Liberty to Split Liberty Capital into Two Tracking Stocks
ENGLEWOOD, Colo., Aug. 8 /PRNewswire-FirstCall/ -- Liberty Media
Corporation ("Liberty") reported second quarter results for both
its Liberty Interactive Group and Liberty Capital Group. Liberty
also announced today that it intends to effect a reclassification
of its Liberty Capital tracking stock, subject to stockholder
approval and the closing of its previously announced exchange
transaction with News Corporation. In the reclassification, Liberty
would create a new tracking stock to be designated its Liberty
Entertainment common stock. It would attribute to a new Liberty
Entertainment Group the approximate 38.5% interest in The DirecTV
Group, Inc. it expects to receive from its exchange transaction
with News Corporation, as well as the three regional sports
networks and approximately $588 million in cash it will acquire in
that transaction. It is expected that Liberty would also attribute
to Liberty Entertainment Group its interests in Starz
Entertainment, LLC, Starz Media, LLC, FUN Technologies, Inc., GSN
LLC and WildBlue Communications, Inc, which are currently
attributed to the Capital Group. Liberty expects that the new group
would also be attributed approximately $550 million of Liberty
Media's publicly traded exchangeable debt. The businesses, assets
and debt not attributed to Liberty Entertainment Group from Liberty
Capital Group would continue to be attributed to Liberty Capital
Group, which would retain its name. There would be no change to the
businesses, assets and liabilities attributed to the Liberty
Interactive Group by virtue of the reclassification. Liberty
President and CEO Greg Maffei stated, "The reclassification should
achieve two purposes. First, it will create a focused distribution
and programming business in Liberty Entertainment. We believe this
new Liberty Entertainment group equity should increase shareholder
value and provide a strong currency that will increase our
strategic flexibility. Second, the new Liberty Capital group will
focus the complexity that contributes to our trading discount into
a single, smaller group of assets that can be more effectively
simplified over time." LIBERTY INTERACTIVE GROUP -- During the
quarter, Liberty completed a tender offer in which it repurchased
19.4 million shares, or approximately 3.0%, of its outstanding
Liberty Interactive common shares for $484 million. Including
additional open market share repurchases, Liberty repurchased
approximately 19.9 million Liberty Interactive common shares for
$497 million during the quarter. Also during the quarter, Liberty
completed its previously announced acquisition of Backcountry.com,
an e-commerce business that sells performance gear for backcountry
adventures. Liberty Interactive Group's revenue and operating cash
flow increased 4% and 2%, respectively, for the second quarter of
2007 due to continued growth at QVC, Inc. ("QVC") and Provide
Commerce, Inc. and the addition of BUYSEASONS, Inc. which was
acquired during 2006. QVC QVC's consolidated revenue increased 4%
to $1.69 billion and operating cash flow increased 1% to $383
million. QVC CEO Mike George stated, "While we are disappointed
with our second quarter results, our U.S. business continued to
grow but at a reduced rate, driven in part by difficult comparisons
and continued challenges in the jewelry category. Our UK business
picked up and is showing signs of ongoing improvement while QVC
Japan and QVC Germany continue to address operational and market
challenges. Again, we believe we have identified the key issues in
these markets and remain confident in our ability to successfully
remedy them. We will be launching new branding and internet
initiatives this fall that support our long term strategy of
driving growth by capitalizing on TV-Internet convergence and
building the preeminent multimedia shopping brand." QVC's domestic
revenue increased 4% to $1.18 billion and operating cash flow
increased 3% to $292 million. The domestic revenue growth was
mainly attributable to increased sales in the home product
category. Domestic revenue was adversely affected by lower jewelry
sales due in part to the rising price of gold. Total units shipped
increased 1% to 28.8 million and the average selling price
increased 3% from $43.67 to $44.83. QVC.com sales as a percentage
of domestic sales grew from 20% in the second quarter of 2006 to
23% in the second quarter of 2007. The domestic operating cash flow
margin decreased slightly, primarily due to a lower gross margin
percentage. Gross margins decreased primarily due to higher product
distribution costs resulting in part from QVC's new U.S.
distribution center in Florence, South Carolina as well as lower
initial product margin due to the increase in home product sales.
QVC's international revenue increased 4% to $509 million due to
favorable foreign currency exchange rates in the U.K. and Germany
offset by unfavorable foreign currency exchange rates in Japan.
International revenue was adversely affected by lower average
selling prices in the U.K. and Germany and changes in the
administration of Japan's regulations pertaining to product claims
related to food, health and beauty products. Excluding the effect
of exchange rates, international revenue increased by less than one
percent. International operating cash flow decreased from $95
million to $91 million, or 4%. International cash flow margins
decreased from 19% to 18% primarily due to a lower gross margin.
The lower gross margin reflects higher product distribution costs
and a higher inventory obsolescence provision compared to the prior
year period. Excluding the effect of exchange rates, QVC's
international operating cash flow decreased 7%. QVC's outstanding
bank debt was $3.675 billion at June 30, 2007. Share Repurchases
During the second quarter through open market repurchases and a
self-tender, Liberty repurchased approximately 19.9 million shares
of Series A Liberty Interactive common stock at an average cost per
share of $24.93 for aggregate cash consideration of $497 million.
Year to date for 2007, Liberty has repurchased approximately 21.4
million shares at an average cost per share of $24.81 for aggregate
cash consideration of $531 million. Since the creation of the
Liberty Interactive tracking stock in May 2006, Liberty has
repurchased approximately 73.0 million shares at an average cost
per share of $20.34 for aggregate cash consideration of $1.485
billion. These repurchases represent approximately 10.4% of the
shares outstanding at the time of creation of the Liberty
Interactive tracking stock. Currently, Liberty has approximately
$500 million remaining under its Liberty Interactive stock
repurchase authorization. The businesses and assets attributed to
Liberty Interactive Group are engaged in, or are ownership
interests in companies that are engaged in, sales of goods and
services primarily through television programming and the Internet,
and currently include its subsidiaries QVC, Provide Commerce,
BUYSEASONS and Backcountry.com and its approximate 20% interests in
IAC/InterActiveCorp, Expedia and GSI Commerce. Liberty has
identified QVC, Inc., a consolidated, wholly owned subsidiary, as
the principal operating segment of Liberty Interactive Group.
LIBERTY CAPITAL GROUP -- During the quarter, Liberty completed the
previously announced exchange of its approximately 68.5 million
shares of Time Warner common stock for a subsidiary of Time Warner
which holds the Atlanta Braves, Leisure Arts, Inc. and $984 million
of cash. Also, during the quarter, Liberty announced its intention
to offer to purchase all the common shares of FUN Technologies Inc.
that it does not already own. Liberty currently owns approximately
53% of the outstanding FUN common shares. Starz Entertainment, LLC
Starz Entertainment, LLC ("Starz Entertainment") revenue decreased
4% to $254 million and operating cash flow increased 10% to $55
million. The decrease in revenue was the result of a reduction in
the effective rate for Starz Entertainment's services partially
offset by growth in the average number of subscription units.
Starz' average subscription units increased 7% during the quarter
while Encore average subscription units increased 6% driving a $14
million revenue increase. The decrease in the effective rate
charged for Starz' services had a $24 million negative effect on
revenue. Starz' affiliation agreements with two affiliates have
expired and these affiliates continue to pay Starz at revised rates
even though the contracts have expired. Starz is booking revenue
based on these revised payments while they negotiate new contract
terms. In addition, the sale of Adelphia Communication's systems to
Comcast and Time Warner in 2006 has also contributed to the lower
effective rate. Starz Entertainment's operating expenses declined
7% for the quarter. The decrease was primarily due to a 10%
reduction in programming costs from $180 million in the second
quarter of 2006 to $162 million in the same period in 2007,
partially offset by a slight increase in SG&A expenses. The
decrease in programming costs is primarily due to a lower effective
rate for the movie titles exhibited in 2007 partially offset by
increased costs due to a higher percentage of first-run movie
exhibitions relative to the number of library product exhibitions.
The increase in SG&A expenses for the quarter was due to higher
sales and marketing expenses resulting from the timing of national
marketing campaigns. 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.
Starz Entertainment CEO Robert B. Clasen said, "We are pleased with
the continued solid growth in subscription units at Starz and
Encore and with the continued reduction in our programming costs,
both contributing to improved cash flow. Our major goal in the
coming months will be to complete new, mutually beneficial
agreements with the two affiliates whose carriage contracts have
expired." Share Repurchases In April, Liberty completed a tender
offer in which it repurchased approximately 11.5 million shares of
Liberty Capital tracking stock at a cost per share of $113.00 for
aggregate cash consideration of approximately $1.3 billion. The
shares repurchased represent approximately 8.2% of the outstanding
Liberty Capital common shares. Currently, Liberty has approximately
$1 billion remaining under its Liberty Capital stock repurchase
authorization. The businesses and assets attributed to Liberty
Capital Group are all of Liberty Media's businesses and assets
other than those attributed to Liberty Interactive Group and
include its subsidiaries Starz Entertainment, LLC, Starz Media,
LLC, FUN Technologies, Inc., Atlanta National League Baseball Club,
Inc. (the owner of the Atlanta Braves), Leisure Arts, Inc.,
TruePosition, Inc. and WFRV and WJMN Television Station, Inc., its
equity affiliates GSN LLC and WildBlue Communications, Inc. and its
interests in News Corporation, Time Warner, Inc. and Sprint Nextel
Corporation. Liberty has identified Starz Entertainment, LLC, a
consolidated, wholly owned subsidiary, as the principal operating
segment of Liberty Capital Group. NOTES Liberty Media Corporation
operates and owns interests in a broad range of video and on-line
commerce, media, communications and entertainment businesses. Those
interests are attributed to two tracking stock groups: Liberty
Interactive Group and Liberty Capital Group. As a supplement to
Liberty's consolidated statements of operations included in its
10-Q, the following is a presentation of financial information on a
stand-alone basis for QVC and Starz Entertainment which have been
identified as the principal operating segments of Liberty
Interactive and Liberty Capital, respectively. Unless otherwise
noted, the foregoing discussion compares financial information for
the three months ended June 30, 2007 to the same period in 2006.
Please see page 10 of this press release for the definition of
operating cash flow and a discussion of management's use of this
performance measure. Schedule 1 to this press release provides a
reconciliation of Liberty's consolidated segment operating cash
flow for its operating segments to consolidated earnings from
continuing operations before income taxes and minority interests.
Schedule 2 to this press release provides a reconciliation of the
operating cash flow for each privately held entity presented herein
to that entity's operating income for the same period, as
determined under GAAP. Certain prior period amounts have been
reclassified for comparability with the 2006 presentation. Liberty
completed the sale of its controlling interests in OpenTV and On
Command, and as such, the financial results of these companies have
been excluded from all periods presented. Fair Value of Public
Holdings and Derivatives June 30, March 31, June 30, (amounts in
millions and include the value of 2006 2007 2007 derivatives)
InterActiveCorp $1,834 2,610 2,396 Expedia (1) 1,038 1,605 2,027
Other Public Holdings 115 209 210 Total Attributed Liberty
Interactive Group $2,987 4,424 4,633 News Corporation 9,886 11,907
11,067 Non Strategic Public Holdings 6,975 6,985 5,744 Total
Attributed Liberty Capital Group $16,861 18,892 16,811 (1)
Represents fair value of Liberty's investment in Expedia. In
accordance with GAAP, Liberty accounts for this investment using
the equity method of accounting and includes this investment in its
consolidated balance sheet at its historical carrying value. Cash
and Debt The following presentation is provided to separately
identify cash and liquid investments and debt information. June 30,
March 31, June 30, (amounts in millions) 2006 2007 2007 Cash and
Cash Related Investments: Total Attributed Liberty Interactive
Group Cash (GAAP) $925 885 806 Total Attributed Liberty Capital
Group Cash (GAAP) 1,678 2,085 2,388 Total Liberty Consolidated Cash
(GAAP) 2,603 2,970 3,194 Long-Term Marketable Securities (1) 400
299 318 Total Attributed Liberty Capital Group Liquid Investments
400 299 318 Total Attributed Liberty Interactive Group Cash and
Liquid Investments 925 885 806 Total Attributed Liberty Capital
Group Cash and Liquid Investments 2,078 2,384 2,706 Total Liberty
Consolidated Cash and Liquid Investments $3,003 3,269 3,512 Debt:
Senior Notes and Debentures (2) $4,476 3,108 3,107 QVC Bank Credit
Facility 1,200 3,175 3,675 Other 68 68 74 Total Attributed Liberty
Interactive Group Debt $5,744 6,351 6,856 Less: Unamortized
Discount (16) (17) (15) Total Attributed Liberty Interactive Group
Debt (GAAP) $5,728 6,334 6,841 Senior Exchangeable Debentures (3)
4,580 4,482 4,483 Bank Credit Facility -- -- 750 Other 59 107 103
Total Attributed Liberty Capital Group Debt $4,639 4,589 5,336
Less: Unamortized Discount Attributable To Call Option Obligations
/ (2,147) (419) (312) Fair Market Value Adjustment (3) Total
Attributed Liberty Capital Group Debt (GAAP) $2,492 4,170 5,024
Total Consolidated Liberty Debt (GAAP) $8,220 10,504 11,865 (1)
Long-term marketable debt securities which are included in
investments in available-for-sale securities and other cost
investments in Liberty's consolidated balance sheet. (2) Face
amount of Senior Notes and Debentures with no reduction for the
unamortized discount. (3) For periods prior to 2007, amount
represents face amount of Senior Exchangeable Debentures with no
reduction for the unamortized discount attributable to the embedded
call option obligation. Effective January 1, 2007, Liberty adopted
Statement of Financial Accounting Standards No. 155, Accounting for
Hybrid Financial Instrument ("Statement 155"). 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 as
was previously required. Total Attributed Liberty Interactive Group
Cash and Liquid Investments decreased $79 million compared to March
31, 2007 due to borrowings on the QVC bank credit facility and cash
flow from QVC operations offset by the cost of a tender offer for
Liberty Interactive common shares, the acquisition of
Backcountry.com and interest payments. Total Attributed Liberty
Interactive Group Debt increased $505 million from March 31, 2007,
due to borrowings on the QVC bank credit facility. Total Attributed
Liberty Capital Group Cash and Liquid Investments increased $322
million compared to March 31, 2007 due to proceeds received in the
transaction in which Liberty exchanged shares of Time Warner common
stock for the Atlanta Braves, Leisure Arts, Inc. and $984 million
of cash, proceeds received in the transaction in which Liberty
exchanged shares of CBS common stock for a CBS television station
and $170 million of cash, proceeds from the sale of OnCommand and
tax sharing payments from Liberty Interactive Group. These cash
inflows were partially offset by the cost of a tender offer for
Liberty Capital tracking stock. Total Attributed Liberty Capital
Group Debt increased $747 million due to Liberty securing a $750
million bank credit facility, the proceeds of which Liberty intends
to invest 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. Important Notice: Liberty Media Corporation ("Liberty")
(NASDAQ:LINTANASDAQ: LINTBNASDAQ:LCAPANASDAQ:LCAPB) President and
CEO, Gregory B. Maffei will discuss Liberty's earnings release in a
conference call which will begin at 11:00am (ET) on August 8, 2007.
The call can be accessed by dialing (800) 811-8845 or (913)
981-4905 at least 10 minutes prior to the start time. Replays of
the conference call can be accessed from 1:00 p.m. (ET) on August
8, 2007 through 5:00 p.m. (ET) August 22, 2007, by dialing (719)
457-0820 or (888) 203-1112 plus the pass code 2449758#. The call
will also be broadcast live across the Internet and archived on our
website. To access the webcast go to
http://www.libertymedia.com/investor_relations/default.htm. Links
to this press release will also be available on the Liberty Media
web site. Certain statements in this press release constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, including the statements
regarding the anticipated reclassification of Liberty Capital
common stock, which is conditioned on the prior closing of
Liberty's exchange transaction with News Corporation, the long-term
prospects of QVC and anticipated lower programming costs for Starz
Entertainment in 2007. These forward looking statements are based
on management's current expectations and assumptions, which are
inherently subject to uncertainties, risks and changes in
circumstances that are difficult to predict. Actual results,
performance or achievements of the operating businesses of Liberty
included herein could differ materially from those expressed or
implied by such forward-looking statements. Such risks,
uncertainties and other factors include, among others: the risks
and factors described in the publicly filed documents of Liberty,
including the most recently filed Form 10-Q of Liberty; general
economic and business conditions and industry trends including in
the advertising and retail markets; the continued strength of the
industries in which such businesses operate; continued
consolidation of the broadband distribution and movie studio
industries; uncertainties inherent in proposed business strategies
and development plans; changes in distribution and viewing of
television programming, including the expanded deployment of
personal video recorders and IP television and their impact on
television advertising revenue and home shopping networks;
increased digital television penetration and the impact on channel
positioning of our networks; rapid technological changes; future
financial performance, including availability, terms and deployment
of capital; availability of qualified personnel; the development
and provision of programming for new television and
telecommunications technologies; changes in, or the failure or the
inability to comply with, government regulation, including, without
limitation, regulations of the Federal Communications Commission,
and adverse outcomes from regulatory proceedings; adverse outcomes
in pending litigation; changes in the nature of key strategic
relationships with partners and joint ventures; competitor
responses to such operating businesses' products and services, and
the overall market acceptance of such products and services,
including acceptance of the pricing of such products and services;
and threatened terrorist attacks and ongoing military action,
including armed conflict in the Middle East and other parts of the
world. These forward-looking statements speak only as of the date
of this press release. Liberty expressly disclaims any obligation
or undertaking to disseminate any updates or revisions to any
forward-looking statement contained herein to reflect any change in
Liberty's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
Additional Information Nothing in this release shall constitute a
solicitation to buy or an offer to sell shares of the reclassified
Liberty Capital tracking stock or Liberty Entertainment tracking
stock. The offer and sale of Liberty's tracking stocks in the
proposed reclassification will only be made pursuant to an
effective registration statement. Liberty stockholders and other
investors are urged to read the registration statement, including
the proxy statement/prospectus to be contained therein, to be filed
by Liberty with the SEC, because it will contain important
information about the transaction. A copy of the registration
statement and the proxy statement/prospectus, once filed, will be
available free of charge at the SEC's website
(http://www.sec.gov/). Participants in Solicitation The directors
and executive officers of Liberty and other persons may be deemed
to be participants in the solicitation of proxies in respect of
proposals to approve the reclassification. Information regarding
Liberty's directors and executive officers and other participants
in the proxy solicitation and a description of their direct and
indirect interests, by security holdings or otherwise, will be
available in the proxy materials to be filed with the SEC.
SUPPLEMENTAL INFORMATION As a supplement to Liberty's consolidated
statements of operations, the following is a presentation of
quarterly financial information and operating metrics on a
stand-alone basis for the two largest privately held businesses
(QVC and Starz Entertainment) owned by or in which Liberty held an
interest at June 30, 2007. Please see below for the definition of
operating cash flow (OCF) and Schedule 2 at the end of this
document for reconciliations for the applicable periods in 2006 and
2007 of operating cash flow to operating income, as determined
under GAAP, for each identified entity. QUARTERLY SUMMARY (amounts
in millions) 2Q06 3Q06 4Q06 1Q07 2Q07 Liberty Interactive Group QVC
(100%) Revenue -- Domestic 1,140 1,151 1,604 1,174 1,184 Revenue --
International 490 502 632 510 509 Revenue -- Total 1,630 1,653
2,236 1,684 1,693 OCF -- Domestic 283 273 417 278 292 OCF --
International 95 93 140 96 91 OCF -- Total 378 366 557 374 383
Operating Income 242 257 419 243 244 Gross Margin -- Domestic 38.0%
37.0% 36.3% 36.8% 37.6% Gross Margin -- International 38.8% 37.2%
39.0% 37.6% 37.5% Homes Reached -- Domestic 91.1 90.3 90.7 91.2
90.9 Homes Reached -- International 74.1 75.0 75.6 77.4 78.6
Liberty Capital Group STARZ ENTERTAINMENT (100%) Revenue 264 253
257 265 254 OCF 50 45 50 73 55 Operating Income 44 40 46 60 42
Subscription Units -- Starz 15.1 14.9 15.5 15.8 16.1 Subscription
Units -- Encore 27.1 26.6 27.3 28.2 28.4 NON-GAAP FINANCIAL
MEASURES This press release includes a presentation of operating
cash flow, which is a non-GAAP financial measure, for each of the
privately held entities of Liberty included herein together with a
reconciliation of that non-GAAP measure to the privately held
entity's operating income, determined under GAAP. Liberty defines
operating cash flow as revenue less cost of sales, operating
expenses, and selling, general and administrative expenses
(excluding stock and other equity-based compensation). Operating
cash flow, as defined by Liberty, excludes depreciation and
amortization, stock and other equity-based compensation and
restructuring and impairment charges that are included in the
measurement of operating income pursuant to GAAP. Liberty believes
operating cash flow is an important indicator of the operational
strength and performance of its businesses, including the ability
to service debt and fund capital expenditures. In addition, this
measure allows management to view operating results and perform
analytical comparisons and benchmarking between businesses and
identify strategies to improve performance. Because operating cash
flow is used as a measure of operating performance, Liberty views
operating income as the most directly comparable GAAP measure.
Operating cash flow is not meant to replace or supercede operating
income or any other GAAP measure, but rather to supplement such
GAAP measures in order to present investors with the same
information that Liberty's management considers in assessing the
results of operations and performance of its assets. Please see the
attached schedules for a reconciliation of consolidated segment
operating cash flow to consolidated earnings from continuing
operations before income taxes and minority interest (Schedule 1)
and a reconciliation, for QVC and Starz Entertainment, of each
identified entity's operating cash flow to its operating income
calculated in accordance with GAAP (Schedule 2). SCHEDULE 1 The
following table provides a reconciliation of consolidated segment
operating cash flow to earnings from continuing operations before
income taxes and minority interest for the three months ended June
30, 2006 and 2007, respectively. (amounts in millions) 2Q06 2Q07
Liberty Interactive Group $385 393 Liberty Capital Group 39 24
Consolidated segment operating cash flow $424 417 Consolidated
segment operating cash flow $424 417 Stock compensation (21) (18)
Depreciation and amortization (146) (172) Interest expense (160)
(145) Realized and unrealized gains (losses) on financial
instruments, net 362 (251) Gains on disposition of assets, net 303
629 Other, net 69 85 Earnings from continuing operations before
income taxes and minority interest $831 545 SCHEDULE 2 The
following table provides reconciliation, for QVC and Starz
Entertainment, of operating cash flow to operating income
calculated in accordance with GAAP for the three months ended June
30, 2006, September 30, 2006, December 31, 2006, March 31, 2007 and
June 30, 2007, respectively. (amounts in millions) 2Q06 3Q06 4Q06
1Q07 2Q07 Liberty Interactive Group QVC (100%) Operating Cash Flow
378 366 557 374 383 Depreciation and Amortization (120) (119) (119)
(120) (134) Stock Compensation Expense (16) 10 (19) (11) (5)
Operating Income 242 257 419 243 244 Liberty Capital Group STARZ
ENTERTAINMENT (100%) Operating Cash Flow 50 45 50 73 55
Depreciation and Amortization (6) (5) (7) (6) (6) Stock
Compensation Expense -- -- 3 (7) (7) Operating Income 44 40 46 60
42 (1) Please see page 10 of this press release for the definition
of operating cash flow and a discussion of management's use of this
performance measure. Schedule 1 to this press release provides a
reconciliation of Liberty's consolidated segment operating cash
flow for its operating segments to consolidated earnings from
continuing operations before income taxes and minority interests.
Schedule 2 to this press release provides a reconciliation of the
operating cash flow for each privately held entity presented herein
to that entity's operating income for the same period, as
determined under GAAP. DATASOURCE: Liberty Media Corporation
CONTACT: John Orr of Liberty Media Corporation, +1-720-875-5622 Web
site: http://www.libertymedia.com/
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