<Page>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
<Table>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2007
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
</Table>
COMMISSION FILE NUMBER 000-51990
LIBERTY MEDIA CORPORATION
(Exact name of Registrant as specified in its charter)
<Table>
STATE OF DELAWARE 84-1288730
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12300 LIBERTY BOULEVARD
ENGLEWOOD, COLORADO 80112
(Address of principal executive offices) (Zip Code)
</Table>
Registrant's telephone number, including area code: (720) 875-5400
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 a large accelerated filer,
an accelerated filer, or a non-accelerated filer as defined in Rule 12b-2 of the
Exchange Act.
Large accelerated filer /X/ Accelerated filer / / Non-accelerated filer
/ /
Indicate by check mark whether the Registrant is a shell company as defined
in Rule 12b-2 of the Exchange Act. Yes / / No /X/
The number of outstanding shares of Liberty Media Corporation's common stock
as of October 31, 2007 was:
Series A Liberty Capital common stock 123,154,826 shares;
Series B Liberty Capital common stock 5,988,319 shares;
Series A Liberty Interactive common stock 578,769,455 shares; and
Series B Liberty Interactive common stock 29,537,905 shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2007 2006
-------------- -------------
AMOUNTS IN MILLIONS
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,089 3,107
Trade and other receivables, net.......................... 1,285 1,276
Inventory, net............................................ 1,015 831
Program rights............................................ 589 531
Financial instruments (note 12)........................... 169 239
Other current assets...................................... 129 233
Assets of discontinued operations (note 8)................ -- 512
------- ------
Total current assets.................................... 6,276 6,729
------- ------
Investments in available-for-sale securities and other cost
investments, including $1,371 million and $1,482 million
pledged as collateral for share borrowing arrangements
(note 9).................................................. 19,807 21,622
Long-term financial instruments (note 12)................... 1,226 1,340
Investments in affiliates, accounted for using the equity
method.................................................... 1,825 1,842
Investment in special purpose entity (note 10).............. 750 --
Property and equipment, at cost............................. 1,850 1,531
Accumulated depreciation.................................... (512) (385)
------- ------
1,338 1,146
------- ------
Intangible assets not subject to amortization:
Goodwill (note 11)........................................ 7,908 7,588
Trademarks................................................ 2,490 2,471
Other..................................................... 173 --
------- ------
10,571 10,059
------- ------
Intangible assets subject to amortization, net.............. 3,932 3,910
Other assets, net (note 10)................................. 1,740 990
------- ------
Total assets............................................ $47,465 47,638
======= ======
</Table>
(continued)
I-1
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2007 2006
-------------- -------------
AMOUNTS IN MILLIONS
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 586 508
Accrued interest.......................................... 109 214
Other accrued liabilities................................. 992 1,035
Financial instruments (note 12)........................... 1,376 1,484
Current portion of debt (note 13)......................... 208 114
Other current liabilities................................. 148 113
Liabilities of discontinued operations (note 8)........... -- 101
-------- -------
Total current liabilities............................... 3,419 3,569
-------- -------
Long-term debt (including $3,901 million measured at fair
value at September 30, 2007) (note 13).................... 11,606 8,909
Long-term financial instruments (note 12)................... 161 1,706
Deferred income tax liabilities............................. 9,061 9,661
Other liabilities........................................... 1,496 1,870
-------- -------
Total liabilities....................................... 25,743 25,715
-------- -------
Minority interests in equity of subsidiaries (note 10)...... 891 290
Stockholders' equity (note 15):
Preferred stock, $.01 par value. Authorized 50,000,000
shares; no shares issued................................ -- --
Series A Liberty Capital common stock, $.01 par value.
Authorized 400,000,000 shares; issued and outstanding
123,146,362 shares at September 30, 2007 and 134,503,165
shares at December 31, 2006............................. 1 1
Series B Liberty Capital common stock, $.01 par value.
Authorized 25,000,000 shares; issued and outstanding
5,988,319 shares at September 30, 2007 and 6,014,680
shares at December 31, 2006............................. -- --
Series A Liberty Interactive common stock, $.01 par value.
Authorized 2,000,000,000 shares; issued and outstanding
588,824,394 shares at September 30, 2007 and 623,061,760
shares at December 31, 2006............................. 6 6
Series B Liberty Interactive common stock, $.01 par value.
Authorized 125,000,000 shares; issued and outstanding
29,538,105 shares at September 30, 2007 and 29,971,039
shares at December 31, 2006............................. -- --
Additional paid-in capital................................ 26,044 28,112
Accumulated other comprehensive earnings, net of taxes.... 5,328 5,952
Accumulated deficit....................................... (10,548) (12,438)
-------- -------
Total stockholders' equity.............................. 20,831 21,633
-------- -------
Commitments and contingencies (note 16)
Total liabilities and stockholders' equity.............. $ 47,465 47,638
======== =======
</Table>
See accompanying notes to condensed consolidated financial statements.
I-2
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS
Revenue:
Net retail sales.......................................... $1,760 1,693 5,322 5,016
Communications and programming services................... 491 323 1,245 926
------ ----- ----- -----
2,251 2,016 6,567 5,942
------ ----- ----- -----
Operating costs and expenses:
Cost of sales............................................. 1,115 1,063 3,337 3,117
Operating................................................. 479 369 1,297 1,075
Selling, general and administrative, including stock-based
compensation (note 5)................................... 241 201 718 599
Depreciation and amortization............................. 176 147 499 434
Impairment of long-lived assets........................... 41 -- 41 --
------ ----- ----- -----
2,052 1,780 5,892 5,225
------ ----- ----- -----
Operating income........................................ 199 236 675 717
Other income (expense):
Interest expense.......................................... (173) (177) (468) (485)
Dividend and interest income.............................. 107 71 246 166
Share of earnings (loss) of affiliates, net............... (1) 3 24 32
Realized and unrealized gains (losses) on financial
instruments, net (note 12).............................. 400 (73) 493 96
Gains on dispositions of assets, net...................... 2 25 637 352
Nontemporary declines in fair value of investments........ -- (4) -- (4)
Other, net................................................ 2 -- 7 13
------ ----- ----- -----
337 (155) 939 170
------ ----- ----- -----
Earnings from continuing operations before income taxes
and minority interests................................ 536 81 1,614 887
Income tax expense.......................................... (215) (13) (45) (253)
Minority interests in earnings of subsidiaries.............. (2) (5) (21) (20)
------ ----- ----- -----
Earnings from continuing operations..................... 319 63 1,548 614
Earnings (loss) from discontinued operations, net of taxes
(note 8).................................................. -- -- 149 (10)
Cumulative effect of accounting change, net of taxes (note
5)........................................................ -- -- -- (89)
------ ----- ----- -----
Net earnings............................................ $ 319 63 1,697 515
====== ===== ===== =====
Net earnings (loss):
Liberty Series A and Series B common stock................ $ -- -- -- 94
Liberty Capital common stock.............................. 241 (51) 1,426 218
Liberty Interactive common stock.......................... 78 114 271 203
------ ----- ----- -----
$ 319 63 1,697 515
====== ===== ===== =====
</Table>
(continued)
I-3
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS
Basic earnings (loss) from continuing operations per common
share (note 6):
Liberty Series A and Series B common stock................ $ -- -- -- .07
Liberty Capital common stock.............................. $1.87 (.36) 9.60 1.58
Liberty Interactive common stock.......................... $ .12 .17 .42 .30
Diluted earnings (loss) from continuing operations per
common share (note 6):
Liberty Series A and Series B common stock................ $ -- -- -- .07
Liberty Capital common stock.............................. $1.85 (.36) 9.53 1.58
Liberty Interactive common stock.......................... $ .12 .17 .42 .30
Basic net earnings (loss) per common share (note 6):
Liberty Series A and Series B common stock................ $ -- -- -- .03
Liberty Capital common stock.............................. $1.87 (.36) 10.72 1.56
Liberty Interactive common stock.......................... $ .12 .17 .42 .30
Diluted net earnings (loss) per common share (note 6):
Liberty Series A and Series B common stock................ $ -- -- -- .03
Liberty Capital common stock.............................. $1.85 (.36) 10.64 1.56
Liberty Interactive common stock.......................... $ .12 .17 .42 .30
</Table>
See accompanying notes to condensed consolidated financial statements.
I-4
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(UNAUDITED)
<Table>
<Caption>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
Net earnings........................................ $ 319 63 1,697 515
----- ---- ----- -----
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments.......... 68 (11) 90 67
Unrealized holding gains (losses) arising during
the period...................................... (270) 449 (317) 1,351
Recognition of previously unrealized gains on
available-for-sale securities, net.............. (1) (10) (397) (25)
Other comprehensive earnings from discontinued
operations (note 8)............................. -- -- -- 1
----- ---- ----- -----
Other comprehensive earnings (loss)............... (203) 428 (624) 1,394
----- ---- ----- -----
Comprehensive earnings.............................. $ 116 491 1,073 1,909
===== ==== ===== =====
Comprehensive earnings (loss):
Liberty Series A and Series B common stock........ $ -- -- -- 755
Liberty Capital common stock...................... 194 331 970 1,025
Liberty Interactive common stock.................. (78) 160 103 129
----- ---- ----- -----
$ 116 491 1,073 1,909
===== ==== ===== =====
</Table>
See accompanying notes to condensed consolidated financial statements.
I-5
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<Table>
<Caption>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2007 2006
-------- --------
AMOUNTS
IN MILLIONS
(NOTE 7)
Cash flows from operating activities:
Net earnings.............................................. $1,697 515
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Loss (earnings) from discontinued operations............ (149) 10
Cumulative effect of accounting change.................. -- 89
Depreciation and amortization........................... 499 434
Impairment of long-lived assets......................... 41 --
Stock-based compensation................................ 57 46
Payments of stock-based compensation.................... (38) (109)
Noncash interest expense................................ 7 81
Share of earnings of affiliates, net.................... (24) (32)
Realized and unrealized gains on financial instruments,
net.................................................... (493) (96)
Gains on disposition of assets, net..................... (637) (352)
Nontemporary declines in fair value of investments...... -- 4
Minority interests in earnings of subsidiaries.......... 21 20
Deferred income tax benefit............................. (74) (96)
Other noncash charges, net.............................. 40 31
Changes in operating assets and liabilities, net of the
effects of acquisitions and dispositions:
Current assets........................................ (245) (220)
Payables and other current liabilities................ (11) 261
------ ------
Net cash provided by operating activities........... 691 586
------ ------
Cash flows from investing activities:
Cash proceeds from dispositions........................... 477 925
Net proceeds (payments) from settlement of financial
instruments............................................. (66) 330
Cash paid for acquisitions, net of cash acquired.......... (126) (866)
Cash received in exchange transactions.................... 1,154 --
Capital expended for property and equipment............... (254) (182)
Net sales (purchases) of short term investments........... (215) 12
Investments in and loans to cost and equity investees..... (91) (178)
Investment in special purpose entity...................... (750) --
Net increase in restricted cash........................... (735) --
Repurchases of subsidiary common stock.................... -- (314)
Other investing activities, net........................... (11) 61
------ ------
Net cash used by investing activities............... (617) (212)
------ ------
Cash flows from financing activities:
Borrowings of debt........................................ 1,612 2,377
Repayments of debt........................................ (351) (1,383)
Repurchases of Liberty common stock....................... (2,126) (731)
Contribution from minority owner.......................... 751 --
Other financing activities, net........................... 11 (4)
------ ------
Net cash provided (used) by financing activities.... (103) 259
------ ------
Effect of foreign currency exchange rates on cash........... 10 11
------ ------
Net cash provided to discontinued operations:
Cash provided by operating activities..................... 8 61
Cash used by investing activities......................... (9) (58)
Cash provided by financing activities..................... -- 4
Change in available cash held by discontinued
operations.............................................. 2 (5)
------ ------
Net cash provided by discontinued operations........ 1 2
------ ------
Net increase (decrease) in cash and cash
equivalents......................................... (18) 646
Cash and cash equivalents at beginning of period.... 3,107 1,896
------ ------
Cash and cash equivalents at end of period.......... $3,089 2,542
====== ======
</Table>
See accompanying notes to condensed consolidated financial statements.
I-6
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 2007
<Table>
<Caption>
COMMON STOCK
--------------------------------------------- ACCUMULATED
LIBERTY CAPITAL LIBERTY INTERACTIVE ADDITIONAL OTHER
PREFERRED --------------------- --------------------- PAID-IN COMPREHENSIVE
STOCK SERIES A SERIES B SERIES A SERIES B CAPITAL EARNINGS
--------- --------- --------- --------- --------- ---------- -------------
AMOUNTS IN MILLIONS
Balance at
January 1, 2007...... $ -- 1 -- 6 -- 28,112 5,952
Net earnings......... -- -- -- -- -- -- --
Other
comprehensive loss.. -- -- -- -- -- -- (624)
Issuance of common
stock for
acquisition........ -- -- -- -- -- 7 --
Cumulative effects of
accounting changes,
net (notes 13 and
14)................ -- -- -- -- -- -- --
Issuance of common
stock upon exercise
of stock options... -- -- -- -- -- 34 --
Series A Liberty
Capital stock
repurchases........ -- -- -- -- -- (1,305) --
Series A Liberty
Interactive stock
repurchases........ -- -- -- -- (821) --
Stock compensation... -- -- -- -- -- 29 --
Other................ -- -- -- -- -- (12) --
--------- --------- --------- --------- ---- ------ -----
Balance at
September 30, 2007..... $ -- 1 -- 6 -- 26,044 5,328
========= ========= ========= ========= ==== ====== =====
<Caption>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
AMOUNTS IN MILLIONS
Balance at
January 1, 2007...... (12,438) 21,633
Net earnings......... 1,697 1,697
Other
comprehensive loss.. -- (624)
Issuance of common
stock for
acquisition........ -- 7
Cumulative effects of
accounting changes,
net (notes 13 and
14)................ 193 193
Issuance of common
stock upon exercise
of stock options... -- 34
Series A Liberty
Capital stock
repurchases........ -- (1,305)
Series A Liberty
Interactive stock
repurchases........ -- (821)
Stock compensation... -- 29
Other................ -- (12)
------- ------
Balance at
September 30, 2007..... (10,548) 20,831
======= ======
</Table>
See accompanying notes to condensed consolidated financial statements.
I-7
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2007
(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, through its ownership of interests in subsidiaries and other
companies, is primarily engaged in the video and on-line commerce, media,
communications and entertainment industries in North America, Europe and Asia.
The accompanying interim unaudited condensed consolidated financial
statements have been prepared in accordance with U.S. generally accepted
accounting principles ("GAAP") for interim financial information and the
instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the
Securities and Exchange Commission. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation of the results for such
periods have been included. 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, 2006.
The preparation of financial statements in conformity with GAAP 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 (i) the estimate of the
fair value of its long-lived assets (including goodwill) and any resulting
impairment charges, (ii) its accounting for income taxes, (iii) the fair value
of its derivative instruments, (iv) its assessment of other-than-temporary
declines in fair value of its investments and (v) its estimates of
retail-related adjustments and allowances to be its most significant estimates.
Liberty holds 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 to provide it with accurate financial information prepared in
accordance with GAAP that Liberty uses in the application of the equity method.
In addition, Liberty relies on audit reports that are provided by the
affiliates' independent auditors on the financial statements of such affiliates.
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 condensed consolidated financial statements.
Certain prior period amounts have been reclassified for comparability with
the 2007 presentation.
(2) Tracking Stocks
On May 9, 2006, Liberty completed a restructuring (the "Restructuring")
pursuant to which the Company was organized as a new holding company and issued
two new tracking stocks. In the Restructuring, Liberty became the new publicly
traded parent company of Liberty Media LLC ("Old Liberty"). In the
Restructuring, each holder of Old Liberty's common stock received for each share
of Old Liberty's Series A common stock held immediately prior to the
Restructuring, 0.25 of a share of
I-8
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Company's Series A Liberty Interactive common stock and 0.05 of a share of
the Company's Series A Liberty Capital common stock, and for each share of Old
Liberty's Series B common stock held immediately prior to the Restructuring,
0.25 of a share of the Company's Series B Liberty Interactive common stock and
0.05 of a share of the Company's Series B Liberty Capital common stock, in each
case, with cash in lieu of any fractional shares. Liberty is the successor
reporting company to Old Liberty. Each tracking stock is intended to track and
reflect the economic performance of one of two designated groups, the
Interactive Group and the Capital Group, respectively.
Tracking stock is a type of common stock that the issuing company intends to
reflect or "track" the economic performance of a particular business or "group,"
rather than the economic performance of the company as a whole. While the
Interactive Group and the Capital Group have separate collections of businesses,
assets and liabilities attributed to them, neither group is a separate legal
entity and therefore cannot own assets, issue securities or enter into legally
binding agreements. Holders of tracking stocks have no direct claim to the
group's stock or assets and are not represented by separate boards of directors.
Instead, holders of tracking stock are stockholders of the parent corporation,
with a single board of directors and subject to all of the risks and liabilities
of the parent corporation.
The term "Interactive Group" does not represent a separate legal entity,
rather it represents those businesses, assets and liabilities which Liberty has
attributed to that group. The assets and businesses Liberty has attributed to
the Interactive Group are those engaged in video and on-line commerce, and
include its interests in QVC, Inc. ("QVC"), Provide Commerce, Inc. ("Provide"),
BuySeasons, Inc. ("BuySeasons"), Backcountry.com, Inc. ("Backcountry"),
Expedia, Inc. and IAC/InterActiveCorp. The Interactive Group will also include
such other businesses, assets and liabilities that Liberty's board of directors
may in the future determine to attribute to the Interactive Group, including
such other businesses and assets as Liberty may acquire for the Interactive
Group. In addition, Liberty has attributed $3,107 million principal amount (as
of September 30, 2007) of its senior notes and debentures to the Interactive
Group.
The term "Capital Group" also does not represent a separate legal entity,
rather it represents all of Liberty's businesses, assets and liabilities other
than those which have been attributed to the Interactive Group. The assets and
businesses attributed to the Capital Group include Liberty's subsidiaries: Starz
Entertainment, LLC ("Starz Entertainment"), Starz Media, LLC ("Starz Media"),
FUN Technologies, Inc. ("FUN"), Atlanta National League Baseball Club, Inc. (the
"Atlanta Braves"), Leisure Arts, Inc. ("Leisure Arts"), TruePosition, Inc.
("TruePosition") and WFRV and WJMN Television Station, Inc. ("WFRV TV Station");
its equity affiliates: GSN, LLC and WildBlue Communications, Inc.; and its
interests in News Corporation, Time Warner Inc. and Sprint Nextel Corporation.
The Capital Group will also include such other businesses, assets and
liabilities that Liberty's board of directors may in the future determine to
attribute to the Capital Group, including such other businesses and assets as
Liberty may acquire for the Capital Group. In addition, Liberty has attributed
$5,231 million principal amount (as of September 30, 2007) of its senior
exchangeable debentures and bank debt to the Capital Group.
See Exhibit 99.1 to this Quarterly Report on Form 10-Q for attributed
financial information for Liberty's tracking stock groups.
(3) Proposed Tracking Stock
On October 23, 2007, Liberty's stockholders approved a group of related
proposals to amend and restate its certificate of incorporation to reclassify
the Liberty Capital common stock into two new tracking stocks, one to retain the
designation Liberty Capital common stock and the other to be designated the
Liberty Entertainment common stock (the "Reclassification"). Implementation of
the
I-9
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reclassification is contingent upon the completion of Liberty's exchange
transaction (the "News Corporation Exchange") with News Corporation pursuant to
which Liberty would exchange its approximate 16% ownership interest in News
Corporation for a subsidiary of News Corporation which would hold an approximate
40% interest in The DIRECTV Group, Inc., three regional sports television
networks and approximately $588 million in cash. Consummation of the News
Corporation Exchange, which is conditioned upon receipt of certain governmental
approvals and a favorable tax ruling and opinion, is expected before the end of
2007.
If the Reclassification is implemented, the Liberty Entertainment common
stock would be intended to track and reflect the separate economic performance
of a newly designated Entertainment Group, which would initially have attributed
to it a portion of the businesses, assets and liabilities that are currently
attributed to the Capital Group, including Liberty's subsidiaries Starz
Entertainment and FUN, its equity interests in GSN, LLC and WildBlue
Communications, Inc. and approximately $500 million of cash and $551 million
principal amount (as of September 30, 2007) of Liberty's publicly-traded debt.
In addition, Liberty would attribute to the Entertainment Group all of the
businesses and assets received in the News Corporation Exchange.
Upon implementation of the Reclassification, the Capital Group would have
attributed to it all of Liberty's businesses, assets and liabilities not
attributed to the Interactive Group or the Entertainment Group, including its
subsidiaries Starz Media, Atlanta National League Baseball Club, Inc., Leisure
Arts, TruePosition and WFRV Television Station, and minority equity investments
in Time Warner Inc. and Sprint Nextel Corporation. In addition, the Capital
Group would have attributed to it $3,930 million principal amount (as of
September 30, 2007) of Liberty's existing publicly-traded debt and $750 million
of its bank debt.
The Reclassification would not change the businesses, assets and liabilities
currently attributed to the Interactive Group.
(4) Recent Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 157, "FAIR VALUE MEASUREMENTS"
("Statement 157"), which defines fair value, establishes a framework for
measuring fair value under GAAP and expands disclosures about fair value
measurements. Statement 157 applies to other accounting pronouncements that
require or permit fair value measurements. The new guidance is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and for interim periods within those fiscal years. Liberty is currently
evaluating the potential impact of the adoption of Statement 157 on its
financial statements.
In February 2007, the FASB issued Statement of Financial Accounting
Standards No. 159, "THE FAIR VALUE OPTION FOR FINANCIAL ASSETS AND FINANCIAL
LIABILITIES, INCLUDING AN AMENDMENT OF FASB STATEMENT NO. 115" ("Statement
159"). Statement 159 permits entities to choose to measure many financial
instruments, such as available-for-sale securities, and certain other items at
fair value and to recognize the changes in fair value of such instruments in the
entity's statement of operations. Currently under Statement of Financial
Accounting Standards No. 115, entities are required to recognize changes in fair
value of available-for-sale securities in the balance sheet in accumulated other
comprehensive earnings. Statement 159 is effective as of the beginning of an
entity's fiscal year that begins after November 15, 2007. Liberty is currently
evaluating the potential impacts of Statement 159 on its financial statements
and has not made a determination as to which of its financial instruments, if
any, it will choose to apply the provisions of Statement 159.
I-10
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) Stock-Based Compensation
The Company has granted to certain of its employees and directors and
employees of its subsidiaries options, stock appreciation rights ("SARs") and
options with tandem SARs (collectively, "Awards") to purchase shares of
Series A and Series B Liberty Capital common stock and Series A and Series B
Liberty Interactive common stock. The Awards generally vest over a 4-5 year
period and expire 7-10 years from the date of grant. Upon exercise of Awards
that are settled in common stock, Liberty issues new shares from its authorized,
but unissued shares.
STATEMENT 123R
Liberty accounts for compensation related to Awards granted to its employees
and directors pursuant to Statement of Financial Accounting Standards No. 123
(revised 2004), "SHARE-BASED PAYMENT" ("Statement 123R"). Statement 123R
established standards for the accounting for transactions in which an entity
exchanges its equity instruments for goods or services, primarily focusing on
transactions in which an entity obtains employee services. Statement 123R
generally requires companies to measure the cost of employee services received
in exchange for an award of equity instruments (such as stock options and
restricted stock) based on the grant-date fair value of the award, and to
recognize that cost over the period during which the employee is required to
provide service (usually the vesting period of the award). Statement 123R also
requires companies to measure the cost of employee services received in exchange
for an award of liability instruments (such as stock appreciation rights that
will be settled in cash) based on the current fair value of the award, and to
remeasure the fair value of the award at each reporting date.
The Company adopted Statement 123R effective January 1, 2006. In connection
with such adoption, the Company recorded an $89 million transition adjustment
loss, net of related income taxes.
The Company has calculated the grant-date fair value for all of its equity
classified awards and any subsequent remeasurement of its liability classified
awards using the Black-Scholes Model. Prior to 2007, the Company calculated the
expected term of the Awards using the methodology included in SEC Staff
Accounting Bulletin No. 107. In 2007, the Company estimated the expected term of
the Awards based on historical exercise and forfeiture data. The volatility used
in the calculation for Awards granted in 2007 is 20.8% for Liberty Interactive
Awards and 17.5% for Liberty Capital Awards and is based on the historical
volatility of Liberty's stocks and the implied volatility of publicly traded
Liberty options. The Company uses the risk-free rate for Treasury Bonds with a
term similar to that of the subject options.
Included in selling, general and administrative expenses in the accompanying
condensed consolidated statements of operations are the following amounts of
stock-based compensation (amounts in millions):
<Table>
Three months ended:
September 30, 2007........................................ $17
September 30, 2006........................................ $(5)
Nine months ended:
September 30, 2007........................................ $57
September 30, 2006........................................ $46
</Table>
As of September 30, 2007, the total compensation cost related to unvested
Liberty equity awards was approximately $75 million. Such amount will be
recognized in the Company's consolidated statements of operations over a
weighted average period of approximately 2.1 years.
I-11
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
LIBERTY AWARDS
During the nine months ended September 30, 2007, Liberty granted 402,503
options to purchase shares of Series A Liberty Capital common stock and
4,486,814 options to purchase shares of Series A Liberty Interactive common
stock to certain of its directors, officers and employees and officers and
employees of certain subsidiaries. Liberty used the Black-Scholes Model to
estimate the grant date fair value of such options. The Series A Liberty Capital
options and the Series A Liberty Interactive options granted in 2007 had a
weighted average grant-date fair value of $27.79 and $5.84, respectively.
The following table presents the number and weighted average exercise price
("WAEP") of options, SARs and options with tandem SARs to purchase Liberty
common stock granted to certain officers, employees and directors of the
Company.
<Table>
<Caption>
SERIES A SERIES B SERIES A SERIES B
LIBERTY LIBERTY LIBERTY LIBERTY
CAPITAL CAPITAL INTERACTIVE INTERACTIVE
COMMON COMMON COMMON COMMON
STOCK WAEP STOCK WAEP STOCK WAEP STOCK WAEP
--------- -------- --------- -------- ----------- -------- ----------- --------
NUMBERS OF OPTIONS IN THOUSANDS
Outstanding at January 1, 2007.... 2,318 $ 93.24 1,498 $101.37 21,503 $19.71 7,491 $23.41
Granted......................... 403 $109.38 -- 4,487 $21.27 --
Exercised....................... (250) $ 85.10 -- (1,560) $17.41 --
Forfeited....................... (16) $274.49 -- (553) $29.68 --
Repurchased..................... -- -- (510) $17.76 --
----- ----- ------ -----
Outstanding at September 30,
2007............................ 2,455 $ 94.31 1,498 $101.37 23,367 $19.95 7,491 $23.41
===== ===== ====== =====
Exercisable at September 30,
2007............................ 1,678 $ 95.64 1,468 $101.69 10,909 $21.06 7,341 $23.48
===== ===== ====== =====
</Table>
The following table provides additional information about outstanding
options to purchase Liberty common stock at September 30, 2007.
<Table>
<Caption>
NO. OF WEIGHTED AGGREGATE NO. OF AGGREGATE
OUTSTANDING WAEP OF AVERAGE INTRINSIC EXERCISABLE WAEP OF INTRINSIC
OPTIONS OUTSTANDING REMAINING VALUE OPTIONS EXERCISABLE VALUE
(000'S) OPTIONS LIFE (000'S) (000'S) OPTIONS (000'S)
----------- ----------- ------------ --------- ----------- ----------- ---------
Series A Capital.............. 2,455 $ 94.31 4.8 years $80,158 1,678 $ 95.64 $54,226
Series B Capital.............. 1,498 $101.37 3.7 years $32,429 1,468 $101.69 $31,304
Series A Interactive.......... 23,367 $ 19.95 5.4 years $18,541 10,909 $ 21.06 $ 7,473
Series B Interactive.......... 7,491 $ 23.41 3.7 years $ -- 7,341 $ 23.48 $ --
</Table>
(6) Earnings (Loss) Per Common Share
Basic earnings (loss) per common share ("EPS") is computed by dividing net
earnings (loss) by the weighted average number of common shares outstanding for
the period. Diluted EPS 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.
LIBERTY SERIES A AND SERIES B COMMON STOCK
The basic EPS calculation is based on 2,803 million weighted average
outstanding shares of Liberty common stock for the period from January 1, 2006
to May 9, 2006 (the date the Restructuring was effected).
The cumulative effect of accounting change per common share for the period
from January 1, 2006 to May 9, 2006 was a loss of $0.03.
I-12
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Loss from discontinued operations per common share for the period from
January 1, 2006 to May 9, 2006 was less than $.01.
LIBERTY CAPITAL COMMON STOCK
The basic and diluted EPS calculation is based on the following weighted
average outstanding shares. Excluded from diluted EPS for the nine months ended
September 30, 2007 are less than 1 million potential common shares because their
inclusion would be anti-dilutive.
<Table>
<Caption>
LIBERTY CAPITAL COMMON STOCK
-----------------------------------------------------------------
PERIOD FROM
THREE MONTHS NINE MONTHS THREE MONTHS MAY 10, 2006
ENDED ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2007 2007 2006 2006
-------------- -------------- -------------- --------------
NUMBERS OF SHARES IN MILLIONS
Basic EPS................................. 129 133 140 140
Stock options............................. 1 1 -- --
--- --- --- ---
Diluted EPS............................... 130 134 140 140
=== === === ===
</Table>
Loss from discontinued operations per common share for each of the three and
nine month periods ended September 30, 2006 was less than $.01. Basic earnings
from discontinued operations for the nine months ended September 30, 2007 was
$1.12.
LIBERTY INTERACTIVE COMMON STOCK
The basic and diluted EPS calculation is based on the following weighted
average outstanding shares. Excluded from diluted EPS for the nine months ended
September 30, 2007 are approximately 28 million potential common shares because
their inclusion would be anti-dilutive.
<Table>
<Caption>
LIBERTY INTERACTIVE COMMON STOCK
-----------------------------------------------------------------
PERIOD FROM
THREE MONTHS NINE MONTHS THREE MONTHS MAY 10, 2006
ENDED ENDED ENDED TO
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2007 2007 2006 2006
-------------- -------------- -------------- --------------
NUMBERS OF SHARES IN MILLIONS
Basic EPS................................. 628 643 671 679
Stock options............................. 1 2 -- --
--- --- --- ---
Diluted EPS............................... 629 645 671 679
=== === === ===
</Table>
I-13
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) Supplemental Disclosures to Statements of Cash Flows
<Table>
<Caption>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2007 2006
-------- --------
AMOUNTS
IN MILLIONS
Cash paid for acquisitions:
Fair value of assets acquired............................. $ 164 1,499
Net liabilities assumed................................... (33) (239)
Deferred tax liabilities.................................. 3 (52)
Minority interest......................................... (1) (71)
Exchange of cost investment............................... -- (235)
Common stock issued....................................... (7) (36)
------ -----
Cash paid for acquisitions, net of cash acquired........ $ 126 866
====== =====
Available-for-sale securities exchanged for consolidated
subsidiaries and cash..................................... $1,718 --
====== =====
</Table>
(8) Discontinued Operations
SALE OF OPENTV CORP.
On January 16, 2007, Liberty completed the sale of its controlling interest
in OpenTV Corp. ("OPTV") to an unaffiliated third party for cash consideration
of $132 million, $20 million of which was deposited in an escrow account to fund
potential indemnification claims by the third party made prior to the first
anniversary of the closing. Pursuant to an agreement between Liberty and OPTV,
$5.4 million of the amount received by Liberty at closing was remitted to OPTV,
and OPTV will be entitled to 71.4% of any amounts released from the escrow
account in the future. Liberty recognized a pre-tax gain of $65 million upon
consummation of the sale. Such gain is included in earnings from discontinued
operations in the accompanying condensed consolidated statement of operations.
OPTV was attributed to the Capital Group.
SALE OF ASCENT ENTERTAINMENT GROUP, INC.
On April 4, 2007, Liberty consummated a transaction with an unaffiliated
third party pursuant to which Liberty sold its 100% ownership interest in Ascent
Entertainment Group, Inc. ("AEG") for $332 million in cash and 2.05 million
shares of common stock of the buyer valued at approximately $50 million. Liberty
recognized a pre-tax gain of $163 million upon consummation of the sale. Such
gain is included in earnings from discontinued operations. AEG's primary
operating subsidiary is On Command Corporation. AEG was attributed to the
Capital Group.
The condensed consolidated financial statements and accompanying notes of
Liberty have been prepared to reflect OPTV and AEG as discontinued operations.
Accordingly, the assets and liabilities, revenue, costs and expenses, and cash
flows of OPTV and AEG have been excluded from the respective captions in the
accompanying condensed consolidated balance sheets, statements of operations,
statements of comprehensive earnings (loss) and statements of cash flows and
have been reported under the heading of discontinued operations in such
condensed consolidated financial statements.
I-14
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) Investments in Available-for-Sale Securities and Other Cost Investments
Investments in available-for-sale securities and other cost investments are
summarized as follows:
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
2007 2006
-------------- -------------
AMOUNTS IN MILLIONS
Capital Group
News Corporation.................................. $11,536 11,158
Time Warner Inc. ("Time Warner")(1)............... 1,885 3,728
Sprint Nextel Corporation(2)...................... 1,660 1,651
Motorola, Inc.(3)................................. 1,371 1,522
Other available-for-sale equity securities(4)..... 649 830
Other available-for-sale debt securities.......... 361 135
Other cost investments and related receivables.... 45 34
------- ------
Total attributed Capital Group.................. 17,507 19,058
------- ------
Interactive Group
IAC/InterActiveCorp............................... 2,054 2,572
Other............................................. 246 --
------- ------
Total attributed Interactive Group.............. 2,300 2,572
------- ------
Consolidated Liberty.......................... 19,807 21,630
Less short-term investments................... -- (8)
------- ------
$19,807 21,622
======= ======
</Table>
- ------------------------
(1) Includes $167 million and $198 million of shares pledged as collateral for
share borrowing arrangements at September 30, 2007 and December 31, 2006,
respectively.
(2) Includes $171 million and $170 million of shares pledged as collateral for
share borrowing arrangements at September 30, 2007 and December 31, 2006,
respectively.
(3) Includes $962 million and $1,068 million of shares pledged as collateral for
share borrowing arrangements at September 30, 2007 and December 31, 2006,
respectively.
(4) Includes $71 million and $46 million of shares pledged as collateral for
share borrowing arrangements at September 30, 2007 and December 31, 2006,
respectively.
TIME WARNER
On May 17, 2007, Liberty completed a transaction (the "Time Warner
Exchange") with Time Warner in which Liberty exchanged approximately
68.5 million shares of Time Warner common stock valued at $1,479 million for a
subsidiary of Time Warner which holds the Atlanta Braves, Leisure Arts and
$984 million in cash. Liberty recognized a pre-tax gain of $582 million based on
the difference between the fair value and the weighted average cost basis of the
Time Warner shares exchanged.
CBS CORPORATION
On April 16, 2007, Liberty completed a transaction (the "CBS Exchange") with
CBS Corporation pursuant to which Liberty exchanged all of its 7.6 million
shares of CBS Class B common stock valued at $239 million for a subsidiary of
CBS that holds WFRV TV Station and approximately $170 million in
I-15
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
cash. Liberty recognized a pre-tax gain of $31 million based on the difference
between the fair value and the weighted average cost basis of the CBS shares
exchanged.
On a pro forma basis, the results of operations of the Atlanta Braves,
Leisure Arts and WFRV TV Station are not significant to those of Liberty for the
nine months ended September 30, 2007 and 2006.
UNREALIZED HOLDING GAINS AND LOSSES
Unrealized holding gains and losses related to investments in
available-for-sale securities are summarized below.
<Table>
<Caption>
SEPTEMBER 30, 2007 DECEMBER 31, 2006
----------------------- -----------------------
EQUITY DEBT EQUITY DEBT
SECURITIES SECURITIES SECURITIES SECURITIES
---------- ---------- ---------- ----------
AMOUNTS IN MILLIONS
Gross unrealized holding gains.......... $8,263 -- 9,335 --
Gross unrealized holding losses......... $ (23) (1) (1) --
</Table>
The aggregate fair value of securities with unrealized holding losses at
September 30, 2007 was $373 million. None of these securities had unrealized
losses for more than 12 continuous months.
(10) Investment in Special Purpose Entity
In April 2007, Liberty and a third party financial institution (the
"Financial Institution") jointly created a series of special purpose entities
(the "Investment Fund"). Pursuant to the terms of the Investment Fund, a Liberty
subsidiary borrowed $750 million from the Financial Institution with the intent
to invest such proceeds in a portfolio of selected debt and mezzanine-level
instruments of companies in the telecommunications, media and technology sectors
(the "Debt Securities") that Liberty believes have favorable risk/return
profiles. One of the special purpose entities in the Investment Fund ("MFC") is
a variable interest entity of which the Financial Institution has been deemed
the primary beneficiary and thus its parent for consolidation purposes. Liberty
contributed the borrowed funds to MFC in exchange for a mandatorily redeemable
preferred stock interest. MFC subsequently invested the proceeds as an equity
investment in another special purpose entity ("LCAP Investments LLC") which will
make and hold the investments in the Debt Securities. A Liberty subsidiary
separately made a nominal investment in LCAP Investments LLC which allows it to
serve as its Managing Member. LCAP Investments LLC is considered a variable
interest entity of which Liberty is deemed the primary beneficiary as a result
of various special profit and loss allocations set forth in the governing
agreements. As a result, LCAP Investments LLC is treated as a consolidated
subsidiary of Liberty. Liberty is required to post cash collateral for the
benefit of the Financial Institution of up to 20% of the cost of the Debt
Securities.
The various accounting treatment determinations noted above for MFC and LCAP
Investments LLC, as prescribed by FIN 46, "CONSOLIDATION OF VARIABLE INTEREST
ENTITIES," and Statement of Financial Accounting Standards No. 150, "ACCOUNTING
FOR CERTAIN FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND
EQUITY," and related interpretations, have resulted in Liberty recording a
balance sheet gross-up of the elements in the Investment Fund. The cash balances
and Debt Securities held by LCAP Investments LLC are consolidated with Liberty
and included in restricted cash and available-for-sale securities, respectively.
The $750 million of bank financing held by the Liberty subsidiary is included in
Liberty's consolidated debt balance. In addition, the preferred stock interest
in MFC is presented separately as a long-term asset, and the equity interest
held by MFC in LCAP Investments LLC is reflected as minority interest in
Liberty's condensed consolidated balance sheet. The structural form of
I-16
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the Investment Fund did not meet the GAAP requirements necessary to offset, net
or otherwise eliminate the gross-up of balance sheet accounts.
The amount of restricted cash in the Investment Fund at September 30, 2007
is $735 million and is reflected in other long-term assets in Liberty's
condensed consolidated balance sheet.
(11) Intangible Assets
GOODWILL
Changes in the carrying amount of goodwill for the nine months ended
September 30, 2007 are as follows:
<Table>
<Caption>
STARZ
QVC ENTERTAINMENT OTHER TOTAL
-------- ------------- -------- --------
AMOUNTS IN MILLIONS
Balance at January 1, 2007............... $5,416 1,371 801 7,588
Acquisitions(1)........................ -- -- 334 334
Foreign currency translation........... 40 -- 14 54
Impairment(2).......................... -- -- (32) (32)
Other(3)............................... (34) -- (2) (36)
------ ----- ----- -----
Balance at September 30, 2007............ $5,422 1,371 1,115 7,908
====== ===== ===== =====
</Table>
- ------------------------
(1) The increase in goodwill relates primarily to the Time Warner Exchange and
the CBS Exchange. The amount of goodwill recorded represents the difference
between the consideration given up and the estimated fair value of the
assets acquired. Such goodwill is subject to adjustment pending the
completion of the Company's purchase price allocation process.
(2) During the three months ended September 30, 2007, FUN recognized an
impairment loss related to its sports information segment due to new
competitors in the market place and the resulting loss of revenue and
operating income. FUN calculated its impairment charge based on a third-
party valuation of the sports information segment.
(3) Other for QVC primarily relates to the reversal of certain tax reserves in
connection with the adoption of FIN 48 (see note 14). Such tax reserves were
established prior to Liberty's acquisition of a controlling interest in QVC
in 2003. Accordingly, the offset to the reversal of the tax reserves is a
reduction of goodwill.
I-17
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
AMORTIZABLE INTANGIBLE ASSETS
Amortization of intangible assets with finite useful lives was $384 million
and $347 million for the nine months ended September 30, 2007 and 2006,
respectively. Based on its current amortizable intangible assets, Liberty
expects that amortization expense will be as follows for the next five years
(amounts in millions):
<Table>
Remainder of 2007........................................... $131
2008........................................................ $492
2009........................................................ $444
2010........................................................ $408
2011........................................................ $381
</Table>
(12) Financial Instruments
The Company's financial instruments are summarized as follows:
<Table>
<Caption>
SEPTEMBER 30, DECEMBER 31,
TYPE OF FINANCIAL INSTRUMENT 2007 2006
- ---------------------------- -------------- -------------
AMOUNTS IN MILLIONS
ASSETS
Equity collars.................................... $1,220 1,218
Other............................................. 175 361
------ ------
1,395 1,579
Less current portion.............................. (169) (239)
------ ------
$1,226 1,340
====== ======
LIABILITIES
Borrowed shares................................... $1,371 1,482
Exchangeable debenture call option
obligations(1).................................. -- 1,280
Equity collars.................................... 132 416
Other............................................. 34 12
------ ------
1,537 3,190
Less current portion.............................. (1,376) (1,484)
------ ------
$ 161 1,706
====== ======
</Table>
I-18
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Realized and unrealized gains (losses) on financial instruments are
comprised of changes in fair value of the following:
<Table>
<Caption>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2007 2006
-------- --------
AMOUNTS
IN MILLIONS
Senior exchangeable debentures(1)........................... $330 --
Equity collars.............................................. 107 147
Borrowed shares............................................. 111 (198)
Exchangeable debenture call option obligations(1)........... -- 69
Other derivatives........................................... (55) 78
---- ----
$493 96
==== ====
</Table>
- ------------------------
(1) See note 13 regarding the accounting for the Company's senior exchangeable
debentures.
I-19
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) Long-Term Debt
Debt is summarized as follows:
<Table>
<Caption>
OUTSTANDING CARRYING VALUE
PRINCIPAL ------------------------------
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
2007 2007 2006
-------------- -------------- -------------
AMOUNTS IN MILLIONS
Capital Group
Senior exchangeable debentures
0.75% Senior Exchangeable Debentures due 2023...... $ 1,750 1,921 1,637
4% Senior Exchangeable Debentures due 2029......... 869 565 254
3.75% Senior Exchangeable Debentures due 2030...... 810 474 234
3.5% Senior Exchangeable Debentures due 2031....... 501 489 238
3.25% Senior Exchangeable Debentures due 2031...... 551 452 119
Liberty bank facility................................ 750 750 --
Subsidiary debt...................................... 96 96 158
------- ------- -----
Total attributed Capital Group debt.............. 5,327 4,747 2,640
------- ------- -----
Interactive Group
Senior notes and debentures
7.875% Senior Notes due 2009....................... 670 667 667
7.75% Senior Notes due 2009........................ 233 234 234
5.7% Senior Notes due 2013......................... 802 801 800
8.5% Senior Debentures due 2029.................... 500 495 495
8.25% Senior Debentures due 2030................... 902 895 895
QVC bank credit facilities........................... 3,900 3,900 3,225
Other subsidiary debt................................ 75 75 67
------- ------- -----
Total attributed Interactive Group debt.......... 7,082 7,067 6,383
------- ------- -----
Total consolidated Liberty debt...................... $12,409 11,814 9,023
=======
Less current maturities............................ (208) (114)
------- -----
Total long-term debt................................... $11,606 8,909
======= =====
</Table>
SENIOR EXCHANGEABLE DEBENTURES
Effective January 1, 2007, Liberty adopted Statement of Financial Accounting
Standards No. 155, "ACCOUNTING FOR CERTAIN HYBRID FINANCIAL INSTRUMENTS, AN
AMENDMENT OF FASB STATEMENTS NO. 133 AND 140" ("Statement 155"). Statement 155,
among other things, amends Statement of Financial Accounting Standards No. 133,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("Statement
133"), and permits fair value remeasurement of hybrid financial instruments that
contain an embedded derivative that otherwise would require bifurcation. Under
Statement 133, Liberty reported the fair value of the call option feature of its
senior exchangeable debentures separate from the long-term debt. The long-term
debt portion was reported as the difference between the face amount of the
debenture and the fair value of the call option feature on the date of issuance
and was accreted through interest expense to its face amount over the expected
term of the debenture. Pursuant to the provisions of Statement 155, Liberty now
accounts for its senior exchangeable debentures at fair value rather than
bifurcating such instruments into a debt instrument and a derivative instrument.
I-20
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Decreases in the fair value of the exchangeable debentures are included in
realized and unrealized gains on financial instruments in the accompanying
condensed consolidated statements of operations and aggregated $330 million for
the nine months ended September 30, 2007.
In the third quarter of 2007, Liberty revised the transition adjustment for
its adoption of Statement 155 to include the removal of deferred loan costs
related to its senior exchangeable debentures. The impact of this revision to
Liberty's condensed consolidated balance sheet was a $47 million decrease to
other assets, an $18 million decrease to deferred tax liabilities and a
$29 million increase to accumulated deficit. Liberty does not believe this
revision, which is limited to these balance sheet accounts, is material to its
previously reported 2007 balance sheets.
The impact--increase/(decrease)--on Liberty's balance sheet of the adoption
of Statement 155, including the aforementioned third quarter revision, is as
follows (amounts in millions):
<Table>
Other assets................................................ $ (47)
Long-term financial instrument liabilities.................. $(1,280)
Long-term debt.............................................. $ 1,848
Deferred income tax liabilities............................. $ (234)
Accumulated deficit......................................... $ 381
</Table>
LIBERTY BANK FACILITY
Represents borrowings related to the Investment Fund described in note 10
above. Borrowings accrue interest at a rate of LIBOR plus an applicable margin.
QVC BANK CREDIT FACILITIES
QVC is party to an unsecured $3.5 billion bank credit facility dated
March 3, 2006 (the "March 2006 Credit Agreement"). The March 2006 Credit
Agreement is comprised of an $800 million U.S. dollar term loan, an
$800 million U.S. dollar term loan, a $600 million multi-currency term loan that
was drawn in U.S. dollars, a $650 million U.S. dollar revolving loan and a
$650 million multi-currency revolving loan. The foregoing multi-currency loans
can be made, at QVC's option, in U.S. dollars, Japanese yen, U.K. pound sterling
or euros. All loans are due and payable on March 3, 2011.
QVC is party to a second credit agreement dated October 4, 2006, as amended
on March 20, 2007 (the "October 2006 Credit Agreement"), which provides for an
additional unsecured $1.75 billion credit facility, consisting of an
$800 million initial term loan, and $950 million of delayed draw term loans to
be made from time to time upon the request of QVC. The delayed draw term loans
are available until December 31, 2007 and are subject to reductions in the
principal amount available. The loans are scheduled to mature on October 4,
2011.
All loans under the March 2006 Credit Agreement and the October 2006 Credit
Agreement bear interest at a rate equal to (i) LIBOR for the interest period
selected by QVC plus a margin that varies based on QVC's leverage ratio or
(ii) the higher of the Federal Funds Rate plus 0.50% or the prime rate announced
by the respective Administrative Agent from time to time. QVC is required to pay
a commitment fee quarterly in arrears on the unused portion of the commitments.
The credit agreements contain restrictive covenants regarding, among other
matters, the maintenance of certain financial ratios and limitations on
indebtedness, liens, encumbrances, dispositions, guarantees and dividends. QVC
was in compliance with its debt covenants at September 30, 2007. QVC's ability
to borrow the unused portion of its credit agreements is dependent
I-21
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
on its continuing compliance with such covenants both before and after giving
effect to such additional borrowings.
QVC INTEREST RATE SWAP ARRANGEMENTS
QVC is a party to ten separate interest rate swap arrangements with an
aggregate notional amount of $2,200 million to manage the cash flow risk
associated with interest payments on its variable rate debt. The swap
arrangements provide for QVC to make fixed payments at rates ranging from
4.9575% to 5.2928% and to receive variable payments at 3 month LIBOR. All of the
swap arrangements expire in March 2011 contemporaneously with the maturity of
the March 2006 Credit Agreement. QVC is also party to an interest rate swap
arrangement with a notional amount of $500 million. This swap arrangement, which
expires in September 2008, provides for QVC to make fixed payments at 4.76% and
to receive variable payments at 3 month LIBOR. Liberty accounts for the swap
arrangements as cash flow hedges with the effective portions of changes in the
fair value reflected in other comprehensive earnings in the accompanying
condensed consolidated balance sheet.
OTHER SUBSIDIARY DEBT
Other subsidiary debt at September 30, 2007, is comprised of capitalized
satellite transponder lease obligations and bank debt of certain subsidiaries.
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 that are not reported at fair value in the accompanying
condensed consolidated balance sheet at September 30, 2007 is as follows
(amounts in millions):
<Table>
Senior notes................................................ $1,677
Senior debentures........................................... $1,386
</Table>
Liberty believes that the carrying amount of its subsidiary debt
approximated fair value at September 30, 2007.
(14) Income Taxes
FIN 48
Effective January 1, 2007, Liberty adopted FASB Interpretation No. 48,
"ACCOUNTING FOR UNCERTAINTY IN INCOME TAXES, AN INTERPRETATION OF FASB STATEMENT
NO. 109" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income
taxes recognized in a company's financial statements and prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. In instances where the Company has taken or expects to take a tax
position in its tax return and the Company believes it is more likely than not
that such tax position will be upheld by the relevant taxing authority, the
Company may record a benefit for such tax position in its consolidated financial
statements.
I-22
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The impact--increase/(decrease)--on Liberty's balance sheet of the adoption
of FIN 48 is as follows (amounts in millions):
<Table>
Tax liabilities (including interest and penalties).......... $(634)
Goodwill.................................................... $ (31)
Deferred tax liabilities.................................... $ 36
Accumulated deficit......................................... $(574)
Other assets................................................ $ 7
</Table>
As of January 1, 2007, the Company had recorded tax reserves of
$422 million related to unrecognized tax benefits for uncertain tax positions.
If such tax benefits were to be recognized for financial statement purposes,
$360 million would be reflected in the Company's tax expense and affect its
effective tax rate. Liberty's estimate of its unrecognized tax benefits related
to uncertain tax positions requires a high degree of judgment, which may be
subject to change in the future.
As of September 30, 2007, the Company's 2001 and 2002 tax years are closed
for federal income tax purposes, although tax loss carryforwards from
those years are still subject to adjustment. The Company's tax years 2003
through 2006 are under IRS examination, and its 2007 tax year is being examined
currently as part of the IRS's Compliance Assurance Process ("CAP") program. In
conjunction with the CAP program, the Company expects the IRS to complete its
examination of the 2003 through 2006 tax years by the third quarter of 2008.
While it is reasonably possible that completion of these examinations could
result in a significant change to the amount of the Company's unrecognized tax
benefits, the Company is unable to provide an estimate of the range of such a
change at this time.
When the tax law requires interest to be paid on an underpayment of income
taxes, the Company recognizes interest expense from the first period the
interest would begin accruing according to the relevant tax law. Such interest
expense is included in interest expense in the accompanying condensed
consolidated statements of operations. Any accrual of penalties related to
underpayment of income taxes on uncertain tax positions is included in other
income (expense) in the accompanying condensed consolidated statements of
operations. As of January 1, 2007, the Company had recorded $18 million of
accrued interest and penalties related to uncertain tax positions.
EFFECTIVE TAX RATE
The Time Warner Exchange and the CBS Exchange qualify as IRC Section 355
transactions, and therefore do not trigger federal or state income tax
obligations. In addition, upon consummation of these exchange transactions,
deferred tax liabilities previously recorded for the difference between
Liberty's book and tax bases in its Time Warner and CBS Corporation investments
in the amount of $354 million were reversed with an offset to income tax
benefit. Accordingly, an income tax benefit adjustment of approximately
$541 million will be included in Liberty's reconciliation of computed "expected"
income taxes to actual income taxes for the year ended December 31, 2007.
(15) Stockholders' Equity
As of September 30, 2007, there were 2.5 million and 1.5 million shares of
Series A and Series B Liberty Capital common stock, respectively, reserved for
issuance under exercise privileges of outstanding stock options.
I-23
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of September 30, 2007, there were 23.4 million and 7.5 million shares of
Series A and Series B Liberty Interactive common stock, respectively, reserved
for issuance under exercise privileges of outstanding stock options.
In addition to the Series A and Series B Liberty Capital common stock and
the Series A and Series B Liberty Interactive common stock, there are
300 million and 1,500 million shares of Series C Liberty Capital and Series C
Liberty Interactive common stock, respectively, authorized for issuance. As of
September 30, 2007, no shares of either Series C common stock were issued or
outstanding.
During the nine months ended September 30, 2007, the Company repurchased
16.8 million shares of Series A Liberty Interactive common stock in the open
market for aggregate cash consideration of $337 million. Such shares were
repurchased pursuant to a previously announced share repurchase program and have
been retired and returned to the status of authorized and available for
issuance.
In addition, on May 15, 2007, Liberty commenced a tender offer pursuant to
which it sought to purchase up to 19,417,476 shares of Series A Liberty
Interactive common stock at a price not greater than $25.75 or less than $23.75
per share. The tender offer expired on June 12, 2007, and 27,543,660 shares of
Series A Liberty Interactive common stock were properly tendered at or below a
purchase price of $24.95 per share. The final proration factor was approximately
70.3952% and Liberty accepted for purchase 19,417,476 shares at a price of
$24.95 per share, or aggregate cash consideration of $484 million.
Liberty commenced a tender offer on March 7, 2007 that it subsequently
amended on March 20, 2007. Pursuant to the tender offer, as amended, Liberty
sought to purchase up to 8,849,500 shares of Series A Liberty Capital common
stock at a price not greater than $113.00 or less than $105.00 per share. The
tender offer expired on April 5, 2007, and 11,858,343 shares of Series A Liberty
Capital common stock were properly tendered. Liberty exercised its right to
purchase an additional 2% of its outstanding Series A Liberty Capital common
stock and accepted for purchase 11,540,680 shares at a price of $113.00 per
share or aggregate cash consideration of $1,305 million (including transaction
costs).
During the nine months ended September 30, 2007, the Company sold put
options on Series A Liberty Capital common stock for aggregate net cash proceeds
of $3 million. As of September 30, 2007, put options with respect to
approximately 1,361,000 shares of Series A Liberty Capital common stock with a
weighted average put price of $110.20 remained outstanding. Such put options
expire on or before November 30, 2007. Liberty has also sold put options on
Series A Liberty Interactive common stock for aggregate net cash proceeds of
$7 million. As of September 30, 2007, put options with respect to approximately
5,972,000 shares of Series A Liberty Interactive common stock with a weighted
average put price of $18.84 remained outstanding. Such put options expire on or
before December 31, 2007. The Company accounts for these put options pursuant to
Statement of Financial Accounting Standards No. 150, "ACCOUNTING FOR CERTAIN
FINANCIAL INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY."
Accordingly, the put options are recorded in financial instrument liabilities at
fair value, and changes in the fair value are included in realized and
unrealized gains (losses) on financial instruments in the accompanying condensed
consolidated statement of operations.
(16) Commitments and Contingencies
FILM RIGHTS
Starz Entertainment, a wholly-owned subsidiary of Liberty, provides video
programming distributed by cable operators, direct-to-home satellite providers,
other distributors and via the Internet throughout
I-24
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the United States. Starz Entertainment has entered into agreements with a number
of motion picture producers which obligate Starz Entertainment to pay fees
("Programming Fees") for the rights to exhibit certain films that are released
by these producers. The unpaid balance of Programming Fees for films that were
available for exhibition by Starz Entertainment at September 30, 2007 is
reflected as a liability in the accompanying condensed consolidated balance
sheet. The balance due as of September 30, 2007 is payable as follows:
$122 million in 2007, $22 million in 2008 and $18 million thereafter.
Starz Entertainment has also contracted to pay Programming Fees for the
rights to exhibit films that have been released theatrically, but are not
available for exhibition by Starz Entertainment until some future date. These
amounts have not been accrued at September 30, 2007. Starz Entertainment's
estimate of amounts payable under these agreements is as follows: $19 million in
2007; $528 million in 2008; $89 million in 2009; $80 million in 2010;
$78 million in 2011; and $210 million thereafter.
Prior to September 17, 2007, Starz Entertainment was obligated to pay
Programming Fees for all qualifying films that are released theatrically in the
United States by studios owned by Sony Pictures Entertainment ("Sony") through
2010. Sony had the right to extend its contract for an additional three years,
which it elected to do on September 17, 2007. Pursuant to the terms of the
contract extension, Starz Entertainment has agreed to pay Sony a total of
$190 million in four annual installments of $47.5 million beginning in 2011.
Such payments to Sony will be amortized ratably as programming expense over the
extension period beginning in 2011. Such extension will also result in the
payment by Starz Entertainment of Programming Fees for qualifying films released
by Sony during the extension period.
In addition, Starz Entertainment is also obligated to pay Programming Fees
for all qualifying films that are released theatrically in the United States by
studios owned by The Walt Disney Company ("Disney") through 2009 and all
qualifying films produced for theatrical release in the United States by
Revolution Studios, an equity affiliate, through 2006. Disney has the right to
extend its contract for an additional three years. If Disney elects to extend
its contract, Starz Entertainment would not be obligated to pay any amounts in
excess of its Programming Fees for qualifying films released by Disney during
the extension period. The Disney option expires December 31, 2007.
Films are generally available to Starz Entertainment for exhibition
10 - 12 months after their theatrical release. The Programming Fees to be paid
by Starz Entertainment under the Sony, Disney and Revolution output agreements
are based on the quantity and the domestic theatrical exhibition receipts of
qualifying films. As these films have not yet been released in theatres, Starz
Entertainment is unable to estimate the amounts to be paid under these output
agreements. However, such amounts are expected to be significant.
GUARANTEES
Liberty guarantees Starz Entertainment's obligations under certain of its
studio output agreements. At September 30, 2007, Liberty's guarantee for
obligations for films released by such date aggregated $647 million. While the
guarantee amount for films not yet released is not determinable, such amount is
expected to be significant. As noted above, Starz Entertainment has recognized
the liability for a portion of its obligations under the output agreements. As
this represents a commitment of Starz Entertainment, a consolidated subsidiary
of Liberty, Liberty has not recorded a separate liability for its guarantee of
these obligations.
In connection with agreements for the sale of certain assets, Liberty
typically retains liabilities that relate to events occurring prior to its sale,
such as tax, environmental, litigation and employment
I-25
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
matters. Liberty generally indemnifies the purchaser in the event that a third
party asserts a claim against the purchaser that relates to a liability retained
by Liberty. These types of indemnification guarantees typically extend for a
number of years. Liberty is unable to estimate the maximum potential liability
for these types of indemnification guarantees as the sale agreements typically
do not specify a maximum amount and the amounts are dependent upon the outcome
of future contingent events, the nature and likelihood of which cannot be
determined at this time. Historically, Liberty has not made any significant
indemnification payments under such agreements and no amount has been accrued in
the accompanying condensed consolidated financial statements with respect to
these indemnification guarantees.
EMPLOYMENT CONTRACTS
The Atlanta Braves and certain of their players and coaches have entered
into long-term employment contracts whereby such individuals' compensation is
guaranteed. Amounts due under guaranteed contracts as of September 30, 2007
aggregated $108 million, which is payable as follows: $2 million in 2007,
$65 million in 2008, $19 million in 2009 and $22 million thereafter. In addition
to the foregoing amounts, certain players and coaches may earn incentive
compensation under the terms of their employment contracts.
OPERATING LEASES
Liberty and its subsidiaries lease business offices and other facilities,
have entered into satellite transponder lease agreements and use certain
equipment under lease arrangements.
LITIGATION
Liberty has contingent liabilities related to legal and tax proceedings and
other matters arising in the ordinary course of business. Although it is
reasonably possible Liberty may incur losses upon conclusion of such matters, an
estimate of any loss or range of loss cannot be made. In the opinion of
management, it is expected that amounts, if any, which may be required to
satisfy such contingencies will not be material in relation to the accompanying
condensed consolidated financial statements.
INCOME TAXES
Since the date Liberty issued its exchangeable debentures, it has claimed
interest deductions on such exchangeable debentures for federal income tax
purposes based on the "comparable yield" at which it could have issued a
fixed-rate debenture with similar terms and conditions. In all instances, this
position has resulted in Liberty claiming interest deductions significantly in
excess of the cash interest currently paid on its exchangeable debentures. In
this regard, Liberty has deducted $2,697 million in cumulative interest expense
associated with the exchangeable debentures since the Company's 2001 split-off
from AT&T. Of that amount, $820 million represents cash interest payments.
Interest deducted in prior years on its exchangeable debentures has contributed
to net operating losses ("NOLs") or offsets to taxable income earned in prior
taxable years and is offsetting taxable income earned in the current year.
In connection with the IRS' examination of Liberty's 2003 through 2006 tax
returns, and consistent with the position espoused in the previously issued
Technical Advice Memorandums to other taxpayers, the IRS has notified Liberty
that it believes the interest expense on Liberty's exchangeable debentures is
not deductible for the period following Liberty's split-off from AT&T. If the
IRS were to prevail in its proposed treatment, in its entirety, Liberty's NOLs
would be eliminated and Liberty would have net
I-26
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
taxable income in 2004 and later years. The effect of the treatment proposed by
the IRS would be to increase Liberty's tax liability by approximately
$81 million through 2004 and by approximately $748 million for the period 2005
through the third quarter of 2007. Liberty would, however, be entitled to a
corresponding increase in the bases of the reference shares for tax purposes
equal to the amount of interest disallowed, such that a sale by Liberty of the
reference shares at current market prices would not, in the aggregate, result in
any recognition of gain. Liberty does not believe that for financial statement
purposes there would be a material impact on its reported total tax expense as
the resulting increase in current tax expense would be largely offset by a
decrease in deferred tax expense.
Liberty disagrees with the IRS' proposed treatment and intends to vigorously
dispute its proposed treatment. If, however, Liberty were unsuccessful in
contesting the IRS' proposed treatment, it would be required to make current
federal income tax payments and may be required to make interest payments to the
IRS in amounts that may be significant.
OTHER
During the period from March 9, 1999 to August 10, 2001, Liberty was
included in the consolidated federal income tax return of AT&T Corp. and was a
party to a tax sharing agreement with AT&T (the "AT&T Tax Sharing Agreement").
While Liberty was a subsidiary of AT&T, Liberty recorded its stand-alone tax
provision on a separate return basis. Under the AT&T Tax Sharing Agreement,
Liberty received a cash payment from AT&T in periods when Liberty generated
taxable losses and such taxable losses were utilized by AT&T to reduce its
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, and
were accounted for as a deferred federal income tax benefit. Subsequent to
Liberty's split off from AT&T, if adjustments are made to amounts previously
paid under the AT&T Tax Sharing Agreement, such adjustments are reflected as
adjustments to additional paid-in capital.
Also, pursuant to the AT&T Tax Sharing Agreement and in connection with
Liberty's split off from AT&T, AT&T was required to pay Liberty an amount equal
to 35% of the amount of the net operating losses reflected in TCI's final
federal income tax return ("TCI NOLs") that had not been used as an offset to
Liberty's obligations under the AT&T Tax Sharing Agreement and that had been, or
were reasonably expected to be, utilized by AT&T. In connection with the split
off, Liberty received an $803 million payment for TCI's NOLs and recorded such
payment as an increase to additional paid-in capital. Liberty was not paid for
certain of TCI's NOLs ("SRLY NOLs") due to limitations and uncertainty regarding
AT&T's ability to use them to offset taxable income in the future. In the event
AT&T was ultimately able to use any of the SRLY NOLs, AT&T would be required to
pay Liberty 35% of the amount of the SRLY NOLs used.
In the fourth quarter of 2004, AT&T requested a refund from Liberty of
$70 million, plus accrued interest, relating to losses that it generated in 2002
and 2003 and was able to carry back to offset taxable income previously offset
by Liberty's losses. AT&T has asserted that Liberty's losses caused AT&T to pay
$70 million in alternative minimum tax ("AMT") that it would not have been
otherwise required to pay had Liberty's losses not been included in its return.
In 2004, Liberty estimated that it may ultimately pay AT&T up to $30 million of
the requested $70 million because Liberty believed AT&T received an AMT credit
of $40 million against income taxes resulting from the AMT previously paid.
Accordingly, Liberty accrued a $30 million liability with an offsetting
reduction of additional paid-in capital.
I-27
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the fourth quarter of 2005, AT&T requested an additional $21 million
relating to additional losses it generated and was able to carry back to offset
taxable income previously offset by Liberty's losses. In addition, the
information provided to Liberty in connection with AT&T's request showed that
AT&T had not yet claimed a credit for AMT previously paid. Accordingly, in the
fourth quarter of 2005, Liberty increased its accrual by approximately
$40 million (with a corresponding reduction of additional paid-in capital)
representing its estimate of the amount it may ultimately pay (excluding accrued
interest, if any) to AT&T as a result of this request. Although Liberty has not
reduced its accrual for any future refunds, Liberty believes it is entitled to a
refund when AT&T is able to realize a benefit in the form of a credit for the
AMT previously paid.
In March 2006, AT&T requested an additional $21 million relating to
additional losses and IRS audit adjustments that it claims it is able to use to
offset taxable income previously offset by Liberty's losses. Liberty has
reviewed this claim and believes that its accrual as of December 31, 2005 is
adequate. Accordingly, no additional accrual has been made for AT&T's
March 2006 request.
Although for accounting purposes Liberty has accrued a portion of the
amounts claimed by AT&T to be owed by Liberty under the AT&T Tax Sharing
Agreement, Liberty believes there are valid defenses or set-off or similar
rights in its favor that may cause the total amount that it owes AT&T to be less
than the amounts accrued; and under certain interpretations of the AT&T Tax
Sharing Agreement, Liberty may be entitled to further reimbursements from AT&T.
(17) Operating Segments
Liberty is a holding company which, through its ownership of interests in
subsidiaries and other companies, is primarily engaged in the video and on-line
commerce, media, communications and entertainment industries. Upon the issuance
of its tracking stocks, Liberty divided its businesses into two groups: the
Interactive Group and the Capital Group. Each of the businesses in the tracking
stock groups is separately managed. Liberty identifies its reportable segments
as (A) those consolidated subsidiaries that represent 10% or more of its
consolidated revenue, earnings before income taxes or total assets and
(B) those equity method affiliates whose share of earnings represent 10% or more
of Liberty's consolidated earnings before income taxes.
Liberty evaluates performance and makes decisions about allocating resources
to its operating segments based on financial measures such as revenue, operating
cash flow, gross margin, average sales price per unit, number of units shipped,
and revenue or sales per customer equivalent. In addition, Liberty reviews
non-financial measures such as subscriber growth and penetration, as
appropriate.
Liberty defines operating cash flow as revenue less cost of sales, operating
expenses, and selling, general and administrative expenses (excluding
stock-based compensation). Liberty believes this measure is an important
indicator of the operational strength and performance of its businesses,
including each business's ability to service debt and fund capital expenditures.
In addition, this measure allows management to view operating results and
perform analytical comparisons and benchmarking between businesses and identify
strategies to improve performance. This measure of performance excludes
depreciation and amortization, stock-based compensation, separately reported
litigation settlements and restructuring and impairment charges that are
included in the measurement of operating income pursuant to GAAP. Accordingly,
operating cash flow 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 GAAP.
Liberty generally accounts for intersegment sales and transfers as if the sales
or transfers were to third parties, that is, at current prices.
I-28
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
For the nine months ended September 30, 2007, Liberty has identified the
following businesses as its reportable segments:
- QVC--consolidated subsidiary attributed to the Interactive Group that
markets and sells a wide variety of consumer products in the U.S. and
several foreign countries, primarily by means of televised shopping
programs on the QVC networks and via the Internet through its domestic and
international websites.
- Starz Entertainment--consolidated subsidiary attributed to the Capital
Group that provides video programming distributed by cable operators,
direct-to-home satellite providers, other distributors and via the
Internet throughout the United States.
Liberty's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
segment requires different technologies, distribution channels and marketing
strategies. The accounting policies of the segments that are also consolidated
subsidiaries are the same as those described in the summary of significant
policies.
I-29
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PERFORMANCE MEASURES
<Table>
<Caption>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------
2007 2006
------------------------- -------------------------
OPERATING OPERATING
CASH CASH
REVENUE FLOW (DEFICIT) REVENUE FLOW (DEFICIT)
-------- -------------- -------- --------------
AMOUNTS IN MILLIONS
Interactive Group
QVC................................ $5,063 1,121 4,838 1,099
Corporate and other................ 259 17 178 16
------ ----- ----- -----
5,322 1,138 5,016 1,115
------ ----- ----- -----
Capital Group
Starz Entertainment................ 801 216 776 136
Corporate and other................ 444 (82) 150 (54)
------ ----- ----- -----
1,245 134 926 82
------ ----- ----- -----
Consolidated Liberty................. $6,567 1,272 5,942 1,197
====== ===== ===== =====
</Table>
<Table>
<Caption>
THREE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------------------
2007 2006
------------------------- -------------------------
OPERATING OPERATING
CASH CASH
REVENUE FLOW (DEFICIT) REVENUE FLOW (DEFICIT)
-------- -------------- -------- --------------
AMOUNTS IN MILLIONS
Interactive Group
QVC................................ $1,686 364 1,653 366
Corporate and other................ 74 (1) 40 (1)
------ --- ----- ---
1,760 363 1,693 365
------ --- ----- ---
Capital Group
Starz Entertainment................ 282 88 253 45
Corporate and other................ 209 (18) 70 (32)
------ --- ----- ---
491 70 323 13
------ --- ----- ---
Consolidated Liberty................. $2,251 433 2,016 378
====== === ===== ===
</Table>
I-30
<Page>
LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
OTHER INFORMATION
<Table>
<Caption>
SEPTEMBER 30, 2007
-------------------------------------
INVESTMENTS
TOTAL IN CAPITAL
ASSETS AFFILIATES EXPENDITURES
-------- ----------- ------------
AMOUNTS IN MILLIONS
Interactive Group
QVC....................................................... $20,289 -- 226
Corporate and other....................................... 5,314 1,312 10
Intragroup elimination.................................... (6,213) -- --
------- ----- ---
19,390 1,312 236
------- ----- ---
Capital Group
Starz Entertainment....................................... 2,865 -- 5
Corporate and other....................................... 25,340 513 13
------- ----- ---
28,205 513 18
------- ----- ---
Inter-group eliminations.................................... (130) -- --
------- ----- ---
Consolidated Liberty........................................ $47,465 1,825 254
======= ===== ===
</Table>
The following table provides a reconciliation of consolidated segment
operating cash flow to earnings from continuing operations before income taxes
and minority interests:
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
Consolidated segment operating cash flow.................... $ 433 378 1,272 1,197
Stock-based compensation.................................... (17) 5 (57) (46)
Depreciation and amortization............................... (176) (147) (499) (434)
Impairment of long-lived assets............................. (41) -- (41) --
Interest expense............................................ (173) (177) (468) (485)
Realized and unrealized gains (losses) on financial
instruments, net.......................................... 400 (73) 493 96
Gains on dispositions of assets, net........................ 2 25 637 352
Other, net.................................................. 108 70 277 207
----- ---- ----- -----
Earnings from continuing operations before income taxes
and minority interests.................................. $ 536 81 1,614 887
===== ==== ===== =====
</Table>
I-31
<Page>
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, including statements regarding our business,
product and marketing strategies, new service offerings, our tax sharing
arrangement with AT&T and estimated amounts payable under that arrangement,
revenue growth and subscriber trends at QVC and Starz Entertainment, anticipated
programming and marketing costs at Starz Entertainment, our expectations
regarding Starz Media's results of operations for the next two to three years,
our projected sources and uses of cash for the remainder of 2007, the estimated
value of our derivatives related to certain of our AFS investments, and the
anticipated non-material impact of certain contingent liabilities related to
legal and tax proceedings and other matters arising in the ordinary course of
our business. Where, in any forward-looking statement, we express an expectation
or belief as to future results or events, such expectation or belief is
expressed in good faith and believed to have a reasonable basis, but such
statements necessarily involve risks and uncertainties and 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:
- consumer demand for our products and services and our ability to adapt to
changes in demand;
- competitor responses to our products and services, and the products and
services of the entities in which we have interests;
- uncertainties inherent in the development and integration of new business
lines and business strategies;
- uncertainties associated with product and service development and market
acceptance, including the development and provision of programming for new
television and telecommunications technologies;
- our future financial performance, including availability, terms and
deployment of capital;
- our ability to successfully integrate and recognize anticipated
efficiencies and benefits from the businesses we acquire;
- the ability of suppliers and vendors to deliver products, 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;
- general economic and business conditions and industry trends;
- consumer spending levels, including the availability and amount of
individual consumer debt;
- disruption in the production of theatrical films or television programs
due to strikes by unions representing writers, directors or actors;
- the regulatory and competitive environment of the industries in which we,
and the entities in which we have interests, operate;
- continued consolidation of the broadband distribution and movie studio
industries;
I-32
<Page>
- changes in distribution and viewing of television programming, including
the expanded deployment of personal video recorders, video on demand and
IP television and their impact on home shopping networks;
- increased digital TV penetration and the impact on channel positioning of
our networks;
- rapid technological changes;
- capital spending for the acquisition and/or development of
telecommunications networks and services;
- threatened terrorists attacks and ongoing military action in the Middle
East and other parts of the world; and
- fluctuations in foreign currency exchange rates and political unrest in
international markets.
For additional risk factors, please see our Annual Report on Form 10-K for
the year ended December 31, 2006. These forward-looking statements and such
risks, uncertainties and other factors speak only as of the date of this
Quarterly Report, and we expressly disclaim any obligation or undertaking to
disseminate any updates or revisions to any forward-looking statement contained
herein, to reflect any change in its expectations with regard thereto, or any
other change in events, conditions or circumstances on which any such statement
is based.
The following discussion and analysis provides information concerning our
results of operations and financial condition. This discussion should be read in
conjunction with our accompanying condensed consolidated financial statements
and the notes thereto and our Annual Report on Form 10-K for the year ended
December 31, 2006.
OVERVIEW
We own controlling and noncontrolling interests in a broad range of video
and on-line commerce, media, communications and entertainment companies. Our
more significant operating subsidiaries, which are also our reportable segments,
are QVC and Starz Entertainment. QVC markets and sells a wide variety of
consumer products in the United States and several foreign countries, primarily
by means of televised shopping programs on the QVC networks and via the Internet
through its domestic and international websites. Starz Entertainment provides
video programming distributed by cable operators, direct-to-home satellite
providers, other distributors and via the Internet throughout the United States.
Our "Corporate and Other" category includes our other consolidated
subsidiaries and corporate expenses. Our other consolidated subsidiaries include
Provide Commerce, Inc., Starz Media, LLC, FUN Technologies, Inc., Atlanta
National League Baseball Club, Inc., Leisure Arts, Inc. TruePosition, Inc.,
BuySeasons, Inc., Backcountry.com, Inc. and WFRV and WJMN Television
Station, Inc. Provide, which we acquired in February 2006, operates an
e-commerce marketplace of websites for perishable goods, including flowers,
gourmet foods, fruits and desserts. Starz Media, which we acquired in
August 2006, is focused on developing, acquiring, producing and distributing
live-action, computer-generated and traditional television animated productions
for the home video, film, broadcast and direct-to-consumer markets. FUN, in
which we acquired a controlling interest in March 2006, operates websites that
offer casual gaming, sports information and fantasy sports services. Atlanta
National League Baseball Club, Inc., which we acquired in May 2007, owns the
Atlanta Braves, a major league baseball club, as well as certain of the Atlanta
Braves' minor league clubs. Leisure Arts, which we acquired in May 2007,
publishes and markets needlework, craft, decorating, entertaining and other
lifestyle interest "how-to" books. TruePosition provides equipment and
technology that deliver location-based services to wireless users. BuySeasons,
which we acquired in August 2006, operates BuyCostumes.com, an online retailer
of costumes, accessories, decor and party supplies. Backcountry, which we
acquired in June 2007, operates
I-33
<Page>
six websites offering outdoor and backcountry sports gear and clothing. WFRV TV
Station, which we acquired in April 2007, is a CBS broadcast affiliate that
serves Green Bay, Wisconsin and Escanaba, Michigan.
In addition to the foregoing businesses, we hold an approximate 25%
ownership interest in Expedia, Inc., which we account for as an equity method
investment, and we continue to maintain significant investments and related
financial instruments in public companies such as News Corporation, Time Warner,
IAC/InterActiveCorp and Sprint Nextel Corporation, which are accounted for at
their respective fair market values and are included in corporate and other.
TRACKING STOCKS
On May 9, 2006, we completed a restructuring pursuant to which we, among
other things, issued two new tracking stocks, Liberty Interactive common stock
and Liberty Capital common stock. Each tracking stock issued in the
Restructuring is intended to track and reflect the economic performance of one
of two newly designated groups, the Interactive Group and the Capital Group,
respectively.
Tracking stock is a type of common stock that the issuing company intends to
reflect or "track" the economic performance of a particular business or "group,"
rather than the economic performance of the company as a whole. While the
Interactive Group and the Capital Group have separate collections of businesses,
assets and liabilities attributed to them, neither group is a separate legal
entity and therefore cannot own assets, issue securities or enter into legally
binding agreements. Holders of tracking stocks have no direct claim to the
group's stock or assets and are not represented by separate boards of directors.
Instead, holders of tracking stock are stockholders of the parent corporation,
with a single board of directors and subject to all of the risks and liabilities
of the parent corporation.
The term "Interactive Group" does not represent a separate legal entity,
rather it represents those businesses, assets and liabilities which we have
attributed to it. The assets and businesses we have attributed to the
Interactive Group are those engaged in video and on-line commerce, and include
our subsidaries QVC, Provide, BuySeasons and Backcountry and our interests in
Expedia and IAC/ InterActiveCorp. The Interactive Group will also include such
other businesses that our board of directors may in the future determine to
attribute to the Interactive Group, including such other businesses as we may
acquire for the Interactive Group. In addition, we have attributed
$3,107 million principal amount (as of September 30, 2007) of our senior notes
and debentures to the Interactive Group.
The term "Capital Group" also does not represent a separate legal entity,
rather it represents all of our businesses, assets and liabilities other than
those which have been attributed to the Interactive Group. The assets and
businesses attributed to the Capital Group include our subsidiaries Starz
Entertainment, Starz Media, FUN, the Atlanta Braves, Leisure Arts, TruePosition
and WFRV TV Station, our equity affiliates GSN, LLC and WildBlue
Communications, Inc. and our interests in News Corporation, Time Warner and
Sprint Nextel Corporation. The Capital Group will also include such other
businesses that our board of directors may in the future determine to attribute
to the Capital Group, including such other businesses as we may acquire for the
Capital Group. In addition, we have attributed $5,231 million principal amount
(as of September 30, 2007) of our senior exchangeable debentures and bank debt
to the Capital Group.
See Exhibit 99.1 to this Quarterly Report on Form 10-Q for attributed
financial information for our tracking stock groups.
PROPOSED TRACKING STOCK
On October 23, 2007, our stockholders approved a group of related proposals
to amend and restate our certificate of incorporation to reclassify our Liberty
Capital common stock into two new
I-34
<Page>
tracking stocks, one to retain the designation Liberty Capital common stock and
the other to be designated the Liberty Entertainment common stock.
Implementation of the Reclassification is contingent upon the completion of the
News Corporation Exchange pursuant to which we would exchange our approximate
16% ownership interest in News Corporation for a subsidiary of News Corporation
which would hold an approximate 40% interest in The DIRECTV Group, Inc., three
regional sports television networks and approximately $588 million in cash.
Consummation of the News Corporation Exchange, which is conditioned upon receipt
of certain governmental approvals and a favorable tax ruling and opinion, is
expected before the end of 2007.
If the Reclassification is implemented, the Liberty Entertainment common
stock would be intended to track and reflect the separate economic performance
of a newly designated Entertainment Group, which would initially have attributed
to it a portion of the businesses, assets and liabilities that are currently
attributed to the Capital Group, including our subsidiaries Starz Entertainment
and FUN, our equity interests in GSN, LLC and WildBlue Communications, Inc. and
approximately $500 million of cash and $551 million principal amount (as of
September 30, 2007) of our publicly-traded debt. In addition, we would attribute
to the Entertainment Group all of the businesses and assets received in the News
Corporation Exchange.
Upon implementation of the Reclassification, the Capital Group would have
attributed to it all of our businesses, assets and liabilities not attributed to
the Interactive Group or the Entertainment Group, including our subsidiaries
Starz Media, Atlanta National League Baseball Club, Inc., Leisure Arts,
TruePosition and WFRV Television Station, and minority equity investments in
Time Warner Inc. and Sprint Nextel Corporation. In addition, the Capital Group
would have attributed to it $3,930 million principal amount (as of
September 30, 2007) of our existing publicly-traded debt and $750 million of our
bank debt.
The Reclassification would not change the businesses, assets and liabilities
currently attributed to our Interactive Group.
2007 COMPLETED TRANSACTIONS
In addition to the sales of OPTV and AEG described in note 8 to the
accompanying condensed consolidated financial statements, we have several other
completed transactions. Among these are:
On April 16, 2007, we completed the CBS Exchange with CBS Corporation
pursuant to which we exchanged our 7.6 million shares of CBS Class B common
stock valued at $239 million for a subsidiary of CBS that holds WFRV TV Station
and approximately $170 million in cash.
On May 17, 2007 we completed the Time Warner Exchange in which we exchanged
approximately 68.5 million shares of Time Warner common stock for a subsidiary
of Time Warner which holds the Atlanta Braves, Leisure Arts and $984 million in
cash.
On June 22, 2007 we acquired $81.3% of the outstanding capital stock of
Backcountry.com, Inc. for cash consideration of $120 million, of which
$11 million will be held in escrow for one year following the closing to satisfy
any indemnification claims.
RESULTS OF OPERATIONS
GENERAL. We provide in the tables below information regarding our
Consolidated Operating Results and Other Income and Expense, as well as
information regarding the contribution to those items of our reportable segments
categorized by the tracking stock group to which those segments are attributed.
The "corporate and other" category for each tracking stock group consists of
those assets within the category which are attributed to such tracking stock
group. For a more detailed discussion and analysis of the financial results of
the principal reporting segments of each tracking stock group, see "Interactive
Group" and "Capital Group" below.
I-35
<Page>
2006 ACQUISITIONS. In addition to the 2007 acquisitions noted above, we
completed several acquisitions in 2006 that impact the comparability of our 2006
and 2007 results of operations. Those acquisitions and the months in which they
occurred are: Provide in February 2006, FUN in March 2006 and BuySeasons and
Starz Media in August 2006.
CONSOLIDATED OPERATING RESULTS
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
REVENUE
Interactive Group
QVC........................................ $1,686 1,653 5,063 4,838
Corporate and Other........................ 74 40 259 178
------ ----- ----- -----
1,760 1,693 5,322 5,016
------ ----- ----- -----
Capital Group
Starz Entertainment........................ 282 253 801 776
Corporate and Other........................ 209 70 444 150
------ ----- ----- -----
491 323 1,245 926
------ ----- ----- -----
Consolidated Liberty..................... $2,251 2,016 6,567 5,942
====== ===== ===== =====
OPERATING CASH FLOW (DEFICIT)
Interactive Group
QVC........................................ $ 364 366 1,121 1,099
Corporate and Other........................ (1) (1) 17 16
------ ----- ----- -----
363 365 1,138 1,115
------ ----- ----- -----
Capital Group
Starz Entertainment........................ 88 45 216 136
Corporate and Other........................ (18) (32) (82) (54)
------ ----- ----- -----
70 13 134 82
------ ----- ----- -----
Consolidated Liberty..................... $ 433 378 1,272 1,197
====== ===== ===== =====
OPERATING INCOME (LOSS)
Interactive Group
QVC........................................ $ 231 257 718 711
Corporate and Other........................ (10) (7) (6) --
------ ----- ----- -----
221 250 712 711
------ ----- ----- -----
Capital Group
Starz Entertainment........................ 78 40 180 117
Corporate and Other........................ (100) (54) (217) (111)
------ ----- ----- -----
(22) (14) (37) 6
------ ----- ----- -----
Consolidated Liberty..................... $ 199 236 675 717
====== ===== ===== =====
</Table>
REVENUE. Our consolidated revenue increased $235 million or 11.7% and
$625 million or 10.5% for the three and nine months ended September 30, 2007,
respectively, as compared to the corresponding prior year period. In addition to
the increases for QVC and Starz Entertainment, the
I-36
<Page>
three month increase is due primarily to $101 million generated by the Atlanta
Braves, which we acquired in May 2007, a $45 million increase for Starz Media,
which we acquired in August 2006 and $27 million generated by Backcountry, which
we acquired in June 2007. The nine month increase is due primarily to a
$225 million or 4.7% increase for QVC, a $172 million increase for Starz Media
and $151 million generated by the Atlanta Braves. In addition, we recognized a
full nine months of revenue for Provide and FUN in 2007. These increases were
partially offset by $23 million and $74 million decreases for TruePosition for
the three and nine months ended September 30, 2007, respectively. In
November 2006, TruePosition signed an amendment to its existing services
contract with Cingular Wireless that requires TruePosition to develop and
deliver additional software features. Because vendor specific objective evidence
related to the value of these additional features does not exist, TruePosition
is required to defer revenue recognition until all of the features have been
delivered. TruePosition estimates that these features will be delivered in the
fourth quarter of 2008. Accordingly, absent any further contractual changes,
TruePosition will not recognize any revenue under this contract until 2008.
TruePosition's services contract with its other major customer, T-Mobile, Inc.,
has a similar provision which prevents TruePosition from recognizing revenue.
Such contract expires in June 2008, but contains provisions allowing T-Mobile to
extend. It should be noted, however, that both Cingular Wireless and T-Mobile
are paying currently for services they receive and that the aforementioned
deferrals have normal gross profit margins included. See Management's Discussion
and Analysis for the Interactive Group and for the Capital Group below for a
more complete discussion of QVC's and Starz Entertainment's results of
operations.
OPERATING CASH FLOW. We define Operating Cash Flow as revenue less cost of
sales, operating expenses and selling, general and administrative expenses
(excluding stock-based compensation). Our chief operating decision maker and
management team use this measure of performance in conjunction with other
measures to evaluate our businesses and make decisions about allocating
resources among our businesses. We believe this measure is an important
indicator of the operational strength and performance of our businesses,
including each business's ability to service debt and fund capital expenditures.
In addition, this measure allows us to view operating results, perform
analytical comparisons and benchmarking between businesses and identify
strategies to improve performance. This measure of performance excludes such
costs as depreciation and amortization, stock-based compensation, separately
reported litigation settlements and restructuring and impairment charges that
are included in the measurement of operating income pursuant to generally
accepted accounting principles. Accordingly, Operating Cash Flow should be
considered in addition to, but not as a substitute for, operating income, net
earnings, cash flow provided by operating activities and other measures of
financial performance prepared in accordance with GAAP. See note 17 to the
accompanying condensed consolidated financial statements for a reconciliation of
Operating Cash Flow to Earnings (Loss) from Continuing Operations Before Income
Taxes and Minority Interests.
Consolidated Operating Cash Flow increased $55 million or 14.6% and
$75 million or 6.3% during the three and nine months ended September 30, 2007,
respectively, as compared to the corresponding prior year period. The three
month increase is due primarily to a $43 million increase for Starz
Entertainment and $34 million generated by the Atlanta Braves. These increases
were partially offset by a $19 million decrease in operating cash flow for
TruePosition due to the reduction in revenue noted above and an $11 million
decrease for Starz Media. The nine month increase is due to Starz Entertainment,
the Atlanta Braves and QVC partially offset by operating cash flow deficits for
Starz Media of $53 million and TruePosition of $67 million.
STOCK-BASED COMPENSATION. Stock-based compensation includes compensation
related to (1) options and stock appreciation rights for shares of our common
stock that are granted to certain of our officers and employees, (2) phantom
stock appreciation rights ("PSARs") granted to officers and employees of certain
of our subsidiaries pursuant to private equity plans and (3) amortization of
restricted stock grants.
I-37
<Page>
Effective January 1, 2006, we adopted Statement 123R. Statement 123R
requires that we amortize the grant date fair value of our stock option and SAR
Awards that qualify as equity awards as stock compensation expense over the
vesting period of such Awards. Statement 123R also requires that we record our
liability awards at fair value each reporting period and that the change in fair
value be reflected as stock compensation expense in our condensed consolidated
statements of operations.
In connection with our adoption of Statement 123R, we recorded an
$89 million transition adjustment loss, net of related income taxes. The
transition adjustment is reflected in the accompanying condensed consolidated
statement of operations as the cumulative effect of accounting change. We
recorded $57 million of stock compensation expense for the nine months ended
September 30, 2007, compared with $46 million for the comparable period in 2006.
As of September 30, 2007, the total compensation cost related to our unvested
equity awards was approximately $75 million. Such amount will be recognized in
our consolidated statements of operations over a weighted average period of
approximately 2.1 years.
OPERATING INCOME. Consolidated operating income decreased $37 million or
15.7% and $42 million or 5.9% for the three and nine months ended September 30,
2007, respectively, as compared to the corresponding prior year period. The
three month decrease is due to QVC, FUN, TruePosition and Starz Media, partially
offset by increases for Starz Entertainment and the Atlanta Braves. Included in
FUN's operating loss for the three months ended September 30, 2007 is an
impairment charge of $41 million related to FUN's sports information segment.
Such impairment resulted from new competition which adversely impacted revenue
and operating income. The nine month decrease is the net effect of an increase
in operating income for Starz Entertainment, the Atlanta Braves and QVC,
partially offset by operating losses generated by Starz Media of $65 million,
TruePosition of $72 million and FUN of $53 million. We currently expect Starz
Media to continue incurring operating cash flow deficits and operating losses
for the next two to three years.
I-38
<Page>
OTHER INCOME AND EXPENSE
Components of Other Income (Expense) are as follows:
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
Interest expense
Interactive Group............................... $(121) (108) (340) (298)
Capital Group................................... (52) (69) (128) (187)
----- ---- ---- ----
Consolidated Liberty.......................... $(173) (177) (468) (485)
===== ==== ==== ====
Dividend and interest income
Interactive Group............................... $ 11 10 34 29
Capital Group................................... 96 61 212 137
----- ---- ---- ----
Consolidated Liberty.......................... $ 107 71 246 166
===== ==== ==== ====
Share of earnings (losses) of affiliates
Interactive Group............................. $ 22 8 61 29
Capital Group................................. (23) (5) (37) 3
----- ---- ---- ----
Consolidated Liberty........................ $ (1) 3 24 32
===== ==== ==== ====
Realized and unrealized gains (losses) on
financial instruments, net
Interactive Group............................. $ 2 5 -- 22
Capital Group................................. 398 (78) 493 74
----- ---- ---- ----
Consolidated Liberty........................ $ 400 (73) 493 96
===== ==== ==== ====
Gains on dispositions, net
Interactive Group............................... $ -- -- 12 --
Capital Group................................... 2 25 625 352
----- ---- ---- ----
Consolidated Liberty.......................... $ 2 25 637 352
===== ==== ==== ====
Other, net
Interactive Group............................... $ 4 2 8 15
Capital Group................................... (2) (2) (1) (2)
----- ---- ---- ----
Consolidated Liberty.......................... $ 2 -- 7 13
===== ==== ==== ====
</Table>
INTEREST EXPENSE. Consolidated interest expense decreased for the three and
nine months ended September 30, 2007. However, interest expense attributable to
the Interactive Group increased $42 million or 14.1% for the nine-month period
due to increased borrowings on the QVC credit facilities. Interest expense
attributable to the Capital Group decreased $59 million for the nine months
ended September 30, 2007 due to our adoption of Statement 155 and the resulting
change in accounting for our senior exchangeable debentures. Our 2006 interest
expense included $71 million of accretion related to our exchangeable
debentures. See note 13 to the accompanying condensed consolidated financial
statements.
DIVIDEND AND INTEREST INCOME. Interest income for the Capital Group
increased in 2007 due to higher invested cash balances. Interest and dividend
income attributable to the Capital Group for the nine months ended
September 30, 2007 was comprised of interest income earned on invested cash
I-39
<Page>
($135 million), dividends on News Corporation common stock ($38 million),
dividends on other AFS securities ($33 million), and other ($6 million).
SHARE OF EARNINGS OF AFFILIATES. Our share of earnings (losses) of
affiliates for the nine months ended September 30, 2007 are $61 million for the
Interactive Group and ($37) million for the Capital Group. Share of earnings for
the Interactive Group in 2007 are primarily attributable to Expedia
($52 million), and the Capital Group's share of losses in 2007 are primarily
attributable to WildBlue ($42 million).
Upon consummation of the News Corp Exchange, we will account for our
interest in The DIRECTV Group using the equity method of accounting, which could
result in a significant increase in our share of earnings of affiliates in
future periods. In this regard, The DIRECTV Group reported net income for the
year ended December 31, 2006 of $1,420 million.
REALIZED AND UNREALIZED GAINS (LOSSES) ON FINANCIAL INSTRUMENTS. Realized
and unrealized gains (losses) on financial instruments are comprised of changes
in the fair value of the following:
<Table>
<Caption>
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
2007 2006
-------- --------
AMOUNTS
IN MILLIONS
Senior exchangeable debentures.............................. $330 --
Equity collars.............................................. 107 147
Borrowed shares............................................. 111 (198)
Exchangeable debenture call option obligations.............. -- 69
Other derivatives........................................... (55) 78
---- ----
$493 96
==== ====
</Table>
GAINS ON DISPOSITION, NET. Gains on dispositions in 2007 include
$582 million related to the Time Warner Exchange and $31 million related to the
CBS Exchange.
INCOME TAXES. For the nine months ended September 30, 2007, we recorded
pre-tax earnings of $1,593 million and income tax expense of $45 million. The
Time Warner Exchange and the CBS Exchange qualify as IRC Section 355
transactions, and therefore do not trigger federal or state income tax
obligations. In addition, upon consummation of the exchange transactions,
deferred tax liabilities previously recorded for the difference between our book
and tax bases in our Time Warner and CBS Corporation investments in the amount
of $354 million were reversed with an offset to income tax benefit.
NET EARNINGS. Our net earnings were $1,697 million and $515 million for
nine months ended September 30, 2007 and 2006, respectively. Such change is due
to the aforementioned fluctuations in revenue and expenses. In addition, we
recognized $149 million and ($10) million of earnings (loss) from discontinued
operations in 2007 and 2006, respectively. The 2007 earnings from discontinued
operations include pre-tax gains of $65 million and $163 million from the
disposition of OpenTV and AEG, respectively. In 2006, we also recognized a
transition adjustment loss of $89 million related to the adoption of Statement
123R.
MATERIAL CHANGES IN FINANCIAL CONDITION
While the Interactive Group and the Capital Group are not separate legal
entities and the assets and liabilities attributed to each group remain assets
and liabilities of our consolidated company, we manage the liquidity and
financial resources of each group separately. Keeping in mind that assets
I-40
<Page>
attributed to one group may be used to satisfy liabilities attributed to the
other group, the following discussion assumes that future liquidity needs of
each group will be funded by the financial resources attributed to each
respective group.
The following are potential sources of liquidity for each group to the
extent the identified asset or transaction has been attributed to such group:
available cash balances, cash generated by the operating activities of our
privately-owned subsidiaries (to the extent such cash exceeds the working
capital needs of the subsidiaries and is not otherwise restricted), proceeds
from asset sales, monetization of our public investment portfolio (including
derivatives), debt and equity issuances, and dividend and interest receipts.
INTERACTIVE GROUP. During the nine months ended September 30, 2007, the
Interactive Group's primary uses of cash were debt repayments ($187 million),
capital expenditures ($236 million), tax payments to the Capital Group
($248 million), the acquisition of Backcountry ($120 million) and the repurchase
of outstanding Liberty Interactive common stock ($821 million). In connection
with the issuance of our tracking stocks, our board of directors authorized a
share repurchase program pursuant to which we could repurchase up to $1 billion
of outstanding shares of Liberty Interactive common stock in the open market or
in privately negotiated transactions, from time to time, subject to market
conditions. In the fourth quarter of 2006, our board of directors authorized us
to repurchase up to an additional $1 billion of outstanding shares of Liberty
Interactive common stock. During the nine months ended September 30, 2007, we
repurchased 16.8 million shares of Liberty Interactive Series A common stock in
the open market for aggregate cash consideration of $337 million. In addition,
on May 15, 2007, we commenced a tender offer pursuant to which we sought to
purchase up to 19,417,476 shares of Series A Liberty Interactive common stock at
a price not greater than $25.75 or less than $23.75 per share. The tender offer
expired on June 12, 2007, and 27,543,660 shares of Series A Liberty Interactive
common stock were properly tendered. The final proration factor was
approximately 70.3952% and we accepted for purchase 19,417,476 shares at a price
of $24.95 per share, or aggregate cash consideration of $484 million. During the
period from May 10, 2006 through September 30, 2007, we have repurchased an
aggregate of $1,774 million of Liberty Interactive common stock. Subsequent to
September 30, 2007, our board of directors authorized us to repurchase up to an
additional $1 billion of Liberty Interactive common stock. We may alter or
terminate the stock repurchase program at any time.
The Interactive Group's uses of cash in 2007 were primarily funded with cash
from operations and borrowings under the QVC credit facilities. As of
September 30, 2007, the Interactive Group had a cash balance of $718 million.
The projected uses of Interactive Group cash for the remainder of 2007
include approximately $120 million for interest payments on QVC debt and parent
debt attributed to the Interactive Group, capital expenditures, additional tax
payments to the Capital Group and additional repurchases of Liberty Interactive
common stock. In addition, we may make additional investments in existing or new
businesses and attribute such investments to the Interactive Group. However, we
do not have any commitments to make new investments at this time.
As of September 30, 2007, the aggregate commitments under QVC's credit
agreements were $5.25 billion, and outstanding borrowings were $3.9 billion.
QVC's ability to borrow the unused capacity is dependent on its continuing
compliance with the covenants contained in the agreements at the time of, and
after giving effect to, a requested borrowing.
CAPITAL GROUP. During the nine months ended September 30, 2007, the Capital
Group's primary uses of cash were the repurchase of Series A Liberty Capital
common stock as described below ($1,305 million), debt repayments
($164 million) and loans and investments ($80 million).
I-41
<Page>
In connection with the issuance of our tracking stocks, our board of
directors authorized a share repurchase program pursuant to which we could
repurchase up to $1 billion of outstanding shares of Liberty Capital common
stock in the open market or in privately negotiated transactions, from time to
time, subject to market conditions. That amount was increased to approximately
$1.3 billion in connection with a tender offer for Liberty Capital stock that
was completed in April 2007. In May 2007, our board of directors authorized the
repurchase of an additional $1 billion of Liberty Capital common stock. We may
alter or terminate the program at any time.
In order to implement our share repurchase program for Liberty Capital
common stock, we commenced a tender offer on March 7, 2007 that we subsequently
amended on March 20, 2007. Pursuant to the tender offer, as amended, we sought
to purchase up to 8,849,500 shares of Series A Liberty Capital common stock at a
price not greater than $113.00 or less than $105.00 per share. The tender offer
expired on April 5, 2007, and 11,858,343 shares of Series A Liberty Capital
common stock were properly tendered. We exercised our right to purchase an
additional 2% of our outstanding Series A Liberty Capital common stock and
accepted for purchase 11,540,680 shares at a price of $113.00 per share or
aggregate cash consideration of $1,305 million (including transaction costs). We
funded the cash consideration with available cash on hand.
The Capital Group's sources of liquidity for the nine months ended
September 30, 2007 include cash from the Time Warner Exchange ($984 million) and
the CBS Exchange ($170 million), cash proceeds from the sale of AEG
($332 million) and OPTV ($112 million) and available cash on hand.
In addition, in April 2007, we borrowed $750 million of bank financing with
an interest rate of LIBOR plus an applicable margin. We intend to invest such
proceeds in a portfolio of selected debt and mezzanine-level instruments of
companies in the telecommunications, media and technology sectors that we
believe have favorable risk/return profiles. Although no assurance can be given,
we expect to make such investments over the next 18-24 months. See note 10 to
the accompanying condensed consolidated financial statements for a discussion of
the Investment Fund to which this bank facility relates.
In June 2007, we announced that we intend to make an offer to purchase all
of the common shares of FUN that we do not already own. Our offer will be
subject to certain conditions, and if completed, we estimate our cash payments
will be approximately $100-$120 million. In addition, the projected uses of
Capital Group cash for the remainder of 2007 include approximately $40 million
for interest payments on debt attributed to the Capital Group. We may also make
additional investments in existing or new businesses and attribute such
investments to the Capital Group. However, we do not have any commitments to
make new investments at this time.
If the Reclassification is implemented, the Liberty Entertainment common
stock would be intended to track and reflect the separate economic performance
of a newly designated Entertainment Group, which would initially have attributed
to it a portion of the businesses, assets and liabilities that are currently
attributed to the Capital Group, including our subsidiaries Starz Entertainment
and FUN, our equity interests in GSN, LLC and WildBlue Communications, Inc. and
approximately $500 million of cash and $551 million principal amount (as of
September 30, 2007) of our publicly-traded debt. In addition, we would attribute
to the Entertainment Group all of the businesses and assets received in the News
Corporation Exchange.
We expect that the Capital Group's investing and financing activities will
be funded with a combination of cash on hand, cash provided by operating
activities, tax payments from the Interactive Group, proceeds from collar
expirations and dispositions of non-strategic assets. At September 30, 2007, the
Capital Group's sources of liquidity include $2,732 million in cash and
marketable debt securities and $5,445 million of non-strategic AFS securities
including related derivatives. To the extent the Capital Group recognizes any
taxable gains from the sale of assets or the expiration of derivative
instruments, we may incur current tax expense and be required to make tax
payments, thereby reducing any cash proceeds attributable to the Capital Group.
I-42
<Page>
Our derivatives related to certain of our AFS investments provide the
Capital Group with an additional source of liquidity. Based on the put price and
assuming we deliver owned or borrowed shares to settle each of the AFS
Derivatives and excluding any provision for income taxes, the Capital Group
would have attributed to it cash proceeds of approximately $139 million in 2007,
$21 million in 2008, $1,223 million in 2009, $1,674 million in 2010 and
$446 million in 2011 upon settlement of its AFS Derivatives.
Prior to the maturity of the equity collars, the terms of certain of these
instruments allow borrowings against the future put option proceeds at LIBOR or
LIBOR plus an applicable spread, as the case may be. As of September 30, 2007,
such borrowing capacity aggregated approximately $3,503 million. Such borrowings
would reduce the cash proceeds upon settlement noted in the preceding paragraph.
In the event we complete our exchange transaction with News Corporation as
currently contemplated, such borrowing capacity would be reduced by
$916 million.
See note 16 to the accompanying condensed consolidated financial statements
for a discussion of our commitments and contingencies.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk in the normal course of business due to our
ongoing investing and financing activities and our subsidiaries in different
foreign countries. Market risk refers to the risk of loss arising from adverse
changes in stock prices, interest rates and foreign currency exchange rates. The
risk of loss can be assessed from the perspective of adverse changes in fair
values, cash flows and future earnings. We have established policies, procedures
and internal processes governing our management of market risks and the use of
financial instruments to manage our exposure to such risks.
We are exposed to changes in interest rates primarily as a result of our
borrowing and investment activities, which include investments in fixed and
floating rate debt instruments and borrowings used to maintain liquidity and to
fund business operations. The nature and amount of our long-term and short-term
debt are expected to vary as a result of future requirements, market conditions
and other factors. We manage our exposure to interest rates by maintaining what
we believe is an appropriate mix of fixed and variable rate debt. We believe
this best protects us from interest rate risk. We have achieved this mix by
(i) issuing fixed-rate debt that we believe has a low stated interest rate and
significant term to maturity, (ii) issuing variable rate debt with appropriate
maturities and interest rates and (iii) entering into interest rate swap
arrangements when we deem appropriate. As of September 30, 2007, the face amount
of the Interactive Group's fixed rate debt (considering the effects of interest
rate swap agreements) was $5,868 million, which had a weighted average interest
rate of 6.3%. The Interactive Group's variable rate debt of $1,214 million had a
weighted average interest rate of 8.7% at September 30, 2007. As of
September 30, 2007, the face amount of the Capital Group's fixed rate debt was
$4,540 million, which had a weighted average interest rate of 2.6%.
Each of the Interactive Group and the Capital Group are exposed to changes
in stock prices primarily as a result of our significant holdings in publicly
traded securities. We continually monitor changes in stock markets, in general,
and changes in the stock prices of our holdings, specifically. We believe that
changes in stock prices can be expected to vary as a result of general market
conditions, technological changes, specific industry changes and other factors.
We use equity collars, written put and call options and other financial
instruments to manage market risk associated with certain investment positions.
These instruments are recorded at fair value based on option pricing models.
Among other factors, changes in the market prices of the securities
underlying our AFS Derivatives affect the fair market value of such AFS
Derivatives. The following table illustrates the impact that changes in the
market price of the securities underlying our equity collars that have been
attributed to the Capital Group would have on the fair market value of such
derivatives. Such changes
I-43
<Page>
in fair market value would be included in realized and unrealized gains (losses)
on financial instruments in our statement of operations.
<Table>
<Caption>
ESTIMATED AGGREGATE FAIR VALUE
------------------------------------------
EQUITY
COLLARS OTHER TOTAL
-------- -------- --------
AMOUNTS IN MILLIONS
Fair value at September 30, 2007................ $1,088 73 1,161
5% increase in market prices.................... $ 998 81 1,079
10% increase in market prices................... $ 907 88 995
5% decrease in market prices.................... $1,176 66 1,242
10% decrease in market prices................... $1,263 59 1,322
</Table>
At September 30, 2007, the fair value of our AFS securities attributed to
the Interactive Group was $2,300 million and the fair value of our AFS
securities attributed to the Capital Group was $17,462 million. Had the market
price of such securities been 10% lower at September 30, 2007, the aggregate
value of such securities would have been $230 million and $1,746 million lower,
respectively, resulting in a decrease to unrealized holding gains in other
comprehensive earnings (loss). The decrease attributable to the Capital Group
would be partially offset by an increase in the value of our AFS Derivatives as
noted in the table above. Because we mark our senior exchangeable debentures to
fair value each reporting date, they are also subject to market risk. Increases
in the stock price of the respective underlying security result in higher
liabilities and unrealized losses in our statement of operations.
From time to time and in connection with certain of our AFS Derivatives, we
borrow shares of the underlying securities from a counterparty and deliver these
borrowed shares in settlement of maturing derivative positions. In these
transactions, a similar number of shares that we have attributed to the Capital
Group have been posted as collateral with the counterparty. These share
borrowing arrangements can be terminated at any time at our option by delivering
shares to the counterparty. The counterparty can terminate these arrangements at
any time. The liability under these share borrowing arrangements is marked to
market each reporting period with changes in value recorded in unrealized gains
or losses in the Capital Group's attributed statement of operations. The shares
posted as collateral under these arrangements continue to be treated as AFS
securities and are marked to market each reporting period with changes in value
recorded as unrealized gains or losses in other comprehensive earnings.
The Interactive Group is exposed to foreign exchange rate fluctuations
related primarily to the monetary assets and liabilities and the financial
results of QVC's foreign subsidiaries. Assets and liabilities of foreign
subsidiaries for which the functional currency is the local currency are
translated into U.S. dollars at period-end exchange rates and the statements of
operations are generally translated at the average exchange rate for the period.
Exchange rate fluctuations on translating foreign currency financial statements
into U.S. dollars that result in unrealized gains or losses are referred to as
translation adjustments. Cumulative translation adjustments are recorded in
other comprehensive earnings (loss) as a separate component of stockholders'
equity. Transactions denominated in currencies other than the functional
currency are recorded based on exchange rates at the time such transactions
arise. Subsequent changes in exchange rates result in transaction gains and
losses, which are reflected in income as unrealized (based on period-end
translations) or realized upon settlement of the transactions. Cash flows from
our operations in foreign countries are generally translated at the average rate
for the period. Accordingly, the Interactive Group may experience economic loss
and a negative impact on earnings and equity with respect to our holdings solely
as a result of foreign currency exchange rate fluctuations.
I-44
<Page>
We periodically assess the effectiveness of our derivative financial
instruments. With regard to interest rate swaps, we monitor the fair value of
interest rate swaps as well as the effective interest rate the interest rate
swap yields, in comparison to historical interest rate trends. We believe that
any losses incurred with regard to interest rate swaps would be offset by the
effects of interest rate movements on the underlying debt facilities. With
regard to equity collars, we monitor historical market trends relative to values
currently present in the market. We believe that any unrealized losses incurred
with regard to equity collars and swaps would be offset by the effects of fair
value changes on the underlying assets. These measures allow our management to
measure the success of its use of derivative instruments and to determine when
to enter into or exit from derivative instruments.
Our derivative instruments are executed with counterparties who are well
known major financial institutions with high credit ratings. While we believe
these derivative instruments effectively manage the risks highlighted above,
they are subject to counterparty credit risk. Counterparty credit risk is the
risk that the counterparty is unable to perform under the terms of the
derivative instrument upon settlement of the derivative instrument. To protect
ourselves against credit risk associated with these counterparties we generally:
- execute our derivative instruments with several different counterparties,
and
- execute equity derivative instrument agreements which contain a provision
that requires the counterparty to post the "in the money" portion of the
derivative instrument into a cash collateral account for our benefit, if
the respective counterparty's credit rating for its senior unsecured debt
were to reach certain levels, generally a rating that is below Standard &
Poor's rating of A- and/or Moody's rating of A3.
Due to the importance of these derivative instruments to our risk management
strategy, we actively monitor the creditworthiness of each of these
counterparties. Based on our analysis, we currently consider nonperformance by
any of our counterparties to be unlikely.
INTERACTIVE GROUP
The Interactive Group consists of our subsidiaries QVC, Provide, BuySeasons
and Backcountry, our minority interests in IAC/InterActiveCorp, Expedia and GSI
Commerce, Inc. and $3,107 million principal amount (as of September 30, 2007) of
our senior notes and debentures.
The following discussion and analysis provides information concerning the
results of operations and financial condition of the Interactive Group. Although
our Restructuring was not completed until May 9, 2006, the following discussion
is presented as though the Restructuring had been completed on January 1, 2006.
The results of operations of Provide, BuySeasons and Backcountry are included in
Corporate and Other since their respective date of acquisition in the tables
below. Fluctuations in Corporate and Other from 2006 to 2007 are due primarily
to the acquisitions of Provide in February 2006, BuySeasons in August 2006 and
Backcountry in June 2007. This discussion should be read in conjunction with
(1) our condensed consolidated financial statements and notes thereto included
elsewhere in this Quarterly Report on Form 10-Q and (2) the Attributed Financial
Information for Tracking Stock Groups filed as Exhibit 99.1 to this Quarterly
Report on Form 10-Q.
I-45
<Page>
MATERIAL CHANGES IN RESULTS OF OPERATIONS
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
REVENUE
QVC.......................................... $1,686 1,653 5,063 4,838
Corporate and other.......................... 74 40 259 178
------ ----- ----- -----
$1,760 1693 5,322 5,016
====== ===== ===== =====
OPERATING CASH FLOW (DEFICIT)
QVC.......................................... $ 364 366 1,121 1,099
Corporate and other.......................... (1) (1) 17 16
------ ----- ----- -----
$ 363 365 1,138 1,115
====== ===== ===== =====
OPERATING INCOME (LOSS)
QVC.......................................... $ 231 257 718 711
Corporate and other.......................... (10) (7) (6) --
------ ----- ----- -----
$ 221 250 712 711
====== ===== ===== =====
</Table>
QVC. QVC is a retailer of a wide range of consumer products, which are
marketed and sold primarily by merchandise-focused televised shopping programs
and via the Internet. In the United States, the program is aired live through
its nationally televised shopping network--24 hours a day, 7 days a week
("QVC-US"). Internationally, QVC has electronic retailing program services based
in the United Kingdom ("QVC-UK"), Germany ("QVC-Germany") and Japan
("QVC-Japan"). QVC-UK broadcasts 24 hours a day with 17 hours of live
programming, and QVC-Germany and QVC-Japan each broadcast live 24 hours a day.
QVC's operating results are as follows:
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
Net revenue................................. $ 1,686 1,653 5,063 4,838
Cost of sales............................... (1,068) (1,040) (3,186) (3,018)
------- ------ ------ ------
Gross profit.............................. 618 613 1,877 1,820
Operating expenses.......................... (143) (139) (427) (408)
SG&A expenses (excluding stock-based
compensation)............................. (111) (108) (329) (313)
------- ------ ------ ------
Operating cash flow....................... 364 366 1,121 1,099
Stock-based compensation--SG&A.............. (4) 10 (20) (31)
Depreciation and amortization............... (129) (119) (383) (357)
------- ------ ------ ------
Operating income.......................... $ 231 257 718 711
======= ====== ====== ======
</Table>
I-46
<Page>
Net revenue is generated in the following geographic areas:
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
QVC-US......................................... $1,174 1,151 3,532 3,379
QVC-UK......................................... 169 144 481 415
QVC-Germany.................................... 194 202 607 587
QVC-Japan...................................... 149 156 443 457
------ ----- ----- -----
$1,686 1,653 5,063 4,838
====== ===== ===== =====
</Table>
QVC's consolidated net revenue increased 2.0% and 4.7% during the three and
nine months ended September 30, 2007, respectively, as compared to the
corresponding prior year period. The three month increase in revenue is
comprised of a $19 million increase due to an increase in the number of units
shipped from 38.5 million to 38.8 million and a $24 million increase due to
favorable foreign currency rates. These increases were partially offset by the
impacts of a slightly lower average sales price per unit ("ASP") ($4 million)
and other miscellaneous decreases ($6 million). The nine month increase in
revenue is comprised of a $132 million increase due to a 2.5% increase in the
number of units shipped from 114.8 million to 117.7 million, a $26 million
increase due to an increase in the ASP and a $72 million net increase due to
changes in foreign currency exchange rates partially offset by other
miscellaneous decreases ($5 million).
As noted above, during the three and nine months ended September 30, 2007,
the changes in revenue and expenses were impacted by fluctuations in the
exchange rates for the UK pound sterling, the euro and the Japanese yen. In the
event the U.S. dollar strengthens against these foreign currencies in the
future, QVC's reported revenue and operating cash flow will be negatively
impacted. The percentage increase in revenue for each of QVC's geographic areas
in U.S. dollars and in local currency is as follows:
<Table>
<Caption>
PERCENTAGE INCREASE (DECREASE) IN NET REVENUE
-------------------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2007 SEPTEMBER 30, 2007
----------------------------- -----------------------------
U.S. DOLLARS LOCAL CURRENCY U.S. DOLLARS LOCAL CURRENCY
------------ -------------- ------------ --------------
QVC-US....................... 2.0% 2.0% 4.5% 4.5%
QVC-UK....................... 17.4% 9.3% 15.9% 6.0%
QVC-Germany.................. (4.0)% (11.1)% 3.4% (4.2)%
QVC-Japan.................... (4.5)% (3.2)% (3.1)% 0.1%
</Table>
Revenue for QVC-US was negatively impacted in 2007 by a sluggish retail
environment and weakness in the gold jewelry category due to higher gold prices.
QVC-Germany net revenue in local currency declined during the three and
nine months ended September 30, 2007 relative to the prior periods due to
increased competition, a soft retail market, a 300 basis point increase in the
German value added tax (VAT) rate and higher usage of markdowns in the fashion
category. QVC-Japan net revenue declined in local currency during the
three months ended September 30, 2007 as compared to the prior year period due
to the heightened regulatory focus on health and beauty product presentations
which began in March 2007.
I-47
<Page>
The number of homes receiving QVC's services are as follows:
<Table>
<Caption>
HOMES (IN MILLIONS)
------------------------------
SEPTEMBER 30, DECEMBER 31,
2007 2006
-------------- -------------
QVC-US.............................................. 92.7 90.7
QVC-UK.............................................. 21.1 19.4
QVC-Germany......................................... 37.8 37.5
QVC-Japan........................................... 20.2 18.7
</Table>
The QVC service is already received by substantially all of the cable
television and direct broadcast satellite homes in the U.S. and Germany. In
addition, the rate of growth in households is expected to diminish in the UK and
Japan. Therefore, future sales growth will primarily depend on continued
additions of new customers from homes already receiving the QVC service and
continued growth in sales to existing customers. QVC's future sales may also be
affected by (i) the willingness of cable and satellite distributors to continue
carrying QVC's programming service, (ii) QVC's ability to maintain favorable
channel positioning, which may become more difficult as distributors convert
analog customers to digital, (iii) changes in television viewing habits because
of personal video recorders, video-on-demand and IP television and (iv) general
economic conditions.
QVC's gross profit percentage decreased approximately 40 basis points and 50
basis points during the three and nine months ended September 30, 2007,
respectively, as compared to the corresponding prior year period. These
decreases are due primarily to higher product distribution costs which resulted
from increases in shipping rates and costs associated with a new domestic
distribution center.
QVC's operating expenses are principally comprised of commissions, order
processing and customer service expenses, provision for doubtful accounts,
telecommunications expense and credit card processing fees. Operating expenses
increased 2.9% and 4.7% for the three and nine months ended September 30, 2007,
respectively, as compared to the corresponding prior year period. These
increases are primarily due to the increase in sales volume. As a percentage of
net revenue, operating expenses remained relatively consistent during 2007, as
compared to 2006.
QVC's SG&A expenses include personnel, information technology, marketing and
advertising expenses. Such expenses increased 2.8% and 5.1% for the three and
nine months ended September 30, 2007, respectively, as compared to the
corresponding prior year period. The nine month increase is due primarily to
(i) an $8 million increase in personnel expenses due to merit and headcount
increases, (ii) a $7 million increase in marketing and advertising expense
related to QVC's new branding campaign and other marketing initiatives and
(iii) a $5 million accrual for a legal settlement.
QVC's operating cash flow decreased .5% and increased 2.0% for the three and
nine months ended September 30, 2007, respectively, as compared to the
corresponding prior year period. Such fluctuations in operating cash flow were
less than the percentage increase in revenue primarily due to the decrease in
gross profit percentage discussed above, as well as the increases noted in SG&A
expenses.
CAPITAL GROUP
The Capital Group is comprised of our subsidiaries and assets not attributed
to the Interactive Group, including controlling interests in Starz
Entertainment, Starz Media, FUN, the Atlanta Braves, Leisure Arts, TruePosition
and WFRV TV Station, as well as minority interests in GSN, LLC, WildBlue
Communications, News Corporation, Time Warner, Sprint Nextel Corporation and
other public and private companies and $5,231 million principal amount (as of
September 30, 2007) of our senior exchangeable debentures and bank debt.
I-48
<Page>
We exchanged our CBS Corporation common stock for WFRV TV Station and cash
on April 16, 2007, and we exchanged some of our Time Warner common stock for the
Atlanta Braves, Leisure Arts and cash on May 17, 2007. We acquired Starz Media
from IDT Corporation in August 2006.
The following discussion and analysis provides information concerning the
attributed results of operations and financial condition of the Capital Group.
Although our Restructuring was not completed until May 9, 2006, the following
discussion is presented as though the Restructuring had been completed on
January 1, 2006. This discussion should be read in conjunction with (1) our
condensed consolidated financial statements and notes thereto included elsewhere
in this Quarterly Report on Form 10-Q and (2) the Attributed Financial
Information for Tracking Stock Groups filed as Exhibit 99.1 to this Quarterly
Report on Form 10-Q.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
REVENUE
Starz Entertainment....................... $ 282 253 801 776
Corporate and other....................... 209 70 444 150
----- --- ----- ----
$ 491 323 1,245 926
===== === ===== ====
OPERATING CASH FLOW (DEFICIT)
Starz Entertainment....................... $ 88 45 216 136
Corporate and other....................... (18) (32) (82) (54)
----- --- ----- ----
$ 70 13 134 82
===== === ===== ====
OPERATING INCOME (LOSS)
Starz Entertainment....................... $ 78 40 180 117
Corporate and other....................... (100) (54) (217) (111)
----- --- ----- ----
$ (22) (14) (37) 6
===== === ===== ====
</Table>
REVENUE. The Capital Group's combined revenue increased $168 million or
52.0% and $319 million or 34.4% for the three and nine months ended
September 30, 2007, respectively, as compared to the corresponding prior year
period. Starz Media, which we acquired in August 2006, generated $68 million and
$195 million for the three and nine months ended September 30, 2007,
respectively, and the Atlanta Braves generated $151 million of revenue since we
acquired them in May 2007, including $101 million in the third quarter. These
increases were partially offset by $23 million and $74 million decreases for
TruePosition for those same periods. In November 2006, TruePosition signed an
amendment to its existing services contract with Cingular Wireless that requires
TruePosition to develop and deliver additional software features. Because vendor
specific objective evidence related to the value of these additional features
does not exist, TruePosition is required to defer revenue recognition until all
of the features have been delivered. TruePosition estimates that these features
will be delivered in the fourth quarter of 2008. Accordingly, absent any further
contractual changes, TruePosition will not recognize any revenue under this
contract until 2008. TruePosition's services contract with its other major
customer, T-Mobile, Inc., has a similar provision which prevents TruePosition
from recognizing revenue. Such contract expires in June 2008, but contains
provisions for T-Mobile to extend. It should be noted, however, that both
Cingular Wireless and T-Mobile are paying currently for services they receive
and that the aforementioned deferrals have normal gross profit margins included.
I-49
<Page>
OPERATING CASH FLOW. The Capital Group's Operating Cash Flow increased
$57 million and $52 million during the three and nine months ended
September 30, 2007, respectively, as compared to the corresponding prior year
period. Increases for Starz Entertainment and the Atlanta Braves were partially
offset by decreases for Starz Media ($11 million and $37 million) and
TruePosition ($19 million and $55 million).
OPERATING INCOME. The Capital Group's operating income decreased
$8 million and $43 million for the three and nine months ended September 30,
2007, respectively, as compared to the corresponding prior year period. The
improvement in operating income for Starz Entertainment was more than offset by
nine month operating losses for TruePosition of $72 million and Starz Media of
$65 million. We currently expect Starz Media to continue incurring operating
cash flow deficits and operating losses for the next two to three years. In
addition, FUN recorded an operating loss of $53 million for the nine months
ended September 30, 2007 due in large part to the $41 million impairment loss it
recognized related to its sports information segment.
STARZ ENTERTAINMENT. Starz Entertainment primarily provides premium
programming distributed by cable operators, direct-to-home satellite providers
and other distributors throughout the United States. In addition, Starz
Entertainment has launched Vongo, a subscription Internet service which is
comprised of Starz and other movie and entertainment content. Vongo also offers
content on a pay-per-view basis. Substantially all of Starz Entertainment's
revenue continues to be derived from the delivery of movies to subscribers under
affiliation agreements with television video programming distributors. Some of
Starz Entertainment's affiliation agreements provide for payments to Starz
Entertainment based on the number of subscribers that receive Starz
Entertainment's services. Starz Entertainment also has fixed-rate affiliation
agreements with certain of its customers. Pursuant to these agreements, the
customers generally pay an agreed-upon rate regardless of the number of
subscribers. The agreed-upon rate is contractually increased annually or
semi-annually as the case may be, and these agreements expire in 2007 through
2012. During the nine months ended September 30, 2007, 71.5% of Starz
Entertainment's revenue was generated by its four largest customers, Comcast
Corporation, Echostar Communications, The DIRECTV Group, Inc. and Time
Warner Inc., each of which individually generated more than 10% of Starz
Entertainment's revenue for such period.
Starz Entertainment's operating results are as follows:
<Table>
<Caption>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
2007 2006 2007 2006
-------- -------- -------- --------
AMOUNTS IN MILLIONS
Revenue........................................... $ 282 253 801 776
Operating expenses................................ (167) (182) (505) (559)
SG&A expenses..................................... (27) (26) (80) (81)
----- ---- ---- ----
Operating cash flow............................. 88 45 216 136
Stock-based compensation.......................... (7) -- (21) --
Depreciation and amortization..................... (3) (5) (15) (19)
----- ---- ---- ----
Operating income................................ $ 78 40 180 117
===== ==== ==== ====
</Table>
Starz Entertainment's revenue increased $29 million or 11.5% and
$25 million or 3.2% for the three and nine months ended September 30, 2007,
respectively, as compared to the corresponding prior year period. During the
third quarter of 2007, Starz Entertainment entered into a new affiliation
agreement with DirecTV which is retroactive to January 1, 2007 and extends
through the end of 2007. The previous affiliation agreement with DirecTV expired
June 30, 2006. Since June 30, 2006, Starz Entertainment had recognized revenue
from DirecTV based on cash payments from DirecTV which
I-50
<Page>
were at lower rates than required by the old affiliation agreement. The new
affiliation agreement provides for rates that are higher than those paid by
DirecTV since June 30, 2006, but lower than the rates in the old affiliation
agreement. Accordingly, in the third quarter of 2007, Starz Entertainment
recognized $7 million and $11 million of revenue related to 2006 and the first
half of 2007, respectively, based on the difference between the rates provided
in the new affiliation agreement and the rates previously paid by DirecTV for
those periods. Starz Entertainment is currently in negotiations with DirecTV
regarding a long-term affiliation agreement.
In addition to the retroactive impacts of the new DirecTV affiliation
agreement noted above, the three month increase in revenue is due to a
$5 million increase due to a higher effective rate for Starz Entertainment's
services and a $6 million increase resulting from growth in the average number
of subscription units for Starz Entertainment's services. The nine month
increase is due to a $33 million increase resulting from higher average
subscription units partially offset by a lower effective rate ($15 million).
Starz Entertainment's affiliation agreements with Time Warner and another
affiliate have expired. Starz Entertainment is currently in negotiations with
each of these affiliates regarding new agreements. There can be no assurance
that any new agreements with these affiliates will have economic terms
comparable to the old agreements. In the event new affiliation agreements do not
have comparable terms, Starz Entertainment's revenue and operating cash flow
could be adversely impacted. In this regard, the other affiliate is currently
making payments to Starz Entertainment at rates lower than the expired contract
required. Starz Entertainment is recognizing revenue from this affiliate based
on such payments, contributing to the lower nine month effective rate in 2007
noted above. In addition, the sale of Adelphia Communication's systems to
Comcast and Time Warner in 2006 has also contributed to the lower effective
rate.
The Starz movie service and the Encore movie service are the primary drivers
of Starz Entertainment's revenue. Starz average subscription units increased
7.2% and 8.1% for the three and nine months ended September 30, 2007,
respectively, and Encore average subscription units increased 9.3% and 7.9%,
respectively, for such periods. The effects of these increases in subscription
units are somewhat mitigated by Starz Entertainment's fixed-rate affiliation
agreements. In this regard, approximately 36% of Starz Entertainment's revenue
was earned under its fixed-rate affiliation agreements during the nine months
ended September 30, 2007.
At September 30, 2007, cable, DTH satellite, and other distribution media
represented 69.1%, 28.4% and 2.5%, respectively, of Starz Entertainment's total
subscription units.
Starz Entertainment's operating expenses decreased 8.2% and 9.7% for the
three and nine months ended September 30, 2007, respectively, due primarily to a
reduction in programming costs, which decreased from $173 million for the
three months ended September 30, 2006 to $164 million in 2007 and from
$532 million for the nine months ended September 30, 2006 to $483 million in
2007. The decrease in programming costs is due primarily to a lower effective
rate for the movie titles exhibited in 2007. Such decrease was partially offset
by an increase in the percentage of first-run movie exhibitions (which have a
relatively higher cost per title) as compared to the number of library product
exhibitions. In addition to the foregoing programming cost reductions, Starz
Entertainment reversed an accrual in the amount of $7 million for music
copyright fees in the third quarter of 2007 as a result of a settlement with a
music copyright authority.
Starz Entertainment's SG&A expenses were relatively flat for the three and
nine months ended September 30, 2007, respectively, as compared to the
corresponding prior year period. To a certain extent, the timing of Starz
Entertainment's sales and marketing expenses are determined by Starz
Entertainment's affiliates, and Starz Entertainment currently expects its full
year 2007 sales and marketing expenses to exceed those of 2006 due to expected
increases in affiliate and consumer marketing costs.
I-51
<Page>
ITEM 4. CONTROLS AND PROCEDURES
In accordance with Exchange Act Rules 13a-15 and 15d-15, the Company carried
out an evaluation, under the supervision and with the participation of
management, including its chief executive officer, principal accounting officer
and principal financial officer (the "Executives"), of the effectiveness of its
disclosure controls and procedures as of the end of the period covered by this
report. Based on that evaluation, the Executives concluded that the Company's
disclosure controls and procedures were effective as of September 30, 2007 to
provide reasonable assurance that information required to be disclosed in its
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms.
There has been no change in the Company's internal controls over financial
reporting identified in connection with the evaluation described above that
occurred during the nine months ended September 30, 2007 that has materially
affected, or is reasonably likely to materially affect, its internal controls
over financial reporting.
I-52
<Page>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information regarding institution of, or material changes in, material
legal proceedings that have been reported this fiscal year, reference is made to
Part II, Item 1 of our Quarterly Reports on Form 10-Q filed on May 8, 2007 and
August 8, 2007 and Part I, Item 3 of our Annual Report on Form 10-K filed on
March 1, 2007. There have been no material developments in such legal
proceedings during the three months ended September 30, 2007.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) N/A
(b) N/A
(c) Purchases of Equity Securities by the Issuer
<Table>
<Caption>
SERIES A LIBERTY INTERACTIVE COMMON STOCK
--------------------------------------------------------------------------------------
(D) MAXIMUM NUMBER
(OR APPROXIMATE DOLLAR
(C) TOTAL NUMBER OF VALUE) OF SHARES THAT
(A) TOTAL NUMBER (B) AVERAGE SHARES PURCHASED AS PART MAY YET BE PURCHASED
OF SHARES PRICE PAID PER OF PUBLICLY ANNOUNCED UNDER THE PLANS OR
PERIOD PURCHASED SHARE PLANS OR PROGRAMS PROGRAMS
- ------ ----------------- -------------- ------------------------ ----------------------
July 2007................ 1,266,800 $22.44 1,266,800 $ 487.1 million
August 2007.............. 4,921,800 $19.80 4,921,800 $ 389.6 million
September 2007........... 8,689,800 $18.81 8,689,800 $ 226.1 million
---------- ----------
Total.................... 14,878,400 14,878,400
========== ==========
</Table>
Liberty's program to repurchase shares of Liberty Interactive common stock
was approved by its board of directors and disclosed in its 2006 Annual Proxy
Statement dated April 7, 2006. In November 2006, Liberty's board of directors
increased the aggregate amount of Liberty Interactive common stock that can be
repurchased from $1 billion to $2 billion, and in October 2007, Liberty's board
of directors increased the amount that can be repurchased to $3 billion. Liberty
may alter or terminate the program at any time.
In addition to the shares listed in the table above, 523 shares of Series A
Liberty Capital common stock and 1,189 shares of Series A Liberty Interactive
common stock were surrendered in the third quarter of 2007 by certain of our
officers to pay withholding taxes and other deductions in connection with the
vesting of their restricted stock.
II-1
<Page>
ITEM 6. EXHIBITS
(a) Exhibits
Listed below are the exhibits which are filed as a part of this Report
(according to the number assigned to them in Item 601 of Regulation S-K):
<Table>
10.1 Liberty Media Corporation 2007 Incentive Plan*
10.2 Liberty Media Corporation 2000 Incentive Plan (As amended
and restated effective February 22, 2007)*
10.3 Liberty Media Corporation 2002 Nonemployee Director
Incentive Plan (As amended and restated effective
August 15, 2007)**
31.1 Rule 13a-14(a)/15d-14(a) Certification**
31.2 Rule 13a-14(a)/15d-14(a) Certification**
31.3 Rule 13a-14(a)/15d-14(a) Certification**
32 Section 1350 Certification**
99.1 Attributed Financial Information for Tracking Stock Groups**
</Table>
- ------------------------
* Filed herewith to correct a typographical error
** Filed herewith
II-2
<Page>
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.
<Table>
LIBERTY MEDIA CORPORATION
Date: November 9, 2007 By: /s/ GREGORY B. MAFFEI
-------------------------------------------
Gregory B. Maffei
President and Chief Executive Officer
Date: November 9, 2007 By: /s/ DAVID J.A. FLOWERS
-------------------------------------------
David J.A. Flowers
Senior Vice President and Treasurer
(Principal Financial Officer)
Date: November 9, 2007 By: /s/ CHRISTOPHER W. SHEAN
-------------------------------------------
Christopher W. Shean
Senior Vice President and Controller
(Principal Accounting Officer)
</Table>
II-3
<Page>
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):
<Table>
10.1 Liberty Media Corporation 2007 Incentive Plan*
10.2 Liberty Media Corporation 2000 Incentive Plan (As amended
and restated effective February 22, 2007)*
10.3 Liberty Media Corporation 2002 Nonemployee Director
Incentive Plan (As amended and restated effective
August 15, 2007)**
31.1 Rule 13a-14(a)/15d-14(a) Certification**
31.2 Rule 13a-14(a)/15d-14(a) Certification**
31.3 Rule 13a-14(a)/15d-14(a) Certification**
32 Section 1350 Certification**
99.1 Attributed Financial Information for Tracking Stock Groups**
</Table>
- ------------------------
* Filed herewith to correct a typographical error
** Filed herewith