Liberty Shareholders Approve Plan to Issue Two New Tracking Stocks
ENGLEWOOD, Colo., Nov. 9 /PRNewswire-FirstCall/ -- Liberty Media
Corporation ("Liberty") reported third quarter results for both its
Liberty Interactive Group and Liberty Capital Group. As previously
announced, on October 23, 2007, Liberty shareholders approved the
proposed reclassification of Liberty Capital common stock into two
new tracking stocks, Liberty Capital and Liberty Entertainment. The
issuance of the two new tracking stocks is subject to the
completion of the previously announced exchange of Liberty's stock
in News Corporation for stock in a newly formed corporate
subsidiary of News Corporation that will hold News Corp's 40% stake
in DirecTV holdings, three regional sports networks, and cash.
Also, as previously announced, Liberty's board of directors
authorized the repurchase of up to an additional $1 billion of
Liberty Interactive common stock. This authorization increases to
$3 billion the total amount authorized to be repurchased since the
Liberty Interactive shares began trading in May 2006. Including
this increase, Liberty currently has approximately $1 billion
remaining under its Liberty Interactive stock repurchase
authorization. "We are pleased our shareholders approved the new
tracking stocks and look forward to issuing the new equities upon
completion of the News deal. This is another step in our ongoing
effort to better focus Liberty's assets and create a stronger
operating company orientation," stated Liberty President and CEO
Greg Maffei. "At Liberty Interactive, while we are not satisfied
with QVC's financial performance in this challenging retail
environment, we remain confident in management's ability to improve
the results and return QVC to a stronger growth trajectory," added
Maffei. (1) Please see below 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. LIBERTY INTERACTIVE GROUP -- Liberty Interactive Group's
revenue increased 4% and operating cash flow decreased 1% for the
third quarter of 2007. Liberty Interactive Group's results are
comprised of QVC, Inc. ("QVC"), Provide Commerce, Inc., BUYSEASONS,
Inc., and Backcountry.com, Inc. which was acquired in June 2007.
QVC QVC's consolidated revenue increased 2% to $1.69 billion and
operating cash flow decreased 1% to $364 million. "We are
disappointed with the soft sales results in the U.S., driven in
part by a sluggish retail environment and difficult year over year
comparisons," stated QVC CEO Mike George. "However, we chose not to
adopt a heavily promotional focus in the quarter and were able to
maintain stable margin rates despite the slower sales growth. Our
German and Japanese operations also experienced weak sales results,
as they focused on broadening their assortments and addressing the
heightened competitive and regulatory challenges they face." George
added, "On a more positive note, the UK business experienced solid
gains in revenue and OCF growth. Finally, during the third quarter
we successfully launched our new brand and logo and began testing
our redesigned website to strong reviews. We are excited about
these endeavors and believe they will have a positive long-term
effect on the business." QVC's U.S. revenue increased 2% to $1.17
billion and operating cash flow increased 2% to $278 million. The
domestic revenue increase was mainly attributable to increased
sales in the apparel area. U.S. revenue was adversely affected by
lower gold jewelry and home product sales. The total number of
units shipped increased 1% to 28.0 million and the average selling
price increased 1% from $45.48 to $45.89. QVC.com sales as a
percentage of domestic sales grew from 19% in the third quarter of
2006 to 21% in the third quarter of 2007. The U.S. operating cash
flow margin remained consistent period to period at 24%. QVC's
international revenue increased 2% to $512 million due to favorable
foreign currency exchange rates in the UK and Germany.
International revenue was negatively affected by lower average
selling prices in each of the international markets and as noted
above, challenges in both the German and Japanese markets.
Excluding the effect of exchange rates, international revenue
decreased 3%. International operating cash flow decreased from $93
million to $86 million, or 8%. International cash flow margins
decreased from 19% to 17% primarily due to a lower gross margin and
a higher operating cost percentage. The lower gross margin mainly
reflects higher product distribution costs including costs
associated with the opening of a new warehouse in Japan. The higher
operating cost percentage primarily reflects modest increases in
commission, customer service and SG&A expenses. Excluding the
effect of exchange rates, QVC's international operating cash flow
decreased 10%. QVC Germany and QVC Japan, as expected, continued to
experience challenges. The German business was affected by
productivity challenges across all categories. This contributed to
a modest decline in the average sales price and a reduction in
units shipped that resulted in an 11% local currency revenue
decline. Germany also experienced a lower gross margin and a higher
operating cost percentage. The lower gross margin percentage was
due to a lower initial product margin and higher product
distribution costs. QVC Japan experienced a 3% local currency
revenue decline as a lower average sales price was partially offset
by unit increases. The Japanese business continues to face a
heightened regulatory focus on health and beauty product
presentations which has had a direct impact on net revenue growth.
QVC management in Japan continued to shift product away from the
health and beauty category to the apparel and accessories, home and
jewelry categories and experienced productivity gains in each of
these categories to which it shifted product. On a more positive
note, we continued to experience improved results in the UK which
generated a 9% local currency revenue increase and even larger
gains in operating cash flow. QVC's outstanding bank debt was $3.90
billion at September 30, 2007. Share Repurchases During the third
quarter, Liberty repurchased 14.9 million shares of Series A
Liberty Interactive common stock at an average cost per share of
$19.43 for total cash consideration of $289 million. Year to date
through October 31, 2007, Liberty has repurchased 46.4 million
shares at an average cost per share of $22.03 for total cash
consideration of $1.021 billion. Since the creation of the Liberty
Interactive tracking stock in May 2006, Liberty has repurchased
97.9 million shares at an average cost per share of $20.15 for
total cash consideration of $1.975 billion. These repurchases
represent approximately 14.0% of the shares outstanding at the time
of creation of the Liberty Interactive tracking stock. Currently,
Liberty has $1 billion 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 24% interest in
IAC/InterActiveCorp, 25% interest in Expedia and 20% interest in
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
third quarter, Starz Entertainment experienced continued subscriber
growth and reduced programming costs. These factors contributed to
Starz Entertainment achieving 96% operating cash flow growth for
the quarter. Starz Entertainment, LLC Starz Entertainment, LLC
("Starz Entertainment") revenue increased 11% to $282 million and
operating cash flow increased 96% to $88 million. The increase in
revenue was the result of 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. Starz' average subscription units increased 7%
during the quarter while Encore average subscription units
increased 9%. Also, during the third quarter, 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 expiration of the previous agreement, Starz
Entertainment had recognized revenue from DirecTV based on cash
payments from DirecTV. The new affiliation agreement provides for
rates that are higher than those paid by DirecTV since June 30,
2006. Accordingly, in the third quarter of 2007, Starz
Entertainment recognized revenue related to prior periods based on
the new affiliation agreement. The aforementioned increase in the
effective rate was partially offset by two factors. Starz'
affiliation agreements with two affiliates have expired and one of
these affiliates continues to pay Starz at revised rates even
though the contract has expired. Starz is booking revenue based on
this affiliate's 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 had a negative impact on the
effective rate for Starz' services as the former Adelphia
subscription units have been moved to the Comcast and Time Warner
affiliation agreements which generally provide for lower effective
rates. Starz Entertainment's operating expenses declined 7% for the
quarter. The decrease was primarily due to a 5% reduction in
programming costs from $173 million in the third quarter of 2006 to
$164 million in the same period in 2007. The decrease in
programming costs was mainly 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. Also contributing to
the decrease in operating expenses was the reversal of 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. Partially offsetting these decreases was a slight
increase in SG&A expenses for the quarter 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 continued its momentum and, largely due to
reduced programming costs, the business has experienced 59%
year-to-date OCF growth," Starz Entertainment CEO Bob Clasen
stated. "We are excited about our progress at Starz Media which is
establishing itself as a quickly-developing, live action television
production company. In the third quarter, Starz Media saw the start
of production of four made-for-television movies and several TV
series for various programming companies." Clasen added, "Overture
will release its first production, Mad Money, over Martin Luther
King weekend in 2008. In addition, principal photography has been
completed for Overture's highly anticipated 2008 release Righteous
Kill, starring Robert DeNiro and Al Pacino." Share Repurchases
There were no share repurchases of Liberty Capital stock during the
third quarter of 2007. Currently, Liberty has $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 September 30, 2007 to the same period in
2006. Please see below 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 during
2007, and as such, the financial results of these companies have
been excluded from all periods presented. Fair Value of Public
Holdings and Derivatives September June 30, September (amounts in
millions and include the 30, 2006 2007 30, 2007 value of
derivatives) InterActiveCorp $1,991 2,396 2,054 Expedia (1) 1,085
2,027 2,207 Other Public Holdings 137 210 246 Total Attributed
Liberty Interactive Group $3,213 4,633 4,507 News Corporation
10,138 11,067 11,404 Non Strategic Public Holdings 6,836 5,744
5,464 Total Attributed Liberty Capital Group $16,974 16,811 16,868
(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,
September (amounts in millions) 2007 30, 2007 Cash and Cash Related
Investments: Total Attributed Liberty Interactive Group Cash (GAAP)
806 718 Total Attributed Liberty Capital Group Cash (GAAP) 2,388
2,371 Total Liberty Consolidated Cash (GAAP) 3,194 3,089 Short-Term
Marketable Securities (1) -- -- Long-Term Marketable Securities (2)
318 342 Total Attributed Liberty Capital Group Liquid Investments
318 342 Total Attributed Liberty Interactive Group Cash and Liquid
Investments 806 718 Total Attributed Liberty Capital Group Cash and
Liquid Investments 2,706 2,713 Total Liberty Consolidated Cash and
Liquid Investments (3) 3,512 3,431 Debt: Senior Notes and
Debentures (4) 3,107 3,107 QVC Bank Credit Facility 3,675 3,900
Other 74 75 Less: Unamortized Discount (15) (15) Total Attributed
Liberty Interactive Group Debt (GAAP) 6,841 7,067 Senior
Exchangeable Debentures (5) 4,483 4,481 Bank Credit Facility 750
750 Other 103 96 Total Attributed Liberty Capital Group Debt 5,336
5,327 Less: Fair Market Value Adjustment (5) (312) (580) Total
Attributed Liberty Capital Group Debt (GAAP) 5,024 4,747 Total
Consolidated Liberty Debt (GAAP) 11,865 11,814 (1) Short-term
marketable debt securities which are included in other current
assets in Liberty's consolidated balance sheet. (2) 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. (3) Does not include $735
million of restricted cash that is reflected in other long-term
assets in Liberty's condensed consolidated balance sheet. Please
see discussion related to Investment Fund in the footnotes to
Liberty's condensed consolidated financial statements included in
its most recently filed Form 10Q. (4) Face amount of Senior Notes
and Debentures with no reduction for the unamortized discount. (5)
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 $88 million compared to June
30, 2007 due to borrowings on the QVC bank credit facility and cash
flow from QVC operations offset by the purchase of Liberty
Interactive Series A common stock and interest payments. Total
Attributed Liberty Interactive Group Debt increased $226 million
from June 30, 2007, due to borrowings on the QVC bank credit
facility. Total Attributed Liberty Capital Group Cash and Liquid
Investments remained flat compared to June 30, 2007 due to tax
sharing payments from Liberty Interactive Group offset by interest
payments. Total Attributed Liberty Capital Group Debt remained flat
compared to June 30, 2007. 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 11:00 a.m. (ET) on November 9, 2007. The call can be
accessed by dialing (877) 795-3635 or (719) 325-4766 at least 10
minutes prior to the start time. Replays of the conference call can
be accessed from 1:00 p.m. (ET) on November 9, 2007 through 5:00
p.m. (ET) November 22, 2007, by dialing (719) 457-0820 or (888)
203-1112 plus the pass code 8021834#. 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 and 10-K 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; disruption in the production of theatrical films or
television programs due to strike by unions representing writers,
directors or actors; 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 Liberty's effective registration
statement. Liberty stockholders and other investors are urged to
read the registration statement, including the proxy
statement/prospectus contained therein, filed by Liberty with the
SEC, because it contains important information about the
transaction. A copy of the registration statement and the proxy
statement/prospectus are available free of charge at the SEC's
website (http://www.sec.gov/). 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 September 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) 3Q06 4Q06 1Q07 2Q07
3Q07 Liberty Interactive Group QVC (100%) Revenue -- Domestic 1,151
1,604 1,174 1,184 1,174 Revenue --- International 502 632 510 509
512 Revenue --- Total 1,653 2,236 1,684 1,693 1,686 OCF -- Domestic
273 417 278 292 278 OCF -- International 93 140 96 91 86 OCF --
Total 366 557 374 383 364 Operating Income 257 419 243 244 231
Gross Margin -- Domestic 37.0% 36.3% 36.8% 37.6% 36.6% Gross Margin
-- International 37.2% 39.0% 37.6% 37.5% 36.7% Homes Reached --
Domestic 90.3 90.7 91.2 90.9 92.7 Homes Reached -- International
75.0 75.6 77.4 78.6 79.1 Liberty Capital Group STARZ ENTERTAINMENT
(100%) Revenue 253 257 265 254 282 OCF 45 50 73 55 88 Operating
Income 40 46 60 42 78 Subscription Units -- Starz 14.9 15.5 15.8
16.1 16.0 Subscription Units -- Encore 26.6 27.3 28.2 28.4 30.3
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 September 30, 2006 and
2007, respectively. (amounts in millions) 3Q06 3Q07 Liberty
Interactive Group $365 363 Liberty Capital Group 13 70 Consolidated
segment operating cash flow $378 433 Consolidated segment operating
cash flow $378 433 Stock compensation 5 (17) Depreciation and
amortization (147) (176) Impairment of long-lived assets -- (41)
Interest expense (177) (173) Realized and unrealized gains (losses)
on financial instruments, net (73) 400 Gains on disposition of
assets, net 25 2 Other, net 70 108 Earnings from continuing
operations before income taxes and minority interest 81 536
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
September 30, 2006, December 31, 2006, March 31, 2007, June 30,
2007 and September 30, 2007, respectively. (amounts in millions)
3Q06 4Q06 1Q07 2Q07 3Q07 Liberty Interactive Group QVC (100%)
Operating Cash Flow 366 557 374 383 364 Depreciation and
Amortization (119) (119) (120) (134) (129) Stock Compensation
Expense 10 (19) (11) (5) (4) Operating Income 257 419 243 244 231
Liberty Capital Group STARZ ENTERTAINMENT (100%) Operating Cash
Flow 45 50 73 55 88 Depreciation and Amortization (5) (7) (6) (6)
(3) Stock Compensation Expense -- 3 (7) (7) (7) Operating Income 40
46 60 42 78 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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