LIBERTY MEDIA CORP /DE/ - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

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FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003

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 offices) (Zip Code)

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

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

The number of outstanding shares of Liberty Media Corporation's common stock
as of April 30, 2003 was:

Series A common stock 2,473,257,367 shares; and
Series B common stock 211,829,828 shares.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

I-1

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-2

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-3

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-4

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

(UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2003

See accompanying notes to condensed consolidated financial statements.

I-5

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

See accompanying notes to condensed consolidated financial statements.

I-6

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2003

(UNAUDITED)

(1) BASIS OF PRESENTATION

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

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

The accompanying interim condensed consolidated financial statements are
unaudited but, in the opinion of management, reflect all adjustments (consisting
of normal recurring accruals) necessary for a fair presentation of the results
for such periods. The results of operations for any interim period are not
necessarily indicative of results for the full year. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto contained in Liberty's
Annual Report on Form 10-K for the year ended December 31, 2002.

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 fair 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.

Certain prior period amounts have been reclassified for comparability with
the 2003 presentation.

(2) ACCOUNTING CHANGE

STATEMENT 142

Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS ("Statement
142"). Statement 142 requires that goodwill and other intangible assets with
indefinite useful lives no longer be amortized, but instead be tested for
impairment at least annually in accordance with the provisions of Statement 142.
The portion of excess costs on equity method investments that represents
goodwill is also no longer amortized, but continues to be considered for
impairment under Accounting Principles Board Opinion No. 18 ("APB Opinion 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

I-7

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(2) ACCOUNTING CHANGE (CONTINUED)
in accordance with Statement of Financial Accounting Standards No. 144,
ACCOUNTING FOR THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS.

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.

Statement 142 also 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 Communications, Inc.
This allocation is performed for goodwill impairment testing purposes 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, to its carrying amount, both of
which were measured as of the date of adoption.

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 recorded.

Amortization of intangible assets with finite useful lives was $50 million
and $44 million for the three months ended March 31, 2003 and 2002,
respectively. Based on its current amortizable intangible

I-8

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(2) ACCOUNTING CHANGE (CONTINUED)
assets, Liberty expects that amortization expense will be as follows for the
next five years and thereafter (amounts in millions):

2003................................................. $152
2004................................................. 106
2005................................................. 102
2006................................................. 80
2007................................................. 72
Thereafter........................................... 51
----
$563
====

(3) EARNINGS (LOSS) PER COMMON SHARE

Basic earnings (loss) per common share is computed by dividing net earnings
(loss) by the weighted average number of common shares outstanding for the
period. 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 three months ended March 31, 2003, are 77 million potential common
shares because their inclusion would be anti-dilutive.

(4) 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 of its more significant
investments in affiliates:

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(4) INVESTMENTS IN AFFILIATES ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
The following table reflects Liberty's share of earnings (losses) of
affiliates:

At March 31, 2003, the aggregate carrying amount of Liberty's investments in
its affiliates exceeded Liberty's proportionate share of its affiliates' net
assets by $8,820 million. Such amount is evaluated for impairment pursuant to
the provisions of APB Opinion 18.

QVC

QVC 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. At March 31, 2003, Liberty had a 42% ownership interest
in QVC. Liberty's share of earnings from QVC is reduced by Liberty's share of
certain stock compensation amounts that QVC includes in stockholders' equity.
Liberty's share of such amounts aggregated $13 million during the three months
ended March 31, 2003.

On March 3, 2003, Liberty announced that it had notified Comcast Corporation
of its election to trigger an exit process under the stockholders agreement
governing Comcast's and Liberty's interests in QVC. Under the QVC stockholders
agreement, the fair market value of QVC will be fixed pursuant to an appraisal
process. Once the fair market value of QVC has been established, Comcast will
have 30 days to elect to purchase Liberty's ownership interest in QVC
(approximately 42%) at a purchase price based on the established fair market
value. If Comcast does not elect to purchase Liberty's interest, Liberty will
have 30 days to elect to purchase Comcast's interest in QVC. If Liberty does 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 Liberty
would be free to make an offer to purchase QVC. If Comcast elects to buy
Liberty's QVC interest pursuant to its 30-day option or if Liberty elects to buy
Comcast's interest pursuant to Liberty's 30-day option, the purchase price
payable by Comcast or Liberty 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

I-10

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(4) INVESTMENTS IN AFFILIATES ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
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 Liberty if neither Comcast nor Liberty
exercises its 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.

Summarized results of operations for QVC (excluding stock compensation
reflected in QVC's stockholders' equity) are as follows:

JUPITER

Jupiter is a broadband provider of entertainment, information and
communication services in Japan. As of December 31, 2002, Liberty and Sumitomo
Corporation each held an approximate 36% interest in Jupiter. On March 27, 2003,
Liberty purchased an additional 8% equity interest from Sumitomo Corporation for
$141 million, increasing Liberty's ownership interest in Jupiter to 44% and
decreasing Sumitomo's ownership interest to 28%. This change in equity ownership
did not affect Liberty's and Sumitomo's respective shareholder loans to Jupiter.

UGC

UGC is a global broadband communications provider of video, voice and data
services with operations in over 25 countries throughout the world. As of
March 31, 2003, Liberty owns approximately 305 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 $3.05 on March 31, 2003.
Pursuant to certain voting and standstill arrangements, Liberty is currently
unable to exercise control of UGC, and accordingly, Liberty applies the equity
method of accounting for its investment.

Because Liberty currently has no commitment to make additional capital
contributions to UGC, Liberty suspended recording its share of UGC's losses in
the third quarter of 2002 when its investment

I-11

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(4) INVESTMENTS IN AFFILIATES ACCOUNTED FOR USING THE EQUITY METHOD (CONTINUED)
was reduced to zero. Suspended losses at March 31, 2003 aggregated
$555 million. In the event that Liberty increases its investment in UGC in the
future and such investment is deemed to represent funding of these suspended
losses, Liberty will be required to recognize these suspended losses to the
extent of its additional investment.

Summarized combined results of operations for affiliates other than QVC are
as follows:

I-12

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

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

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

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* Other available-for-sale securities include $471 million of parent company
and $30 million of subsidiary investments in certain marketable debt
securities at March 31, 2003, and $622 million of parent company and
$49 million of subsidiary investments in such securities at December 31,
2002.

NEWS CORP.

Effective March 27, 2003, Liberty entered into a put/call arrangement with
News Corp. Pursuant to this arrangement, Liberty has the option, exercisable at
any time prior to September 30, 2003, to acquire $500 million of American
Depositary Receipts ("ADRs") for News Corp. preferred limited voting ordinary
shares at $21.50 per ADR. If Liberty does not exercise its option and in the
event News Corp. acquires an ownership interest in Hughes Electronics
Corporation within two years, News Corp. has the option to require Liberty to
purchase $500 million of ADRs for News Corp. preferred limited voting ordinary
shares at $21.50 per ADR. The estimated fair values of the put and call options
offset at March 31, 2003. Changes in the fair values subsequent to March 31,
2003 will be included in realized and unrealized gains on financial instruments
in Liberty's consolidated statements of operations.

NONTEMPORARY DECLINES IN FAIR VALUE OF INVESTMENTS

During the three months ended March 31, 2003 Liberty determined that certain
of its available-for-sale securities and other cost investments experienced
nontemporary declines in value. As a result, the carrying amounts of such
investments were adjusted to their respective fair values. These adjustments
resulted in a total charge of $21 million and are included in other, net in the
accompanying condensed consolidated statement of operations.

I-13

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(5) INVESTMENTS IN AVAILABLE-FOR-SALE SECURITIES AND OTHER COST INVESTMENTS
(CONTINUED)
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 aggregate fair market value of all of its
investments in available-for-sale securities and other cost investments
approximated their aggregate carrying value at March 31, 2003 and December 31,
2002. 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.

I-14

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(6) DERIVATIVE INSTRUMENTS

The Company's derivative instruments are summarized as follows:

EQUITY COLLARS, NARROW-BAND COLLARS, PUT SPREAD COLLARS AND PUT AND CALL
OPTIONS

The Company has entered into equity collars, narrow-band collars, put spread
collars, written put and call options and other financial instruments
(collectively, "AFS Derivatives") to manage market risk associated with its
investments in certain marketable securities. Prior to January 1, 2003, the only
derivative instruments designated by the Company as hedges were its 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. Accordingly, changes in the fair value of the Company's
available-for-sale securities that previously had been reported in earnings due
to the designation of equity collars as fair value hedges are now reported as a
component of other comprehensive income in the Company's balance sheet. Changes
in the fair value of the equity collars continue to be reported in earnings.

I-15

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(6) DERIVATIVE INSTRUMENTS (CONTINUED)
EXCHANGEABLE DEBENTURE CALL OPTION OBLIGATIONS

In March 2003, Liberty issued $1,500 million of 0.75% Senior Exchangeable
Debentures due 2023. Each $1,000 debenture is exchangeable at the holder's
option for the value of 57.4079 shares of AOL Time Warner common stock. Pursuant
to the provisions of Statement of Financial Accounting Standards No. 133,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("Statement
133"), the call option feature of the exchangeable debentures is reported
separately in the condensed consolidated balance sheet at fair value. The
estimated value of the call option feature of the AOL Time Warner exchangeables
at the time of issuance was $348 million. Changes in the fair value of the call
option obligations subsequent to initial recording are recognized as unrealized
gains or losses on financial instruments in Liberty's condensed consolidated
statements of operations.

REALIZED AND UNREALIZED GAINS ON FINANCIAL INSTRUMENTS

Realized and unrealized gains (losses) on financial instruments during the
three months ended March 31, 2003 and 2002 are comprised of the following:

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(1) Comprised primarily of forward foreign exchange contracts and interest rate
swap agreements.

I-16

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(7) LONG-TERM DEBT

Debt is summarized as follows:

SENIOR EXCHANGEABLE DEBENTURES

In March 2003, Liberty issued $1,500 million of 0.75% Senior Exchangeable
Debentures due 2023 and received net cash proceeds of $1,470 million after
expenses. Interest is payable on March 30 and September 30 of each year. Each
$1,000 debenture is exchangeable at the holder's option for the value of 57.4079
shares of AOL Time Warner common stock. Liberty may, at its election, pay the
exchange value in cash, AOL Time Warner common stock, shares of Liberty
Series A common stock or a combination thereof. On or after April 5, 2008,
Liberty, at its option, may redeem the debentures, in whole or in part, for
shares of AOL Time Warner common stock, cash or any combination thereof. On
March 30, 2008, March 30, 2013 or March 30, 2018, the holders may cause Liberty
to purchase the exchangeable debentures, and Liberty, at its election, may pay
the purchase price in shares of AOL Time Warner common stock, cash, Liberty
Series A common stock, or any combination thereof.

In accordance with Statement 133, the call option feature of the
exchangeable debentures is reported separately in the condensed consolidated
balance sheet at fair value. 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 $1,500 million of exchangeable debentures issued
during the three months ended March 31, 2003, aggregated $348 million on the
date of issuance. Accordingly, the long-term debt portion was recorded at
$1,152 million. The long-term debt is accreted to its face amount over the term
of the debentures using the effective interest method. Accretion related to all
of the Company's exchangeable debentures

I-17

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(7) LONG-TERM DEBT (CONTINUED)
aggregated $3 million and $2 million during the three months ended March 31,
2003 and 2002, respectively, and is included in interest expense.

Subsequent to March 31, 2003, the underwriters exercised their over
allotment option, and Liberty issued an additional $250 million of AOL Time
Warner exchangeable debentures for net cash proceeds of $245 million after
expenses.

BANK CREDIT FACILITIES

At March 31, 2003, Liberty's subsidiaries had $1,246 million outstanding and
$377 million in unused lines of credit under their respective bank credit
facilities. One of such bank credit facilities with an outstanding balance of
$115 million and unused credit of $188 million was repaid and cancelled in
April 2003. 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. Such fees were not significant for the three months ended
March 31, 2003 and 2002.

At March 31, 2003, the subsidiary of Liberty that operates the DMX Music
service was not in compliance with three covenants contained in its bank loan
agreement. The subsidiary and the participating banks have entered into a
forbearance agreement whereby the banks have agreed to forbear from exercising
certain default-related remedies against the subsidiary through March 31, 2004.
The outstanding balance of the subsidiary's bank facility was $89 million at
March 31, 2003, all of which is included in current portion of debt. All other
consolidated borrowers were in compliance with their debt covenants at
March 31, 2003. 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.

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 securities at March 31, 2003 is as follows (amounts in millions):

Senior notes of parent company.............................. $1,108
Senior debentures of parent company......................... $1,677
Senior exchangeable debentures of parent company, including
call option obligation.................................... $3,518

Liberty believes that the carrying amount of the remainder of its debt
approximated its fair value at March 31, 2003.

I-18

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(7) LONG-TERM DEBT (CONTINUED)

A reconciliation of the carrying value of the Company's debt to the face
amount at maturity is as follows (amounts in millions):

Carrying value at March 31, 2003............................ $6,097
Add:
Unamortized issue discount on senior notes and
debentures.............................................. 18
Unamortized discount attributable to call option feature
of exchangeable debentures.............................. 2,537
------
Face amount at maturity................................. $8,652
======

(8) STOCKHOLDERS' EQUITY

SHARES RESERVED FOR ISSUANCE

As of March 31, 2003, there were 49 million shares of Liberty Series A
common stock and 28 million shares of Liberty Series B common stock reserved for
issuance under exercise privileges of outstanding stock options and warrants.

PURCHASES OF COMMON STOCK

During the three months ended March 31, 2003, the Company purchased
17.3 million shares of its common stock in the open market for aggregate cash
consideration of $170 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 condensed consolidated balance sheet.

Also as of March 31, 2003, the Company had sold put options on 9.7 million
shares of its Series A common stock. The put options expire in the second
quarter of 2003 and have a weighted average strike price of $8.86. 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 condensed 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 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.

(9) STOCK BASED COMPENSATION

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

I-19

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(9) STOCK BASED COMPENSATION (CONTINUED)
Principles Board Opinion No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES."
("APB Opinion No. 25") The Company's options and 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.

(10) COMMITMENTS AND CONTINGENCIES

FILM RIGHTS

Starz Encore Group LLC ("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. The unpaid balance under
agreements for film rights related to films that were available at March 31,
2003 is reflected as a liability in the accompanying condensed consolidated
balance sheet. The balance due as of March 31, 2003 is payable as follows:
$153 million in 2003; $50 million in 2004; and $18 million in 2005.

Starz Encore has also contracted to pay fees for the rights to exhibit films
that have been released theatrically, but are not available for exhibition by
Starz Encore until some future date. These amounts have not been accrued at
March 31, 2003. Starz Encore's estimate of amounts payable under these
agreements is as follows: $230 million in 2003; $310 million in 2004;
$116 million in 2005; $117 million in 2006; $106 million in 2007; and
$303 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

I-20

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(10) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 $94 million and $87 million for the three months ended March 31, 2003
and 2002, respectively.

In addition to the foregoing contractual film obligations, two motion
picture studios that have output contracts with Starz Encore through 2006 and
2010, respectively, have the right to extend their contracts for an additional
three years. If the studios elect to extend these contracts, Starz Encore has
agreed to pay the studios $60 million and $190 million, respectively.

GUARANTEES

Liberty guarantees Starz Encore's obligations under certain of its studio
output agreements. At December 31, 2002, Liberty's guarantee for 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 obligations under the output agreements. Liberty has not recorded
a separate liability for its guarantee of these obligations.

At March 31, 2003, Liberty has guaranteed Y15.2 billion ($129 million) of
the bank debt of Jupiter, an equity affiliate that provides broadband services
in Japan. Liberty's guarantees expire as the underlying debt matures. The debt
maturity dates range from 2004 to 2018. In addition, Liberty has agreed to fund
up to an additional Y20 billion ($169 million at March 31, 2003) to Jupiter in
the event Jupiter's cash flow (as defined in its bank loan agreement) does not
meet certain targets. In the event Jupiter meets certain performance criteria,
this commitment reduces to Y10 billion ($85 million at March 31, 2003) at
December 31, 2003 and expires on September 30, 2004.

Liberty and the other investors have guaranteed transponder and equipment
lease obligations through 2018 of their investee that provides direct-to-home
satellite services in Latin America ("Sky Latin America"). At March 31, 2003,
the Company's portion of the guarantee of the remaining obligations due under
such agreements aggregated $113 million. In 2002, Globo Communicacoes e
Participacoes ("GloboPar"), another investor in Sky Latin America, announced
that it was reevaluating its capital 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 March 31, 2003, the Guaranteed Obligations aggregated
approximately $52 million and are not reflected in Liberty's condensed

I-21

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(10) COMMITMENTS AND CONTINGENCIES (CONTINUED)
consolidated balance sheet at March 31, 2003. 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.

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 Tele-Communications, Inc. ("TCI"). TCI cable systems subsequently
acquired by AT&T Corp. ("AT&T") in 1999 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, 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

I-22

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(10) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.

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

I-23

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(10) COMMITMENTS AND CONTINGENCIES (CONTINUED)
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
$21 million for the three months ended March 31, 2003.

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.

(11) 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 Liberty's pre-tax earnings or loss. Subsidiaries and affiliates not
meeting this threshold are aggregated for segment reporting purposes. The
segment presentation for prior periods has been conformed to correspond to the
current period segment presentation.

Liberty evaluates performance and makes decisions about allocating resources
to its subsidiaries and affiliates 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,
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.

For the three months ended March 31, 2003, Liberty had five operating
segments: Starz Encore, Ascent Media Group, Inc. ("Ascent Media"), On Command
Corporation ("On Command") and "Other", which are all consolidated entities; and
QVC, which is an equity method affiliate. 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 and Europe. On
Command provides in-room, on-demand video entertainment and information services
to hotels, motels and resorts. "Other" includes Liberty's non-consolidated
investments, corporate and other consolidated businesses not representing
separately reportable

I-24

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(11) INFORMATION ABOUT LIBERTY'S OPERATING SEGMENTS (CONTINUED)
segments. QVC markets and sells a wide variety of consumer products and
accessories primarily by means of televised shopping programs on the QVC
network.

I-25

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

MARCH 31, 2003

(UNAUDITED)

(11) INFORMATION ABOUT LIBERTY'S OPERATING SEGMENTS (CONTINUED)
The following table provides a reconciliation of consolidated segment
operating cash flow to earnings before income taxes and minority interest:

I-26

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

Certain statements in this Quarterly Report on Form 10-Q 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. Where, in any
forward-looking statement, the Company expresses 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 the
Company, and the entities in which it has interests, operate;

- continued consolidation of the broadband distribution industry;

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

- rapid technological changes;

- 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, and adverse outcomes from regulatory
proceedings;

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

- competitor responses to the Company's products and services, and the
products and services of the entities in which it has interests, and the
overall market acceptance of such products and services;

- 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 Quarterly Report, and Liberty
expressly disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein, to reflect any
change in its expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based.

GENERAL

The following discussion and analysis provides information concerning
Liberty's results of operations and financial condition. This discussion should
be read in conjunction with Liberty's

I-27

accompanying condensed consolidated financial statements and the notes thereto,
as well as Liberty's Annual Report on Form 10-K for the year ended December 31,
2002.

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

Liberty's most significant consolidated subsidiaries at March 31, 2003, were
Starz Encore Group LLC, Ascent Media Group, Inc. and On Command Corporation.
These businesses are either wholly or majority owned and are controlled by
Liberty and, accordingly, the results of operations of these businesses are
included in Liberty's consolidated results for the periods in which they were
wholly or majority owned and controlled.

A significant portion of Liberty's operations are conducted through entities
in which Liberty does not have a controlling financial interest but in which it
does 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, Liberty's share of the results of
operations of these businesses is reflected in its consolidated results as
earnings or losses of affiliates. Included in Liberty's investments in
affiliates at March 31, 2003 were Discovery Communications, Inc., QVC Inc.,
UnitedGlobalCom, Inc. and Jupiter Telecommunications Co., Ltd.

Liberty also holds interests in companies in which it does not have
significant influence. The most significant of these include AOL Time
Warner Inc., Sprint Corporation, The News Corporation Limited, Vivendi
Universal, S.A., USA Interactive, Viacom, Inc. and Motorola Inc. These
investments are classified as available-for-sale securities and are carried at
fair value.

MATERIAL CHANGES IN RESULTS 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
principally in the United States and Europe. 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 the Company's financial
performance, separate financial data has been provided in the table below for
Starz Encore, Ascent Media and On Command. The "other" category includes
Liberty's other consolidated subsidiaries and corporate expenses. Liberty's
other consolidated subsidiaries include Maxide Acquisition, Inc. (d/b/a DMX
Music), TruePosition, Inc. ("TruePosition"), OpenTV Corp. ("OpenTV"), Pramer
S.C.A. ("Pramer") 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 cable programming services throughout
Latin America. Liberty Cablevision of Puerto Rico provides cable television and
other broadband services in Puerto Rico. Liberty holds significant equity
investments, the results of which are not a component of operating

I-28

income, but are discussed below under "Investments in Affiliates Accounted for
Using the Equity Method." Other items of significance are discussed separately
below.

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

(a) Not meaningful.

Certain of the Company's 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 prolonged 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 (1) the development of new television and motion picture programming,
thereby adversely impacting the Programming Affiliates' supply of service
offerings; (2) consumer disposable income and consumer demand for the products
and services of the Programming Affiliates and (3) the amount of resources
allocated for network and cable television advertising by major corporations.

Liberty has 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.

I-29

The value of the Argentine peso dropped significantly on the day the peg rate
was eliminated and has dropped further since that date. While Liberty cannot
predict what future impact these economic events will have on its Argentine
businesses, it notes that since the devaluation of the Argentine peso these
businesses have experienced significant adverse effects as customers have
extended payments and lenders have tightened 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 TCI. TCI cable systems
(referred to herein as AT&T Broadband) were acquired by AT&T in 1999. 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 AT&T Broadband acquires or disposes of cable systems or if Starz Encore's
programming costs increase above certain specified levels. Starz Encore's
affiliation agreements with other distributors generally provide for payments
based on the number of subscribers that receive Starz Encore's services. Comcast
Corporation has notified Starz Encore that it has elected to extend its
affiliation agreement (which currently expires in December 2003) for five years
under the same terms and conditions.

AT&T Broadband was a party to a business combination with Comcast
Corporation in November 2002. In that combination, AT&T Broadband and Comcast
Holdings Corporation became wholly-owned subsidiaries of Comcast Corporation. As
described in note 10 to the accompanying condensed consolidated financial
statements, 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

I-30

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 $21 million for the three months ended March 31, 2003.

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.

Starz Encore's revenue decreased 3% for the three months ended March 31,
2003, as compared to the corresponding prior year period. Such decrease is the
net effect of the impact of the dispute with Comcast partially offset by a 19%
increase in the number of average subscriptions to Starz Encore's services.
Substantially all of the increase in average subscriptions is attributable to
Starz Encores Thematic Multiplex service, which has lower subscription rates
than its other services.

Starz Encore's subscription units at March 31, 2003 and December 31, 2002
are presented in the table below. Subscription units for prior periods reflect
certain minor adjustments to conform with Starz Encore's new policy of only
presenting paying subscription units. Previously, Starz Encore had included
subscribers receiving the service during rent free promotional campaigns.

At March 31, 2003, cable, DBS, and other distribution represented 63%, 36%
and 1%, respectively, of Starz Encore's total subscription units. Comcast,
DirecTV and Echostar generated 26%, 23% and 11% respectively, of Starz Encore's
revenue for the three months ended March 31, 2003.

Starz Encore's operating, selling, general and administrative expenses
decreased 14% for the three months ended March 31, 2003, as compared to the
corresponding period in 2002. Such decrease is the net effect of decreases in
sales and marketing expenses and general and administrative expenses partially
offset by an increase in programming expense. In addition, Starz Encore entered
into a

I-31

settlement agreement regarding the payment of certain music license fees which
resulted in the reversal of a related accrual in the amount of $8 million.

A cable operator has failed to make all license fee payments due Starz
Encore after December 31, 2002 under its affiliation agreement with Starz
Encore, which amount approximates $19 million through April 30, 2003.

In refusing to pay, the cable operator has alleged that in connection with
its affiliation agreement with Starz Encore, a third party owes, but has not
paid, an affiliate of the cable operator an annual payment of approximately
$14 million. The cable operator has stated that this payment dispute must be
resolved to its satisfaction before the cable operator will pay Starz Encore the
amounts due under the cable operator's affiliation agreement with Starz Encore.

Starz Encore believes that the cable operator's claims are baseless and that
the cable operator's obligations to Starz Encore under its affiliation agreement
are not linked to, premised or conditioned on any agreement related to the
aforementioned payment. Starz Encore has demanded that the cable operator fully
perform its obligations under its affiliation agreement, and Starz Encore
intends to take such actions as may be necessary to enforce its rights.

ASCENT MEDIA. Ascent Media's revenue decreased 9% for the three months
ended March 31, 2003, as compared to the corresponding prior year period. This
decrease is due to decreases in revenue for Ascent Media's Networks Group
($7 million) and Creative Services Group ($6 million). The Networks Group
decrease is principally due to the sale of a facility in December 2002 which
generated $6 million in revenue in the first quarter of 2002. The Creative
Services Group decrease is principally due to (1) a shift by television
broadcasters to reality-based programming which generally requires less
post-production services and (2) a reduction in corporate spending for the
production of television commercials.

Ascent Media's operating, selling general and administrative expenses
decreased 8% for the three months ended March 31, 2003, as compared to the
corresponding prior year period. Such decrease is due to an 11% decrease in
variable expenses such as personnel and material costs and a 6% decrease in
general and administrative expenses.

ON COMMAND. Revenue remained even for the three months ended March 31,
2003, as compared to the corresponding period in 2002, as increases in higher
average rates for certain pay-per-view products were offset by an overall
decrease in occupancy rates in the hotel industry, and a reduction in average
rooms served by On Command.

On Command's operating, selling, general and administrative expenses
decreased 9% for the three months ended March 31, 2003, as compared to the
corresponding period in 2002. Such decrease is due to a decrease in expenses
that vary with the number of rooms served and various other individually
insignificant decreases due to On Command's ongoing cost cutting measures.

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

Revenue increased $12 million or 14% for the three months ended March 31,
2003, as compared to the corresponding period in 2002. The increase is primarily
due to the acquisition of OpenTV in August 2002.

Operating, selling, general and administrative expenses increased
$34 million or 40% for the three months ended March 31, 2003, as compared to the
same period in 2002. Such increase is primarily due to the acquisitions of
OpenTV and Wink Communications, Inc.

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

I-32

stock. The amount 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 and, ultimately,
on the final determination of market value when the rights are exercised.

OTHER INCOME AND EXPENSE

DIVIDEND AND INTEREST INCOME. Interest and dividend income for the three
months ended March 31, 2003 was comprised of interest income earned on invested
cash ($11 million), dividends on ABC Family Worldwide preferred stock
($8 million) and other ($14 million).

INVESTMENTS IN AFFILIATES ACCOUNTED FOR USING THE EQUITY METHOD. Liberty's
share of earnings (losses) of affiliates is presented below:

DISCOVERY. The decrease in Liberty's share of losses of Discovery is due to
improved operating income, which resulted from an increase in revenue partially
offset by an increase in operating expenses. During the three months ended
March 31, 2003, Discovery reported increases in both affiliate revenue and
advertising revenue.

QVC. Liberty's share of earnings from QVC is reduced by Liberty's share of
certain stock compensation amounts that QVC includes in stockholders' equity.
The decrease in Liberty's share of earnings of QVC is due to an increase in
stock compensation in 2003. QVC's revenue, gross profit and operating income
increased in 2003. However, these increases were offset by the increase in stock
compensation.

JUPITER. The change in Liberty's share of Jupiter's results of operations
is due to increased revenue and operating margins driven by increased cable
distribution and growth in telephony and Internet revenue, which translated into
net earnings in 2003, as compared to a net loss in 2002.

As of December 31, 2002, Liberty and Sumitomo Corporation each held an
approximate 36% interest in Jupiter. On March 27, 2003, Liberty purchased an
additional 8% interest from Sumitomo Corporation for $141 million, increasing
Liberty's ownership interest in Jupiter to 44% and decreasing Sumitomo's
ownership interest to 28%.

UGC. Because Liberty currently has no commitment to make additional capital
contributions to UGC, Liberty suspended recording its share of UGC's losses in
the third quarter of 2002 when its investment was reduced to zero. Suspended
losses at March 31, 2003 aggregated $555 million. In the event that Liberty
increases its investment in UGC in the future and such investment is deemed to
represent funding of these suspended losses, Liberty will be required to
recognize these suspended losses to the extent of its additional investment.

I-33

TELEWEST. As of December 31, 2002, Liberty's share of Telewest's losses had
reduced its 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 Liberty expects will reduce its overall
ownership in Telewest to below 10%, Liberty determined that beginning in 2003 it
no longer has the ability to exercise significant control over the operations of
Telewest. In addition, Liberty has removed its representatives from the Telewest
board of directors. Accordingly, Liberty no longer accounts for its investment
in Telewest using the equity method.

At March 31, 2003, Liberty's accumulated other comprehensive earnings
includes $287 million (before related deferred taxes) of unrealized foreign
currency losses related to its investment in the equity of Telewest. Upon
consummation of Telewest's proposed debt restructuring and the resulting
dilution of its ownership interest in Telewest, Liberty expects that it will
recognize such unrealized foreign currency losses in its statement of
operations.

REALIZED AND UNREALIZED GAINS (LOSSES) ON FINANCIAL INSTRUMENTS. Realized
and unrealized gains (losses) on financial instruments are comprised of the
following:

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

(1) Comprised primarily of forward foreign exchange contracts and interest rate
swap agreements.

Prior to January 1, 2003, the only derivative instruments designated by the
Company as hedges were its 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. Accordingly, changes in the fair value of
the Company's available-for-sale securities that previously had been reported in
earnings due to the designation of equity collars as fair value hedges are now
reported as a component of other comprehensive income in the Company's balance
sheet. Changes in the fair value of the equity collars continue to be reported
in earnings.

NONTEMPORARY DECLINES IN FAIR VALUE OF INVESTMENTS. During the three months
ended March 31, 2003, Liberty determined that certain of its other investments
experienced nontemporary declines in value. As a result, the carrying amounts of
such investments were adjusted to their respective fair values. These
adjustments resulted in a total charge of $21 million and are included in other,
net in the accompanying condensed consolidated statement of operations.

I-34

CUMULATIVE EFFECT OF ACCOUNTING CHANGE. Liberty and its subsidiaries
adopted Statement 142 effective January 1, 2002. Upon adoption, the Company
determined that the carrying value of certain of its reporting units (including
allocated goodwill) was not recoverable. Accordingly, the Company recorded an
impairment loss of $1,869 million, net of related taxes, as the cumulative
effect of a change in accounting principle for the three months ended March 31,
2002. This transitional impairment loss includes an adjustment of $325 million
for the Company's proportionate share of transition adjustments that its equity
method affiliates recorded.

MATERIAL CHANGES IN FINANCIAL CONDITION

CORPORATE

Although Liberty's sources of funds include its available cash balances, net
cash from operating activities, and dividend and interest receipts, Liberty is
primarily dependent upon its financing activities, proceeds from asset sales and
monetization of its public investment portfolio to generate sufficient cash
resources to meet its future cash requirements and planned commitments. Due to
covenant restrictions in the bank credit facilities of its subsidiaries, Liberty
is generally not entitled to the cash resources or cash generated by operations
of its subsidiaries and business affiliates. Similarly, debt of Liberty's
subsidiaries is generally non-recourse to Liberty.

Liberty's primary uses of cash in recent years have been investments in and
advances to affiliates and acquisitions of consolidated subsidiaries. In this
regard, Liberty's investments in and advances to equity and cost method
affiliates aggregated $394 million and $3 million, respectively, for the three
months ended March 31, 2003, and $561 million and $94 million, respectively, for
the three months ended March 31, 2002. In addition, Liberty made debt repayments
of $105 million and $454 million during the three months ended March 31, 2003
and 2002, respectively. Liberty also acquired shares pursuant to a previously
authorized share buy back program. During the three months ended March 31, 2003,
Liberty purchased 17.3 million shares of its common stock in the open market for
$170 million.

Liberty anticipates that it will continue to fund its existing ventures as
they develop and expand their businesses, and that such investments and advances
to affiliates will aggregate approximately $325 million in the last three
quarters of 2003. In addition, effective March 27, 2003, Liberty entered into a
put/call arrangement with News Corp. Pursuant to this arrangement, Liberty has
the option, execisable at any time prior to September 30, 2003, to acquire
$500 million of ADRs for News Corp. preferred limited voting ordinary shares at
$21.50 per ADR. If Liberty does not exercise its option and in the event News
Corp. acquires an ownership interest in Hughes Electronics Corporation within
two years, News Corp. has the option to require Liberty to purchase
$500 million of ADRs for News Corp. preferred limited voting ordinary shares at
$21.50 per ADR. Although Liberty may invest additional amounts in new or
existing ventures in 2003, it is unable to quantify such investments at this
time. In addition, Liberty has $300 million of corporate debt and $319 million
of subsidiary debt that is required to be repaid or refinanced before March 31,
2004.

Liberty intends to fund its investing and financing activities with a
combination of available cash and short term investments, bank borrowings,
monetization of existing marketable securities, proceeds from the sale of
assets, and the issuance of debt and equity securities. In this regard, during
the three months ended March 31, 2003, Liberty issued $1,500 million of 0.75%
Senior Exchangeable Debentures due 2023. Each $1,000 debenture is exchangeable
at the holder's option for the value of 57.4079 shares of AOL Time Warner common
stock. Liberty received cash proceeds of $1,470 million upon issuance of the
exchangeable debentures after related offering costs. In addition, Liberty
received cash proceeds of $224 million upon settlement of equity collars related
to a portion of its Sprint PCS position.

Subsequent to March 31, 2003, Liberty issued $1,000 million face amount of
senior notes with an interest rate of 5.70% for net cash proceeds of
approximately $990 million. In addition, the underwriters exercised their over
allotment option with respect to Liberty's AOL Time Warner

I-35

exchangeable debentures and Liberty issued an additional $250 million of AOL
Time Warner exchangeable debentures for net cash proceeds of $245 million after
expenses.

On March 3, 2003, Liberty announced that it had notified Comcast Corporation
of its election to trigger an exit process under the stockholders agreement
governing Comcast's and Liberty's interests in QVC. Under the QVC stockholders
agreement, the fair market value of QVC will be fixed pursuant to an appraisal
process. Once the fair market value of QVC has been established, Comcast will
have 30 days to elect to purchase Liberty's ownership interest in QVC
(approximately 42%) at a purchase price based on the established fair market
value. If Comcast does not elect to purchase Liberty's interest, Liberty will
have 30 days to elect to purchase Comcast's interest in QVC. If Liberty does 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 Liberty
would be free to make an offer to purchase QVC. If Comcast elects to buy
Liberty's QVC interest pursuant to its 30-day option or if Liberty elects to buy
Comcast's interest pursuant to Liberty's 30-day option, the purchase price
payable by Comcast or Liberty 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 Liberty if neither Comcast nor Liberty exercises its 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.

Based on currently available information, Liberty expects that the aggregate
dividend and interest income it will receive during the year ended December 31,
2003 will be approximately $200 million. Based on current debt levels and
current interest rates, Liberty expects that the aggregate interest payments it
will make during the year ended December 31, 2003 will be approximately
$430 million, of which approximately $375 million relates to parent company
debt.

SUBSIDIARIES

At March 31, 2003, Liberty's consolidated subsidiaries had $1,246 million
outstanding and $377 million in unused availability under their respective bank
credit facilities. One of such bank credit facilities with an outstanding
balance of $115 million and unused credit of $188 million was repaid and
cancelled in April 2003. Certain assets of Liberty's 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 March 31, 2003, the subsidiary of Liberty that operates the DMX
Music service was not in compliance with three covenants contained in its bank
loan agreement. The subsidiary and the participating banks have entered into a
forbearance agreement whereby the banks have agreed to forbear from exercising
certain default-related remedies against the subsidiary through March 31, 2004.
The outstanding balance of the subsidiary's bank facility was $89 million at
March 31, 2003. All other consolidated subsidiaries were in compliance with
their debt covenants at March 31, 2003. 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.

On March 28, 2003, On Command reached agreement with its bank lenders to
postpone until June 30, 2003 a step down of the leverage ratio covenant of its
Revolving Credit Facility. On April 17, 2003, On Command and its bank lenders
executed an Amended and Restated Credit Agreement. The

I-36

closing of the Amended and Restated Credit Agreement is contingent upon the
contribution of $40 million by Liberty to On Command to be used to repay
principal due, and permanently reduce lender commitments, pursuant to the
Amended and Restated Credit Agreement. However, Liberty has no obligation to
make any contribution to On Command, and no assurance can be given that any such
contribution will be made. The terms of any potential Liberty contribution
(including the securities or other consideration to be received by Liberty in
exchange for such contribution) have not yet been agreed upon. After the
proposed reduction of lender commitments, the Amended and Restated Credit
Agreement would mature on December 31, 2007. Although On Command is in
compliance with the leverage ratio covenant of its existing Revolving Credit
Facility at March 31, 2003, On Command believes that it will be out of
compliance with such covenant at June 30, 2003 if the closing of the Amended and
Restated Credit Agreement does not occur by that date.

If the Amended and Restated Credit Agreement has not closed by June 30,
2003, On Command anticipates that it will request a further amendment to its
existing Revolving Credit Facility to postpone the step down of the leverage
ratio covenant. It is uncertain if On Command's lenders would agree to such a
further amendment and what terms might be imposed by On Command's lenders in
connection with such further amendment. In the event that the closing of the
Amended and Restated Credit Agreement does not close on or before June 30, 2003,
On Command anticipates that a default would occur under the terms of its
existing Revolving Credit Facility. 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 the Amended and Restated Credit Agreement
will close. In addition, if the Amended and Restated Credit Agreement does not
close, no assurance can be given that On Command will be able to successfully
restructure or refinance its existing Revolving Credit Facility on terms
acceptable to On Command, or that On Command will be able to avoid a default
under it existing Revolving Credit Facility. In light of the circumstances that
existed with respect to the Revolving Credit Facility at March 28, 2003, On
Command's independent auditors included an explanatory paragraph in their audit
report for the year ended December 31, 2002 that addressed the uncertainty
surrounding the ability of On Command to continue as a going concern.

EQUITY AFFILIATES

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

At March 31, 2003, Liberty owned approximately 305 million shares of UGC
common stock which represents an approximate 74% economic interest and a 94%
voting interest in UGC. Pursuant to certain voting and standstill arrangements,
Liberty is currently unable to exercise control of UGC, and accordingly, Liberty
applies the equity method of accounting for its investment.

I-37

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 which indirectly owned 51% of Austar
United Communications Limited ("Austar United"), the second largest subscription
television operator in Australia, 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. On December 21, 2002,
UAP filed a plan of reorganization pursuant to which substantially all of UAP's
assets would be sold for cash, and such cash would be distributed to the holders
of UAP's senior notes due 2006 in complete satisfaction of their claims. The
proposed plan was confirmed by the U.S. Bankruptcy Court in March 2003 and
approved by Austar United's banking syndicate on April 4, 2003. The sale of
UAP's assets was consummated on April 18, 2003, and UAP expects to emerge from
these bankruptcy proceedings by May 31, 2003. UGC continues to hold an
approximate 30% ownership interest in Austar United through another subsidiary.

In February, May, August and November 2002 and February 2003, United
Pan-Europe Communications N.V. ("UPC"), a consolidated subsidiary of UGC, failed
to make required interest payments on certain of its senior notes. 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. The
recapitalization is subject to certain approvals and conditions. 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. The Dutch Court of Appeals rejected this appeal on
April 15, 2003, and the creditor made a final appeal to the Dutch Supreme Court
on April 24, 2003. UPC does not expect that this appeal will affect the
successful completion of its restructuring, which it expects will be finalized
in the third quarter of 2003. 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. The unpaid balance under
agreements for film rights related to films that were available at March 31,
2003 is reflected as a liability in the accompanying condensed consolidated
balance sheet. The balance due as of March 31, 2003 is payable as follows:
$153 million in 2003; $50 million in 2004; and $18 million in 2005.

Starz Encore has also contracted to pay fees for the rights to exhibit films
that have been released theatrically, but are not available for exhibition by
Starz Encore until some future date. These amounts have not been accrued at
March 31, 2003. Starz Encore's estimate of amounts payable under these
agreements is as follows: $230 million in 2003; $310 million in 2004;
$116 million in 2005; $117 million in 2006; $106 million in 2007; and
$303 million thereafter.

I-38

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 $94 million and $87 million for
the three months ended March 31, 2003 and 2002, respectively.

In addition to the foregoing contractual film obligations, two motion
picture studios that have output contracts with Starz Encore through 2006 and
2010, respectively, have the right to extend their contracts for an additional
three years. If the studios elect to extend these contracts, Starz Encore has
agreed to pay the studios $60 million and $190 million, respectively.

Liberty guarantees Starz Encore's obligations under certain of its studio
output agreements. At December 31, 2002, Liberty's guarantee for 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 obligations under the output agreements. Liberty has not recorded
a separate liability for its guarantee of these obligations.

At March 31, 2003, Liberty guaranteed Y15.2 billion ($129 million) of the
bank debt of Jupiter, an equity affiliate that provides broadband services in
Japan. Liberty's guarantees expire as the underlying debt matures. The debt
maturity dates range from 2004 to 2018. In addition, Liberty has agreed to fund
up to Y20 billion ($169 million at March 31, 2003) to Jupiter in the event
Jupiter's cash flow (as defined in its bank loan agreement) does not meet
certain targets. In the event Jupiter meets certain performance criteria, this
commitment reduces to Y10 billion ($85 million at March 31, 2003) at
December 31, 2003 and expires on September 30, 2004.

Liberty and the other investors have guaranteed transponder and equipment
lease obligations through 2018 of Sky Latin America. At March 31, 2003, the
Company's portion of the guarantee of the remaining obligations due under such
agreements aggregated $113 million. In 2002, GloboPar announced that it was
reevaluating its capital 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 of certain other affiliates. At March 31, 2003, these
guaranteed obligations aggregated approximately $52 million and are not
reflected in Liberty's condensed consolidated balance sheet. Currently, Liberty
is not certain of the likelihood of being required to perform under such
guarantees.

Pursuant to a tax sharing agreement between Liberty and AT&T when Liberty
was a subsidiary of AT&T, 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. 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. 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 2003 or capital losses in 2003 or

I-39

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.

AT&T, as the successor to TCI, is the subject of an Internal Revenue Service
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
$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 are vigorously
defending their position. Pursuant to the tax sharing agreement between Liberty
and AT&T, Liberty may be obligated to reimburse AT&T for any tax that is
ultimately assessed as a result of this audit. Liberty is currently unable to
estimate any such tax liability and resulting reimbursement.

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 condensed
consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Liberty is exposed to market risk in the normal course of business due to
its 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. Liberty has established
policies, procedures and internal processes governing its management of market
risks and the use of financial instruments to manage its exposure to such risks.

Liberty is exposed to changes in interest rates primarily as a result of its
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 Liberty's long-term and
short-term debt are expected to vary as a result of future requirements, market
conditions and other factors. Liberty manages its exposure to interest rates by
maintaining what it believes is an appropriate mix of fixed and variable rate
debt. Liberty believes this best protects it from interest rate risk. Liberty
has achieved this appropriate mix by (i) issuing fixed rate debt that Liberty
believes 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 March 31, 2003, $4,680 million or 77% of
Liberty's 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
4.57%. The Company's variable rate debt of $1,417 million had a weighted average
interest rate of 3.53% at March 31, 2003. Had market interest rates been 100
basis points higher (representing an approximate 28% increase over Liberty's
variable rate debt effective cost of borrowing) throughout the three months
ended March 31, 2003, Liberty would have recorded approximately $4 million of
additional interest expense. Had the price of the securities underlying the call
option obligations associated with the Company's senior exchangeable debentures
been 10% higher during the three months ended March 31, 2003, Liberty would have
recorded an additional unrealized loss on financial instruments of
$123 million.

Liberty is exposed to changes in stock prices primarily as a result of its
significant holdings in publicly traded securities. Liberty continually monitors
changes in stock markets, in general, and changes in the stock prices of its
significant holdings, specifically. Liberty believes 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. The Company
uses equity collars, put spread collars, narrow-band collars and other financial
instruments to manage market risk associated with certain investment

I-40

positions. These instruments are recorded at fair value based on option pricing
models. Equity collars provide Liberty with a put option that gives it 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 Liberty 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 Liberty to
purchase the underlying securities at a price that is lower than the Company Put
Price. The inclusion of the secondary put option allows Liberty 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 Liberty to market
risk if the underlying security trades below the put spread price.

The following table provides information regarding Liberty's equity and put
spread collars and put options at March 31, 2003:

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

(1) Includes narrow-band collars

At March 31, 2003, the fair value of Liberty's available-for-sale equity
securities was $13,556 million. Had the market price of such securities been 10%
lower at March 31, 2003, the aggregate value of such securities would have been
$1,356 million lower resulting in an increase to unrealized losses in other
comprehensive earnings. Had the market price of Liberty's publicly traded
investments accounted for using the equity method been 10% lower at March 31,
2003, there would have been no impact on the carrying value of such investments
assuming that the decline in value is deemed to be temporary.

Investments in and advances to Liberty's foreign affiliates are denominated
in foreign currencies. Liberty therefore is exposed to changes in foreign
currency exchange rates. Liberty has not hedged the majority of its foreign
currency exchange risk because of the long-term nature of its interests in
foreign affiliates. However, in order to reduce its foreign currency exchange
risk related to its investments in two Japanese affiliates, the Company has
entered into forward sale contracts with respect to Y20,802 million
($176 million at March 31, 2003). In addition to the forward sale contracts, the
Company has entered into collar agreements with respect to Y18,785 million
($159 million at March 31,

I-41

2003). 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 three months ended March 31, 2003, the Company had
unrealized gains of less than $1 million related to its yen contracts. Liberty
continually evaluates its foreign currency exposure based on current market
conditions and the business environment in each country in which it operates.

From time to time Liberty enters into total return debt swaps in connection
with its purchase of its own or third-party public and private indebtedness.
Under these arrangements, Liberty directs a counterparty to purchase a specified
amount of the underlying debt security for Liberty's benefit. Liberty initially
posts collateral with the counterparty equal to 10% of the value of the
purchased securities. Liberty 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 debt securities declines 10%, Liberty is
required to post cash collateral for the decline, and Liberty records 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 March 31, 2003, the aggregate purchase price of debt securities
underlying total return debt swap arrangements was $285 million ($200 million of
which related to Liberty's senior notes and debentures). As of such date,
Liberty had posted cash collateral equal to $56 million. In the event the fair
value of the purchased debt securities were to fall to zero, Liberty would be
required to post additional cash collateral of $229 million.

Liberty measures the effectiveness of its 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, Liberty monitors 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. Liberty believes 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, Liberty monitors historical market trends relative to values
currently present in the market. Liberty believes 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 Liberty's
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 Liberty's 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 Liberty 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 Liberty'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, Liberty currently considers
nonperformance by any of its counterparties to be unlikely.

I-42

ITEM 4. 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 quarterly report on Form 10-Q. 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.

I-43

LIBERTY MEDIA CORPORATION

PART II--OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES

On February 14, 2003, Liberty issued 13,336,976 shares of Series A common
stock to Sumitomo Corporation for cash proceeds of $141 million. The issuance
was made in reliance on the exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 for transactions by an issuer not
involving any public offering.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a) Exhibits

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

(b) Reports on Form 8-K filed during the quarter ended March 31, 2003:

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

* These Reports on Form 8-K were "furnished" to the Securities and Exchange
Commission, and are not to be deemed (1) "filed" for purposes of Section 18
of the Securities Exchange Act of 1934, as amended, or otherwise subject to
the liabilities of that Section or (2) incorporated by reference into any
filing by Liberty under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.

II-1

SIGNATURES

Pursuant to the requirements 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

Date: May 14, 2003 By: /s/ CHARLES Y. TANABE
------------------------------------------------
Charles Y. Tanabe
SENIOR VICE PRESIDENT AND GENERAL COUNSEL

Date: May 14, 2003 By: /s/ DAVID J.A. FLOWERS
------------------------------------------------
David J.A. Flowers
SENIOR VICE PRESIDENT AND TREASURER
(PRINCIPAL FINANCIAL OFFICER)

Date: May 14, 2003 By: /s/ CHRISTOPHER W. SHEAN
------------------------------------------------
Christopher W. Shean
SENIOR VICE PRESIDENT AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)

II-2

CERTIFICATIONS

I, Robert R. Bennett, certify that:

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

2. Based on my knowledge, this quarterly 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly 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
quarterly 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: May 14, 2003

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

II-3

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

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

2. Based on my knowledge, this quarterly 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly 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
quarterly 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: May 14, 2003

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

II-4

I, Christopher W. Shean, certify that:

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

2. Based on my knowledge, this quarterly 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 quarterly
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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 quarterly 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 quarterly 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
quarterly report (the "Evaluation Date"); and

c) presented in this quarterly 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
quarterly 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: May 14, 2003

/s/ CHRISTOPHER W. SHEAN
- --------------------------------------------
Christopher W. Shean
SENIOR VICE PRESIDENT AND CONTROLLER

II-5

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):

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