T Broadband's
affiliation agreement with Starz Encore and to replace that agreement with the
agreement entered into by Comcast Holdings Corporation.

AT&T Broadband has stopped making payments under its affiliation agreement
with Starz Encore. Instead, Comcast Corporation has made payments to Starz
Encore related to distribution of Starz Encore's services on AT&T Broadband's
cable systems based on its claim that the per subscriber fees payable under
Comcast Holdings' affiliation agreement are applicable, which has resulted in
lower aggregate payments to Starz Encore. In addition, both AT&T Broadband and
Comcast have limited their cooperation with Starz Encore on various matters,
including, for example, promotion of Starz Encore's channels.

Starz Encore is vigorously contesting Comcast's claims in the Pennsylvania
federal court proceeding and believes that it will succeed in its defense of
those claims. Starz Encore is also vigorously prosecuting its claims in the
Colorado court proceeding and believes that it will succeed in obtaining a
judgment against the defendants in that proceeding. However, because both
actions are at an early stage, it is not possible to predict with a high degree
of certainty the outcome of either action, and there can be no assurance that
those actions will ultimately be resolved in favor of Starz Encore. If Starz
Encore were to fail in its efforts to enforce its affiliation agreement with
AT&T Broadband, that failure would have a material adverse effect on Starz
Encore's revenue and operating income.

Because of the uncertainty in predicting the outcome of the court actions,
Starz Encore has determined for financial reporting purposes to exclude from its
revenue the amounts due under the AT&T Broadband affiliation agreement from and
after November 18, 2002. Rather, from that date it is including revenue amounts
due under the Comcast affiliation agreement on account of distribution of the
Starz Encore service on AT&T Broadband's systems. This treatment is in
accordance with SEC Staff Accounting Bulletin 101, which provides that revenue
should not be recognized unless collectibility of amounts owed is reasonably
assured. The reduction in revenue based upon the

II-9

difference in payments prescribed in each of the Comcast and AT&T Broadband
affiliation agreements was approximately $9 million for the period from
November 18, 2002 through December 31, 2002.

For the year ending December 31, 2003, Starz Encore estimates that the
difference in revenue as calculated under the AT&T Broadband and Comcast
affiliation agreements, respectively, will be approximately $80 million. The
estimated difference in revenue would have approximately a dollar-for-dollar
impact on Starz Encore's operating income, as Starz Encore would not realize any
significant cost savings associated with the reduction in revenue. The foregoing
reduction in revenue does not reflect the impact of any changes in marketing
efforts or packaging of Starz Encore's services that Comcast may implement. No
assurance can be given that any marketing or packaging changes that Comcast may
implement will not have a material adverse effect on Starz Encore's revenue and
operating income.

There were no excess programming costs in 2002 that Starz Encore had the
right to pass through to AT&T Broadband under its affiliation agreement, and
none are currently expected in 2003. Because the amount of excess programming
costs is subject to a variety of factors, including receipts from theatrical
release of motion pictures covered by Starz Encore's agreements with movie
studios, Starz Encore is unable to estimate the share of those excess
programming costs that could be passed through to AT&T Broadband, were the AT&T
Broadband affiliation agreement held enforceable, for 2004 and thereafter.
However, such amounts could be significant.

ASCENT MEDIA. In April 2000, we acquired all of the outstanding common
stock of Four Media Company in exchange for AT&T Class A Liberty Media Group
common stock and cash. In June 2000, we acquired a controlling interest in The
Todd-AO Corporation in exchange for AT&T Class A Liberty Media Group common
stock. Immediately following the closing of such transaction, we contributed
100% of the capital stock of Four Media Company to Todd-AO in exchange for
additional Todd-AO common stock. Following these transactions, Todd-AO changed
its name to Liberty Livewire Corporation. In November 2002, Liberty Livewire
changed its name to Ascent Media. In July 2000, we purchased all of the assets
relating to the post production, content and sound editorial businesses of
SounDelux Entertainment Group, and contributed such assets to Ascent Media for
additional Ascent Media stock. Following these transactions, we owned
approximately 88% of the equity and controlled approximately 99% of the voting
power of Ascent Media, and as a result, began to consolidate the operations of
Ascent Media during the quarter ended June 30, 2000. During 2001, Ascent Media
consummated several smaller acquisitions for an aggregate purchase price of
$140 million. 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 9% during the year ended December 31, 2002,
as compared to the prior year. This decrease is the net effect of decreases due
to reduced television and motion picture production activity and lower
television advertising production, which were partially offset by an increase
due to acquisitions in the second half of 2001.

Ascent Media's operating, selling, general and administrative expenses
decreased 11% during the year ended December 31, 2002, as compared to the prior
year. This decrease is due to a decrease in variable expenses such as personnel
and material costs. General and administrative expenses were relatively
comparable over the 2001 and 2002 periods.

The decrease in depreciation and amortization in 2002 is due primarily to
the adoption of Statement 142 and the resulting elimination of goodwill
amortization.

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

II-10

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

In connection with its 2002 Statement 142 impairment analysis, Ascent Media
recorded an $84 million charge to write off 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 certain of
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.

ON COMMAND. On Command has been one of our consolidated subsidiaries since
our acquisition of 85% of the common stock of Ascent Entertainment Group, Inc.,
On Command's parent company, on March 28, 2000. On Command's principal business
is providing in-room, on-demand entertainment and information services to
hotels, motels and resorts.

On Command's revenue decreased less than 1% for the year ended December 31,
2002, as compared to 2001. This decrease is the resulting net effect of a
decrease in revenue due to a decrease in occupancy rates in the hotel industry
and a reduction in average rooms served by On Command partially offset by an
increase in revenue due to an increase in average rates for certain pay-per-view
products.

On Command's operating, selling, general and administrative expenses
decreased 12% during the year ended December 31, 2002. Such decrease is due to
(i) a decrease in repair, maintenance and support expenses that vary with the
number of rooms served and (ii) a decrease in research and development and
selling, general and administrative expenses due to cost cutting measures
instituted in the second half of 2001. In addition, On Command incurred
$15 million of restructuring and relocation costs during the year ended
December 31, 2001.

The increase in 2001 in On Command's revenue and expenses is due primarily
to having 12 months of operations in our 2001 consolidated results, as compared
to nine months of operations in our 2000 consolidated results. However, for the
full year ended December 31, 2001, On Command experienced a 10% decrease in
revenue. The decrease in revenue is due primarily to a decrease in hotel
occupancy rates in 2001. On Command believes that the lower hotel occupancy
rates are attributable to a decrease in travel due to the events of
September 11, 2001, as well as the downturn in the U.S. economy. Cost control
measures instituted in the second half of 2001 by On Command resulted in a 5%
decrease in operating, selling, general and administrative expenses in 2001. As
a percentage of revenue, operating, selling, general and administrative expenses
increased from 72% in 2000 to 75% (exclusive of the restructuring and relocation
costs described above) in 2001 because certain of On Command's content fees and
other room services costs do not vary with revenue or occupancy.

On Command's depreciation and amortization expense decreased in 2002 as a
result of the adoption of Statement 142 and the resulting elimination of
goodwill amortization. Assuming a modest increase in hotel occupancy rates in
2003, On Command expects that its operating margins will also

II-11

increase slightly in 2003. However, as a result of On Command's depreciation
expense, we expect On Command to report operating losses in 2003.

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

Revenue decreased less than 1% in 2002 and increased 22% in 2001. The change
in 2002 is primarily the net result of (A) increases due to (i) the May 2001
acquisition of AEI Music Networks, Inc. by DMX Music, Inc. ($31 million) and
(ii) our September 2002 acquisition of OpenTV Corp. ($18 million) and
(B) decreases due to (i) a decrease in Pramer's revenue due to the devaluation
of the Argentine peso and the recessionary conditions in Argentina
($47 million) and (ii) the September 2001 sale of Ascent Network Services to
Ascent Media ($15 million). In addition, Liberty Cablevision of Puerto Rico's
revenue increased $9 million or 16% due to rate increases in 2002. The remaining
change in revenue is due to individually insignificant fluctuations. The 2001
increase in revenue is attributable primarily to an increase in DMX Music's
revenue due to the acquisition of AEI Music Networks, Inc. in 2001.

Operating, selling, general and administrative expenses increased 7% and 51%
in 2002 and 2001, respectively, as compared to the corresponding prior year. The
increase in 2002 is primarily the net result of (A) increases due to (i) our
acquisition of OpenTV Corp. and Wink Communications, Inc. ($49 million) and
(ii) the acquisition of AEI Music ($43 million) and (B) decreases due to Pramer
and the devaluation of the Argentine peso ($29 million) and the sale of Ascent
Network Services ($22 million). In addition, we incurred $11 million of expenses
in 2001 related to our split off from AT&T and significant legal and consulting
fees associated with certain transactions.

The increase in operating, selling, general and administrative expenses in
2001 is due primarily to increases in expenses at DMX Music of $54 million and
TruePosition of $30 million. In addition, we incurred expenses related to our
split off from AT&T which aggregated $11 million, as well as higher legal and
consulting fees in 2001 related to our transaction with UGC and our unsuccessful
acquisition of six German cable systems.

In connection with our rights offering 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
offering. As a result of these modifications, 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. The expense reflected in the table is based on the market price of
the underlying common stock as of the date of the financial statements and is
subject to future adjustment based on market price fluctuations, vesting
percentages and, ultimately, on the final determination of market value when the
options are exercised.

Depreciation and amortization was comparable in 2001 and 2000. The decrease
in depreciation and amortization in 2002 is due to the adoption of Statement 142
and the resulting elimination of goodwill amortization.

During the year ended December 31, 2002, we recorded impairments of goodwill
related to OpenTV ($92 million), our Latin American consolidated and equity
investments ($46 million) and DMX Music ($44 million). Such impairments were
calculated as the difference between the carrying value and the estimated fair
value of the goodwill. In 2001 we recorded impairments of goodwill of
$75 million primarily related to the devaluation of the Argentine peso and the
impact of such devaluation on Pramer.

II-12

OTHER INCOME AND EXPENSE

INTEREST EXPENSE. Interest expense was $423 million, $525 million and
$399 million, for the years ended December 31, 2002, 2001 and 2000,
respectively. 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. The increase in 2001 is due to the issuance of our
exchangeable debentures in 2000 and 2001, as well as the issuance of notes
payable to UGC in 2001. We repaid these notes payable in late 2001 and early
2002.

DIVIDEND AND INTEREST INCOME. Dividend and interest income was
$209 million, $272 million and $301 million for the years ended December 31,
2002, 2001 and 2000, respectively. The 2002 decrease is the net effect of lower
interest rates on invested cash balances, offset by increases due to dividends
from our Vivendi 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. The decrease in 2001 is primarily attributable to lower interest
rates on our invested cash balances, combined with the elimination of Time
Warner dividends subsequent to the merger of Time Warner and AOL. These
decreases were partially offset by interest earned on the aforementioned debt
securities that were contributed to UGC. Interest and dividend income for the
year ended December 31, 2002 was comprised of interest income earned on invested
cash ($44 million), dividends on Vivendi common stock ($29 million), dividends
on News Corp. American Depository Shares ("ADSs") ($33 million), dividends on
ABC Family Worldwide preferred stock ($31 million) and other ($72 million).

INVESTMENTS IN AFFILIATES ACCOUNTED FOR USING THE EQUITY METHOD. Our share
of losses of affiliates was $453 million, $4,906 million and $3,485 million
during the years ended December 31, 2002, 2001 and 2000, respectively. A summary
of our share of losses of affiliates, including nontemporary declines in value
and excess cost amortization, is included below:

- ------------------------

* No longer an equity affiliate

At December 31, 2002, the aggregate carrying amount of our investments in
affiliates exceeded our proportionate share of our affiliates' net assets by
$8,710 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 and $1,058 million for the years ended
December 31, 2001 and 2000, respectively, and is included in our share of losses
of affiliates. Upon adoption of Statement 142, we discontinued

II-13

amortizing equity method excess costs in existence at the adoption date due to
their characterization as equity method goodwill. Unless otherwise noted below,
the change in share of earnings (losses) of affiliates from 2001 to 2002 is due
primarily to the elimination of excess basis amortization in 2002. Also included
in share of losses for the years ended December 31, 2002, 2001 and 2000, are
adjustments for nontemporary declines in value aggregating $148 million,
$2,396 million and $1,324 million, respectively. We expect to continue to record
shares of losses of affiliates for the foreseeable future.

DISCOVERY. Exclusive of the effects of excess basis amortization, our share
of losses of Discovery was $32 million, $105 million and $106 million in 2002,
2001, and 2000, respectively. The decrease in our share of losses of Discovery
in 2002 is due to an improvement in Discovery's operating income, which resulted
from an increase in revenue and a slight decrease in operating expenses. During
the year ended December 31, 2002, Discovery reported increases in both affiliate
revenue and advertising revenue.

QVC. Exclusive of the effects of excess basis amortization, our share of
earnings of QVC was $154 million, $146 million and $98 million in 2002, 2001,
and 2000, respectively. Such increases are due to increased revenue and
operating margins and a decrease in interest expense.

JUPITER. Exclusive of the effects of excess basis amortization, our share
of Jupiter's losses was $22 million, $76 million and $94 million in 2002, 2001,
and 2000, respectively. These decreases are due to increased revenue and
operating margins driven by increased cable distribution and growth in telephony
and Internet revenue, which translated to reduced net losses for Jupiter.

UGC. Exclusive of the effects of excess basis amortization, our share of
UGC's net loss was $198 million, $700 million and $165 million in 2002, 2001,
and 2000, respectively. In addition, our share of UGC's Statement 142 transition
loss of $264 million is included in cumulative effect of accounting change.
Because we currently have no commitment to make additional capital contributions
to UGC, our share of losses in 2002 represents the amount of losses that reduced
the carrying value of our investment in UGC to zero. When our carrying value was
reduced to zero, we suspended recording our share of UGC's losses. At
December 31, 2002, such suspended losses aggregated approximately $582 million.
In the event that we increase our investment in UGC in the future, we will be
required to recognize these suspended losses to the extent of our additional
investment, if such investment is deemed to represent funding of these suspended
losses. The sum of our recognized losses and suspended losses ($780 million)
exceeds our share of losses in 2001 due to our increased ownership of UGC
partially offset by a decrease in UGC's net loss related to (i) increased
foreign currency gains, (ii) improved operating margins in 2002 due to cost
control measures, (iii) impairment and restructuring charges recorded in 2001,
(iv) lower amortization in 2002 due to the implementation of Statement 142, and
(v) lower interest expense in 2002 due to the extinguishment of certain of its
debt. The increased loss in 2001 is due to charges recorded by UGC for
impairment of long-lived assets, which aggregated $1,426 million. In addition,
UGC incurred higher depreciation charges and interest expense in 2001, and
recognized impairment losses on certain of its investments.

TELEWEST. Our share of Telewest's net loss included excess basis
amortization of $109 million and a nontemporary decline in value of
$1,801 million in 2001. Excluding the effects of the excess basis amortization
and the nontemporary decline in value, our share of Telewest's net loss was
$92 million, $628 million and $277 million in 2002, 2001, and 2000,
respectively. Telewest's 2002 net loss decreased due to (1) the adoption of
Statement 142 and the corresponding elimination of goodwill amortization,
(2) lower foreign currency transaction losses and (3) higher operating margins.
In addition, Telewest's net loss in 2001 included a $1,112 million charge
related to the impairment of Telewest's long-lived assets.

II-14

As of December 31, 2002, our share of Telewest's losses had reduced our
carrying value in Telewest to zero. Telewest has disclosed that it has reached a
nonbinding preliminary agreement relating to a restructuring of a significant
portion of its bonds. 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 97% of the issued share capital of Telewest
immediately after the restructuring. Existing shareholders will retain a 3%
interest in Telewest under the proposed restructuring. As a result of Telewest's
proposed restructuring, which we expect will reduce our overall ownership in
Telewest to below 10%, we determined that beginning in 2003 we will no longer
have the ability to exercise significant control over the operations of
Telewest. In addition, we have removed our representatives from the Telewest
board of directors. Accordingly, we will no longer account for our investment in
Telewest using the equity method.

At December 31, 2002, our accumulated other comprehensive earnings includes
$287 million (before related deferred taxes) of unrealized foreign currency
losses related to our investment in the equity of Telewest. Upon consummation of
Telewest's proposed debt restructuring and the resulting dilution of our
ownership interest in Telewest, we expect that we will recognize such unrealized
foreign currency losses in our statement of operations.

USAI. Prior to May 7, 2002, USAI owned and operated businesses in
television production, electronic retailing, ticketing operations, and internet
services. We held 74.4 million shares of USAI's common stock and shares and
other equity interests in certain subsidiaries of USAI that were exchangeable
for an aggregate of 79.0 million shares of USAI common stock.

On May 7, 2002, we, USAI and Vivendi consummated a series of transactions.
Upon consummation of these transactions, USAI contributed substantially all of
its entertainment assets to Vivendi Universal Entertainment ("VUE"), a
partnership controlled by Vivendi, in exchange for cash, common and preferred
interests in VUE and the cancellation of approximately 320.9 million shares of
USANi LLC, which were exchangeable on a one-for-one basis for shares of USAI
common stock. In connection with these transactions, we entered into a separate
agreement with Vivendi, pursuant to which Vivendi acquired from us 25 million
shares of common stock of USAI, approximately 38.7 million shares of USANi LLC
and all of our 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. In connection with this transaction, we agreed to
restrictions on our ability to transfer 9.5 million of such shares prior to
November 2003. We recognized a loss of $817 million in the second quarter of
2002 based on the difference between the fair value of the Vivendi shares
received and the carrying value of the assets relinquished, including goodwill
of $514 million which is allocable to the reporting unit holding the USAI
interests. We own approximately 3% of Vivendi and account for such investment as
an available-for-sale security.

Subsequent to the Vivendi transaction with USAI, we own approximately 20% of
USAI. Due to certain governance arrangements which limit our ability to exert
significant influence over USAI, we account for such investment as an
available-for-sale security. Prior to the Vivendi transaction, we accounted for
our investment in USAI using the equity method. Share of earnings for USAI in
2002 are for the period through May 7, 2002.

CABLEVISION. Cablevision provides cable television and high speed data
services in Argentina. The Argentine government has historically maintained an
exchange rate of one Argentine peso to one U.S. dollar (the "peg rate"). Due to
deteriorating economic and political conditions in Argentina in late 2001, the
Argentine government eliminated the peg rate effective January 11, 2002. The
value of the Argentine peso dropped significantly on the day the peg rate was
eliminated and has dropped further since that date. In addition, the Argentine
government placed restrictions on the payment of obligations

II-15

to foreign creditors. As a result of the devaluation of the Argentine peso,
Cablevision recorded foreign currency translation losses of $393 million in the
fourth quarter of 2001. At December 31, 2001, we determined that our investment
in Cablevision had experienced a nontemporary decline in value, and accordingly,
recorded an impairment charge of $195 million. Such charge is included in shares
of losses of affiliates. Our share of losses in 2001, when combined with foreign
currency translation losses recorded in other comprehensive loss at
December 31, 2001, reduced the carrying value of our investment to zero as of
December 31, 2001. Included in accumulated other comprehensive earnings at
December 31, 2001, is $257 million (before related deferred taxes) of unrealized
foreign currency translation losses related to our investment in Cablevision.
During 2002, we sold a portion of our investment in Cablevision and recognized
$56 million of such unrealized foreign currency translation losses. Such loss is
included in loss on dispositions in our consolidated statement of operations.

ASTROLINK. Astrolink, a developmental stage entity, originally intended to
build a global telecom network using Ka-band geostationary satellites to provide
broadband data communications services. Astrolink's original business plan
required significant additional financing over the next several years. During
the fourth quarter of 2001, two of the members of Astrolink informed Astrolink
that they did not intend to provide any of Astrolink's required financing. Based
on an assessment of Astrolink's remaining sources of liquidity and Astrolink's
inability to obtain financing for its business plan, we concluded that the
carrying value of our investment in Astrolink should be reduced to reflect a
fair value that assumes the liquidation of Astrolink. Accordingly, we wrote-off
all of our remaining investment in Astrolink during the fourth quarter of 2001.
Including such fourth quarter amount, we recorded losses and charges relating to
our investment in Astrolink aggregating $417 million during the year ended
December 31, 2001. As we have no obligation to make additional contributions to
Astrolink, share of losses in 2002 have been limited to amounts advanced to
Astrolink by us.

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

GEMSTAR. On July 12, 2000, TV Guide and Gemstar completed a merger whereby
Gemstar acquired TV Guide. As a result of this transaction, 133 million shares
of TV Guide held by us were exchanged for 87.5 million shares of Gemstar common
stock. Following the merger, we owned approximately 21% of Gemstar. Our share of
Gemstar's net loss was $254 million from the date of acquisition through
December 31, 2000 and included excess basis amortization of $199 million.

During 2001, we exchanged all of our Gemstar common stock for ADSs of News
Corp. We recorded share of losses of $133 million prior to such exchange.

OTHER. During the year ended December 31, 2002, we recorded nontemporary
declines in fair value aggregating $148 million related to certain of our other
equity method investments. Such amount is included in share of losses of
affiliates.

NONTEMPORARY DECLINES IN FAIR VALUE OF INVESTMENTS. During 2002, 2001 and
2000, we determined that certain of our cost investments experienced
nontemporary declines in value. As a result, the cost bases of such investments
were adjusted to their respective fair values based primarily on quoted market
prices at the balance sheet date. These adjustments are reflected as
nontemporary declines in fair value

II-16

of investments in the consolidated statements of operations. The following table
identifies such adjustments attributable to each of the individual investments
as follows:

GAINS (LOSSES) ON DISPOSITIONS. Aggregate gains (losses) from dispositions
during the years ended December 31, 2002, 2001 and 2000, are comprised of the
following.

In all of the above exchange transactions, the gains or losses were
calculated based upon the difference between the carrying value of the assets
relinquished, as determined on an average cost basis, compared to the fair value
of the assets received. See notes 5 and 6 to the accompanying consolidated
financial statements for a discussion of the foregoing transactions.

II-17

REALIZED AND UNREALIZED GAINS (LOSSES) ON DERIVATIVE INSTRUMENTS. Realized
and unrealized gains (losses) on derivative instruments during the years ended
December 31, 2002, 2001 and 2000 are comprised of the following:

- ------------------------

(1) Comprised primarily of put spread collars and forward foreign exchange
contracts.

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" ("Statement
133"), 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. Effective December 31, 2002, we elected to dedesignate
our equity collars as fair value hedges. This election had no impact on our
financial 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 the hedged securities that previously had been reported in
earnings will now be reported as a component of other comprehensive income on
our balance sheet. Changes in the fair value of the equity collars will continue
to be reported in earnings.

INCOME TAXES. Our effective tax rate was 33%, 36% and 52% for the years
ended December 31, 2002, 2001 and 2000, respectively. The effective tax rates
differed 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 EFFECT OF ACCOUNTING CHANGE. We and our subsidiaries adopted
Statement 142 effective 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 first quarter of 2002, we recorded an
impairment loss of $1,869 million, net of related taxes, as the cumulative
effect 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 affiliates have recorded.

Effective January 1, 2001, we adopted Statement 133, which establishes
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

II-18

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.

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

Upon adoption of Statement 133, the call option feature of the exchangeable
debentures is reported separately in the consolidated balance sheet at fair
value. Changes in the fair value of the call option obligations subsequent to
January 1, 2001 are recognized as unrealized gains (losses) on financial
instruments in our consolidated statements of operations.

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, we are primarily
dependent upon our financing activities, proceeds from asset sales and
monetization of our public investment portfolio to generate sufficient cash
resources to meet our future cash requirements and planned commitments. Our
borrowings of debt aggregated $189 million, $2,667 million and $4,597 million
for the years ended December 31, 2002, 2001 and 2000, respectively. Due to
covenant restrictions in the bank credit facilities of our subsidiaries, we are
generally not entitled to the cash resources or cash generated by operations of
our subsidiaries and business affiliates. Similarly, our subsidiaries' debt is
generally non-recourse to us.

During the year ended December 31, 2002, we received cash proceeds from
dispositions of assets of $1,040 million, including $679 million from the sale
of our investment in Telemundo Communications Group, cash proceeds of
$423 million upon settlement of equity collars related to our Sprint PCS
position and cash proceeds of $484 million from the sale of put options on a
portion of our AOL Time Warner position.

On March 20, 2003, we announced that we intend to raise approximately
$1.5 billion through an offering of 20-year exchangeable senior debentures that
are exchangeable into shares of AOL Time Warner Inc. common stock, the value of
which can be paid, at our option, with AOL Time Warner Inc. common stock, cash
or any combination thereof, or, in specified circumstances, shares of our
Series A common stock or any combination of the foregoing types of
consideration. We may raise up to an additional $250 million upon exercise of an
option to be granted in connection with the offering. We expect to use the net
proceeds from the offering for general corporate purposes. The initial sale of
the debentures is to be made only to qualified institutional buyers under
Rule 144A.

During the fourth quarter of 2002, we completed a rights offering pursuant
to which existing shareholders received .04 transferable subscription rights to
purchase shares of Liberty Series A common stock for each share of common stock
held by them at the close of business on October 31, 2002. Under the basic
subscription privilege, each whole right entitled the holder to purchase one
share of Liberty's Series A common stock at a subscription price of $6.00 per
share. The rights offering expired on December 2, 2002. In connection with the
rights offering, we issued 103,426,000 shares of Series A common stock for cash
proceeds of $621 million before expenses of $3 million.

Our primary uses of cash in recent years have been investments in and
advances to affiliates. In this regard, our investments in and advances to cost
and equity method affiliates aggregated $1,227 million, $2,579 million and
$3,359 million for the years ended December 31, 2002, 2001 and 2000,
respectively. In addition, our cash paid for acquisitions aggregated
$44 million, $113 million and

II-19

$735 million for the years ended December 31, 2002, 2001 and 2000, respectively.
In addition, we had debt repayments of $1,110 million, $1,048 million and
$2,156 million during the years ended December 31, 2002, 2001 and 2000,
respectively. Also during 2002, we acquired shares of our common stock pursuant
to a previously authorized share buy back program. We purchased 25.7 million
shares of our Series A common stock in the open market for $281 million. During
the first quarter of 2003, we purchased an additional 17.3 million shares in the
open market for $170 million.

We anticipate that we will continue to fund our existing investees as they
develop and expand their businesses, and that such investments and advances to
affiliates will aggregate approximately $470 million in 2003, approximately
$400 million of which we expect to fund in the first quarter. Although we may
invest additional amounts in new or existing ventures in 2003, we are unable to
quantify such investments at this time. In addition, we have $325 million of
corporate debt and $330 million of subsidiary debt that is required to be repaid
or refinanced in 2003. We intend to fund such investing and financing activities
with a combination of available cash and short term investments, borrowings
under existing credit facilities, monetization of existing marketable
securities, proceeds from the sale of assets, and the issuance of debt and
equity securities.

Starz Encore has granted Phantom Stock Appreciation Rights ("PSARs") to
certain of its officers. The PSARs generally vest over a five-year period, and
substantially all of the PSARs are fully vested as of December 31, 2002.
Compensation for 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. Effective December 27, 2002, the chief executive officer of
Starz Encore elected to exercise 54% of his outstanding PSARs. Such PSARs have
an estimated value of $275 million. Such accrual is subject to further
adjustment when an independent appraisal of Starz Encore is finalized. The
ultimate amount to be paid is expected to be in the form of a combination of our
Series A common stock and cash.

Based on currently available information, we expect to receive approximately
$170 million in dividend and interest income during the year ended December 31,
2003. Based on current debt levels and current interest rates, we expect to make
interest payments of approximately $400 million during the year ended
December 31, 2003, of which approximately $325 million relates to parent company
debt.

SUBSIDIARIES

At December 31, 2002, our consolidated subsidiaries had $1,242 million
outstanding and $408 million in unused availability under their respective bank
credit facilities. Certain assets of our consolidated subsidiaries serve as
collateral for borrowings under these bank credit facilities. Also, these bank
credit facilities contain provisions which limit additional indebtedness, sale
of assets, liens, guarantees, and distributions by the borrowers. At
December 31, 2002, our subsidiary that operates the DMX Music service was not in
compliance with three covenants contained in its bank loan agreement. The
subsidiary is in discussions with its banks regarding the resolution of these
defaults. The outstanding balance of the subsidiary's bank facility was
$94 million at December 31, 2002. All other consolidated subsidiaries were in
compliance with their debt covenants at December 31, 2002. The subsidiaries'
ability to borrow the unused capacity noted above is dependent on their
continuing compliance with their covenants at the time of, and after giving
effect to, a requested borrowing.

Although On Command was in compliance with the covenants in its bank credit
facility (the "On Command Revolving Credit Facility") at December 31, 2002, On
Command believes that it will not be in compliance with the leverage ratio
covenant at March 31, 2003. On Command is seeking an agreement with its bank
lenders to (i) postpone until June 29, 2003 a step-down of the leverage ratio
covenant; and (ii) restructure the On Command Revolving Credit Facility to,
among other matters, extend the maturity date to December 31, 2007. It is
anticipated that any closing of the restructuring of the On Command Revolving
Credit Facility will be contingent upon the contribution of $40 million by

II-20

us or one of our affiliates to On Command to be used to repay principal due, and
permanently reduce lender commitments. The terms of our proposed contribution
have not yet been agreed upon, and no assurance can be given that we will make
such contribution, as contemplated by the terms of the proposed restructuring.
In the event the proposed restructuring of the On Command Revolving Credit
Facility does not close on or before June 29, 2003, On Command anticipates that
it would seek a further postponement of the step-down of the leverage ratio
covenant, and would continue to seek to refinance or restructure the On Command
Revolving Credit Facility. In the event that a restructuring or refinancing is
not completed by the date that the leverage ratio is reduced to 3.50, On Command
anticipates that an event of default would occur. Upon the occurrence of a
default, if left uncured, the bank lenders would have various remedies,
including terminating their revolving loan commitment, declaring all outstanding
loan amounts including interest immediately due and payable, and exercising
their rights against their collateral which consists of substantially all of On
Command's assets. No assurance can be given that On Command will be able to
successfully restructure or refinance the Revolving Credit Facility on terms
acceptable to On Command, or that On Command will be able to avoid a default
under the On Command Revolving Credit Facility. In light of the foregoing
circumstances, On Command's independent auditors have included an explanatory
paragraph in their audit report that addresses the ability of On Command to
continue as a going concern.

EQUITY AFFILIATES

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

On January 30, 2002, we completed a transaction (the "UGC Transaction")
pursuant to which UGC was formed to own UGC Holdings, Inc. (formerly known as
UnitedGlobalCom, 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, we 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 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 Class C common stock of UGC with a fair value of $1,406 million. After
giving effect to the UGC Transaction, subsequent open market purchases of UGC
Class A common stock and other transactions we own approximately 74% of UGC's
outstanding equity, representing approximately 94% of the voting power. Due to
certain voting and standstill arrangements entered into at the time of closing,
we are currently unable to exercise control of UGC, and accordingly, we continue
to use the equity method of accounting for our investment.

Also on January 30, 2002, UGC acquired our debt and equity interests in IDT
United, Inc. and $751 million principal amount at maturity of UGC's
$1,375 million 10 3/4% senior secured discount notes due 2008, which had been
distributed to us in redemption of a portion of our interest in IDT United and
repayment of a portion of IDT United's debt to us. IDT United was formed as an
indirect

II-21

subsidiary of IDT Corporation for purposes of effecting a tender offer for all
outstanding 2008 Notes at a purchase price of $400 per $1,000 principal amount
at maturity, which tender offer expired on February 1, 2002. The aggregate
purchase price for our interest in IDT United of $448 million equaled the
aggregate amount we had invested in IDT United, plus interest. Approximately
$305 million of the purchase price was paid by the assumption by UGC of debt
owed by us to a subsidiary of UGC Holdings and the remainder was credited
against our $200 million cash contribution to UGC described above. In connection
with the UGC Transaction, one of our subsidiaries made loans to a subsidiary of
UGC aggregating $103 million. Such loans accrue interest at 8% per annum.

UGC and its significant operating subsidiaries have incurred losses since
their formation, as they have attempted to expand and develop their businesses
and introduce new services. In November 2001, United Australia/Pacific, Inc.
("UAP"), a 50% owned affiliate of UGC, failed to make interest payments on
certain of its senior notes. Following such default, the trustee under the
Indenture for UAP's senior notes declared the principal and interest due and
payable. On March 29, 2002, voluntary and involuntary petitions were filed under
Chapter 11 of the United States Bankruptcy Code with respect to UAP. UAP's
ability to continue as a going concern is dependent on the outcome of this
bankruptcy proceeding.

In February, May, August and November 2002, UPC failed to make required
interest payments on certain of its senior notes. Since that time, UPC has been
negotiating the restructuring of its debt instruments, and on September 30,
2002, UPC and an ad-hoc committee representing UPC's bondholders signed
definitive agreements with respect to UPC's recapitalization. Under the terms of
the agreement, approximately $5.4 billion of UPC's debt would be exchanged for
equity of a new holding company of UPC ("New UPC"). If the recapitalization is
consummated, UGC would receive approximately 65.5% of New UPC's equity in
exchange for UPC debt securities that it owns; third-party noteholders would
receive approximately 32.5% of New UPC's equity; and existing preferred and
ordinary shareholders, including UGC, would receive 2% of UPC's equity. In
December 2002, UPC filed a voluntary petition under Chapter 11 of the U.S.
Bankruptcy Code and commenced a moratorium of payments in The Netherlands under
Dutch bankruptcy law. The U.S. Bankruptcy Court confirmed the plan of
reorganization as modified on February 21, 2003. The Dutch court ratified the
plan of compulsory composition (Akkord) on March 13, 2003. A UPC creditor has
appealed the Dutch decision. As a result, UPC can give no assurance as to when
the Dutch Akkord process will be completed, but expects that the restructuring
will be finalized in the second quarter of 2003. Such proceedings could result
in material changes in the nature of UPC's business, material changes to UPC's
financial condition and results of operations, UPC's liquidation or a
significant impact on UGC's ownership interest in UPC. In addition, certain
other UGC subsidiaries do not have sufficient working capital to service their
debt or other liabilities when due during the next year. As a result of the
foregoing, there is substantial doubt about UGC's ability to continue as a going
concern. UGC's management is taking steps to address these matters. However, no
assurance can be given that such steps will be successful.

OFF-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 films that are released by these producers (collectively, "Film
Licensing Obligation"). The unpaid balance under agreements for Film Licensing
Obligations related to films that were available at December 31, 2002 is
reflected as a liability in the accompanying consolidated balance sheet. The
balance due as of December 31, 2002 is payable as follows: $126 million in 2003;
$64 million in 2004; and $18 million in 2005.

Starz Encore has also contracted to pay Film Licensing Obligations for the
rights to exhibit films that have been released, but are not available to Starz
Encore until some future date. These amounts have not been accrued at
December 31, 2002. Starz Encore's estimate of amounts payable under these

II-22

agreements is as follows: $306 million in 2003; $200 million in 2004;
$135 million in 2005; $114 million in 2006; $103 million in 2007 and
$320 million thereafter.

Starz Encore is also obligated to pay fees for films that are released by
certain producers through 2014 when these films meet certain criteria described
in the agreements. No estimate of amounts payable under these agreements can be
made at this time. However, such amounts could prove to be significant. Starz
Encore's total film rights expense aggregated $358 million, $354 million and
$336 million for the years ended December 31, 2002, 2001 and 2000, respectively.

Liberty guarantees Starz Encore's Film Licensing Obligations under certain
of its studio output agreements. At December 31, 2002, Liberty's guarantee for
Film Licensing Obligations for films released by such date aggregated
$722 million. While the guarantee amount for films not yet released is not
determinable, such amount could be significant. As noted above Starz Encore has
recognized the liability for a portion of its Film Licensing Obligations as of
December 31, 2002. Liberty has not recorded a separate liability for its
guarantee of these obligations.

Subsequent to December 31, 2002, Jupiter, an equity affiliate that provides
broadband services in Japan, refinanced substantially all of its outstanding
debt. In connection with such refinancing, we and the other principal Jupiter
shareholders made subordinated loans to Jupiter. Our share of such loans
aggregated $553 million, $308 million of which had been loaned as of
December 31, 2002. Subsequent to the refinancing, we guarantee Y15.6 billion
($131 million at December 31, 2002) of Jupiter's debt. Our guarantees expire as
the underlying debt matures. The debt maturity dates range from 2005 to 2017. In
connection with Jupiter's refinancing, we have agreed to fund up to an
additional Y20 billion ($168 million at December 31, 2002) to Jupiter in the
event Jupiter's cash flow (as defined in the bank loan agreement) does not meet
certain targets. This commitment expires after September 30, 2004, or sooner
upon the occurrence of certain events.

We and the other investors have guaranteed transponder and equipment lease
obligations through 2018 of our investee that provides direct-to-home satellite
service in Latin America ("Sky Latin America"). At December 31, 2002, our
portion of the guarantee of the remaining obligations due under such agreements
aggregated $115 million, and is not reflected in our balance sheet at
December 31, 2002. During the fourth quarter of 2002, GloboPar Communicacoes e
Participacoes ("GloboPar"), another investor in Sky Latin America, announced
that it was reevaluating its capital structure. As a result, we believe that it
is probable that GloboPar will not meet some, if not all, of its future funding
obligations with respect to Sky Latin America. To the extent that GloboPar does
not meet its funding obligations, we and other investors could mutually agree to
assume GloboPar's obligations. To the extent that we or such other investors do
not fully assume GloboPar's funding obligations, any funding shortfall could
lead to defaults under applicable lease agreements. We believe that the maximum
amount of our aggregate exposure under the default provisions is not in excess
of the gross remaining obligations guaranteed by us, as set forth above.
Although no assurance can be given, such amounts could be accelerated under
certain circumstances. We cannot currently predict whether we will be required
to perform under any of such guarantees.

We have also guaranteed various loans, notes payable, letters of credit and
other obligations (the "Guaranteed Obligations") of certain other affiliates. At
December 31, 2002, the Guaranteed Obligations aggregated approximately
$54 million and are not reflected in our balance sheet at December 31, 2002.
Currently, we are not certain of the likelihood of being required to perform
under such guarantees.

II-23

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

- ------------------------

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

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

We have contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is reasonably
possible we may incur losses upon conclusion of such matters, an estimate of any
loss or range of loss cannot be made. In the opinion of management, it is
expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying consolidated
financial statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In November 2002, the Financial Accounting Standards Board (the "FASB")
issued FASB Interpretation No. 45, GUARANTOR'S ACCOUNTING AND DISCLOSURE
REQUIREMENTS FOR GUARANTEES, INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF
OTHERS, AN INTERPRETATION OF FASB STATEMENTS NO. 5, 57, AND 107 AND RESCISSION
OF FASB INTERPRETATION NO. 34 ("FIN 45"). FIN 45 elaborates on the disclosures
to be made by a guarantor in its financial statements about its obligations
under certain guarantees that it has issued. It also clarifies that a guarantor
is required to recognize, at the inception of a guarantee, a liability for the
fair value of the obligation undertaken in issuing the guarantee. The initial
recognition and measurement provisions in FIN 45 are effective for all
guarantees issued or modified after December 31, 2002. The disclosure provisions
are effective for periods ending after December 15, 2002. We do not believe that
the implementation of FIN 45 will have a material impact on our financial
position or results of operations.

In January 2003, the FASB issued FASB Interpretation No. 46, CONSOLIDATION
OF VARIABLE INTEREST ENTITIES, AN INTERPRETATION OF ARB NO. 51 ("FIN 46"). FIN
46 addresses consolidation of variable interest entities which have
characteristics described in the pronouncement. In general, if an entity is
considered

II-24

a variable interest entity ("VIE"), the party that has the most exposure to
economic risks and potential rewards from the VIE is required to consolidate the
VIE. The consolidation requirements of FIN 46 apply to all VIE's created after
January 31, 2003. In addition, by July 1, 2003, the consolidation requirements
must be applied to all VIE's in existence prior to February 1, 2003. Based upon
our preliminary analysis of the provisions of FIN 46, we currently do not
believe that the adoption of FIN 46 will have a significant impact on our
financial position or results of operations. However, it is our understanding
that the FASB continues to provide interpretive guidance with respect to FIN 46,
which could change the implementation requirements. These changes could result
in our identifying a significant variable interest, which could change our
preliminary evaluation and could result in a significant impact to our financial
position or results of operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are exposed to market risk in the normal course of business due to our
investments in different foreign countries and ongoing investing and financial
activities. Market risk refers to the risk of loss arising from adverse changes
in foreign currency exchange rates, interest rates and stock prices. The risk of
loss can be assessed from the perspective of adverse changes in fair values,
cash flows and future earnings. We have established policies, procedures and
internal processes governing our management of market risks and the use of
financial instruments to manage our exposure to such risks.

Investments in and advances to our foreign affiliates are denominated in
foreign currencies. Therefore, we are exposed to changes in foreign currency
exchange rates. We do not hedge the majority of our foreign currency exchange
risk because of the long-term nature of our interests in foreign affiliates.
During 2001, we entered into a definitive agreement to acquire six regional
cable television systems in Germany. That agreement was terminated in
April 2002. A portion of the consideration for such acquisition was to be
denominated in euros. In order to reduce our exposure to changes in the euro
exchange rate, we had entered into forward purchase contracts with respect to
euro 3,243 million as of December 31, 2001. We settled all of our euro contracts
in 2002. Realized and unrealized gains on our euro contracts aggregated
$42 million in 2002.

We have two equity affiliates in Japan. In order to reduce our foreign
currency exchange risk related to these investments, we entered into forward
sale contracts with respect to Y10,802 million ($91 million at December 31,
2002) in 2002. In addition to the forward sale contracts, we entered into collar
agreements with respect to Y18,785 million ($158 million at December 31, 2002).
These collar agreements have a remaining term of approximately two years, an
average call price of 110 yen/U.S. dollar and an average put price of 133
yen/U.S. dollar. During 2002, we had unrealized losses of $11 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.

We are exposed to changes in interest rates primarily as a result of our
borrowing and investment activities, which include investments in fixed and
floating rate debt instruments and borrowings used to maintain liquidity and to
fund business operations. The nature and amount of our long-term and short-term
debt are expected to vary as a result of future requirements, market conditions
and other factors. We manage our exposure to interest rates by maintaining what
we believe is an appropriate mix of fixed and variable rate debt. We believe
this best protects us from interest rate risk. We have achieved this mix by
(i) issuing fixed rate debt that we believe has a low stated interest rate and
significant term to maturity and (ii) issuing short-term variable rate debt to
take advantage of historically low short-term interest rates. As of
December 31, 2002, $3,534 million or 71% of our debt was composed of fixed rate
debt (as adjusted for the effects of interest rate swap agreements) with a
weighted average stated interest rate of 5.54%. Our variable rate debt of
$1,437 million had a weighted average interest rate of 3.60% at December 31,
2002. Had market interest rates been 100 basis points higher (representing an
approximate 28% increase over our variable rate debt effective cost of
borrowing) throughout the year ended December 31, 2002, we would have recognized
approximately

II-25

$17 million of additional interest expense. Had the price of the securities
underlying the call option obligations associated with our senior exchangeable
debentures been 10% higher during the year ended December 31, 2002, we would
have recognized an additional unrealized loss on derivative instruments of
$75 million. For additional 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
significant holdings in publicly traded securities. We continually monitor
changes in stock markets, in general, and changes in the stock prices of our
holdings, specifically. We believe that changes in stock prices can be expected
to vary as a result of general market conditions, technological changes,
specific industry changes and other factors. We use equity collars, put spread
collars, narrow-band collars and other financial instruments to manage market
risk associated with certain investment positions. These instruments are
recorded at fair value based on option pricing models. Equity collars provide us
with a put option that gives us the right to require the counterparty to
purchase a specified number of shares of the underlying security at a specified
price (the "Company Put Price") at a specified date in the future. Equity
collars also provide the counterparty with a call option that gives the
counterparty the right to purchase the same securities at a specified price at a
specified date in the future. The put option and the call option generally are
equally priced at the time of origination resulting in no cash receipts or
payments. 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 difference 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.

During the year ended December 31, 2002, we sold put options on
36.1 million shares of AOL Time Warner stock for cash proceeds of $484 million.

The following table provides information regarding our equity and put spread
collars and put options at December 31, 2002:

- ------------------------

(1) Includes narrow-band collars.

II-26

At December 31, 2002, the fair value of the securities underlying the
derivatives in the foregoing table was $2,437 million, (excluding the fair value
of the related derivatives) and the total value of our available-for-sale equity
securities was $14,254 million. Had the market price of the remaining
available-for-sale securities been 10% lower at December 31, 2002, the aggregate
value of such securities would have been $1,182 million lower resulting in an
increase to unrealized losses in other comprehensive earnings.

Had the stock price of our publicly traded investments accounted for using
the equity method been 10% lower at December 31, 2002, there would have been no
impact on the carrying value of such investments assuming that the decline in
value is deemed to be temporary.

From time to time we enter into total return debt swaps in connection with
our purchase of our own or third-party public and private indebtedness. Under
these arrangements, we direct a counterparty to purchase a specified amount of
the underlying debt security for our benefit. 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 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 financial instruments. The cash collateral is
further adjusted up or down for subsequent changes in fair value of the
underlying debt security. At December 31, 2002, the aggregate purchase price of
third-party debt securities underlying total return debt swap arrangements was
$85 million. As of such date, we had posted cash collateral equal to
$42 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
$43 million.

In addition, during 2002, we entered into a total return debt swap agreement
to purchase up to $250 million aggregate face value of our outstanding senior
notes and debentures. Through December 31, 2002, we had directed the
counterparty to purchase debt with a face value of $201 million for
$200 million, including accrued interest, under this agreement.

We measure the effectiveness of our derivative financial instruments through
comparison of the blended rates achieved by those derivative financial
instruments to the historical trends in the underlying market risk hedged. With
regard to interest rate swaps, we monitor the fair value of interest rate swaps
as well as the effective interest rate the interest rate swap yields, in
comparison to historical interest rate trends. We believe that any losses
incurred with regard to interest rate swaps would be offset by the effects of
interest rate movements on the underlying hedged facilities. With regard to
equity collars, we monitor historical market trends relative to values currently
present in the market. We believe that any unrealized losses incurred with
regard to equity collars and swaps would be offset by the effects of fair value
changes on the underlying assets. These measures allow our management to measure
the success of its use of derivative instruments and to determine when to enter
into or exit from derivative instruments.

Each of our derivative instruments is executed with a counterparty,
generally well known major financial institutions. While we believe these
derivative instruments effectively manage the risks highlighted above, they are
subject to 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 different counterparties,
and

- Execute derivative instrument agreements which contain a provision that
requires the counterparty to post the "in the money" portion of the
derivative instrument into a cash collateral account for our benefit, if
the respective counterparty's credit rating were to reach

II-27

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.

Our counterparty credit risk by financial institution is summarized below:

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The consolidated financial statements of Liberty Media Corporation are filed
under this Item, beginning on Page II-29. The financial statement schedules
required by Regulation S-X are filed under Item 15 of this Annual Report on
Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

II-28

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, 2002 and 2001, and the
related consolidated statements of operations, comprehensive loss, stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Liberty
Media Corporation and subsidiaries as of December 31, 2002 and 2001, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

As discussed in notes 3 and 7 to the consolidated financial statements, the
Company changed its method of accounting for intangible assets in 2002 and for
derivative financial instruments in 2001.

II-29

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2002 AND 2001

(continued)

II-30

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2002 AND 2001

See accompanying notes to consolidated financial statements.

II-31

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

See accompanying notes to consolidated financial statements.

II-32

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

See accompanying notes to consolidated financial statements.

II-33

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

See accompanying notes to consolidated financial statements.

II-34

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000

See accompanying notes to consolidated financial statements.

II-35

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

(1) BASIS OF PRESENTATION

The accompanying consolidated financial statements include the accounts of
Liberty Media Corporation ("Liberty" or the "Company," unless the context
otherwise requires) and those of all majority-owned and controlled subsidiaries.
All significant intercompany accounts and transactions have been eliminated in
consolidation.

Liberty owns interests in a broad range of video programming, media,
broadband distribution, interactive technology services and communications
businesses. Liberty and its affiliated companies operate in the United States,
Europe, South America and Asia.

(2) AT&T OWNERSHIP OF LIBERTY

On March 9, 1999, AT&T Corp. ("AT&T") acquired Tele-Communications, Inc.
("TCI"), the former parent company of Liberty, in a merger transaction (the
"AT&T Merger").

From March 9, 1999 through August 9, 2001, AT&T owned 100% of the
outstanding common stock of Liberty. During such time, the AT&T Class A Liberty
Media Group common stock and the AT&T Class B Liberty Media Group common stock
(together, the AT&T Liberty Media Group tracking stock) were tracking stocks of
AT&T designed to reflect the economic performance of the businesses and assets
of AT&T attributed to the Liberty Media Group. Liberty was included in the
Liberty Media Group, and the businesses and assets of Liberty and its
subsidiaries constituted all of the businesses and assets of the Liberty Media
Group.

Effective August 10, 2001, AT&T effected the split-off of Liberty pursuant
to which Liberty's common stock was recapitalized, and each outstanding share of
AT&T Class A Liberty Media Group tracking stock was redeemed for one share of
Liberty Series A common stock and each outstanding share of AT&T Class B Liberty
Media Group tracking stock was redeemed for one share of Liberty Series B common
stock (the "Split Off Transaction"). Subsequent to the Split Off Transaction,
Liberty is no longer a subsidiary of AT&T and no shares of AT&T Liberty Media
Group tracking stock remain outstanding. The Split Off Transaction has been
accounted for at historical cost.

In connection with the Split Off Transaction, Liberty 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 required to pay
Liberty an amount equal to 35% of the amount of the net operating loss
carryforward reflected in TCI's final federal income tax return that had not
been used as an offset 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 Off Transaction
and has been reflected as an increase to additional paid-in-capital in the
accompanying consolidated statement of stockholders' equity. In addition,
certain deferred intercompany gains were includible in AT&T's taxable income as
a result of the Split Off Transaction, and AT&T was entitled to reimbursement
from Liberty for the resulting tax liability of approximately $115 million. Such
tax liability has been reflected as a reduction in additional paid-in-capital in
the accompanying consolidated statement of stockholders' equity.

II-36

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash equivalents consist of investments which are readily convertible into
cash and have maturities of three months or less at the time of acquisition.

RECEIVABLES

Receivables are reflected net of an allowance for doubtful accounts. Such
allowance aggregated $28 million and $20 million at December 31, 2002 and 2001,
respectively.

PROGRAM RIGHTS

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

INVESTMENTS

All marketable equity and debt securities held by the Company are classified
as available-for-sale and are carried at fair value ("AFS Securities").
Unrealized holding gains and losses on securities that are classified as
available-for-sale and are hedged with a derivative financial instrument that
qualifies as a fair value hedge under Statement of Financial Accounting
Standards No. 133 "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"
("Statement 133") are recognized in the Company's consolidated statement of
operations. Unrealized holding gains and losses of AFS Securities that are not
hedged pursuant to Statement 133 are carried net of taxes as a component of
accumulated other comprehensive earnings in 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 the lower of cost or net realizable value.

For those investments in affiliates in which the Company has the ability to
exercise significant influence, the equity method of accounting is used. Under
this method, the investment, originally recorded at cost, is adjusted to
recognize the Company's share of net earnings or losses of the affiliates as
they occur rather then as dividends or other distributions are received, limited
to the extent of the Company's investment in, advances to and commitments for
the investee. If the Company's investment in the common stock of an affiliate is
reduced to zero as a result of recording its share of the affiliate's net
losses, and the Company holds investments in other more senior securities of the
affiliate, the Company would continue to record losses from the affiliate 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 affiliate 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 affiliates included the amortization of the
difference 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

II-37

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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

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 flow risk associated with many of its investments, some of its variable
rate debt and transactions denominated in foreign currencies. Each of these
derivative instruments is executed with a counterparty, generally well known
major financial institutions. While Liberty believes these derivative
instruments effectively manage the risks highlighted above, they are subject to
counterparty credit risk. Counterparty credit risk is the risk that the
counterparty is unable to perform under the terms of the derivative instrument
upon settlement of the derivative instrument. To protect itself against credit
risk associated with these counterparties the Company generally:

- Executes its derivative instruments with several different counterparties,
and

- Executes derivative instrument agreements which contain a provision that
requires the counterparty to post the "in the money" portion of the
derivative instrument into a cash collateral account for the Company's
benefit, if the respective counterparty's credit rating were to reach
certain levels, generally a rating that is below Standard & Poor's rating
of A- 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 these
counterparties. Based on its analysis to date, the Company currently considers
nonperformance by any of its counterparties to be unlikely.

Effective January 1, 2001, Liberty adopted Statement 133, which establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

other contracts, and for hedging activities. 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 flow
hedge, the effective portions of changes in the fair value of the derivative are
recorded in other comprehensive earnings. Ineffective portions of changes in the
fair value of cash flow hedges are recognized in earnings. If the derivative is
not designated as a hedge, changes in the fair value of the derivative are
recognized in earnings. Derivative gains and losses included in other
comprehensive earnings are reclassified into earnings at the time the sale of
the hedged item or transaction is recognized.

During 2001 and 2002, the only derivative instruments designated as hedges
were the Company's equity collars, which were designated as fair value hedges.
Effective December 31, 2002, the Company elected to dedesignate its equity
collars as fair value hedges. Such election had no effect on the Company's
financial 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 will be
reported as a component of other comprehensive income on the Company's balance
sheet. Changes in the fair value of the equity collars will continue to be
reported in earnings.

The fair value of derivative instruments is estimated using the
Black-Scholes model. The Black-Scholes model incorporates a number of variables
in determining such fair values, including expected volatility of the underlying
security and an appropriate discount rate. The Company 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 generally evaluated annually to determine if it should be adjusted. A
discount rate is selected 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 differ
materially from these estimates.

Prior to the adoption of Statement 133, changes in the fair value of the
Company's equity collars were reported as a component of comprehensive earnings
(in unrealized gains) along with changes in the fair value of the underlying
securities. Changes in the fair value of put spread collars were recorded as
unrealized gains (losses) on financial instruments in the consolidated
statements of operations.

The adoption of Statement 133 on January 1, 2001, resulted in a cumulative
increase in net earnings of $545 million, or $0.21 per common share, (after tax
expense of $356 million) and an increase in other comprehensive loss of
$87 million. The increase in net earnings was mostly attributable to separately
recording the fair value of the embedded call option obligations associated with
the Company's senior exchangeable debentures. The increase in other
comprehensive loss relates primarily to changes in the fair value of the
Company's warrants and options to purchase certain AFS Securities.

The Company assesses the effectiveness of equity collars by comparing
changes in the intrinsic value of the equity collar to changes in the fair value
of the underlying security. For derivatives designated as fair value hedges,
changes in the time value of the derivatives, which are excluded from the
assessment of hedge effectiveness, are recognized currently in earnings as a
component of realized and unrealized gains (losses) on derivative instruments.
Hedge ineffectiveness, determined in accordance with Statement 133, had no
impact on earnings for the years ended December 31, 2002 and 2001.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

PROPERTY AND EQUIPMENT

Property and equipment, including significant improvements, is stated at
cost. Depreciation is computed using the straight-line method using estimated
useful lives of 3 to 20 years for support equipment and 10 to 40 years for
buildings and improvements.

INTANGIBLE ASSETS

Effective January 1, 2002, the Company adopted Statement 142, which along
with Statement of Financial Accounting Standards No. 141, BUSINESS COMBINATIONS
("Statement 141"), was issued in June 2001. Statement 141 requires that the
purchase method of accounting be used for all business combinations, and
specifies criteria that intangible assets acquired in a purchase business
combination must meet to be recognized and reported apart from goodwill.
Statement 142 requires that goodwill and other intangible assets with indefinite
useful lives (collectively, "indefinite 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").

Upon adoption, Statement 141 required the Company to evaluate its existing
intangible assets and goodwill that were acquired in prior purchase business
combinations, and make any necessary reclassifications in order to conform with
the new criteria in Statement 141 for recognition apart from goodwill.
Reclassification of previously acquired intangible assets, including intangible
assets in equity method excess costs, is only made if (a) the asset meets the
recognition criteria of Statement 141, (b) the asset had been assigned an amount
equal to its estimated fair value at the date the business combination was
initially recorded, and (c) the asset was accounted for separately from goodwill
as evidenced by the maintenance of accounting records for the asset. The Company
did not maintain separate accounting records for previously acquired intangible
assets in equity method excess costs. Accordingly, such amounts are deemed to be
equity method goodwill under Statement 142.

Statement 142 required the Company to reassess the useful lives and residual
values of all intangible assets acquired, and make any necessary amortization
period adjustments by the end of the first quarter of 2002. In addition, to the
extent an intangible asset (other than goodwill) was identified as having an
indefinite useful life, the Company was required to test the intangible asset
for impairment in accordance with the provisions of Statement 142. Any
impairment loss was measured as of the date of adoption and has been recognized
as the cumulative effect of a change in accounting principle.

In connection with Statement 142's transitional goodwill impairment
evaluation, 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 identified 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 affiliates 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

II-40

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 as
an adjustment to 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 in accordance with Statement 141,
to its carrying amount, both of which were measured as of the date of adoption.

As of the date of adoption, the Company had unamortized goodwill in the
amount of $9,058 million, unamortized franchise costs of $163 million and
unamortized other identifiable intangible assets in the amount of $755 million,
all of which were subject to the transition provisions of Statements 141 and
142. In connection with its adoption of Statement 142, the Company recognized a
$1,869 million transitional impairment loss, net of taxes of $127 million, as
the cumulative effect of a change in accounting principle. The foregoing
transitional impairment loss includes an adjustment of $325 million for the
Company's proportionate share of transition adjustments that its equity method
affiliates have recorded.

As noted above, indefinite lived intangible assets are no longer amortized.
Adjusted net earnings (loss) and earnings (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):

II-41

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Amortization of intangible assets with finite useful lives was $191 million
for the year ended December 31, 2002. Based on its current amortizable
intangible assets, Liberty expects that amortization expense will be as follows
for the next five years and thereafter (amounts in millions):

Changes in the carrying amount of goodwill for each of the Company's
operating segments for the year ended December 31, 2002 are as follows:

- ------------------------

(1) During the year ended December 31, 2002, Liberty completed several small
acquisitions for aggregate consideration of $328 million, comprised of stock
valued at $195 million and cash of $133 million. In connection with these
acquisitions, Liberty recorded additional goodwill of $191 million, which
represents the excess of the purchase price over the estimated fair value of
tangible and identifiable intangible assets acquired.

One of these acquisitions was Liberty's purchase of 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 flow projections for
2002 and extending the time before it would be cash flow positive. As a
result, OpenTV wrote off 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.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

In addition to the foregoing goodwill impairment related to OpenTV, the
Company evaluated the recoverability of the goodwill related to its other
reporting units (as defined in Statement 142) during 2002. This evaluation
resulted in additional impairments related to the Company's Ascent Media
($84 million) and Other operating segments ($88 million).

(2) 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, 2002 (amounts in millions).

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

As a result of the weakness in the economy in 2001 certain subsidiaries of
the Company did not meet their 2001 operating objectives and 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 certain of its operations and close
certain facilities. In connection with these initiatives, the subsidiary
recorded a restructuring charge related to lease cancellation fees and an
additional impairment charge related to its property and equipment. All of the
foregoing charges are included in impairment of long-lived assets in the
Company's statement of operations.

MINORITY INTERESTS

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

Preferred stock (and accumulated dividends thereon) of subsidiaries are
included in minority interests in equity of subsidiaries. Dividend requirements
on such preferred stocks are reflected as

II-43

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

minority interests in earnings of subsidiaries in the accompanying consolidated
statements of operations and comprehensive loss.

FOREIGN CURRENCY TRANSLATION

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

Unless otherwise indicated, convenience translations of foreign currencies
into U.S. dollars are calculated using the applicable spot rate at December 31,
2002, as published in The Wall Street Journal.

REVENUE RECOGNITION

Revenue is recognized as follows:

- Programming revenue is recognized in the period during which programming
is provided, pursuant to affiliation agreements.

- Advertising revenue is recognized, net of agency commissions, in the
period during which underlying advertisements are broadcast.

- Revenue from post-production services is recognized in the period the
services are rendered.

- 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
specific objective evidence, the Company recognizes revenue for each
specific element when the earnings process is complete. If vendor specific
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.

ADVERTISING COSTS

Advertising costs generally are expensed as incurred. Advertising expense
aggregated $43 million, $43 million and $35 million for the years ended
December 31, 2002, 2001 and 2000, respectively.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Co-operative marketing costs are recognized as advertising expense to the extent
an identifiable benefit is received and fair value of the benefit can be
reasonably measured. Otherwise, such costs are recorded as a reduction of
revenue.

STOCK BASED COMPENSATION

As more fully described in note 14, the Company has granted to its employees
options and options with tandem stock appreciation rights ("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 fixed 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, and compensation is recognized based upon the percentage
of the options that are vested and the difference 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 effect 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 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.

Agreements that may require Liberty to reacquire interests in subsidiaries
held by officers and employees in the future are marked-to-market at the end of
each reporting period with corresponding adjustments being recorded to stock
compensation expense.

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 Split Off Transaction is based upon the
number of shares of Series A and Series B Liberty common stock issued upon
consummation of the Split Off Transaction. Diluted earnings (loss) per common
share presents the dilutive effect on a per share basis of potential common
shares as if they had been converted at the beginning of the periods presented.
Excluded from diluted earnings per share for the years ended December 31, 2002
and 2001, are 78 million and 76 million potential common shares because their
inclusion would be anti-dilutive.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

RECLASSIFICATIONS

Certain prior period amounts have been reclassified for comparability with
the 2002 presentation.

ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenue and expenses during the reporting period. Actual results
could differ from those estimates. Liberty considers the fair value of its
derivative instruments and its assessment of nontemporary declines in value of
its investments to be its most significant estimates.

Liberty holds a significant 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 affiliates. Accordingly, Liberty relies
on management of these affiliates and their independent accountants to provide
it with accurate financial information prepared in accordance with generally
accepted accounting principles 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 financial information provided by its equity affiliates
that would have a material effect on Liberty's consolidated financial
statements.

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (the "FASB")
issued FASB Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES,
AN INTERPRETATION OF ARB NO. 51 ("FIN 46"). FIN 46 addresses consolidation of
variable interest entities which have characteristics described in the
pronouncement. In general, if an entity is considered a variable interest entity
("VIE"), the party that has the most exposure to economic risks and potential
rewards from the VIE is required to consolidate the VIE. The consolidation
requirements of FIN 46 apply to all VIE's created after January 31, 2003. In
addition, by July 1, 2003, the consolidation requirements must be applied to all
VIE's in existence prior to February 1, 2003. Based upon the Company's
preliminary analysis of the provisions of FIN 46, it currently does not believe
that the adoption of FIN 46 will have a significant impact on its financial
position or results of operations. However, it is the Company's understanding
that the FASB continues to provide interpretive guidance with respect to FIN 46,
which could change the implementation requirements. These changes could result
in the Company identifying a significant variable interest, which could change
its preliminary evaluation and could result in a significant impact to its
financial position or results of operations.

II-46

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

(4) SUPPLEMENTAL DISCLOSURES TO CONSOLIDATED STATEMENTS OF CASH FLOWS

(5) INVESTMENTS IN AFFILIATES ACCOUNTED FOR USING THE EQUITY METHOD

Liberty has various investments accounted for using the equity method. The
following table includes Liberty's carrying amount and percentage ownership of
the more significant investments in affiliates at December 31, 2002 and the
carrying amount at December 31, 2001:

II-47

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

The following table reflects Liberty's share of earnings (losses) of
affiliates including excess basis amortization and nontemporary declines in
value:

At December 31, 2002, the aggregate carrying amount of Liberty's investments
in its affiliates exceeded Liberty's proportionate share of its affiliates' net
assets by $8,710 million. Prior to the adoption of Statement 142, such excess
was being amortized over estimated useful lives of up to 20 years based upon the
useful lives of the intangible assets represented by such excess costs. Such
amortization was $798 million and $1,058 million, for the years ended
December 31, 2001 and 2000, respectively, and is included in share of losses of
affiliates. Upon adoption of Statement 142, the Company discontinued amortizing
its equity method excess costs in existence at the adoption date due to their
characterization as equity method goodwill. Any calculated excess costs on
investments made after January 1, 2002 are allocated on an estimated fair value
basis to the underlying assets and liabilities of the investee. Amounts
allocated to assets other than indefinite lived intangible assets are amortized
over their estimated useful lives.

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 New United 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. After giving effect to the UGC Transaction, subsequent open
market purchases of UGC Class A common stock and other transactions, Liberty
owns approximately 307 million shares of UGC common stock, or an approximate 74%
economic interest and a 94% voting interest in UGC. The closing price of UGC's
Class A common stock was $2.40 on December 31, 2002. Pursuant to certain voting
and standstill arrangements entered into at the

II-48

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

time of closing, Liberty is currently unable to exercise control of UGC, and
accordingly, Liberty continues to use the equity method of accounting for its
investment.

Liberty has accounted for the UGC Transaction as the acquisition of an
additional noncontrolling interest in UGC in exchange for monetary financial
instruments. Accordingly, Liberty calculated a $440 million gain on the
transaction based on the difference between the estimated fair value of the
financial 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 currently has no commitment to make additional capital
contributions to UGC, Liberty's share of losses in 2002, along with its share of
UGC's Statement 142 transition loss, represents the amount of losses that
reduced the carrying value of its investment in UGC to zero. When its carrying
value was reduced to zero, Liberty suspended recording its share of UGC's
losses. At December 31, 2002, such suspended losses aggregated approximately
$582 million. In the event that Liberty increases its investment in UGC in the
future, Liberty will be required to recognize these suspended losses to the
extent of its additional investment, if such investment is deemed to represent
funding of these suspended losses.

Also on January 30, 2002, UGC acquired from Liberty its debt and equity
interests in IDT United, Inc. and $751 million principal amount at maturity of
UGC Holdings' $1,375 million 10 3/4% senior secured discount notes due 2008 (the
"2008 Notes"), which had been distributed to Liberty in redemption of a portion
of its interest in IDT United. IDT United was formed as an indirect subsidiary
of IDT Corporation for purposes of effecting a tender offer for all outstanding
2008 Notes at a purchase price of $400 per $1,000 principal amount at maturity,
which tender offer expired on February 1, 2002. The aggregate purchase price for
the Company's interest in IDT United of approximately $448 million was equal to
the aggregate amount Liberty had invested in IDT United, plus interest.
Approximately $305 million of the purchase price was paid by the assumption by
UGC of debt owed by Liberty to a subsidiary of UGC Holdings, and the remainder
was credited against the $200 million cash contribution by Liberty to UGC
described above. In connection with the UGC Transaction, a subsidiary of Liberty
agreed to loan to a subsidiary of UGC up to $105 million. As of December 31,
2002, such subsidiary of UGC has borrowed $103 million from the Liberty
subsidiary. Such loan accrues interest at 8% per annum.

In June 2002, Liberty loaned an aggregate of $5.1 million to the chairman
and Chief Executive Officer of UGC. The loans, which accrued interest at LIBOR
plus 2%, were repaid in December 2002.

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. At December 31, 2002, Liberty indirectly owned approximately 25% of the
issued and outstanding Telewest ordinary shares. The closing price of Telewest's
ordinary shares on December 31, 2002 was $.03 per share.

During the year ended December 31, 2002, Liberty purchased $370 million and
L67 million face amount of Telewest public debt for aggregate cash consideration
of $210 million, including accrued interest. Such investments are accounted for
as available-for-sale securities.

On September 30, 2002, Telewest disclosed that it had reached a non-binding
preliminary agreement relating to a restructuring of a significant portion of
its bonds. The agreement provides for

II-49

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

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 97% of the issued
share capital of Telewest immediately after the restructuring. Existing
shareholders will retain a 3% interest in Telewest under the proposed
restructuring. Telewest has elected to defer payment of interest under certain
of its notes, including a payment that was due on November 1, 2002. As a result,
Telewest is in default under certain of its financing arrangements. Telewest
anticipates that such defaults will be dealt with in connection with the
restructuring of its debt.

Principally as a result of Telewest's proposed debt restructuring, which
Liberty expects will reduce its ownership in Telewest to below 10%, Liberty
determined that beginning in 2003 it will no longer have the ability to exercise
significant influence over the operations of Telewest. In addition, Liberty has
removed its representatives from the Telewest board of directors. Accordingly,
Liberty will no longer account for its investment in Telewest using the equity
method.

At December 31, 2002, 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. Upon
consummation of Telewest's proposed debt restructuring and the resulting
dilution of Liberty's ownership interest in Telewest, Liberty expects that it
will recognize such unrealized foreign currency losses in its statement of
operations.

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 affiliates.

In April 2000, Telewest acquired Flextech p.l.c. ("Flextech") which develops
and sells a variety of television programming in the UK. Prior to the
acquisition, Liberty owned an approximate 37% equity interest in Flextech and a
22% equity interest in Telewest. Liberty recognized a $649 million gain
(excluding related tax expense of $227 million) on the acquisition based on the
difference between the carrying value of Liberty's interest in Flextech and the
fair value of the Telewest shares received.

USAI

Prior to May 7, 2002, USAI owned and operated businesses in television
production, electronic retailing, ticketing operations, and internet services.
Liberty held 74.4 million shares of USAI's common stock and shares and other
equity interests in certain subsidiaries of USAI that were exchangeable for an
aggregate of 79.0 million shares of USAI common stock.

On May 7, 2002, Liberty, USAI and Vivendi Universal, S.A. ("Vivendi")
consummated a series of transactions. Upon consummation of these transactions,
USAI contributed substantially all of its entertainment assets to Vivendi
Universal Entertainment ("VUE"), a partnership controlled by Vivendi, in
exchange for cash, common and preferred interests in VUE and the cancellation of
approximately 320.9 million shares of USANi LLC, which were exchangeable on a
one-for-one basis for shares of USAI common stock. In connection with these
transactions, Liberty entered into a separate agreement with Vivendi, pursuant
to which Vivendi acquired from Liberty 25 million shares of common stock of
USAI, approximately 38.7 million shares of USANi LLC and all of 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. In connection with this transaction, Liberty agreed to
restrictions on its ability to transfer 9.5 million of such shares prior to
November 2003. Liberty recognized a loss of $817 million in the second quarter
of 2002 based on the difference between the fair value of the Vivendi shares

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

received and the carrying value of the assets relinquished including goodwill of
$514 million which is allocable to the reporting unit holding the USAI
interests. Liberty owns approximately 3% of Vivendi and accounts for such
investment as an available-for-sale security.

Subsequent to the Vivendi transaction with USAI, Liberty owns approximately
20% of USAI. Due to certain governance arrangements which limit its ability to
exert significant influence over USAI, Liberty accounts for such investment as
an available-for-sale security. Prior to the Vivendi transaction, Liberty
accounted for its investment in USAI using the equity method. Liberty's share of
earnings for USAI in 2002 are for the period through May 7, 2002.

CABLEVISION

Cablevision provides cable television and high speed data services in
Argentina. At December 31, 2002, the Company has a 39% ownership in Cablevision.
The Argentine government has historically maintained an exchange rate of one
Argentine peso to one U.S. dollar (the "peg rate"). Due to deteriorating
economic and political conditions in Argentina in late 2001, the Argentine
government eliminated the peg rate effective January 11, 2002. The value of the
Argentine peso dropped significantly on the day the peg rate was eliminated and
has dropped further since that date. In addition, the Argentine government
placed restrictions on the payment of obligations to foreign creditors. As a
result of the devaluation of the Argentine peso, Cablevision 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 Cablevision had
experienced a nontemporary decline in value, and accordingly, recorded an
impairment charge of $195 million. Such charge is included in share of losses of
affiliates. The Company's share of losses in 2001, when combined with foreign
currency translation losses recorded in other comprehensive loss at
December 31, 2001, reduced the carrying value of its investment in Cablevision
to zero as of December 31, 2001. Included in accumulated other comprehensive
earnings at December 31, 2001 is $257 million (before related deferred taxes) of
unrealized foreign currency translation losses related to the Company's
investment in Cablevision. During 2002, the Company sold a portion of its
investment in Cablevision and recognized $56 million of such unrealized foreign
currency translation losses. Such loss is included in loss on dispostions in the
accompanying consolidated statement of operations.

ASTROLINK

Astrolink, a developmental stage entity, originally intended to build a
global telecom network using Ka-band geostationary satellites to provide
broadband data communications services. Astrolink's original business plan
required significant additional financing over the next several years. During
the fourth quarter of 2001, two of the members of Astrolink informed Astrolink
that they did not intend to provide any of Astrolink's required financing. Based
on an assessment of Astrolink's remaining sources of liquidity and Astrolink's
inability to obtain financing for its business plan, the Company concluded that
the carrying value of its investment in Astrolink should be reduced to reflect a
fair value that assumes the liquidation of Astrolink. Accordingly, the Company
wrote-off all of its remaining investment in Astrolink during the fourth quarter
of 2001. 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 has no obligation to make
additional contributions to Astrolink, its share of losses in 2002 has been
limited to amounts advanced to Astrolink by Liberty.

II-51

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

TELIGENT

In January 2000, the Company acquired a 40% equity interest in Teligent, a
full-service facilities based communications company. During the year ended
December 31, 2000, the Company determined that its investment in Teligent
experienced a nontemporary decline in value. As a result, the carrying amount of
this investment was adjusted to its estimated fair value resulting in a charge
of $839 million. This impairment charge is included in share of losses of
affiliates. In April 2001, the Company exchanged its investment in Teligent for
shares of IDT Investments, Inc., a subsidiary of IDT Corporation. As the fair
value of the consideration received in the exchange approximated the carrying
value of the Company's investment in Teligent, no gain or loss was recognized on
the transaction. The Company accounts for its investment in IDT
Investments, Inc. using the cost method.

GEMSTAR

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

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

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 difference between
the cash proceeds and Liberty's basis in Telemundo, including allocated goodwill
of $25 million.

During the year ended December 31, 2002, Liberty recorded nontemporary
declines in fair value aggregating $148 million related to certain of its other
equity method investments. Such amount is included in share of losses of
affiliates.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

Summarized unaudited combined financial information for affiliates is as
follows:

II-53

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

(6) INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES AND OTHER COST INVESTMENTS

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

AOL TIME WARNER

On January 11, 2001, America Online, Inc. completed its merger with Time
Warner Inc. ("Time Warner") to form AOL Time Warner. In connection with the
merger, each share of Time Warner common stock held by Liberty was converted
into 1.5 shares of an identical series of AOL Time Warner stock. Liberty
recognized a $253 million gain (before deferred tax expense of $100 million)
based upon the difference between the carrying value of Liberty's interest in
Time Warner and the fair value of the AOL Time Warner securities received.

NEWS CORP.

In May 2001, Liberty consummated a transaction with News Corp. whereby
Liberty exchanged 70.7 million shares of 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 the Exchange Transaction based on the
difference between the fair value of the securities received by Liberty and the
carrying value of the Gemstar shares. In December 2001, Liberty exchanged its
remaining Gemstar shares for 28.8 million additional News Corp. ADSs and
recorded an additional loss of $201 million. In connection with these
transactions, the Company agreed to restrictions on its ability to transfer
certain of the ADSs prior to May 2003. In 1999, Liberty had acquired additional
News Corp. ADSs in exchange for cash and Liberty's 50% interest in Fox/Liberty
Networks. At December 31, 2002, Liberty owned approximately 18% of the
outstanding equity of News Corp. Liberty accounts for its investment in News
Corp. as an available-for-sale security.

VIVENDI AND USA INTERACTIVE

As more fully described in note 5, Liberty received 37.4 million Vivendi
ordinary shares (9.5 million of which are subject to transfer restrictions until
November 2003) in exchange for a portion

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATD FINANCIAL STATEMENTS (CONTINUED)

of its investment in USAI and its investment in multiThematiques, S.A., and
Liberty retained an approximate 20% ownership interest in USAI.

SPRINT PCS

Liberty and certain of its consolidated subsidiaries collectively are the
beneficial owners of shares of Sprint PCS Group Stock and certain other
instruments convertible into such securities (the "Sprint Securities"). The
Sprint PCS Group Stock is a tracking stock intended to reflect the performance
of Sprint's domestic wireless PCS operations. Liberty accounts for its
investment in the Sprint Securities as an available-for-sale security. As of
December 31, 2002, Liberty beneficially owned approximately 19% of Sprint PCS
Group common stock--Series 2.

Pursuant to a final judgment (the "Final Judgment") agreed to by Liberty,
AT&T and the United States Department of Justice (the "DOJ") on December 31,
1998, Liberty transferred all of its beneficially owned Sprint Securities to a
trustee (the "Trustee") prior to the AT&T Merger. The Final Judgment, which was
entered by the United States District Court of the District of Columbia on
August 23, 1999, required the Trustee, on or before May 23, 2002, to dispose of
a portion of the Sprint Securities and to dispose of the balance of the Sprint
Securities by May 23, 2004.

At Liberty's request following the Split Off Transaction, the DOJ joined
Liberty and AT&T in a joint motion to terminate the Final Judgment which was
filed in the District Court in February 2002. The District Court approved the
motion to terminate the Final Judgment, with the result that the Trustee has no
further obligations under the Final Judgment. The Trustee is in the process of
returning direct ownership of the Sprint Securities to Liberty.

MOTOROLA

On January 5, 2000, Motorola acquired General Instrument Corporation
("General Instrument"). In connection with such acquisition, Liberty received
54 million shares of Motorola common stock and warrants to purchase an
additional 37 million shares in exchange for its holdings in General Instrument.
Liberty recognized a $2,233 million gain (before deferred tax expense of
$883 million) on such transaction during the first quarter of 2000 based on the
difference between the carrying value of Liberty's interest in General
Instrument and the fair value of the Motorola securities received.

During the year ended December 31, 2002, Liberty settled equity collars on
approximately 13 million shares of Motorola by delivering the shares to the
counterparty and receiving cash proceeds of $252 million. Liberty recognized a
loss of $12 million upon settlement. At December 31, 2002, Liberty owns
approximately 4% of Motorola's outstanding common stock.

VIACOM

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

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

UPC

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

During 2001, the Company acquired certain outstanding senior notes and
senior discount notes of UPC. Liberty acquired approximately $1,435 million face
amount of U.S. dollar denominated notes and euro 263 million face amount of euro
denominated notes for an aggregate purchase price of $358 million. Such notes
were contributed to UGC in connection with the UGC Transaction on January 30,
2002.

NONTEMPORARY DECLINES IN FAIR VALUE OF INVESTMENTS

During the years ended December 31, 2002, 2001 and 2000, Liberty determined
that certain of its AFS Securities and cost investments experienced nontemporary
declines in value. As a result, the cost bases of such investments were adjusted
to their respective fair values based primarily on quoted market prices at the
balance sheet date. These adjustments are reflected as nontemporary declines in

II-56

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

fair value of investments in the consolidated statements of operations. The
following table identifies the realized losses attributable to each of the
individual investments as follows:

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. Such amounts are in addition to the
unrealized gains and losses recognized in the Company's consolidated statements
of operations.

Management estimates that the fair market value of all of its investments in
available-for-sale securities and other cost investments approximated their
aggregate carrying value at December 31, 2002 and December 31, 2001. Management
calculates market values of its other cost investments using a variety of
approaches including multiple of cash flow, per subscriber value, or a value of
comparable public or private businesses. No independent appraisals were
conducted for those cost investment assets.

II-57

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(7) DERIVATIVE INSTRUMENTS

The Company's derivative instruments are summarized as follows:

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

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

During the year ended December 31, 2002, the Company sold put options on
36.1 million shares of AOL Time Warner stock for cash proceeds of $484 million.

EXCHANGEABLE DEBENTURE CALL OPTION OBLIGATIONS

Liberty has issued senior exchangeable debentures which are exchangeable for
the value of a specified number of shares of Sprint PCS Group common stock,
Motorola common stock or Viacom Class B 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 reflect the call option obligations at fair value ($459 million)
and to recognize in net earnings the difference between the fair value of the
call option obligations at issuance and the fair value of the call option
obligations at January 1, 2001. Such adjustment to net earnings aggregated
$757 million (before tax expense of $299 million) and is included in cumulative
effect of accounting change. Changes in the fair value of the call option
obligations subsequent to January 1, 2001 are recognized as unrealized gains
(losses) on derivative instruments in Liberty's consolidated statements of
operations.

FORWARD FOREIGN EXCHANGE CONTRACTS

Historically, the Company has not hedged the majority of its foreign
currency exchange risk because of the long term nature of its interests in
foreign affiliates. During 2001, the Company entered into a definitive agreement
to acquire cable television systems in Germany. That agreement was terminated in
April 2002. A portion of the consideration for such acquisition was to be
denominated in euros. In order to reduce its exposure to changes in the euro
exchange rate, Liberty entered into forward purchase contracts with respect to
euro 3,243 million as of December 31, 2001. Liberty settled all of its euro
contracts in 2002. Realized and unrealized gains related to the euro contracts
aggregated $42 million and $14 million in 2002 and 2001, respectively.

The Company has two equity affiliates in Japan. In order to reduce its
foreign currency exchange risk related to these investments, the Company entered
into forward sale contracts with respect to Y10,802 million ($91 million at
December 31, 2002) during the year ended December 31, 2002. In addition to the
forward sale contracts, the Company entered into collar agreements with respect
to Y18,785 million ($158 million at December 31, 2002). These collar agreements
have a remaining term of approximately two years, an average call price of 110
yen/U.S. dollar and an average put price of 133 yen/U.S. dollar. During the year
ended December 31, 2002, the Company reported unrealized losses of $11 million
related to its yen contracts.

TOTAL RETURN DEBT SWAPS

From time to time the Company enters into total return debt swaps in
connection with its purchase of its own or third-party public and private
indebtedness. Under these arrangements, Liberty

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

directs a counterparty to purchase a specified amount of the underlying debt
security for the benefit of the Company. The Company initially posts collateral
with the counterparty equal to 10% of the value of the purchased securities. The
Company earns interest income based upon the face amount and stated interest
rate of the underlying debt securities, and pays interest expense at market
rates on the amount funded by the counterparty. In the event the fair value of
the underlying debentures declines 10%, the Company is required to post cash
collateral for the decline, and the Company records an unrealized loss on
financial instruments. The cash collateral is further adjusted up or down for
subsequent changes in the fair value of the underlying debt security. Liberty
has the contractual right to net settle the total return debt swaps.
Accordingly, Liberty records these instruments at their net fair market value.

At December 31, 2002, the aggregate purchase price of debt securities
underlying Liberty's total return debt swap arrangements was $286 million. As of
such date, the Company had posted cash collateral equal to $70 million. In the
event the fair value of the purchased debt securities were to fall to zero, the
Company would be required to post additional cash collateral of $216 million.
The posting of such cash collateral and the related settlement of the agreements
with respect to Liberty's senior notes and senior debentures would reduce the
Company's outstanding debt by an equal amount ($201 million).

REALIZED AND UNREALIZED GAINS ON DERIVATIVE INSTRUMENTS

Realized and unrealized gains (losses) on derivative instruments during the
years ended December 31, 2002, 2001 and 2000 are comprised of the following:

- ------------------------

(1) Comprised primarily of put spread collars and forward foreign exchange
contracts.

(8) ACQUISITIONS

ASSOCIATED GROUP, INC. ("ASSOCIATED GROUP")

On January 14, 2000, Liberty completed its acquisition of Associated Group
pursuant to a merger agreement among AT&T, Liberty and Associated Group. Under
the merger agreement, each share of Associated Group's Class A common stock and
Class B common stock was converted into 0.49634 shares of AT&T common stock and
2.41422 shares of AT&T Class A Liberty Media Group common stock. At the time of
the merger, Associated Group's primary assets were (1) 19.7 million shares of
AT&T common stock, (2) 46.8 million shares of AT&T Class A Liberty Media Group
common stock,

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(3) 10.6 million shares of AT&T Class B Liberty Media Group common stock,
(4) 21.4 million shares of common stock of Teligent, and (5) all of the
outstanding shares of common stock of TruePosition, Inc., which provides
location services for wireless carriers and users designed to determine the
location of any wireless transmitter, including cellular and PCS telephones.
Immediately following the completion of the merger, all of the assets and
businesses of Associated Group were transferred to Liberty. All of the shares of
AT&T common stock, AT&T Class A Liberty Media Group common stock and AT&T
Class B Liberty Media Group common stock previously held by Associated Group
were retired by AT&T.

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

LIBERTY SATELLITE & TECHNOLOGY, INC.

On March 16, 2000, Liberty purchased shares of preferred stock in TCI
Satellite Entertainment, Inc. in exchange for Liberty's economic interest in
approximately 5 million shares of Sprint PCS Group stock, which had a fair value
of $300 million. During the third quarter of 2000, TCI Satellite
Entertainment, Inc. changed its name to Liberty Satellite & Technology, Inc.
("LSAT"). Liberty received 150,000 shares of LSAT Series A 12% Cumulative
Preferred Stock and 150,000 shares of LSAT Series B 8% Cumulative Convertible
Voting Preferred Stock. In connection with this transaction, Liberty realized a
$211 million gain (before related tax expense of $84 million) based on the
difference between the cost basis and fair value of the economic interest in the
Sprint PCS Group stock exchanged.

ASCENT ENTERTAINMENT GROUP, INC. ("ASCENT ENTERTAINMENT")

On March 28, 2000, Liberty completed its cash tender offer for the
outstanding common stock of Ascent Entertainment at a price of $15.25 per share.
Approximately 85% of the outstanding shares of common stock of Ascent
Entertainment were tendered in the offer and Liberty paid approximately
$385 million. On June 8, 2000, Liberty acquired the remaining 15% of Ascent
Entertainment for an additional $67 million. The total purchase price for the
acquisition was $452 million. Such transaction was accounted for as a purchase,
and the excess of the purchase price over the fair value of the net assets
acquired is included in goodwill in the accompanying consolidated balance sheet.

ASCENT MEDIA GROUP, INC. (FORMERLY LIBERTY LIVEWIRE CORPORATION) ("ASCENT
MEDIA")

On April 10, 2000, Liberty acquired all of the outstanding common stock of
Four Media Company ("Four Media") for total consideration of $462 million
comprised of $123 million in cash, $194 million of assumed debt, 6.4 million
shares of AT&T Class A Liberty Media Group common stock and a warrant to
purchase approximately 700,000 shares of AT&T Class A Liberty Media Group common
stock at an exercise price of $23 per share. Four Media provides technical and
creative services to owners, producers and distributors of television
programming, feature films and other entertainment products both domestically
and internationally.

On June 9, 2000, Liberty acquired a controlling interest in The Todd-AO
Corporation ("Todd-AO"), in exchange for approximately 5.4 million shares of
AT&T Class A Liberty Media Group

II-61

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

common stock valued at $106 million. Todd-AO provides sound, video and ancillary
post production and distribution services to the motion picture and television
industries in the United States and Europe.

Immediately following the closing of such transaction, Liberty contributed
to Todd-AO 100% of the capital stock of Four Media, in exchange for
approximately 16.6 million shares of the Class B Common Stock of Todd-AO
increasing Liberty's ownership interest in Todd-AO to approximately 84% of the
equity and approximately 98% of the voting power. Following Liberty's
acquisition of Todd-AO, and the contribution by Liberty to Todd-AO of Liberty's
ownership in Four Media, Todd-AO changed its name to Liberty Livewire
Corporation. In November 2002, Liberty Livewire Corporation changed its name to
Ascent Media.

On July 19, 2000, Liberty purchased all of the assets relating to the post
production, content and sound editorial businesses of SounDelux Entertainment
Group for $90 million in cash, and contributed such assets to Ascent Media in
exchange for approximately 8.2 million additional shares of Ascent Media
Class B Common Stock. Following this contribution, Liberty's ownership in Ascent
Media increased to approximately 88% of the equity and approximately 99% of the
voting power of Ascent Media.

Each of the foregoing acquisitions was accounted for as a purchase. In
connection therewith, Liberty recorded an aggregate increase to additional
paid-in-capital of $251 million. The excess purchase price over the fair value
of the net assets acquired is included in goodwill in the accompanying
consolidated balance sheet.

PRO FORMA INFORMATION

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

Revenue..................................................... $1,769
Net earnings................................................ $1,413
Basic and diluted earnings per common share................. $ 0.55

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(9) LONG-TERM DEBT

Debt is summarized as follows:

SENIOR NOTES AND DEBENTURES

Liberty has issued $750 million of 7 7/8% Senior Notes due 2009,
$500 million of 8 1/2% Senior Debentures due 2029, $1 billion of 8 1/4% Senior
Debentures due 2030, and $237.8 million of 7 3/4% Senior Notes due 2009.
Interest on these obligations is payable semi-annually.

The Senior Notes and Senior Debentures are stated net of an aggregate
unamortized discount of $19 million and $20 million at December 31, 2002 and
2001, respectively, which is being amortized to interest expense in the
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 19% at December 31, 2002. On
or after November 15, 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
3 3/4% 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,

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Sprint PCS Group stock or a combination thereof. Prior to such time, the
exchange value must be paid in cash. On or after February 15, 2004, Liberty, at
its option, may redeem the debentures, in whole or in part, for cash.

In January 2001, Liberty issued $600 million of 3 1/2% 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 for cash.

In March 2001, Liberty issued $817.7 million of 3 1/4% 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 for cash.

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.

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

Under Statement 133, the reported amount of the long-term debt portion of
the exchangeable debentures is calculated as the difference between the face
amount of the debentures and the fair value of the call option feature on the
date of issuance. The fair value of the call option obligations related to the
$1,418 million of exchangeable debentures issued during the year ended
December 31, 2001, aggregated $1,028 million on the date of issuance.
Accordingly, the long-term debt portion was recorded at $390 million. The
long-term debt is accreted to its face amount over the term of the debenture
using the effective interest method. Such accretion aggregated $7 million and
$6 million during the years ended December 31, 2002 and 2001, respectively, and
is included in interest expense in the accompanying consolidated statements of
operations.

SUBSIDIARY BANK CREDIT FACILITIES

At December 31, 2002, Liberty's subsidiaries had $1,242 million outstanding
and $408 million in unused lines of credit under their respective bank credit
facilities. Certain assets of Liberty's consolidated subsidiaries serve as
collateral for borrowings under these bank credit facilities. The bank credit
facilities generally contain restrictive covenants which require, among other
things, the maintenance of certain financial ratios, and include limitations on
indebtedness, liens, encumbrances, acquisitions, dispositions, guarantees and
dividends. Additionally, the bank credit facilities require the payment of fees
ranging from .15% to .375% per annum on the average unborrowed portions of the
total commitments.

At December 31, 2002, 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 is in discussions with its banks regarding the
resolution of these defaults. The outstanding balance of the subsidiary's bank
facility was $94 million at December 31, 2002, all of which is included in
current portion of debt.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

All other consolidated borrowers were in compliance with their debt covenants at
December 31, 2002. The subsidiaries' ability to borrow the unused capacity noted
above is dependent on their continuing compliance with their covenants at the
time of, and after giving effect to, a requested borrowing.

FIVE YEAR MATURITIES

The U.S. dollar equivalent of the annual maturities of Liberty's debt for
each of the next five years are as follows (amounts in millions):

2003................................................. $655
2004................................................. $364
2005................................................. $112
2006................................................. $249
2007................................................. $ 57

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 offered to Liberty
for debt of the same remaining maturities. The fair value of Liberty's publicly
traded debt at December 31, 2002 is as follows (amounts in millions):

Senior Notes of parent company.............................. $1,092
Senior Debentures of parent company......................... $1,717
Senior exchangeable debentures of parent company, including
call option liability..................................... $2,058

Liberty believes that the carrying amount of the remainder of its debt,
which is comprised primarily of variable rate debt, approximated its fair value
at December 31, 2002.

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, 2002......................... $4,971
Add:
Unamortized issue discount on Senior Notes and
Debentures.............................................. 19
Unamortized discount attributable to call option feature
of exchangeable debentures.............................. 2,231
------
Face amount at maturity................................. $7,221
======

(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.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 benefit. To the extent such losses were not utilized by
AT&T, such amounts were available to reduce federal taxable income generated by
Liberty in future periods, similar to a net operating loss carryforward, and
were accounted for as a deferred federal income tax benefit. During the period
from March 31, 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 2002 or 2003 or capital losses in 2002 through 2004 and is
able to carry back such losses to offset taxable income previously offset by
Liberty's losses, Liberty may be required to refund some or all of these cash
payments.

In periods when Liberty generated federal taxable income, AT&T agreed to
satisfy such tax liability on Liberty's behalf up to a certain amount.
Thereafter, Liberty was required to make cash payments to AT&T for federal tax
liabilities of Liberty. The reduction of such computed tax liabilities was
accounted for by Liberty as an increase to additional paid-in-capital.

To the extent AT&T utilized existing net operating losses of Liberty, such
amounts were accounted for by Liberty as a reduction of additional
paid-in-capital. The tax effect of Liberty's net operating losses of $2 million
and $38 million were recorded as a reduction of additional paid-in-capital
during the seven months ended July 31, 2001 and the year ended December 31,
2000, respectively.

Liberty generally made cash payments to AT&T related to states where it
generated taxable income and received cash payments from AT&T in states where it
generated taxable losses.

Income tax benefit (expense) consists of:

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Income tax benefit (expense) differs from the amounts computed by applying
the U.S. federal income tax rate of 35% as a result of the following:

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 2002 and 2001 are presented below:

At December 31, 2002, Liberty had net operating and capital loss
carryforwards for income tax purposes aggregating approximately $1,863 million
which, if not utilized to reduce taxable income in future periods, will expire
as follows: 2004: $1 million; 2005: $15 million; 2006: $49 million; 2007:
$267 million; 2008: $12 million; 2009: $64 million; 2010: $4 million; and beyond
2010: $1,451 million. Of the foregoing net operating and capital loss
carryforward amount, approximately $1,084 million was generated by subsidiaries
of Liberty that are not included in the Liberty tax consolidated group.
Accordingly, this amount is not available to offset future taxable income of the
Liberty tax consolidated 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 has notified AT&T and Liberty
that it is proposing income adjustments and assessing certain penalties in
connection with TCI's 1994 tax return. The IRS's position could result in
recognition of approximately $305 million of additional income, resulting in as
much as

II-67

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

$107 million of additional tax liability, plus interest. In addition, the IRS
has proposed certain penalties. AT&T and Liberty do not agree with the IRS's
proposed adjustments and penalties, and AT&T and Liberty intend to vigorously
defend their position. Pursuant to the AT&T Tax Sharing Agreement, Liberty may
be obligated to reimburse AT&T for any tax that AT&T is ultimately assessed as a
result of this audit. Liberty is currently unable to estimate any such tax
liability and resulting reimbursement.

(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, qualifications, limitations or restrictions thereof, as shall be stated
and expressed in a resolution or resolutions providing for the issue of such
preferred stock adopted by Liberty's Board of Directors. As of December 31,
2002, 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, 2002, there were 50 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 SERIES A COMMON STOCK

During the year ended December 31, 2002, the Company purchased 25.7 million
shares of its Series A common stock in the open market for aggregate cash
consideration of $281 million. These purchases have been accounted for as
retirements of common stock and have been reflected as a reduction of
stockholders' equity in the accompanying consolidated balance sheet.

Also during the year ended December 31, 2002, the Company sold put options
on 7.0 million shares of its Series A common stock for cash proceeds of
$3 million. Put options with respect to 3.0 million shares expired prior to
December 31, 2002, and the Company net cash settled the contracts for less than
$1 million. The remaining put options expire in the first and second quarters of
2003 and have a weighted average strike price of $8.10. The Company accounts 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"
("EITF 00-19"). The put option contracts meet the requirements of EITF 00-19 for
initial classification as equity at fair value. Due to the assumption of
physical settlement and the requirement for the delivery of cash as part of
physical settlement, the cash redemption amount has been reclassified from
equity to "obligation to redeem common stock" in the accompanying consolidated
balance sheet.

Due to the short time between the balance sheet date and the expiration date
of the put options, the Company believes the cash redemption amount approximates
the fair value of the put option obligation. To the extent Liberty's share price
declines in value, the obligation under the put contract increases.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(12) TRANSACTIONS WITH OFFICERS 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.

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, 2002 is $1.5 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
($73,307 per month as of December 31, 2002). Such payments would commence on the
first day of the month succeeding the termination of employment. In the event of
the Chairman's death, his beneficiaries would be entitled to receive the
foregoing monthly payments. The aggregate liability under this arrangement at
December 31, 2002 is $17.6 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 agreements 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 $9.6 million at December 31, 2002 and is
included in other liabilities, is payable on a monthly basis, following the
occurrence of specified 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

In October 2000, Liberty restructured its ownership interests in certain
assets into Liberty TP Management, Inc. ("Liberty TP Management"), a new
consolidated subsidiary. Liberty then sold common and preferred interests in
Liberty TP Management to Liberty's Chairman in exchange for approximately
540,000 shares of LSAT Series A common stock, approximately 3.3 million shares
of LSAT Series B common stock and cash consideration of approximately
$88 million. No gain or loss was recognized due to the related party nature of
such transaction. The preferred interest has a liquidation value of
$106 million and accrues dividends at 9% per annum payable quarterly in cash.
Subsequent to these transactions, Liberty's Chairman holds all of the
outstanding common stock of TP Investment, Inc., which in turn owns (1) all of
the Class B preferred stock of Liberty TP Management and (2) a 5% membership
interest, representing a 50% voting interest, in Liberty TP LLC. Liberty TP LLC
holds 20.6% of the common equity and 27.2% of the voting power of Liberty TP
Management. Liberty indirectly holds the remaining interests in Liberty TP LLC
and Liberty TP Management.

During the third quarter of 2002, Liberty transferred an indirect 1%
beneficial ownership interest in 55.5 million shares of Sprint PCS stock and
related collar agreements with an aggregate market

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

value of $8.9 million to Liberty TP Management in exchange for an unsecured
$8.9 million note payable, which accrues interest at 5% and is due on demand.

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

In August 2000, On Command sold shares of its Series A Convertible
Participating Preferred Stock (the "Preferred Shares") to a director of Liberty,
who was also the Chairman and Chief Executive Officer of On Command, for a
$21 million note. The Preferred Shares are convertible into 1.4 million shares
of On Command's common stock. The note is secured by the Preferred Shares or the
proceeds from the sale of such shares and the director's personal obligations
under such loan are limited. The note, which matures on August 1, 2005, may not
be prepaid and interest on the note accrues at a rate of 7% per annum.

Liberty is party to a call agreement with certain shareholders of Series B
Liberty common stock, including the Company's Chairman, which grants Liberty a
right to acquire all of the Series B Liberty common stock held by such
shareholders in certain circumstances. The price of acquiring such shares is
generally limited to the market price of the Series A Liberty common stock, plus
a 10% premium.

(13) TRANSACTIONS WITH AT&T AND OTHER RELATED PARTIES

Pramer S.C.A., a consolidated subsidiary of Liberty, provides uplink
services and programming to several equity affiliates in South America. Total
revenue for such services aggregated $6 million, $17 million and $17 million for
the years ended December 31, 2002, 2001 and 2000, 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 affiliation agreements. Charges to AT&T are based upon
customary rates charged to others. Amounts included in revenue for services
provided to AT&T prior to the Split Off Transaction were $210 million and
$243 million for the seven months ended July 31, 2001 and the year ended
December 31, 2000, respectively.

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

(14) STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

LIBERTY

Effective with the Split Off Transaction, Liberty assumed from AT&T the
Amended and Restated AT&T Corp. Liberty Media Group 2000 Incentive Plan and
renamed it the Liberty Media Corporation

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 Off Transaction were converted into options
upon assumption by Liberty.

The Liberty Incentive Plan provides for awards to be made in respect of a
maximum of 160 million shares of common stock of Liberty. Awards may be made as
grants of stock options, SARs, restricted shares, stock units, cash or any
combination of the foregoing.

Effective February 28, 2001 (the "Effective Date"), the Company restructured
the options and options with tandem SARs to purchase AT&T common stock and AT&T
Liberty Media Group tracking stock (collectively the "Restructured Options")
held by certain executive officers of the Company. Pursuant to such
restructuring, all Restructured Options became exercisable on the Effective
Date, and each executive officer was given the choice to exercise all of his
Restructured Options. Each executive officer who opted to exercise his
Restructured Options received consideration equal to the excess of the closing
price of the subject securities on the Effective Date over the exercise price.
The exercising officers received (i) a combination of cash and AT&T Liberty
Media Group tracking stock for Restructured Options that were vested prior to
the Effective Date and (ii) cash for Restructured Options that were previously
unvested. The executive officers used the cash proceeds from the previously
unvested options to purchase restricted shares of AT&T Liberty Media Group
tracking stock which were converted into shares of Liberty common stock upon
completion of the Split Off Transaction. Such restricted shares are subject to
forfeiture upon termination of employment. The forfeiture obligation will lapse
according to a schedule that corresponds to the vesting schedule applicable to
the previously unvested options.

In addition, each executive officer was granted free-standing SARs equal to
the total number of Restructured Options exercised. The free-standing SARs were
tied to the value of AT&T Liberty Media Group tracking stock and will vest as to
30% in year one and 17.5% in years two through five. The free-standing SARs were
granted with an exercise price of $14.70 ($15.35 in the case of Liberty
Series B options) and had a fair value of $9.56 on the date of the grant. Upon
completion of the Split Off Transaction, the free-standing SARs automatically
converted to options to purchase Liberty Series A common stock (and in some
cases Liberty Series B common stock). Prior to the Effective Date, the
Restructured Options were accounted for using variable plan accounting pursuant
to APB Opinion No. 25. Accordingly, the above-described transaction did not have
a significant impact on Liberty's results of operations.

In addition to the SARs issued in the aforementioned option restructuring,
during 2001 and pursuant to the Liberty Incentive Plan, Liberty awarded
2,104,000 options to purchase Liberty Series A common stock to certain officers
and key employees of the Company. Such options have exercise prices ranging from
$12.40 to $16.35, vest as to 25% in each of years 2 through 5 after the date of
grant, and had a weighted-average grant date fair value of $9.40.

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

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

During the first quarter of 2002, the Company reduced the exercise price of
2.3 million stock options previously granted to three executive officers 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
Officer and Chief Operating Officer were not included in the foregoing
repricing.

In connection with the Company's Rights Offering, 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 Offering. As a result of the
foregoing modifications, all of the Company's outstanding options are now
accounted for as variable plan awards.

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

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table provides additional information about the Company's
outstanding options to purchase Liberty Series A common stock at December 31,
2002.

In November 2000, Liberty granted certain officers, a director of Liberty
(the "Liberty Director"), and a board member of Ascent Media an aggregate
4.0725% common stock interest in Liberty LWR, Inc. ("LWR"), which owned a direct
interest in Ascent Media. The common stock interest granted to these individuals
had a value of approximately $400,000. LWR also awarded the Liberty Director a
deferred bonus in the initial total amount of approximately $3.4 million, which
amount will decrease by an amount equal to any increase over the five-year
period from the date of the award in the value of certain of the common shares
granted to the Liberty Director. Liberty and the individuals entered into a
stockholders' agreement in which the individuals could require Liberty to
repurchase, after five years, all or part of their common stock interest in
exchange for Series A Liberty stock at its then fair market value. In addition,
Liberty has the right to repurchase, in exchange for Series A Liberty common
stock, the common stock interests held by the individuals at fair market value
at any time.

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

In August 2001, in connection with the termination of Ascent Media's
director and chief executive officer, LWR purchased his common stock interest in
LWR. In October 2001, LWR purchased from the Liberty officers and the Liberty
Director their respective common stock interests in LWR. In connection with the
purchase of his common stock interest in LWR, the Liberty Director waived the
right to receive his deferred bonus. Upon the completion of these purchases, LWR
became a wholly owned subsidiary of the Company.

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

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

two of the officers resigned their positions with the Company, and the Company
purchased their respective interests in the subsidiary for the original purchase
price plus 6% interest.

In May 2000, Liberty's President and Chief Executive Officer, certain
officers of a subsidiary and another individual purchased an aggregate 20%
common stock interest in a subsidiary for $800,000. This subsidiary owns a 7%
interest in Jupiter Telecommunications Co., Inc. Liberty and the individuals
entered into a shareholders agreement in which the individuals could require
Liberty to purchase, after five years, all or part of their common stock
interest in exchange for Series A Liberty common stock at its then fair market
value. In addition, Liberty has the right to purchase, in exchange for Series A
Liberty common stock, the common stock interests held by the officers at fair
market value at any time. Liberty recognized less than $1 million, $4 million
and $3 million of compensation expense related to changes in the market value of
its contingent liability to reacquire the common stock interests held by these
officers during the years ended December 31, 2002, 2001 and 2000, respectively.

STARZ ENCORE GROUP LLC ("STARZ ENCORE")

STARZ ENCORE GROUP PHANTOM STOCK APPRECIATION RIGHTS PLAN. Starz Encore has
granted Phantom Stock Appreciation Rights ("PSARS") to certain of its officers,
including its chief executive officer, under this plan. PSARS granted under the
plan generally vest over a five year period. Substantially all of these PSARs
are fully vested as of December 31, 2002. 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.

Effective December 27, 2002, the chief executive officer of Starz Encore
elected to exercise 54% of his outstanding PSARS. Such PSARS have an estimated
value of $275 million, which has been accrued at December 31, 2002. Such accrual
is subject to further adjustment when an independent appraisal of Starz Encore
is finalized. The ultimate amount to be paid is expected to be in the form of a
combination of Liberty Series A common stock and cash.

OTHER

Certain of the Company's subsidiaries have stock based compensation plans
under which employees and non-employees are granted options or similar stock
based awards. Awards made under these plans vest and become exercisable over
various terms. The awards and compensation recorded, if any, under these plans
is not significant to Liberty.

(15) EMPLOYEE BENEFIT PLANS

Liberty is the sponsor of the Liberty Media 401(k) Savings Plan (the
"Liberty 401(k) Plan"), which provides employees an opportunity for ownership in
the Company and creates a retirement fund. The Liberty 401(k) Plan provides for
employees to contribute up to 10% of their compensation to a trust for
investment in Liberty common stock, as well as several mutual funds. The
Company, by annual resolution of the Board, generally contributes up to 100% of
the amount contributed by employees. Certain of the Company's subsidiaries have
their own employee benefit plans. Employer contributions to all plans aggregated
$10 million, $10 million and $7 million for the years ended December 31, 2002,
2001 and 2000, respectively.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(16) OTHER COMPREHENSIVE EARNINGS

Accumulated other comprehensive earnings included in Liberty's consolidated
balance sheets and consolidated statements of stockholders' equity reflect 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, net of taxes, is summarized as follows:

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

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(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 films that are released by
these producers (collectively, "Film Licensing Obligations"). The unpaid balance
under agreements for Film Licensing Obligations related to films that were
available to Starz Encore at December 31, 2002 is reflected as a liability in
the accompanying consolidated balance sheet. The balance due as of December 31,
2002 is payable as follows: $126 million in 2003; $64 million in 2004; and
$18 million in 2005.

Starz Encore has also contracted to pay Film Licensing Obligations for the
rights to exhibit films that have been released, but are not available to Starz
Encore until some future date. These amounts have not been accrued at
December 31, 2002. Starz Encore's estimate of amounts payable under these
agreements is as follows: $306 million in 2003; $200 million in 2004;
$135 million in 2005; $114 million in 2006; $103 million in 2007; and
$320 million thereafter.

Starz Encore is also obligated to pay fees for films that are released by
certain producers through 2014 when these films meet certain criteria described
in the agreements. No estimate of amounts payable under these agreements can be
made at this time. However, such amounts could prove to be significant. Starz
Encore's total film rights expense aggregated $358 million, $354 million and
$336 million for the years ended December 31, 2002, 2001 and 2000, respectively.

GUARANTEES

Liberty guarantees Starz Encore's Film Licensing Obligations under certain
of its studio output agreements. At December 31, 2002, Liberty's guarantee for
Film Licensing Obligations for films released by such date aggregated
$722 million. While the guarantee amount for films not yet released is not
determinable, such amount could be significant. As noted above Starz Encore has
recognized the liability for a portion of its Film Licensing Obligations as of
December 31, 2002. Liberty has not recorded a separate liability for its
guarantee of these obligations.

Subsequent to December 31, 2002, Jupiter, an equity affiliate that provides
broadband services in Japan, refinanced substantially all of its debt. In
connection with such refinancing, Liberty and the other principal Jupiter
shareholders made subordinated loans to Jupiter. Liberty's share of such loans
aggregated $553 million, $308 million of which had been loaned as of
December 31, 2002. Subsequent to the refinancing, Liberty guarantees
Y15.6 billion ($131 million at December 31, 2002) of Jupiter's debt. Liberty's
guarantees expire as the underlying debt matures. The debt maturity dates range
from 2005 - 2017. In connection with Jupiter's refinancing, Liberty has agreed
to fund up to an additional Y20 billion ($168 million at December 31, 2002) to
Jupiter in the event Jupiter's cash flow (as defined in the bank loan agreement)
does not meet certain targets. This commitment expires after September 30, 2004,
or sooner upon the occurrence of certain events.

Liberty has guaranteed transponder and equipment lease obligations through
2018 of one of its investees ("Sky Latin America"). At December 31, 2002, the
Company's guarantee of the remaining obligations due under such agreements
aggregated $115 million and is not reflected in Liberty's balance sheet at
December 31, 2002. During the fourth quarter of 2002, Globo Communicacoes e
Participacoes ("GloboPar"), another investor in Sky Latin America, announced
that it was reevaluating its capital

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

structure. As a result, Liberty believes that it is probable that GloboPar will
not meet some, if not all, of its future funding obligations with respect to Sky
Latin America. To the extent that GloboPar does not meet its funding
obligations, Liberty and other investors could mutually agree to assume
GloboPar's obligations. To the extent that Liberty or such other investors do
not fully assume GloboPar's funding obligations, any funding shortfall could
lead to defaults under applicable lease agreements. Liberty believes that the
maximum amount of its aggregate exposure under the default provisions is not in
excess of the gross remaining obligations guaranteed by Liberty, as set forth
above. Although no assurance can be given, such amounts could be accelerated
under certain circumstances. Liberty cannot currently predict whether it will be
required to perform under any of such guarantees.

Liberty has also guaranteed various loans, notes payable, letters of credit
and other obligations (the "Guaranteed Obligations") of certain other
affiliates. At December 31, 2002, the Guaranteed Obligations aggregated
approximately $54 million and is not reflected in Liberty's balance sheet at
December 31, 2002. Currently, Liberty is not certain of the likelihood of being
required to perform under such guarantees.

OPERATING LEASES

Liberty leases business offices, has entered into pole rental and
transponder lease agreements and uses certain equipment under lease
arrangements. Rental expense under such arrangements amounted to $69 million,
$76 million and $50 million for the years ended December 31, 2002, 2001 and
2000, respectively.

A summary of future minimum lease payments under noncancelable operating
leases as of December 31, 2002 follows (amounts in millions):

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 2002.

LITIGATION

STARZ ENCORE GROUP LLC V. AT&T BROADBAND LLC AND SATELLITE
SERVICES, INC. In 1997, Starz Encore entered into a 25-year affiliation
agreement with TCI. TCI cable systems subsequently acquired by AT&T in the TCI
merger operate under the name AT&T Broadband. Under this affiliation agreement,
AT&T Broadband makes fixed monthly payments to Starz Encore in exchange for
unlimited access to all of the existing Encore and STARZ! services. The payment
from AT&T Broadband can be adjusted if AT&T acquires or disposes of cable
systems, or if Starz Encore's programming costs increase or decrease, as the
case may be, above or below amounts specified in the agreement. In such cases,
AT&T Broadband's payments under the affiliation agreement would be increased or
decreased in an amount equal to a proportion of the excess or shortfall. Starz
Encore requested payment from AT&T Broadband of its proportionate share of
excess programming costs during the first quarter of 2001.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

By letter dated May 29, 2001, AT&T Broadband has disputed the enforceability
of the excess programming costs pass through provisions of the affiliation
agreement and questioned whether the affiliation agreement, as a whole, is
"voidable." In addition, AT&T Broadband raised certain issues concerning the
interpretation of the contractual requirements associated with the treatment of
acquisitions and dispositions. Starz Encore believes the position expressed by
AT&T Broadband in that letter to be without merit. On July 10, 2001, Starz
Encore Group initiated a lawsuit against AT&T Broadband and Satellite
Services, Inc., a subsidiary of AT&T Broadband that is also a party to the
affiliation agreement, in Arapahoe County District Court, Colorado for breach of
contract and collection of damages and costs.

On October 19, 2001, the parties to the Colorado action entered into a
standstill and tolling agreement whereby the parties agreed to move the court to
stay the lawsuit until August 31, 2002 to permit the parties an opportunity to
resolve their dispute. The court granted the stay on October 30, 2001. In
conjunction with this agreement, Liberty and AT&T Broadband entered into various
agreements whereby Starz Encore indirectly received full compensation for AT&T
Broadband's proportionate share of the programming costs pass through for 2001.

On September 5, 2002, Starz Encore and AT&T Broadband jointly moved the
court to extend the stay pending further negotiations in light of the proposed
corporate transaction in which AT&T Broadband and Comcast Corporation would
become subsidiaries of a new entity, AT&T Comcast Corporation. On October 2,
2002, the court granted the parties' joint request that the stay be extended to
and including January 31, 2003, on condition that the parties undertake efforts
to settle the dispute through a third-party mediator. The parties also extended
their standstill and tolling agreement through to the conclusion of the extended
stay, which expired without further extension.

On November 18, 2002, AT&T Broadband completed a transaction with Comcast
Corporation (formerly known as AT&T Comcast Corporation) and Comcast Holdings
Corporation (formerly known as Comcast Corporation) in which AT&T Broadband and
Comcast Holdings Corporation became wholly owned subsidiaries of Comcast
Corporation. On the same day, Comcast Corporation and Comcast Holdings
Corporation filed an action for declaratory judgment against Starz Encore in the
U.S. District Court for the Eastern District of Pennsylvania, alleging that
Comcast Holdings' agreement with Starz Encore permits Comcast Corporation to
terminate AT&T Broadband's affiliation agreement with Starz Encore and to
replace that agreement with the affiliation agreement entered into by Comcast
Holdings with Starz Encore. Comcast Holdings' affiliation agreement with Starz
Encore provides for a per subscriber fee rather than the fixed monthly payments
prescribed by the AT&T Broadband agreement and has no provision for the pass
through of excess programming costs. Starz Encore has filed a motion to dismiss
this case on grounds that the claims made by the plaintiffs should be made in
the Colorado state court proceeding described above.

On January 31, 2003, Starz Encore amended its complaint in the Colorado
action to add Comcast Corporation and Comcast Holdings Corporation as
defendants, claiming, among other things, breach of contract and intentional
interference with contractual relations by those parties. On March 3, 2003,
Starz Encore filed a motion seeking leave to file a second amended complaint
adding related claims arising from those parties' ongoing actions with respect
to Starz Encore.

AT&T Broadband has stopped making payments under its affiliation agreement
with Starz Encore. Instead, Comcast Corporation has made payments to Starz
Encore related to distribution of Starz Encore's services on AT&T Broadband's
cable systems based on its claim that the lower rates payable under Comcast
Holdings' affiliation agreement are applicable, which has resulted in lower
aggregate payments to Starz Encore. In addition, both AT&T Broadband and Comcast
have limited their

II-78

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

cooperation with Starz Encore on various matters, including, for example,
promotion of Starz Encore's channels.

Starz Encore is vigorously contesting Comcast's claims in the Pennsylvania
federal court proceeding and believes that it will succeed in its defense of
those claims. Starz Encore is also vigorously prosecuting its claims in the
Colorado state court proceeding and believes that it will succeed in obtaining a
judgment against the defendants in that proceeding. However, because both
actions are at an early stage, it is not possible to predict with a high degree
of certainty the outcome of either action, and there can be no assurance that
those actions will ultimately be resolved in favor of Starz Encore. If Starz
Encore were to fail in its efforts to enforce its affiliation agreement with
AT&T Broadband, that failure would have a material adverse effect on Starz
Encore's revenue and operating income.

Because of the uncertainty in predicting the outcome of the court actions,
Liberty has determined for financial reporting purposes to exclude from Starz
Encore's revenue the amounts due under the AT&T Broadband affiliation agreement
from and after November 18, 2002. Rather, from that date it is including revenue
amounts due under the Comcast affiliation agreement on account of distribution
of the Starz Encore service on AT&T Broadband's systems. This treatment is in
accordance with SEC Staff Accounting Bulletin 101, which provides that revenue
should not be recognized unless collectibility of amounts owed is reasonably
assured. The reduction in revenue based upon the difference in payments
prescribed in each of the Comcast and AT&T Broadband affiliation agreements was
approximately $9 million for the period from November 18, 2002 through
December 31, 2002.

Liberty has contingent liabilities related to legal proceedings and other
matters arising in the ordinary course of business. Although it is reasonably
possible Liberty may incur losses upon conclusion of such matters, an estimate
of any loss or range of loss cannot be made. In the opinion of management, it is
expected that amounts, if any, which may be required to satisfy such
contingencies will not be material in relation to the accompanying consolidated
financial statements.

(18) INFORMATION ABOUT LIBERTY'S OPERATING SEGMENTS

Liberty is a holding company with a variety of subsidiaries and investments
operating in the media, communications and entertainment industries. Each of
these businesses is separately managed. Liberty identifies its reportable
segments as those consolidated subsidiaries that represent 10% or more of its
consolidated revenue, earnings or loss before income taxes or total assets; and
those equity method affiliates whose share of earnings or losses represent 10%
or more of its pre-tax earnings or loss. Subsidiaries and affiliates not meeting
this threshold are aggregated together for segment reporting purposes. The
segment presentation for prior periods has been conformed to the current period
segment presentation.

For the year ended December 31, 2002, Liberty had four operating segments:
Starz Encore, Ascent Media, On Command, and Other. Starz Encore provides premium
programming distributed by cable operators, direct-to-home satellite providers
and other distributors throughout the United States and is wholly owned and
consolidated by Liberty. Ascent Media provides sound, video and ancillary post
production and distribution services to the motion picture and television
industries in the United States and Europe and is majority owned and
consolidated by Liberty. On Command provides in-room, on-demand video
entertainment and information services to hotels, motels and resorts primarily
in the United States and is majority owned and consolidated by Liberty. Other
includes Liberty's non-consolidated investments, corporate and other
consolidated businesses not representing separately reportable segments.

II-79

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The accounting policies of the segments that are also consolidated
subsidiaries are the same as those described in the summary of significant
accounting policies. Liberty evaluates performance based on the measures of
revenue and operating cash flow, appreciation in stock price and non-financial
measures such as average prime time rating, prime time audience delivery,
subscriber growth and penetration, as appropriate. Liberty believes operating
cash flow, which it defines as revenue less operating, selling, general and
administrative expenses, is a widely used financial indicator of companies
similar to Liberty and its affiliates, which should be considered in addition
to, but not as a substitute for, operating income, net income, cash flow
provided by operating activities and other measures of financial performance
prepared in accordance with generally accepted accounting principles. Liberty
generally accounts for intersegment sales and transfers as if the sales or
transfers were to third parties, that is, at current prices.

Liberty's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technology, distribution channels and marketing
strategies.

Liberty utilizes the following financial information for purposes of making
decisions about allocating resources to a segment and assessing a segment's
performance:

PERFORMANCE MEASURES

BALANCE SHEET INFORMATION

II-80

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following table provides a reconciliation of segment operating cash flow
to earnings before income taxes:

During the year ended December 31, 2002, Liberty derived 12.5% its total
revenue from a single customer. Such revenue is attributable to the Starz Encore
segment and the Other segment.

II-81

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

- ------------------------

(1) The effect of retroactively recording Liberty's proportionate share of UGC's
transition adjustment upon the adoption of Statement 142 in the first
quarter of 2002 (see footnote 2 to this table) results in a retroactive
decrease in Liberty's investment in UGC. As a result, equity in losses of
UGC originally reported in the third quarter of 2002 reduced Liberty's
adjusted investment in UGC to less than zero. As a result, Liberty's
previously reported net loss for the third quarter was adjusted to restore
its investment in UGC to zero. As indicated in note 5 to these consolidated
financial statements, because Liberty has no commitment to make additional
capital contributions to UGC, Liberty suspended the recognition of its
proportionate share of UGC's losses once the carrying value of its
investment in UGC was reduced to zero.

(2) As allowed by Statement 142, this amount represents adjustments to the
Statement 142 transition adjustment for certain of the Company's
subsidiaries and equity method affiliates, including UGC,

II-82

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

which were determined in the fourth quarter of 2002. Statement 142 requires
that these adjustments be retroactively reflected in the first quarter of
2002.

II-83

PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth certain information concerning our directors
and executive officers, including a five year employment history and any
directorships held in public companies:

III-1

Kim Magness was appointed to our Board of Directors on October 1, 2002 and
resigned from our Board of Directors on March 12, 2003.

III-2

The executive officers named above will serve in such capacities until the
next annual meeting of our board of directors, or until their respective
successors have been duly elected and have been qualified, or until their
earlier death, resignation, disqualification or removal from office. There is no
family relationship between any of the directors, by blood, marriage or
adoption.

During the past five years, none of the above persons has had any
involvement in such legal proceedings as would be material to an evaluation of
his or her ability or integrity.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING AND COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our executive officers and directors, and persons who own more than ten percent
of a registered class of our equity securities, to file reports of ownership and
changes in ownership with the SEC. Officers, directors and greater than
ten-percent shareholders are required by SEC regulation to furnish us with
copies of all Section 16 forms they file.

Based solely on a review of the copies of these Forms 3, 4 and 5 and
amendments to those forms furnished to us with respect to our most recent fiscal
year, or written representations that no Forms 5 were required, we believe that,
during the year ended December 31, 2002, all Section 16(a) filing requirements
applicable to our officers, directors and greater than ten-percent beneficial
owners were complied with, except that one report covering two transactions was
filed late by Mr. Paul A. Gould, one of our directors; and one report covering
one transaction was filed late by Mr. Gary Magness, a greater than ten-percent
beneficial owner.

BOARD COMPOSITION

Our board of directors currently consists of nine directors, divided among
three classes. Our Class I directors, whose term will expire at the annual
meeting of our stockholders in 2005, are Jerome H. Kern, David E. Rapley and
Larry E. Romrell. Our Class II directors, whose term will expire at the annual
meeting of our stockholders in 2003, are Donne F. Fisher, Gary S. Howard and Kim
Magness. Our Class III directors, whose term will expire at the annual meeting
of our stockholders in 2004, are Robert R. Bennett, Paul A. Gould and John C.
Malone. At each annual meeting of our stockholders, the successors of that class
of directors whose term(s) expire at that meeting shall be elected to hold
office for a term expiring at the annual meeting of our stockholders held in the
third year following the year of their election. The directors of each class
will hold office until their respective death, resignation or removal and until
their respective successors are elected and qualified.

VOTING ARRANGEMENT

Mr. Kim Magness is party to a shareholders agreement with our company,
Dr. John C. Malone and certain other parties, pursuant to which Dr. Malone has
agreed to vote all of his beneficially owned shares of our Series B common stock
in favor of the election of Mr. Magness (or another individual properly
designated by Kim Magness and Gary Magness) to our board of directors.

COMMITTEES OF THE BOARD

Our board of directors has established an executive committee, whose members
are Robert R. Bennett, Paul A. Gould and John C. Malone. Except as specifically
prohibited by the General Corporation Law of the State of Delaware, the
executive committee may exercise all the powers and authority of our board in
the management of our business and affairs, including the power and authority to
authorize the issuance of shares of our capital stock.

Our board of directors has established a compensation committee, whose
members are Donne F. Fisher, Paul A. Gould, John C. Malone and Larry E. Romrell.
This compensation committee reviews

III-3

and makes recommendations to our board regarding all forms of compensation
provided to our executive officers and directors. In addition, the compensation
committee reviews and makes recommendations on bonus and stock compensation
arrangements for all of our employees. Our board of directors has also
established an incentive plan committee, which is a subcommittee of the
compensation committee. The members of the incentive plan committee are
Donne F. Fisher and Paul A. Gould. The incentive plan committee has sole
responsibility for the administration of our incentive plan.

Our board of directors has established an audit committee, whose members are
Donne F. Fisher, Paul A. Gould and David E. Rapley. The audit committee reviews
and monitors the corporate financial reporting and the internal and external
audits of our company. The committee's functions include, among other things:

- appointing or replacing our independent auditors;

- reviewing and approving in advance the scope and the fees of our annual
audit and reviewing the results of our audits with our independent
auditors;

- reviewing and approving in advance the scope and the fees of non-audit
services of our independent auditors;

- reviewing compliance with and the adequacy of our existing major
accounting and financial reporting policies;

- reviewing our management's procedures and policies relating to the
adequacy of our internal accounting controls and compliance with
applicable laws relating to accounting practices;

- reviewing compliance with applicable Securities and Exchange Commission
and stock exchange rules regarding audit committees; and

- preparing a report for our annual proxy statement.

The board, by resolution, may from time to time establish certain other
committees of the board, consisting of one or more of our directors. Any
committee so established will have the powers delegated to it by resolution of
the board, subject to applicable law.

ITEM 11. EXECUTIVE COMPENSATION.

(a) SUMMARY COMPENSATION TABLE. The following tables set forth information
relating to compensation, including grants of stock options in respect of our
common stock, for the three years ended December 31, 2002:

- our Chief Executive Officer; and

- our four other most highly compensated executive officers for the year
ended December 31, 2002.

III-4

These executive officers are collectively referred to as our "named
executive officers".

SUMMARY COMPENSATION TABLE

- ------------------------

(1) Ms. Markowski's employment with the Company commenced on November 1, 2000.
Accordingly, the 2000 compensation included in the table represents two
months of employment.

(2) Includes $245,763, $179,626 and $128,321 of compensation related to
Mr. Bennett's personal use of our company's aircraft and flight crew during
2002, 2001 and 2000, respectively, which compensation has been calculated
based upon the aggregate incremental cost of such usage to our company. In
accordance with applicable Treasury Regulations, we included in
Mr. Bennett's reportable income for 2002, 2001 and 2000 $66,544, $52,000 and
$36,960, respectively, of compensation related to his personal use of our
aircraft and flight crew.

(3) Includes $72,173 of compensation related to reimbursement of
Ms. Markowski's relocation expenses.

(4) Amount represents the fair market value on the date of grant of a .6263%
common stock interest granted to Ms. Markowski in Liberty LWR, Inc., one of
our subsidiaries that owned a direct interest in Ascent Media. Such grant
was made in November 2000.

(5) Effective February 28, 2001 (the "Effective Date"), we restructured the
options and options with tandem SARs to purchase AT&T Liberty Media Group
tracking stock (collectively the "Restructured Options") held by certain of
our executive officers. Pursuant to such restructuring, all Restructured
Options became exercisable on the Effective Date, and each executive officer
was given the choice to exercise all of his Restructured Options. Each
executive officer who opted to exercise his Restructured Options received
consideration equal to the excess of the closing price of the subject
securities on the Effective Date over the exercise price. The exercising
officers received (i) a combination of cash and AT&T Liberty Media Group
tracking stock for Restructured Options that were vested prior to the
Effective Date and (ii) cash for Restructured Options that were previously
unvested. The executive officers used the cash proceeds from the previously
unvested

III-5

options to purchase restricted shares of AT&T Liberty Media Group tracking
stock which were converted into shares of Liberty common stock upon our
split off from AT&T. Such restricted shares are subject to forfeiture upon
termination of employment. The forfeiture obligation will lapse according to
a schedule that corresponds to the vesting schedule applicable to the
previously unvested options.

In addition, each executive officer was granted free-standing SARs equal to
the total number of Restructured Options exercised. The free-standing SARs
were tied to the value of AT&T Liberty Media Group tracking stock and will
vest as to 30% in year one and 17.5% in years two through five. Upon the
completion of our split off from AT&T, the free-standing SARs automatically
converted to options to purchase Liberty Series A common stock, or in the
case of Mr. Bennett, Liberty Series B common stock.

(6) Amounts represent contributions to the Liberty Media 401(k) Savings Plan
(the "Liberty Savings Plan"). The Liberty Savings Plan provides employees
with an opportunity to save for retirement. The Liberty Savings Plan
participants may contribute up to 10% of their compensation, and Liberty
contributes a matching contribution of 100% of the participants'
contributions. Participant contributions to the Liberty Savings Plan are
fully vested upon contribution.

Generally, participants acquire a vested right in Liberty contributions as
follows:

With respect to Liberty contributions made to the Liberty Savings Plan in
2002, 2001 and 2000, Messrs. Bennett, Howard, Flowers and Tanabe are fully
vested.

Directors who are not our employees are ineligible to participate in the
Liberty Savings Plan. Under the terms of the Liberty Savings Plan, employees
are eligible to participate after three months of service.

(7) Includes $12,997 and $32,013 which consists of the amounts of premiums we
paid in fiscal 2001 and 2000, respectively, pursuant to split dollar, whole
life insurance policies for the insured executive officer. We will pay a
portion of the premiums annually until the first to occur of:

- 10 years from the date of the policy;

- the insured executive's death;

- the premiums are waived under a waiver of premium provision;

- the policy is terminated as set forth below; and

- premiums are prepaid in full for the 10-year period as set forth below.

The insured executive has granted an assignment of policy benefits in our
favor in the amounts of the premiums paid by us. At the end of such 10-year
period or upon acceleration of premiums as described below, the entire
policy vests to the sole benefit of the insured executive, and we will
remove or cancel the assignment in our favor against the policy. In the
event of a change of control of Liberty, liquidation of Liberty or sale of
substantially all of our assets, the policy will immediately be prepaid in
full through the tenth year, prior to such event. Similarly, if the insured
executive is dismissed for any reason (except for conviction of a felony
class miscarriage of responsibilities as a Liberty officer), we will
immediately prepay and fully fund the policy through the tenth year. Upon
any of the foregoing events, the policy will vest to the sole benefit of the

III-6

insured executive. If, however, the insured executive voluntarily chooses to
terminate employment (and that decision is not a result of pressure from us
to resign or a resignation related to an adverse change in us or our
affiliates) without cause, we will have no further obligation to fund
premiums, but the policy will vest to the sole benefit of the insured
executive.

Mr. Bennett paid his annual premium due in September 2002.

(8) The numbers of shares do not reflect adjustments for our rights offering
which concluded in December 2002.

(b) OPTION AND SAR GRANTS IN LAST FISCAL YEAR. No options were granted to
our named executive officers during the year ended December 31, 2002.

(c) AGGREGATED OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR
VALUES. The following table sets forth information concerning (i) exercises of
stock options and SARs by the named executive officers during the year ended
December 31, 2002 and (ii) the value of unexercised options and SARs as of
December 31, 2002 (numbers of securities and dollar amounts in thousands).

AGGREGATED OPTION/SAR EXERCISES IN THE LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES

III-7

(d) COMPENSATION OF DIRECTORS. Beginning in the fourth quarter of 2002,
each of our directors who is not an employee of our company is paid an annual
fee of $50,000 and is permitted to participate in our company's health benefits
plans. In addition, each member of the audit committee of our board of directors
is paid an additional annual fee of $10,000. All fees are payable quarterly in
arrears in cash or, at the election of the director, in shares of our common
stock. In addition, we reimburse members of our board for travel expenses
incurred to attend any meetings of our board or any committee thereof.

(e) EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN
CONTROL ARRANGEMENTS. We have no employment contracts, termination of employment
agreements or change of control agreements with any of our named executive
officers.

In connection with the merger of TCI and AT&T in 1999, an employment
agreement between Dr. Malone and TCI was assigned to us. The term of
Dr. Malone's employment agreement is extended daily so that the remainder of the
employment term is five years. The employment agreement was amended in
June 1999 to provide for, among other things, an annual salary of $2,600,
subject to increase upon approval of our board. The employment agreement
provides for payment or reimbursement of professional fees and expenses incurred
by Dr. Malone for estate and tax planning services. Additionally, the employment
agreement provides for personal use of our aircraft and flight crew, limited to
an aggregate value of $200,000 per year (such value to be determined in
accordance with Treasury Regulation Section 1.62-21(g), or any successor
regulation thereto).

Dr. Malone's employment agreement provides, among other things, for 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 Dr. Malone'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.

Dr. Malone's employment agreement also provides that, upon termination of
his employment by us (other than for cause, as defined in the agreement) or if
Dr. Malone elects to terminate the agreement because of a change in control of
our company, all remaining compensation due under the agreement for the balance
of the employment term shall be immediately due and payable.

Dr. Malone's agreement provides that, during his employment with us and for
a period of two years following the effective date of his termination of
employment with us, unless termination results from a change in control of our
company, he will not be connected with any entity in any manner specified in the
agreement, which competes in a material respect with our business. The agreement
provides, however, that Dr. Malone may own securities of any corporation listed
on a national securities exchange or quoted in The Nasdaq Stock Market to the
extent of an aggregate of 5% of the amount of such securities outstanding.

For a period of 12 months following a change in control, as defined in
Dr. Malone's employment agreement, our ability to terminate Dr. Malone's
employment for cause will be limited to situations in which Dr. Malone has
entered a plea of guilty to, or has been convicted of, the commission of a
felony offense.

Dr. Malone's agreement also provides that in the event of termination of his
employment with us, he will be entitled to receive 240 consecutive monthly
payments of $15,000 (increased at the rate of 12% per annum compounded annually
from January 1, 1988 to the date payment commences), the first of which will be
payable on the first day of the month succeeding the termination of
Dr. Malone's employment. In the event of Dr. Malone's death, his beneficiaries
will be entitled to receive the foregoing monthly payments.

III-8

Dr. Malone deferred a portion of his monthly compensation under his previous
employment agreement for all employment years ending on or prior to
December 31, 1992. We assumed the obligation to pay that deferred compensation
in connection with the merger of AT&T and TCI. The compensation that he deferred
(together with interest on that compensation at the rate of 13% per annum
compounded annually from the date of deferral to the date of payment) will
continue to be payable under the terms of the previous agreement. The rate at
which interest accrues on the previously deferred compensation was established
in 1983 pursuant to the previous agreement.

(f) COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN
COMPENSATION DECISIONS. The members of the Compensation Committee are Dr. John
C. Malone and Messrs. Donne F. Fisher, Paul A. Gould and Larry E. Romrell. The
members of our incentive plan committee, which is a subcommittee of our
compensation committee, are Messrs. Paul A Gould and Donne F. Fisher.
Dr. Malone serves as the Chairman of the board of directors of our company.
Prior to calendar year 2001, Dr. Malone served as the Chairman of the Board of
our subsidiary, Liberty Satellite & Technology, Inc. Except for Dr. Malone, no
member of our compensation committee or our incentive plan committee is or was
an officer of our company or any of our subsidiaries.

LIBERTY TP MANAGEMENT TRANSACTION. During the third quarter of 2002, we
transferred an indirect 1% beneficial ownership interest in 55.5 million shares
of Sprint PCS stock and related collar agreements to Liberty TP
Management, Inc. in exchange for an $8.9 million note payable, which accrues
interest at 5%. As described under "Security Ownership of Certain Beneficial
Owners and Management--Security Ownership of Management" above, our Chairman,
Dr. Malone, holds all of the outstanding common stock of TP Investment, Inc.,
which in turn owns all of the Class B preferred stock of Liberty TP Management
and a 5% membership interest, representing a 50% voting interest, in Liberty TP
LLC. Liberty TP LLC holds 20.6% of the common equity and 27.2% of the voting
power of Liberty TP Management. We own the remaining equity interests in Liberty
TP Management and the remaining membership interests in Liberty TP LLC.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED
STOCKHOLDER MATTERS.

(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table
sets forth information concerning shares of our common stock beneficially owned
by each person or entity (excluding any of our directors and executive officers)
known by us to own more than five percent of the outstanding shares of Liberty
common stock, based upon filings pursuant to Section 13(d) or (g) under the
Securities Exchange Act.

The percentage ownership information is based upon 2,476,953,566 shares of
Liberty Series A common stock and 212,044,128 shares of Liberty Series B common
stock outstanding as of December 31, 2002. Unless otherwise indicated in the
footnotes below, each person or entity has sole voting power and investment
power with respect to the shares of common stock set forth opposite such
person's or entity's name. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission and generally includes
voting or investment power with respect to securities. Shares of common stock
issuable upon exercise or conversion of options, warrants and convertible
securities that were exercisable or convertible on or within 60 days after
December 31, 2002, are deemed to be outstanding and to be beneficially owned by
the person holding the options, warrants or convertible securities for the
purpose of computing the percentage ownership of the person, but are not treated
as outstanding for the purpose of computing the percentage ownership of any
other person. For purposes of the following presentation, beneficial ownership
of shares of Liberty Series B common stock, though convertible on a one-for-one
basis into shares of Liberty Series A

III-9

common stock, is reported as beneficial ownership of Liberty Series B common
stock only, and not as beneficial ownership of Liberty Series A common stock.

- ------------------------

(1) Gary Magness beneficially owns 39,109,455 shares of our Series A common
stock with sole voting power and sole dispositive power with respect to
3,431,812 shares, shared voting power with respect to 27,185,975 shares and
shared dispositive power with respect to 35,677,643 shares. Mr. Magness
reports beneficial ownership of 94,410,004 shares of our Series B common
stock with sole dispositive power with respect to 7,335,824 shares and
shared dispositive power with respect to 87,074,180 shares. As a result of
the shareholders agreement described in footnote (5) below, Mr. Magness may
be deemed to share voting power with respect to all of such shares of
Series B common stock with John C. Malone. Further, Mr. Magness may be
deemed to share voting power with respect to 70,850,108 of such shares of
Series B common stock with Kim Magness as described below.

Gary Magness is the sole member of GMag, LLC with sole dispositive and
voting power over 2,685,444 shares of our Series A common stock and
5,408,024 shares of our Series B common stock held by GMag, LLC.
Accordingly, the shares of our Series A common stock shown as beneficially
owned by Gary Magness include the shares owned by GMag, LLC.

Gary Magness is the holder of approximately a 33% membership interest in
Magness Securities, LLC, and shares, with Kim Magness, certain dispositive
power (but no voting power) over shares of our common stock held by Magness
Securities, LLC. Accordingly, the shares of our common stock shown as
beneficially owned by Gary Magness include shares also shown as beneficially

III-10

owned by Magness Securities, LLC in this table and shown as beneficially
owned by Kim Magness in the beneficial ownership table included under
"--Security Ownership of Management" below.

Gary Magness is a co-personal representative of the Estate of Bob Magness
and shares both voting and dispositive power over the shares held by the
Estate of Bob Magness with Kim Magness. Accordingly, the shares of our
common stock shown as beneficially owned by Gary Magness include shares also
shown as beneficially owned by the Estate of Bob Magness in this table and
shown as beneficially owned by Kim Magness in the beneficial ownership table
included under "--Security Ownership of Management" below.

Gary Magness is the holder of a 50% membership interest in Magness FT
Investment Company, LLC, and shares, with Kim Magness, certain dispositive
power (but no voting power) over the 1,057,912 shares of our Series A common
stock held by Magness FT Investment Company, LLC. Accordingly, the shares of
our common stock shown as beneficially owned by Gary Magness include shares
also shown as beneficially owned by Kim Magness in the beneficial ownership
table included under "--Security Ownership of Management" below.

See footnote (5) below for more information regarding these shares.

(2) Kim Magness is the beneficial owner of 36,242,144 shares of our Series A
common stock with sole voting power with respect to 8,943,669 shares, shared
voting power with respect to 27,185,975, sole dispositive power with respect
to 452,001 shares and shared dispositive power with respect to 35,677,643
shares. Mr. Magness has the right to acquire 112,500 shares of our Series A
common stock, all of which are currently vested. Mr. Magness reports
beneficial ownership of 88,701,866 shares of our Series B common stock with
sole voting power with respect to 17,851,758 shares, shared voting power
with respect to 70,850,108 shares, sole dispositive power with respect to
1,627,686 and shared dispositive power with respect to 87,074,180 shares. As
a result of the shareholders agreement described in footnote (5) below,
Mr. Magness may be deemed to share voting power with respect to all of such
shares of Series B common stock with John C. Malone. Further, Mr. Magness
may be deemed to share voting power with respect to 70,850,108 of such
shares of Series B common stock with Gary Magness as described below.

Kim Magness is the holder of approximately a 67% membership interest in
Magness Securities, LLC, and has sole voting power over and shares, with
Gary Magness, certain dispositive power over shares of our common stock held
by Magness Securities, LLC. Accordingly, the shares of our common stock
shown as beneficially owned by Kim Magness include shares also shown as
beneficially owned by Magness Securities, LLC and Gary Magness in this
table.

Kim Magness is a co-personal representative of the Estate of Bob Magness and
shares both voting and dispositive power over the shares held by the Estate
of Bob Magness with Gary Magness. Accordingly, the shares of our common
stock shown as beneficially owned by Kim Magness include shares also shown
as beneficially owned by the Estate of Bob Magness and Gary Magness in this
table.

Kim Magness is the holder of a 50% membership interest in Magness FT
Investment Company, LLC, and has sole voting power over and shares, with
Gary Magness, certain dispositive power over the 1,057,912 shares of our
Series A common stock held by Magness FT Investment Company, LLC.
Accordingly, the shares of our common stock shown as beneficially owned by
Kim Magness include shares also shown as owned by Gary Magness in this
table.

See footnote (5) below for more information regarding these shares.

(3) Based upon a Schedule 13D filed on December 10, 2002, the Estate of Bob
Magness beneficially owns 27,185,975 shares of our Series A common stock and
70,850,108 shares of our Series B common stock with sole voting power and
sole dispositive power with respect to all such shares of

III-11

our Series A common stock and sole dispositive power with respect to all
such shares of our Series B common stock. As a result of the shareholders
agreement described in footnote (4) below, the Estate of Bob Magness may be
deemed to share voting power with respect to all such shares of our
Series B common stock with John C. Malone.

Kim Magness and Gary Magness are the co-personal representatives of the
Estate of Bob Magness and share both voting and dispositive power over the
shares held by the Estate of Bob Magness. Accordingly, the shares of our
common stock shown as beneficially owned by the Estate of Bob Magness are
also included in the shares shown as beneficially owned by Gary Magness in
this table and Kim Magness in the beneficial ownership table included under
"--Security Ownership of Management" below.

See footnote (5) below for more information regarding these shares.

(4) Based upon a Schedule 13D/A filed on December 10, 2002, Magness Securities,
LLC beneficially owns 7,433,756 shares of our Series A common stock and
16,224,072 shares of our Series B common stock with sole voting power and
sole dispositive power with respect to all such shares of our Series A
common stock and sole dispositive power with respect to all such shares of
our Series B common stock. As a result of the shareholders agreement
described in footnote (4) below, Magness Securities, LLC may be deemed to
share voting power with respect to all such shares of our Series B common
stock with John C. Malone.

Kim Magness is the manager and a holder of approximately a 67% membership
interest in Magness Securities, LLC, and Gary Magness is a holder of
approximately a 33% membership interest in Magness Securities, LLC. Kim
Magness and Gary Magness share dispositive power over the shares held by
Magness Securities, LLC. Accordingly, the shares of our common stock shown
as beneficially owned by Magness Securities, LLC are also included in the
shares shown as beneficially owned by Gary Magness in this table and Kim
Magness in the beneficial ownership table included under "--Security
Ownership of Management" below.

See footnote (5) below for more information regarding these shares.

(5) We are party to a call agreement with the Estate of Bob Magness, Magness
Securities, LLC (individually and as successor in interest to the Estate of
Betsy Magness), Gary Magness (individually, in certain representative
capacities and through GMag, LLC, of which he is the sole member) and Kim
Magness (individually and in certain representative capacities)
(collectively, the Magness Group) pursuant to which we have the right, under
certain circumstances, to acquire shares of our Series B common stock owned
by the Magness Group. John C. Malone, our Chairman of the Board, is party to
a shareholders agreement pursuant to which Dr. Malone has an irrevocable
proxy, under certain circumstances, to vote shares of our Series B common
stock or any super voting class of equity securities issued by us and owned
by the Magness Group. For more information regarding these agreements, see
footnote (5) to the beneficial ownership table included under "--Security
Ownership of Management" below.

(6) Based upon a Schedule 13G filed on February 14, 2003, Janus Capital
Management LLC ("Janus Capital") has an indirect 100% ownership stake in Bay
Isle Financial LLC ("Bay Isle") and an indirect 50.1% ownership stake in
Enhanced Investment Technologies LLC ("INTECH"). Janus Capital, Bay Isle and
INTECH are registered investment advisers, each furnishing investment advice
to various investment companies registered under Section 8 of the Investment
Company Act of 1940 and to individual and institutional clients (the
"Managed Portfolios").

As a result of its role as investment adviser or sub-adviser to the Managed
Portfolios, Janus Capital may be deemed to be the beneficial owner of
143,999,614 shares of our Series A common stock held by such Managed
Portfolios. However, Janus Capital does not have the right to receive

III-12

any dividends from, or the proceeds from the sale of, the securities held in
the Managed Portfolios and disclaims any ownership associated with such
rights.

As a result of its role as an investment adviser or sub-adviser to the
Managed Portfolios, INTECH may be deemed to be the beneficial owner of 1,500
shares of our Series A common stock held by such Managed Portfolios.
However, INTECH does not have the right to receive any dividends from, or
the proceeds from the sale of, the securities held in the Managed Portfolios
and disclaims any ownership associated with such rights.

(b) SECURITY OWNERSHIP OF MANAGEMENT. The following table sets forth
information with respect to the ownership by each director and each of our named
executive officers and by all of our directors and executive officers as a group
of shares of our Series A and our Series B common stock. The table also sets
forth information with respect to the ownership by each director and each of our
named executive officers and by all of our directors and executive officers as a
group of shares of (1) Series A common stock of Ascent Media Group, Inc.,
(2) Series A and Series B common stock of Liberty Satellite & Technology, Inc.,
(3) common stock of On Command Corporation and (4) Class A Ordinary shares of
OpenTV Corp. Each of the corporations named in the immediately preceding
sentence is a controlled subsidiary of ours and was publicly traded as of
December 31, 2002.

The security ownership information is given as of December 31, 2002 and, in
the case of percentage ownership information, is based on (1) 2,476,953,566
shares of Series A Liberty common stock and 212,044,128 shares of Series B
Liberty common stock; (2) 4,884,559 shares of Ascent Media Series A common
stock; (3) 11,078,834 shares of Liberty Satellite Series A common stock and
34,765,055 shares of Liberty Satellite Series B common stock; (4) 30,854,489
shares of On Command common stock and (5) 41,184,072 shares of OpenTV Class A
Ordinary shares, in each case outstanding on that date.

Shares of common stock issuable upon exercise or conversion of options,
warrants and convertible securities that were exercisable or convertible on or
within 60 days after December 31, 2002, are deemed to be outstanding and to be
beneficially owned by the person holding the options, warrants or convertible
securities for the purpose of computing the percentage ownership of the person,
but are not treated as outstanding for the purpose of computing the percentage
ownership of any other person. For purposes of the following presentation,
beneficial ownership of shares of Liberty Series B common stock and Liberty
Satellite Series B common stock, though convertible on a one-for-one basis into
shares of Liberty Series A common stock and Liberty Satellite Series A common
stock, respectively, is reported as beneficial ownership of Liberty Series B
common stock and Liberty Satellite Series B common stock only, and not as
beneficial ownership of Liberty Series A common stock and Liberty Satellite
Series A common stock. So far as is known to us, the persons indicated below
have sole voting

III-13

power with respect to the shares indicated as owned by them, except as otherwise
stated in the notes to the table.

III-14

- ------------------------

* Less than one percent

III-15

(1) Includes 1,501,818 shares of our Series A common stock and 3,409,436 shares
of our Series B common stock held by Dr. Malone's wife, Mrs. Leslie Malone,
as to which shares Dr. Malone has disclaimed beneficial ownership.

(2) Includes 789,857 shares of our Series A common stock held by the Liberty
401(k) Savings Plan.

(3) Includes 3,600,000 shares of our Series A common stock and 65,904,087
shares of our Series B common stock held by Grantor Retained Annuity Trusts
with respect to which Dr. Malone retains certain rights.

(4) Includes beneficial ownership of 5,455,566 shares of our Series B common
stock which may be acquired within 60 days after December 31, 2002,
pursuant to stock options. Dr. Malone has the right to convert the options
into options to purchase shares of our Series A common stock. The number of
shares subject to these options and the applicable exercise price were
adjusted as of October 31, 2002, the record date for our rights offering,
as a result of our incentive stock plan's antidilution provisions.

(5) In February 1998, in connection with the settlement of certain legal
proceedings relative to the Estate of Bob Magness, the late founder and
former Chairman of the Board of our former parent company, TCI, TCI entered
into a call agreement with Dr. Malone and Dr. Malone's wife and a call
agreement with the Magness Group. In connection with AT&T's acquisition of
TCI, TCI assigned to us its rights under these call agreements. As a
result, we have the right, under certain circumstances, to acquire shares
of our Series B common stock owned by the Malones and the Magness Group. We
may not exercise our call right with respect to the Malones or the Magness
Group, unless we also exercise our call right with respect to the other
group. Each call agreement also prohibits any member of the Magness Group
or the Malones from disposing of their shares of our Series B common stock,
except for certain exempt transfers (such as transfers to related parties
or to the other group or public sales of up to an aggregate of 5% of their
shares of our Series B common stock after conversion to shares of our
Series A common stock) and except for a transfer made in compliance with
our call rights.

Also in February 1998, TCI, the Magness Group and the Malones entered into a
shareholders' agreement which provides for, among other things, certain
participation rights by the Magness Group with respect to transactions by
Dr. Malone, and certain "tag-along" rights in favor of the Magness Group and
certain "drag-along" rights in favor of the Malones. In connection with
AT&T's acquisition of TCI, TCI assigned to us its rights under the
shareholders agreement. The agreement provides that a representative of
Dr. Malone and a representative of the Magness Group will consult with each
other on all matters to be brought to a vote of our shareholders, but if a
mutual agreement on how to vote cannot be reached, Dr. Malone will vote the
shares of our Series B common stock owned by the Magness Group pursuant to
an irrevocable proxy granted by the Magness Group. As a result,
Dr. Malone's beneficial ownership of our Series B common stock includes
96,037,690 shares held by the Magness Group.

(6) Includes beneficial ownership of 15,000 shares of Liberty Satellite
Series A common stock which may be acquired within 60 days after
December 31, 2002, pursuant to stock options (10,000 of which were granted
in tandem with SARs).

(7) Includes 11,730 shares of Liberty Satellite Series B common stock held by
Dr. Malone's wife, Mrs. Leslie Malone, as to which shares Dr. Malone has
disclaimed beneficial ownership.

(8) Includes 349,307 restricted shares of our Series A common stock, none of
which was vested at December 31, 2002.

(9) Includes 22,287 shares of our Series A common stock held by the Liberty
401(k) Savings Plan.

(10) Includes beneficial ownership of 25,640 shares of our Series A common stock
and 7,922,930 shares of our Series B common stock which may be acquired
within 60 days after December 31, 2002,

III-16

pursuant to stock options. Mr. Bennett has the right to convert the options
to purchase shares of our Series B common stock into options to purchase
shares of our Series A common stock. The number of shares subject to these
options and the applicable exercise prices were adjusted as of October 31,
2002, the record date for our rights offering, as a result of our incentive
stock plan's antidilution provisions.

(11) Includes 1,246,580 shares of our Series A common stock owned by Hilltop
Investments, Inc. which is jointly owned by Mr. Bennett and his wife,
Mrs. Deborah Bennett.

(12) Includes beneficial ownership of 500 shares of Liberty Satellite Series A
common stock which may be acquired within 60 days after December 31, 2002,
pursuant to stock options granted in tandem with SARs.

(13) Includes beneficial ownership of 112,500 shares of our Series A common
stock which may be acquired within 60 days after December 31, 2002,
pursuant to stock options.

(14) Includes beneficial ownership of 2,500 shares of Liberty Satellite
Series A common stock which may be acquired within 60 days of December 31,
2002, pursuant to stock options (2,000 of which were issued in tandem with
SARs).

(15) Includes 14,554 restricted shares of our Series A common stock, none of
which was vested at December 31, 2002.

(16) Includes 9,851 shares of our Series A common stock held by the Liberty
401(k) Savings Plan.

(17) Includes 701,510 shares of our Series A common stock which may be acquired
within 60 days after December 31, 2002, pursuant to stock options. The
number of shares subject to these options and the applicable exercise price
were adjusted as of October 31, 2002, the record date for our rights
offering, as a result of our incentive stock plan's antidilution
provisions.

(18) Includes beneficial ownership of 25,000 shares of On Command common stock
which may be acquired within 60 days of December 31, 2002, pursuant to
stock options.

(19) Includes 291,089 restricted shares of our Series A common stock held by a
Grantor Retained Annuity Trust, none of which was vested at December 31,
2002.

(20) Includes beneficial ownership of 4,173,183 shares of our Series A common
stock which may be acquired within 60 days of December 31, 2002, pursuant
to stock options. The number of shares subject to these options and the
applicable exercise prices were adjusted as of October 31, 2002, the record
date for our rights offering, as a result of our incentive stock plan's
antidilution provisions.

(21) Includes 40,623 shares of our Series A common stock held by the Liberty
401(k) Savings Plan for the benefit of Mr. Howard.

(22) Includes 314,376 shares owned by a Grantor Retained Annuity Trust.

(23) Includes 12,284 shares of our Series A common stock owned by Mr. Howard's
wife, Mrs. Leslie D. Howard, and 185,120 shares of our Series A common
stock owned by Mrs. Leslie D. Howard, and held by a Grantor Retained
Annuity Trust, as to which shares Mr. Howard has disclaimed beneficial
ownership.

(24) Includes beneficial ownership of 49,965 shares of Liberty Satellite
Series A common stock which may be acquired within 60 days after
December 31, 2002, pursuant to stock options (1,514 of which were granted
in tandem with SARs).

(25) Includes beneficial ownership of 58,000 shares of our Series A common stock
which may be acquired within 60 days after December 31, 2002, pursuant to
stock options.

III-17

(26) Includes 83,616 shares of our Series A common stock held by Mr. Kern's
wife, Mary Rossick Kern, as to which shares Mr. Kern has disclaimed
beneficial ownership.

(27) Includes beneficial ownership of 10,000 shares of Liberty Satellite
Series A common stock which may be acquired within 60 days after
December 31, 2002, pursuant to stock options granted in tandem with SARs.

(28) Assumes the conversion of 13,500 shares of On Command Series A preferred
stock into 1,350,000 shares of On Command common stock, which may be
converted at any time at the right of the holder thereof.

(29) Includes 2,268 shares of our Series A common stock held by Ms. Markowski's
husband, Thomas Markowski, as to which shares Ms. Markowski has disclaimed
beneficial ownership.

(30) Includes beneficial ownership of 477,545 shares of our Series A common
stock which may be acquired within 60 days of December 31, 2002, pursuant
to stock options. The number of shares subject to these options and the
applicable exercise prices were adjusted as of October 31, 2002, the record
date for our rights offering, as a result of our incentive stock plan's
antidilution provisions.

(31) Includes 2,295 shares of our Series A common stock held by the Liberty
401(k) Savings Plan.

(32) Includes 15,000 restricted shares of On Command common stock, none of which
was vested at December 31, 2002.

(33) Includes beneficial ownership of 72,408 shares of Liberty Satellite
Series A common stock which may be acquired within 60 days after
December 31, 2002, pursuant to stock options (6,000 of which were granted
in tandem with SARs).

(34) Includes 3,068 shares of our Series A common stock held by Mr. Tanabe's
wife, Arlene Bobrow, as to which shares Mr. Tanabe has disclaimed
beneficial ownership.

(35) Includes 69,861 restricted shares of our Series A common stock, none of
which was vested at December 31, 2002.

(36) Includes beneficial ownership of 935,347 shares of our Series A common
stock which may be acquired within 60 days of December 31, 2002, pursuant
to stock options. The number of shares subject to these options and the
applicable exercise price were adjusted as of October 31, 2002, the record
date for our rights offering, as a result of our incentive stock plan's
antidilution provisions.

(37) Includes 3,538 shares of our Series A common stock held by the Liberty
401(k) Savings Plan.

(38) Includes 1,590,770 shares of our Series A common stock, 3,409,436 shares of
our Series B common stock, 20 shares of Liberty Satellite Series A common
stock and 11,730 shares of Liberty Satellite Series B common stock held by
relatives of certain directors and executive officers, as to which shares
beneficial ownership by such directors and executive officers has been
disclaimed.

(39) Includes beneficial ownership of 6,709,041 shares of our Series A common
stock and 13,378,496 shares of our Series B common stock which may be
acquired within 60 days after December 31, 2002, pursuant to stock options.
The options to purchase shares of our Series B common stock may be
converted into options to purchase shares of our Series A common stock.

(40) Includes 724,811 restricted shares of our Series A common stock, none of
which was vested at December 31, 2002.

(41) Includes 876,738 shares of our Series A common stock held by the Liberty
401(k) Savings Plan.

(42) Includes beneficial ownership of 150,373 shares of Liberty Satellite
Series A common stock which may be acquired within 60 days after
December 31, 2002, pursuant to stock options (30,014 of which were granted
in tandem with SARs).

III-18

Certain of our directors and named executive officers also hold interests in
some of our privately-held, controlled subsidiaries.

LIBERTY JUPITER, INC. Mr. Bennett holds 180 shares of common stock of
Liberty Jupiter, one of our subsidiaries, representing a 4.5% common equity
interest and less than a 1% voting interest in Liberty Jupiter based on 4,000
shares of common stock outstanding, as of December 31, 2002. Liberty Jupiter
owns a 7% interest in Jupiter Telecommunications Co., Ltd.

LIBERTY LIVEWIRE HOLDINGS, INC. Ms. Markowski holds 397.44 shares of common
stock of Liberty Livewire Holdings, one of our subsidiaries, representing a
3.9744% common equity interest and a 2.36% voting interest in Liberty Livewire
Holdings, and Mr. Romrell holds 794.88 shares of common stock of Liberty
Livewire Holdings, representing a 7.9488% common equity interest and a 4.72%
voting interest in Liberty Livewire Holdings, in each case based on 10,000
shares of common stock outstanding, as of December 31, 2002. All of our
directors and executive officers as a group own 1,192.32 shares of common stock
of Liberty Livewire Holdings, representing a 11.9232% common equity interest and
a 7.08% voting interest. Liberty Livewire Holdings owns an approximate 7.19%
common equity interest and a 7.85% voting interest in Ascent Media, as of
December 31, 2002.

SATELLITE MGT, INC. Mr. Flowers holds 100 shares of Class A common stock of
Satellite MGT; Ms. Markowski holds 200 shares of Class A common stock of
Satellite MGT; and Mr. Tanabe holds 150 shares of Class A common stock of
Satellite MGT. In each of the foregoing cases, the shares held represent a less
than 1% equity and voting interest based on 21,400 shares of common stock
outstanding, as of December 31, 2002. All of our directors and executive
officers as a group own 450 shares of Class A common stock of Satellite MGT,
representing a 2.1% common equity interest and less than a 1% voting interest.
Satellite MGT owns 100% of LMC/LSAT Holdings, Inc., whose sole asset is
approximately 17.4 million shares of Liberty Satellite Series B common stock.

LIBERTY TP MANAGEMENT, INC. Dr. Malone holds all of the outstanding common
stock of TP Investment, Inc. TP Investment owns 10,602 shares of Class B
preferred stock of Liberty TP Management, Inc., one of our subsidiaries, and a
5% membership interest, representing a 50% voting interest, in Liberty TP LLC.
Liberty TP LLC holds 12,000 shares of Class B common stock of Liberty TP
Management, which currently represents 20.6% of the common equity and 27.2% of
the voting power of the outstanding voting stock of Liberty TP Management. We
own the remaining equity interests in Liberty TP Management and the remaining
membership interests in Liberty TP LLC. Liberty TP Management owns our
investment in True Position and certain equity interests (including rights to
acquire equity interests) in Sprint PCS Group, Liberty Satellite, IDT
Investments, Inc. and priceline.com, Inc. The shares of Class B preferred stock
of Liberty TP Management held by Dr. Malone have an aggregate liquidation value
of $106.02 million, plus accrued but unpaid dividends, accrue dividends at the
rate of 9% per annum, payable quarterly, and provide for mandatory redemption on
April 30, 2021. The Class B preferred stock votes generally with the common
stock and currently represents 12% of the voting power of the outstanding voting
stock of Liberty TP Management.

(c) CHANGE OF CONTROL. We know of no arrangements, including any pledge by
any person of our securities, the operation of which may at a subsequent date
result in a change in control of the Company.

III-19

(d) SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
PLANS. The following table sets forth information as of December 31, 2002 with
respect to securities authorized for issuance under our equity compensation
plans.

EQUITY COMPENSATION PLAN INFORMATION

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

See--"Executive Compensation--Compensation Committee Interlocks and Insider
Participation in Compensation Decision."

ITEM 14. CONTROLS AND PROCEDURES.

The Company's chief executive officer, principal accounting officer and
principal financial officer (the "Executives") conducted an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures, as defined in Exchange Act Rule 13a-14(c), as of a date within
90 days prior to the filing of this annual report on Form 10-K. Based on this
evaluation, the Executives concluded that the Company's disclosure controls and
procedures were effective as of the date of that evaluation. There have been no
significant changes in the Company's disclosure controls and procedures or in
other factors that could significantly affect these controls subsequent to the
date on which the Executives completed their evaluation.

III-20

PART IV.

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)(1) FINANCIAL STATEMENTS

Included in Part II of this Report:

(a)(2) FINANCIAL STATEMENT SCHEDULES

Included in Part IV of this Report:

(i) All schedules have been omitted because they are not applicable, not
material or the required information is set forth in the financial
statements or notes thereto.

(ii) Separate financial statements for Telewest Communications plc, a
foreign private issuer, which are required by Regulation S-X of the
Exchange Act, will be filed by amendment to this Annual Report on
Form 10-K within 180 days after December 31, 2002.

(iii) Separate financial statements of Teligent, Inc. were included in
Liberty's Registration Statement on Form S-1 related to its split
off from AT&T Corp. On May 21, 2001, Teligent and all of its direct
and indirect domestic subsidiaries filed voluntary petitions for
relief under chapter 11 of the U.S. Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York.
Since then Teligent has been subject to a liquidation process.
Accordingly, Teligent's financial statements are not included
herein.

IV-1

(a)(3) EXHIBITS

Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):

3--Articles of Incorporation and Bylaws:

3.1 Restated Certificate of Incorporation of Liberty, dated
August 9, 2001 (incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form S-1 of Liberty Media
Corporation (File No. 333-55998) as filed on February 21,
2001 (the "Split Off S-1 Registration Statement")).

3.2 Bylaws of Liberty, as adopted August 9, 2001 (incorporated
by reference to Exhibit 3.4 of the Split Off S-1
Registration Statement).

4--Instruments Defining the Rights of Securities Holders, including
Indentures:

4.1 Specimen certificate for shares of Series A common stock,
par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.1 to the Split Off S-1 Registration
Statement).

4.2 Specimen certificate for shares of Series B common stock,
par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.2 to the Split Off S-l Registration
Statement).

4.3 Liberty undertakes to furnish the Securities and Exchange
Commission, upon request, a copy of all instruments with
respect to long-term debt not filed herewith.

10--Material Contracts:

10.1 Inter-Group Agreement dated as of March 9, 1999, between
AT&T Corp. and Liberty Media Corporation, Liberty Media
Group LLC and each Covered Entity listed on the signature
pages thereof (incorporated by reference to Exhibit 10.2 to
the Registration Statement on Form S-4 of Liberty Media
Corporation (File No. 333-86491) as filed on September 3,
1999, the "Liberty S-4 Registration Statement").

10.2 Ninth Supplement to Inter-Group Agreement dated as of
June 14, 2001, between and among AT&T Corp., on the one
hand, and Liberty Media Corporation, Liberty Media Group
LLC, AGI LLC, Liberty SP, Inc., LMC Interactive, Inc. and
Liberty AGI, Inc., on the other hand (incorporated by
reference to Exhibit 10.25 to the Registration Statement on
Form S-1 of Liberty Media Corporation (File No. 333-66034)
as filed on July 27, 2001).

10.3 Intercompany Agreement dated as of March 9, 1999, between
Liberty and AT&T Corp. (incorporated by reference to
Exhibit 10.3 to the Liberty S-4 Registration Statement).

10.4 Tax Sharing Agreement dated as of March 9, 1999, by and
among AT&T Corp., Liberty Media Corporation,
Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings,
Inc. and each Covered Entity listed on the signature pages
thereof (incorporated by reference to Exhibit 10.4 to the
Liberty S-4 Registration Statement).

10.5 First Amendment to Tax Sharing Agreement dated as of
May 28, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.5 to the Liberty S-4 Registration Statement).

IV-2

10.6 Second Amendment to Tax Sharing Agreement dated as of
September 24, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.6 to the Registration Statement on Form S-1 of
Liberty Media Corporation (File No. 333-93917) as filed on
December 30, 1999 (the "Liberty S-1 Registration
Statement)).

10.7 Third Amendment to Tax Sharing Agreement dated as of
October 20, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.7 to the Liberty S-l Registration Statement).

10.8 Fourth Amendment to Tax Sharing Agreement dated as of
October 28, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.8 to the Liberty S-l Registration Statement).

10.9 Fifth Amendment to Tax Sharing Agreement dated as of
December 6, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.9 to the Liberty S-l Registration Statement).

10.10 Sixth Amendment to Tax Sharing Agreement dated as of
December 10, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.10 to the Liberty S-l Registration Statement).

10.11 Seventh Amendment to Tax Sharing Agreement dated as of
December 30, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.11 to the Liberty S-l Registration Statement).

10.12 Eighth Amendment to Tax Sharing Agreement dated as of
July 25, 2000, by and among AT&T Corp., Liberty Media
Corporation, AT&T Broadband LLC, Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings,
Inc. and each Covered Entity listed on the signature pages
thereof (incorporated by reference to Exhibit 10.12 to the
Split Off Registration Statement).

10.13 Instrument dated January 14, 2000, adding The Associated
Group, Inc. as a party to the Tax Sharing Agreement dated as
of March 9, 1999, as amended, among The Associated Group,
Inc., AT&T Corp., Liberty Media Corporation,
Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT Holdings,
Inc. and each Covered Entity listed on the signature pages
thereof (incorporated by reference to Exhibit 10.12 to the
Liberty S-1 Registration Statement).

10.14 Restated and Amended Employment Agreement dated November 1,
1992, between Tele-Communications, Inc. and John C. Malone
(assumed by Liberty as of March 9, 1999), and the amendment
thereto dated June 30, 1999 and effective as of March 9,
1999, between Liberty and John C. Malone (incorporated by
reference to Exhibit 10.6 to the Liberty S-4 Registration
Statement).

IV-3

10.15 Amended and Restated Agreement and Plan of Restructuring and
Merger among UnitedGlobalCom, Inc., New UnitedGlobalCom,
Inc., United/New United Merger Sub, Inc., Liberty Media
Corporation, Liberty Media International, Inc. and Liberty
Global, Inc., dated December 31, 2001 (incorporated by
reference to Current Form 8-K filed by Liberty Media
Corporation on January 9, 2002, Commission File
No. 0-20421).

10.16 Liberty Media Corporation 2000 Incentive Plan (As Amended
and Restated Effective September 11, 2002), filed herewith.

10.17 Liberty Media Corporation 2002 Non-employee Director
Incentive Plan, filed herewith.

21--Subsidiaries of Liberty Media Corporation.

23.1 Consent of KPMG LLP

99--Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.

(b) Reports on Form 8-K filed during the quarter ended December 31, 2002:

IV-4

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

LIBERTY MEDIA CORPORATION
Dated: March 25, 2003 By /s/ CHARLES Y. TANABE
------------------------------------------
Charles Y. Tanabe
SENIOR VICE PRESIDENT AND
GENERAL COUNSEL

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

IV-5

CERTIFICATIONS

I, Robert R. Bennett, certify that:

1. I have reviewed this annual report on Form 10-K of Liberty Media
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 25, 2003

/s/ ROBERT R. BENNETT
-----------------------------------------
Robert R. Bennett
PRESIDENT AND CHIEF EXECUTIVE OFFICER

IV-6

I, David J.A. Flowers, certify that:

1. I have reviewed this annual report on Form 10-K of Liberty Media
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 25, 2003

/s/ DAVID J.A. FLOWERS
-----------------------------------------
David J.A. Flowers
SENIOR VICE PRESIDENT AND TREASURER

IV-7

I, Christopher W. Shean, certify that:

1. I have reviewed this annual report on Form 10-K of Liberty Media
Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 25, 2003

/s/ CHRISTOPHER W. SHEAN
-----------------------------------------
Christopher W. Shean
SENIOR VICE PRESIDENT AND CONTROLLER

IV-8

EXHIBIT INDEX

Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):

3--Articles of Incorporation and Bylaws:

3.1 Restated Certificate of Incorporation of Liberty, dated
August 9, 2001 (incorporated by reference to Exhibit 3.2 to
the Registration Statement on Form S-1 of Liberty Media
Corporation (File No. 333-55998) as filed on February 21,
2001 (the "Split Off S-1 Registration Statement")).

3.2 Bylaws of Liberty, as adopted August 9, 2001 (incorporated
by reference to Exhibit 3.4 of the Split Off S-1
Registration Statement).

4--Instruments Defining the Rights of Securities Holders, including
Indentures:

4.1 Specimen certificate for shares of Series A common stock,
par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.1 to the Split Off S-1 Registration
Statement).

4.2 Specimen certificate for shares of Series B common stock,
par value $.01 per share, of the Registrant (incorporated by
reference to Exhibit 4.2 to the Split Off S-l Registration
Statement).

4.3 Liberty undertakes to furnish the Securities and Exchange
Commission, upon request, a copy of all instruments with
respect to long-term debt not filed herewith.

10--Material Contracts:

10.1 Inter-Group Agreement dated as of March 9, 1999, between
AT&T Corp. and Liberty Media Corporation, Liberty Media
Group LLC and each Covered Entity listed on the signature
pages thereof (incorporated by reference to Exhibit 10.2 to
the Registration Statement on Form S-4 of Liberty Media
Corporation (File No. 333-86491) as filed on September 3,
1999, the "Liberty S-4 Registration Statement").

10.2 Ninth Supplement to Inter-Group Agreement dated as of
June 14, 2001, between and among AT&T Corp., on the one
hand, and Liberty Media Corporation, Liberty Media
Group LLC, AGI LLC, Liberty SP, Inc., LMC Interactive, Inc.
and Liberty AGI, Inc., on the other hand (incorporated by
reference to Exhibit 10.25 to the Registration Statement on
Form S-1 of Liberty Media Corporation (File No. 333-66034)
as filed on July 27, 2001).

10.3 Intercompany Agreement dated as of March 9, 1999, between
Liberty and AT&T Corp. (incorporated by reference to
Exhibit 10.3 to the Liberty S-4 Registration Statement).

10.4 Tax Sharing Agreement dated as of March 9, 1999, by and
among AT&T Corp., Liberty Media Corporation,
Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.4 to the Liberty S-4 Registration Statement).

10.5 First Amendment to Tax Sharing Agreement dated as of
May 28, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.5 to the Liberty S-4 Registration Statement).

10.6 Second Amendment to Tax Sharing Agreement dated as of
September 24, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.6 to the Registration Statement on Form S-1 of
Liberty Media Corporation (File No. 333-93917) as filed on
December 30, 1999 (the "Liberty S-1 Registration
Statement)).

10.7 Third Amendment to Tax Sharing Agreement dated as of
October 20, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.7 to the Liberty S-l Registration Statement).

10.8 Fourth Amendment to Tax Sharing Agreement dated as of
October 28, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.8 to the Liberty S-l Registration Statement).

10.9 Fifth Amendment to Tax Sharing Agreement dated as of
December 6, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.9 to the Liberty S-l Registration Statement).

10.10 Sixth Amendment to Tax Sharing Agreement dated as of
December 10, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.10 to the Liberty S-l Registration Statement).

10.11 Seventh Amendment to Tax Sharing Agreement dated as of
December 30, 1999, by and among AT&T Corp., Liberty Media
Corporation, Tele-Communications, Inc., Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.11 to the Liberty S-l Registration Statement).

10.12 Eighth Amendment to Tax Sharing Agreement dated as of
July 25, 2000, by and among AT&T Corp., Liberty Media
Corporation, AT&T Broadband LLC, Liberty Ventures
Group LLC, Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.12 to the Split Off Registration Statement).

10.13 Instrument dated January 14, 2000, adding The Associated
Group, Inc. as a party to the Tax Sharing Agreement dated as
of March 9, 1999, as amended, among The Associated
Group, Inc., AT&T Corp., Liberty Media Corporation,
Tele-Communications, Inc., Liberty Ventures Group LLC,
Liberty Media Group LLC, TCI Starz, Inc., TCI CT
Holdings, Inc. and each Covered Entity listed on the
signature pages thereof (incorporated by reference to
Exhibit 10.12 to the Liberty S-1 Registration Statement).

10.14 Restated and Amended Employment Agreement dated November 1,
1992, between Tele-Communications, Inc. and John C. Malone
(assumed by Liberty as of March 9, 1999), and the amendment
thereto dated June 30, 1999 and effective as of March 9,
1999, between Liberty and John C. Malone (incorporated by
reference to Exhibit 10.6 to the Liberty S-4 Registration
Statement).

10.15 Amended and Restated Agreement and Plan of Restructuring and
Merger among UnitedGlobalCom, Inc., New
UnitedGlobalCom, Inc., United/New United Merger Sub, Inc.,
Liberty Media Corporation, Liberty Media
International, Inc. and Liberty Global, Inc., dated
December 31, 2001 (incorporated by reference to Current
Form 8-K filed by Liberty Media Corporation on January 9,
2002, Commission File No. 0-20421).

10.16 Liberty Media Corporation 2000 Incentive Plan (As Amended
and Restated Effective September 11, 2002), filed herewith.

10.17 Liberty Media Corporation 2002 Non-employee Director
Incentive Plan, filed herewith.

21--Subsidiaries of Liberty Media Corporation.

23.1 Consent of KPMG LLP

99--Certification pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.