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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K

|           |  |                                                                                         
|---------- |  | ----------------------------------------------------------------------------------------
|(Mark One)
|[X]        |  | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934    
|          
|           |  | For the fiscal year ended December 31, 2002                                             
|          
|[   ]      |  | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|          
|           |  | For the transition period from __________ to __________                                 

Commission file number: 000-01461

ASCENT MEDIA GROUP, INC.

(Exact Name of Registrant as Specified in Its Charter)


|                                                                        |  |                                                
|----------------------------------------------------------------------- |  | -----------------------------------------------
|DELAWARE
(State or other jurisdiction of
incorporation or organization) |  | 13-1679856
(I.R.S. Employer Identification No.)

520 Broadway, Fifth Floor
Santa Monica, CA 90401
(310) 434-7000
(Address of Registrants principal executive offices, zip code
and telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
NONESecurities registered pursuant to Section 12(g) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
(Title of Class)

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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X]
No [   ]

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

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes [   ]. No [X].

The aggregate market value of voting stock held by non-affiliates on the last
business day of the registrants most recently completed second fiscal quarter
(June 28, 2002) was approximately $14,226,557. The number of shares of common
stock issued and outstanding at March 7, 2003 was: 4,884,565 Class A common
stock and 52,341,164 Class B common stock.

Documents incorporated by reference: None.

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TABLE OF CONTENTS



|               |                                                                                                |  |  |  |  |  |  | 
|-------------- | ---------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I        
|               | ITEM 1. BUSINESS.                                                                             
|               | ITEM 2. PROPERTIES.                                                                           
|               | ITEM 3. LEGAL PROCEEDINGS                                                                     
|               | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   
|PART II       
|               | ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS.             
|               | ITEM 6. SELECTED FINANCIAL DATA.                                                              
|               | ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|               | ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                          
|               | ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.                                          
|               | ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. 
|PART III      
|               | Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.                                  
|               | Item 11. EXECUTIVE COMPENSATION.                                                              
|               | ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.                      
|               | ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.                                      
|               | ITEM 14. CONTROLS AND PROCEDURES.                                                             
|PART IV       
|               | ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                     
|SIGNATURES    
|CERTIFICATIONS
|EXHIBIT INDEX 
|Exhibit 3.2   
|Exhibit 4.1   
|Ex-4.2        
|Exhibit 10.16 
|Exhibit 10.18 
|Exhibit 10.19 
|Exhibit 10.20 
|Exhibit 10.21 
|Exhibit 21.1  
|EX-99.1       



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ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002

TABLE OF CONTENTS

|               |  |                                                                                       |  | 
|-------------- |  | ------------------------------------------------------------------------------------- |  | 
|PART I         |  |                                                                                       |  | 
|ITEM 1.        |  | BUSINESS                                                                              |  | 
|ITEM 2.        |  | PROPERTIES                                                                            |  | 
|ITEM 3.        |  | LEGAL PROCEEDINGS                                                                     |  | 
|ITEM 4.        |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                   |  | 
|PART II        |  |                                                                                       |  | 
|ITEM 5.        |  | MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS              |  | 
|ITEM 6.        |  | SELECTED FINANCIAL DATA                                                               |  | 
|ITEM 7.        |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  | 
|ITEM 7A        |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                            |  | 
|ITEM 8.        |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                           |  | 
|ITEM 9.        |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE  |  | 
|PART III       |  |                                                                                       |  | 
|ITEM 10.       |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                    |  | 
|ITEM 11.       |  | EXECUTIVE COMPENSATION                                                                |  | 
|ITEM 12.       |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                        |  | 
|ITEM 13.       |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                        |  | 
|ITEM 14.       |  | CONTROLS AND PROCEDURES                                                               |  | 
|PART IV        |  |                                                                                       |  | 
|ITEM 15.       |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                      |  | 
|SIGNATURES    
|CERTIFICATIONS

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This report contains statements that constitute forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995. To
the extent that such statements are not recitations of historical fact, such
statements constitute forward-looking statements that, by definition, involve
risks and uncertainties. Where, in any forward-looking statement, Ascent Media
Group, also referred to in this report as we or the Company, expresses an
expectation or belief as to future results or events, such expectation or
belief is expressed in good faith and believed to have a reasonable basis, but
there can be no assurance that the statement of expectation or belief will
result or be achieved or accomplished. The following include some but not all
of the factors that could cause actual results or events to differ materially
from those anticipated:



| |  |  | industry-wide market factors such as the timing of, and
spending on, feature film and television production;                 
| | - |  | -----------------------------------------------------------------------------------------------------------------------------
|
| |  |  | spending on foreign and domestic television advertising;                                                                     
|
| |  |  | foreign and domestic spending by broadcasters, cable
companies and syndicators on first run and existing content
libraries;  
|
| |  |  | the possibility of an industry-wide strike or other job
action by or affecting a major entertainment industry union;         
|
| |  |  | failure to maintain relationships with key customers and certain key personnel;                                              
|
| |  |  | more rapid than expected technological obsolescence;                                                                         
|
| |  |  | failure to integrate acquired operations in expected time frames;                                                            
|
| |  |  | continuing negative economic conditions potentially impacting
our ability to maintain compliance with our debt covenants; and
|
| |  |  | threatened terrorist attacks and
ongoing military action in the Middle East and other parts of the
world.                    

These forward-looking statements and such risks, uncertainties and other
factors speak only as of the date of this annual report, and the Company
expressly disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein, to reflect any
change in our expectations with regard thereto, or any other change in events,
conditions or circumstances on which any such statement is based. For a
discussion of additional factors which may affect future results of operations,
see Part II, Item 7, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONSFactors That May Affect Future Results of
Operations below.




PART I




ITEM 1. BUSINESS.

OVERVIEW

Ascent Media Group, Inc., incorporated in Delaware in 1952, provides
creative and technical media services to the media and entertainment
industries. Our clients include the major motion picture studios, independent
producers, broadcast networks, cable channels, advertising agencies and other
companies that produce, own and/or distribute entertainment, news, sports,
corporate, educational, industrial and advertising content. Our assets and
operations are primarily composed of the assets and operations of ten companies
acquired during 2001 and 2000. The combination and integration of these
acquired entities allow us to offer integrated outsourcing
solutions for the technical and creative requirements of our clients, from
content creation to distribution of the final product.

We have organized our facilities and operations into three business
segments or groups. Each business segment has a president, director of finance,
director of technology and director of sales and marketing supported by
centralized corporate staff functions such as operations, information
technology, finance, human resources, strategic planning, business development
and legal affairs. This delineation allows each business segment to focus on
its particular set of services and client base, while our centralized corporate
functions facilitate implementation of financial and operational controls
across the organization. Our business segments are described below. For
financial information about each business segment, see Part IV, Item 15,
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. For
information about the services that each business segment provides, see
Services in this Item 1 below.

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Ascent Media Creative Services

Our Creative Services Group provides services necessary to complete the
creation of original content including feature films, television shows, movies
of the week/mini series for television, television commercials, music videos,
promotional and identity campaigns and corporate communications programming.
Our services begin after principal photography and cover a wide range of
services necessary to complete a project. This may include film to video tape
transfers, color correction, creative editorial services, graphics and title
sequences, electronic assembly, two-dimension compositing, creation of computer
generated images, sound editorial, sound mixing, music composition, sound
design and integration of interactive program elements. The Creative Services
Group has three divisions: Entertainment Television, Commercial Television and
Audio.

Ascent Media Management Services

Our Media Management Services Group optimizes, archives, manages and
repurposes media assets for global distribution. We provide access to all
forms of content, duplication and formatting services, language conversions and
laybacks, restoration and preservation of old or damaged content, mastering
from motion picture film to high resolution or data formats, digital audio and
video encoding services and digital media management services for global home
video, broadcast, pay-per-view, video-on-demand, streaming media and other
emerging new media distribution channels.

Ascent Media Network Services

Our Network Services Group provides the services necessary to assemble and
distribute programming for cable and broadcast networks via fiber, satellite
and the Internet to audiences in North America, Europe and Asia. Our Network
Services Group primarily provides dedicated facilities and resources designed
for specific client requirements on the basis of contractual agreements.

FORMATION

Name Change

On November 20, 2002, we changed our name from Liberty Livewire
Corporation to Ascent Media Group, Inc.

Change in Control and Subsequent Acquisitions and Divestitures

Change in Control.On June 9, 2000, our company, then known as The Todd-AO
Corporation or Todd-AO, B-Group Merger Corp., a wholly-owned subsidiary of AT&T
Corp., AT&T Corp. and Liberty Media Corporation, referred to in this report as
Liberty Media, entered into a merger agreement, which provided for the
acquisition by Liberty Media of Todd-AO. In connection with the merger, also
referred to as the Todd Merger, the following transactions occurred:

| |                                                                                      
| | -------------------------------------------------------------------------------------
| | (1) a reclassification of the existing common stock of Todd-AO;                      
|
| | (2) the merger of B-Group Merger Corp. with and into Todd-AO, as described below; and
|
| | (3) the change of Todd-AOs name to Liberty Livewire Corporation.                    

Upon the consummation of the Todd Merger and the related reclassification
of stock, which occurred simultaneously, each issued and outstanding share of
common stock of Todd-AO was converted into the right to receive 0.4 shares of
our new Class A common stock and 0.5 shares of Liberty Media Group Class A
common stock which was at that time a tracking stock of AT&T. As a result,
Liberty Media acquired 60% of our outstanding equity, which represented
approximately 94% of our voting power. For more information on Liberty Media,
see Liberty Media Corporation in this Item 1 below. Prior to the Todd Merger,
the Company, provided sound, video and ancillary post production and
distribution services to the motion picture and television industries in the
United States and Europe.

Four Media Company.On April 10, 2000, Liberty Media acquired Four Media
Company, also known as 4MC, in exchange for $123.3 million in cash plus
3,182,300 shares of Liberty Media Group Class A common stock valued at $137.7
million, the assumption of 4MC stock options which were converted into stock appreciation rights to purchase 1,936,778 Liberty
Media Group Class A common stock valued at $52.9 million,
and the assumption of a warrant to an
investor which was converted into a warrant to purchase 354,838 shares of Liberty Media
Group Class A common stock valued at $7.8 million. 4MC provides technical and
creative services

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to owners, producers and distributors of television programming,
television commercials, feature films and other entertainment content. 4MCs
California facilities are located in Los Angeles, Hollywood, Burbank and Santa
Monica. Its international facilities are located in Mexico City, Mexico;
London, England; and the Republic of Singapore.

Virgin Media Group Limited.On May 31, 2000, 4MC acquired six entities
from the Virgin Media Group Limited (Virgin) for $39.5 million in cash.

On
June 9, 2000, Liberty Media contributed all of the issued and outstanding
shares of 4MC to us in exchange for 16,614,952 shares of our Class B common
stock, pursuant to a contribution agreement between Liberty Media and us.

Certain Assets of SounDelux Entertainment Group of Delaware.On July 19,
2000, a wholly-owned subsidiary of Liberty Media, referred to in this report as
Liberty Sub, acquired Soundelux, which consisted of certain assets and
operations of SounDelux Entertainment Group of Delaware, Inc., referred to in
this report as SEG, for $90.0 million in cash. Immediately following the
closing of this asset purchase, Liberty Media contributed 100% of its ownership
interests in Liberty Sub to us in exchange for 8,181,818 shares of our Class B
common stock pursuant to a previously negotiated contribution agreement between
us and Liberty Media. Soundelux provides sound design, editorial and
re-recording services for feature films, television, advertising and new media.
Soundelux operations are located in Los Angeles, California.

Triumph Communications Group.On July 25, 2000, we acquired (i) Triumph
Communications Inc., (ii) Triumph Communications & Fiber Services, LLC, (iii)
Triumph Communications & Leasing Services Inc., (iv) American Simulcast Corp.,
and (v) The Triumph Switch Company LLC, collectively referred to in this report
as Triumph, in exchange for a cash payment to the seller totaling $5.7 million,
forgiveness of existing notes payable to us from Triumph totaling $4.5 million,
and 705,554 shares of our Class A common stock, which had an aggregate market
value at the time of issuance of $44.6 million, partially offset by $1.7
million of cash acquired.

On December 23, 2002, the Company sold to Leafco Communications, Inc. all
of its equity interest in Triumph for nominal consideration plus the assumption
of net liabilities in the amount of $4.0 million. In connection with this
sale, the Company entered into an agreement to loan the buyer an amount not to
exceed $4.0 million. As of the date of this report, such loan agreement has
been terminated by the parties and the buyer has repaid to the Company all
monies advanced to the buyer pursuant to this loan. In connection with this
loan termination, the Company entered into an agreement to loan Rapco
Enterprises, Inc., an affiliate of Leafco Communications, Inc., $2.0 million.

Soho Group Limited.On August 11, 2000, one of our wholly-owned
subsidiaries acquired all of the outstanding shares of Soho Group Limited, or
Soho, for $27.0 million in cash (net of approximately $200,000 of cash
acquired), which included real property in the Soho area of London, England.
Soho provides services primarily to the commercial advertising industry,
including negative developing, negative cutting (using proprietary technology),
film to digital media transfer, two-dimension and three-dimension compositing
and animation and television commercial finishing.

Visiontext Limited.On October 9, 2000, one of our wholly-owned
subsidiaries acquired all of the outstanding shares of Visiontext Limited, or
Visiontext, for $2.9 million in cash (net of approximately $300,000 of cash
acquired) plus a note payable to the sellers for $1.9 million. Visiontext is
located in Los Angeles, California and London, England and provides sub-titling
services to the commercial advertising and home video markets.

Video Services Corporation.On
December 22, 2000, Liberty Media acquired Video Services
Corporation, also referred to as VSC. The total consideration paid by
Liberty Media was valued at $119.7 million. The $119.7 million was comprised of
$38.0 million in cash, paid to the shareholders of VSC, and an
additional $46.5 million of debt of VSC paid or assumed by
Liberty Media for a total of $84.5 million in cash. In addition,
Liberty Media issued 1,441,212 shares of Liberty Media Group
Class A common stock and options to purchase 119,666 shares of
Liberty Media Group Class A common stock, with an aggregate estimated
fair market value of $35.2 million at the time of signing of the
transaction.

Also on December 22, 2000, pursuant to a
contribution agreement, Liberty Media contributed to us 100% of the outstanding
capital stock of VSC in
exchange for a convertible promissory note in the principal amount of $92.5
million and the assumption by us of Liberty Medias obligations with respect to
stock options originally granted by VSC. The convertible promissory note was
issued to Liberty Media under a credit agreement between Liberty Media and us
(which we refer to as the Liberty Subordinated Credit Agreement). An additional
$9.6 million in cash was paid by us to retire debt of VSC and we agreed to
indemnify Liberty Media with respect to any debt or other obligations of VSC.
VSC provides engineering, production and distribution services for the video
and broadcast industries, nationally and internationally. It has locations in
New York, New Jersey, Florida and California.

Ascent Network Services.On January 5, 2001, we entered into an Ownership
Interest Purchase Agreement with ANS Acquisition Sub, Inc., our wholly-owned
subsidiary, and Ascent Entertainment Group, Inc., or AEG, an affiliate of
Liberty Media. Pursuant to the terms of the Ownership Interest Purchase
Agreement, all of the assets used in connection with the business of Ascent
Network Services, a division of AEG, were transferred to Livewire Network
Services, LLC, or LNS, a newly-formed and wholly-owned subsidiary of AEG. AEG
then transferred a one percent ownership interest in LNS to us in exchange for
$300,000 in cash. In connection with the Ownership Interest Purchase

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Agreement between us and AEG, AEG and LNS executed a Contribution and
Assumption Agreement pursuant to which LNS assumed all liabilities, obligations
and commitments of AEG relating to the business of Ascent Network Services,
whether before or after January 5, 2001.

We and AEG also became parties to the LNS Operating Agreement. Under the
LNS Operating Agreement: (1) we became responsible for managing the operations
of LNS as of January 5, 2001; (2) we became entitled to receive $800,000 per
month from LNS as a guaranteed payment to compensate us for our managerial
services; (3) AEG obtained the right to receive a preferred return in the
amount of 10% per annum, compounded quarterly, on the balance of its capital
account as of January 5, 2001, which amounted to approximately $29.7 million,
calculated for the period beginning on January 5, 2001 and ending on the date
on which the members of LNS receive final liquidating distributions; and (4) we
and AEG entered into certain put-call arrangements.

On September 6, 2001, we purchased from AEG the 99% ownership interest of
LNS that we did not already own. The transaction, which was financed with debt
from the Liberty Subordinated Credit Agreement, was valued at $31.3 million
(net of approximately $425,000 of cash acquired). LNS provides operational,
installation, maintenance, and support services for satellite communication
systems and their users. LNS is located in Melbourne, Florida.

Group W Network Services and Asia Broadcast Centre.On February 1, 2001,
we acquired from Viacom, Inc. and certain of its subsidiaries, substantially
all of the assets of the domestic business unit known as Group W Network
Services and 100% of the outstanding capital stock of Singapore-based Asia
Broadcast Centre Pte. Ltd. and Group W Broadcast Pte. Ltd. (collectively,
GWNS) for $108.2 million (net of $2.5 million of cash acquired). GWNS
provides production and distribution services for the broadcast and cable
industries from locations in the Republic of Singapore; Minneapolis, Minnesota;
and Stamford, Connecticut.

Cinram-POP.On August 23, 2001, we acquired from Cinram U.S. Holdings,
Inc., the remaining 51% membership interest in Cinram-POP DVD Center LLC, or
Cinram-POP, that we did not already own. The transaction, financed with cash
from operations, was valued at approximately $536,000 (net of $295,000 of cash
acquired). Cinram-POP provides digital versatile disc (DVD) design, authoring
and encoding services to the home video market. Cinram-POP is located in Santa
Monica, California.

BVI-Miami, LLC.On May 6, 2002, we entered into both an Amended and
Restated Operating Agreement and a Contribution and Assignment and Assumption
Agreement with Broadcast Video, Inc. (referred to in this report as Broadcast
Video) and BVI-Miami, LLC (referred to in this report as BVI-Miami).
Pursuant to such agreements, we contributed assets and obligations of our
former subsidiary, The Post Edge, Inc., doing business as Manhattan
Transfer-Miami, into BVI-Miami, a newly formed Miami, Florida-based limited liability
company with Broadcast Video. BVI-Miami consists of the operations of The Post
Edge, Inc. and the operations of Broadcast Video and certain of its affiliated
businesses. We own a 40% membership interest in BVI-Miami. Broadcast Video
owns the remaining 60% membership interest and manages BVI-Miamis operations.
The net book value of the assets and liabilities of $2.5 million were
reclassified as an investment. We do not have any current or contingent
material obligations to BVI-Miami.

Liberty Media Corporation

As a result of these acquisitions and certain other transactions, at
December 31, 2002, Liberty Media owned over 91% of our outstanding common
stock, which represents over 99% of our voting power. For information on
Liberty Medias interest in the Company, see Part II, Item 7, MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULT OF OPERATIONS  Liquidity and Capital Resources 
Liberty Subordinated Credit Agreement and  Stock Sales to Liberty Media and Part III,
Item 12, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

INDUSTRY

Creative Media Services

The creative media services industry supports the media and entertainment
industries in the creation, management and distribution of motion pictures,
television programs, television commercials, other promotional or interstitial
material and various forms of content for new media applications including
interactive content. Content is released into a first-run distribution
channel, such as theatrical, broadcast or cable network, and later into one or
more additional channels, such as home video and pay-per-view, domestic or
international syndication. In addition to newly-produced content, film and
television libraries are typically repeatedly re-mastered into various formats
for redistribution. The creative media services industry has historically been
highly fragmented, with a variety of traditional services performed by numerous
small companies, each specializing in a unique aspect of the process. We

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are a creative media services company providing fully-integrated service
solutions.

Our business segments benefit from the volume of content being created and
distributed rather than the success or popularity of an individual television
show, commercial or feature film. The following trends in the media and
entertainment industries are expected to have an impact on our business
segments:



| |  |  | Growing worldwide demand for original entertainment content.Globally,
the demand for entertainment content is increasing, and thus the need for
the associated technical and creative services we offer is expanding. At
the same time, the pace of technological change is accelerating. This
may lead to an increased demand for capital expenditures in order to
meet the industry demand for technological innovation. If we meet
these technological challenges, we may benefit from the ability to
provide an increasingly complex mix of content formats and broadcast
standards to various geographic locations and cultures.                                           
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The development of new business opportunities for existing content
libraries.The vast libraries of the major film and television studios
are an ongoing source of programming for traditional and new channels of
media distribution. For exploitation in a digital environment, these
libraries must be re-mastered, augmented, restored, re-colored, converted
and reformatted. In addition, the new digital environment has contributed
to the lack of uniformity in worldwide television standards, thus
creating the need for the creation of new master elements in unique
formats.                                                                                       
|
| |  |  | Continued proliferation of new distribution channels, such as digital
cable, digital broadcast satellite and the Internet.The creation and
market acceptance of new content distribution channels such as direct
broadcast satellite, video-on-demand, or VOD, and Internet protocol
distribution,
or IP distribution,
requires new technical and operational infrastructure to create, manage
and distribute content. The industry requires technical facilities and
operational management that facilitates the creation, management and
delivery of that content to viewing audiences.                                                                                       
|
| |  |  | Wider application of digital technologies to content manipulation and
distribution.This trend is contributing to the increased demand for
technical and creative services for a given volume of content, which
could require investment in additional equipment required to
service digital media. At the same time, advances in technology, particularly the emergence of high quality compression
algorithms, have led to the creation of new standards and the opportunity
to create multiple distribution outlets and revenue streams from the same
programming.                                                                                                            
|
| |  |  | Increased outsourcing of technical and creative services.Film and
television studios as well as broadcast and cable networks are finding
that their resources are optimized by outsourcing certain technical and
creative services related to the creation, management and distribution of
content. Certain of our current and prospective clients are seeking
high-quality integrated solutions and the benefit of scale
economies.                                                                                                                                                                                                                                            
|
| |  |  | Increased demand for innovation, technical and creative quality.Advances
in technology, new broadcast standards, growing adoption by consumers of
personal video recorders, which facilitate time shifting of programming
by the television consumer, and increasing audience fragmentation require
content owners, producers and distributors to cost effectively increase
image and audio quality and create increasingly innovative, compelling
viewing experiences for audiences. We believe the technology,
infrastructure and creative talent that we provide may enhance the creative process of
producing original programming and modernizing aging library material.
|
| |  |  | Reality-Based Programming.Broadcast and cable programmers continue to rely on reality-based
programming for significant portions of their primetime and
pre-primetime schedules. Such shows tend to have lower
post-production budgets than traditional scripted programming.
Accordingly, the prevalence of such programming may reduce industry
demand for some of the services that we provide.                                                                                                                                                                                                                                                                              
|
| |  |  | Content Repurposing.Broadcast and cable programmers have continued to show more
regular-season reruns, both in regular time slots and at alternative
viewing times. To the extent that this practice may reduce demand for
original programming, or erode the traditional concept of the 24-week
television season, such trends could reduce industry demand for some
of our services.                                                                                                                                                                                                                                                                                          
|
| |  |  | Extended Use of Advertising
Spots.Although television commercials have traditionally had a
relatively short shelf-life, with spots updated
frequently within a given advertising campaign, some advertisers have
begun to re-use the same television commercials for longer periods.
Accordingly, production of new short-form television commercials
remains slow, despite the recent increase in television ad spending.
If such trend continues, it could reduce industry demand for some of
our services.                                                                                                                                                                 

Motion Picture Production and Distribution

Various facilities throughout the Company provide services to the motion
picture industry. The Creative Services business segment creates visual
effects, sound effects and animation sequences and integrates them into
newly-released feature films, while the Media Management and Network Services
business segments provide services that support the mastering and distribution
of feature films for domestic and international home video, cable and broadcast
markets.

The domestic motion picture industry encompasses the production,
distribution and exhibition of feature-length motion pictures, including their
distribution in home video, broadcast and cable television and other ancillary
channels. While the domestic motion picture industry continues to be dominated
by the major studios, including Paramount Pictures, Sony Pictures Corporation,
Twentieth Century Fox, Universal Pictures, The Walt Disney Company,
Metro-Goldwyn-Mayerand Warner Brothers, independent production companies also
play an important

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role in the production of motion pictures for domestic and international
feature film markets.

Another trend experienced by the U.S. film industry is the growing
reliance on international box office revenues, as they continue to account for
an increasing percentage of total feature film revenues. In addition, as the
demand for digital video product grows, most media content libraries will be
re-released, stimulating a new cycle of home entertainment cash flows.

Television Production and Distribution

Substantially all of our facilities provide services related to the
production and distribution of television programming. The Creative Services
Group provides a full array of services to facilitate the creation of
television programs and commercials, the Media Management Services Group
provides a full array of services for managing existing content libraries, and
the Network Services Group provides a full array of services necessary to
deliver television programming to program distributors.

The increase in international demand for entertainment content has further
driven the need for new and repurposed content. Over the last decade, the
privatization of broadcasting systems, the proliferation of broadcast licenses,
and the introduction of sophisticated delivery technologies such as digital
broadcasting, digital cable and direct broadcast satellite systems, have led to
the growth of broadcasting and cable television markets outside the United
States. Most foreign broadcasters require both local programming (to satisfy
the local content requirements) and popular international programming, largely
produced in the United States.

New Media Production and Distribution

The television production and distribution industry is in a state of
transformation. Both multiple system cable operators, also called MSOs, and
direct broadcast satellite, or DBS, operators have introduced new products and
services into the marketplace. These content distributors compete
aggressively for new subscribers and are using new media services as an
inducement to attract and retain consumers. Additionally, companies such as
TiVoare currently marketing personal video recorders, or PVRs, that have the
potential to change the television viewing habits of consumers. Over the next
several years we expect that an increasing number of consumers will be able to
access the programs they want to see, when they want to see them. New business
models are expected to emerge that may challenge the concept of mass audiences
receiving programming from networks in a linear fashion.

Many of these new services not only propose to give viewers greater
control over the programming they see, they may also provide them with a range
of interactive experiences. To facilitate the introduction of these new
services, both MSOs and DBS operators are developing and deploying advanced set
top boxes and additional hardware into their operations. Interactive
television, or ITV, middleware developers such as Wink, OpenTV, and Liberate
Technologiesare currently deploying their technology platforms into digitally
enabled TV households.

As a result of the introduction of services such as PVRs, VOD,
subscription video-on-demand, or SVOD, and ITV, the various participants in the
industry, including studios, program suppliers, networks and advertisers, many
of whom are our current clients, are working to understand how these changes
will affect their businesses.

Factors Affecting the Growth and Development of Our Businesses.

The growth and development of the businesses described above is dependent
upon a number of factors that could cause actual results to differ materially
from those anticipated. For a discussion of those factors see Part II, Item 7,
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS  Factors That May Affect Future Results of Operations.
Additionally, the liquidity and capital resources of the Company may also
affect the growth and development of such businesses. For a discussion of the
Companys liquidity and capital resources, see Part II, Item 7, MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS 
Liquidity and Capital Resources.

STRATEGY

The entertainment services industry has been historically fragmented with
numerous providers offering

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discrete, non-integrated services. Our services, however, span the
entirety of the value chain from the creation and management of content to the
delivery of content via multiple distribution paths including satellite, fiber
and IP-based networks. We believe the breadth and range of our services
uniquely provide us the scale necessary to realize significant efficiencies: a
global, scaleable media services platform integrating preparation, management
and distribution services, common best practices operations management across
the Ascent Media Group enterprise; and integration of financial and
administrative functions.

Our objective is to be a leading provider of services to the media and
entertainment industry and provide customers quality solutions for the creation,
management and distribution of content, individually and as part of a package
solution on a global basis. We intend to achieve this objective by pursuing the
following strategies:

Establish centralized, scalable, financial and operating infrastructure.
We have established an experienced management team. We are building operational, financial and internal control systems to
improve financial administration. We are reducing overhead through
centralization and have begun to restructure our operations to improve margins
and financial performance.

Develop and grow our core businesses.We intend to leverage our scale
opportunities, our technical capacities, our breadth of services and our global
reach in order to broaden our relationships within the organizational structure
of our client base. We intend to further integrate our facilities and
operations establishing best practices and increase scale and capacity to
drive growth. Our goal is to deploy proven, leading technologies in a consistent
manner across all of our operations.

Leverage our core businesses in the developing digital media service
platform.We intend to leverage our existing client relationships,
technological expertise and digital infrastructure to build new revenue
streams in emerging new media markets. We intend to develop new business
opportunities in areas such as digital imaging, digital media management and
interactive media.

Drive the
convergence of traditional and new media.We intend to create
joint ventures, partnerships and alliances with technology providers, content
creators, and last mile distributors to create cost effective scalable
infrastructure to drive new media revenue streams. We intend to assist in the
development of industry standards and business models to help develop new media
opportunities.

We intend to create stockholder value by prioritizing our growth
initiatives in the following manner. First, we plan to capitalize on current
opportunities by delivering scaleable enterprise solutions to our existing
client base. Second, we intend to effectively consolidate and integrate newly
acquired assets and operations with our existing businesses. Finally, we plan
to invest in emerging growth opportunities and deploy next-generation digital
media services in the areas of digital imaging, digital media management, and
new media services. All of our emerging next generation digital media growth
opportunities are expected to increase our value-added proposition to our
clients and assist them in creating new revenue streams from their content.

Our ability to execute our strategy is dependent upon a number of factors
that could cause actual results to differ materially from those anticipated.
For a discussion of those factors see Part II, Item 7, MANAGEMENTS DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS  Factors That
May Affect Future Results of Operations. Additionally, our ability to execute
our strategy is also dependent on our liquidity and capital resources. For a
discussion of the Companys liquidity and capital resources, see Part II, Item
7., MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS  Liquidity and Capital Resources.

SERVICES

Creative Services Group

The Creative Services Group has three divisions: Entertainment Television,
Commercial Television and Audio. Generally, the Creative Services Group
provides the technical and creative services necessary to conform principal
photography into a final product suitable for viewing audiences. We digitally
create or manipulate sounds and images in high-resolution formats for
integration into feature films, television programs, television commercials,
music videos, promotional and identity campaigns and corporate communications
programming. In fiscal year 2002, the Creative Services Group contributed $
275.1 million, or 51% of our total revenues, as compared to $332.9 million, or
56.2%, in fiscal year 2001 and $221.0 million, or 72.1%, in fiscal year 2000.

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Entertainment Television Division

We have created a consolidated group of facilities providing services to
producers of episodic television series, movies-of-the-week, and specials. We
provide services primarily in Los Angeles, New York and London. We believe our
competitive advantages lie in the breadth and scalability of our services, the
reputation and accessibility of our creative talent and our relationships with
our client base. We will continue to support the expansion of our brand equity
in the marketplace by maintaining the differentiation of our facilities.
However, our entertainment television facilities are managed as a consolidated
global group enabling us to drive best practices, cross sell services and
maximize the value of our client relationships across our entire organization.
The major brands of the entertainment television division include: Encore,
Level 3, Digital Symphony, Soho Images and St. Annes. Each brand is well known
and highly regarded in its area of expertise and creative contribution.

Recent awards received by the Entertainment Television Division include an
Academy Award for What Dreams May Come(Best Visual Effects); an Emmy Award for
The X-Files(Best Visual Effects for a Series); and Monitor Awards for Alias,
Pilot(Film Originated TV Series, Best Color), The X-Files, John Doe(Film
Originated TV Series, Best Color Finalist), CSI: Crime Scene Investigators,
Alter Boys(Film Originated TV Series-Best Color Finalist), Almost A Woman
(Film Originated TV Specials-Best Color Correction), The Lost Battalion(Film
Originated TV Specials-Best Color Correction Finalist), Fidel(Film Originated
TV Specials-Best Color Correction Finalist), Kite & Fly, Trip(Music Videos,
Best Color Correction Finalist). A detailed description of the key services
provided by our Entertainment Television Division is presented below.

Negative developing.Because of the creative freedom, high-resolution
image quality and flexibility attained by working with film, the majority of
prime-time network and first-run syndicated television programming originates
on film. Dailies, the original negative shot during each production day for a
one-hour drama, situation comedy or movie-of-the-week, are developed by our
film laboratory. Our film laboratories specialize in negative developing for
television shows.

Transfer and digital formatting.We receive developed negative from our
and other laboratories and transfer the film to digital media. The transfer
process enables the customer to view the previous days work and begin the
creative editorial process. The transfer process is technically challenging and
is used to integrate various forms of audio and encode the footage with feet
and frame numbers from the original film. We also convert film into various
digital formats suitable for multiple distribution paths including DVD.

Off-line editing.We deliver low-resolution digital images to the customer
for processing by various non-linear editing workstations. Using our systems,
the customer determines a programs content and creates an edit decision list,
or EDL, which is used to assemble the source material into a final product
suitable for broadcast. We support our clients with personnel and equipment
either within our facilities or at a designated location. In addition, we are
able to offer expanded communications infrastructure to provide digital images
directly from the film-to-tape transfer process to a workstation through
dedicated data lines.

Visual effects.Visual effects are used to enhance the viewing audiences
entertainment experience by supplementing images obtained in principal
photography with computer-generated imagery. Visual effects are typically used
to create images that cannot be created by any other cost-effective means. We
generate bends, warps, morphs and 3D shapes as well as other visual effects for
customers. We also offer an array of graphics and animation workstations using
a variety of software to accomplish unique effects, including 3D animation. We
are actively involved in providing visual effects for the television industry
as evidenced by our contribution to numerous television series, including Star
Trek and Smallville.

Assembly, formatting and duplication.We implement clients creative
decisions, including decisions regarding the integration of sound and visual
effects, to assemble source material into its final form. In addition, we use
sophisticated computer graphics equipment to generate titles and character
imagery and to format a given program to meet specific network requirements,
including time compression and commercial breaks. Finally, we create multiple
master videotapes for delivery to the network for broadcast, archival and other
purposes designated by the customer.

Commercial Television Division

Our recent acquisitions have created a large group of facilities
specializing in the delivery of technical and creative services to producers of
television commercials, music videos, theatrical film trailers, interstitial
and promotional material and identity and corporate image campaigns. We believe
our competitive advantages lie in the reputation and accessibility of our
creative talent, the ability to provide scale and global reach for national and
international advertising campaigns and the ability to provide the technologies
and working environments to achieve

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the creative and technical objectives of our clients. We will continue to
support the expansion of our brand equity in the marketplace by maintaining the
differentiation of our facilities. However, our commercial television
facilities benefit from coordination of certain policies, including pricing,
vendor relationships, employment practices and compensation and incentive
structures. The major brands of our Commercial Television Division include
Company 3, R!OT, Method, Filmcore, POP, Rushes, SVC, One Post Ltd. and
Editworks. Each brand is well known and highly regarded in its area of
expertise and creative contribution.

Recent awards received by the Commercial Television Division include Clio
Awards for Nike, Virtual Andreand Topseed; Chevy, Brawl, Snap.com, New
Friend, First Union Bank, Noise, San Francisco Jazz Festival, Low Riders,
and Public Service Announcement, Antismoking; Association of Independent
Creative Editors Awards for Nike, Horrorand EPS, Cat Herders; Monitor
Awards for We Stand Alone(Documentaries, Best Audio Mixer), United Airlines,
Pager(National Commercials, Best Audio Mixing), Skittles, Maze(National
Commercials, Best Color Correction Finalist), FX, Born to be Wild(On Air
Promotions, Best Audio Mixing), FX Born to be Wild(On Air Promotions, Best
Sound Design Finalist); Telly Awards for TNT, Shaft Marathon(Gold, Creative
Editorial), TNT, Johnny Cash, Overview(Gold, Creative Editorial); TNT,
Behind the Scenes: Dollar for the Dead(Gold, Creative Editorial), TNT,
Saturday Night New Classic: Fargo(Silver, Creative Editorial); Broadcast
Design Awards for Turner Production Effects, Turner Investor Sales Tapes
(Gold), Turner Classic Movies, Trailers(Gold), VH-1 Fashion Awards, Open
Animation(Bronze), a Belding Award for Toyota Tacoma, Family Reunionand a
Lions Award for Sony Playstation, Soundcheck.A detailed description of the
key services provided by our Commercial Television Division is presented below.

Negative developing.Because of the creative freedom, high-resolution
image quality and flexibility attained by working with film, most television
commercials originate on film. Our facilities deliver negative development and
imaging services for complex and technically demanding commercial work. We also
provide negative cutting services for the distribution of commercials on film.

Telecine.Telecine is the process of transferring film into digital media.
During this process, a variety of parameters can be manipulated, such as color
and contrast. Because the color spectrum of film and digital media are
different, we have creative talent who utilize creative colorizing techniques,
equipment and processes to enable our clients to achieve a desired visual look
and feel for television commercials and music videos, as well as feature films
and television shows.

Digital Effects.Digital effects enhance principal photography and
physical effects with computer-generated imagery. Our digital artists use
hardware and software tools as well as proprietary methods to create
three-dimensional animation, special visual effects and other specialized
graphical elements for commercial television.

Creative Editorial.The process of creative editorial consists of the
steps required to mold film that has been shot for a television commercial into
a final product that is ready to be distributed for television viewing. After
principal photography has been completed, our editors assemble the various
elements into a cohesive story consistent with the messaging, branding and
creative direction by our clients, which are mainly advertising agencies.

Distribution.Once a television commercial has been completed, we provide
broadcast and support services, including complete video and audio duplication,
distribution, and storage and asset management, for advertising agencies,
corporate advertisers and entertainment companies. We use domestic and
international satellite, fiber and Integrated Services Digital Network, or
ISDN, Internet access, and conventional air freight for the delivery of
television and radio spots. We currently house over 85,000 commercial
production elements in our vaults for future use by our clients. Our commercial
television distribution facilities in Los Angeles and San Francisco, California
and our satellite hub facilities in New York, enable us to service any regional
or national client.

Audio Division

We provide audio services to the entertainment industry for theatrical
feature films, television series, television specials, movies-of-the-week,
trailers, television commercials and new digital media in the United States and
Europe. We have audio facilities in Los Angeles, New York and London. Todd-AO
Studios and Soundelux are the major brand names supported by the Audio
Division. Each has contributed to many television and motion picture projects
and each has won awards for their efforts in these areas. Soundelux also
provides high-end microphones for the music industry. The Hollywood Edge and
Soundelux Microphones distribute sound tools to the consumer market through
worldwide distribution channels and the Internet.

Recent awards garnered by the Audio Division include Academy Awards for
Chicago (Best Sound), Black Hawk Down(Best Sound), Braveheart(Best Sound Effects Editing), Last of
the Mohicans(Best Sound), British Academy Awards for

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Chicago(Best Sound), Almost Famous(Best Sound), Braveheart(Best Sound)
and JFK(Best Sound); Golden Reel Awards for Gladiator(Best Sound Effects
Editing), American Beauty(Best ADR Editing), Jerry Maguire(Best ADR Editing),
The Hunchback of Notre Dame(Best Animated Sound Effects Editing), Braveheart
(Best Sound Effects Editing), Born on the Fourth ofJuly (Best Sound Editing),
a Grammy Award for Alanis Morissette: Jagged Little Pill(Best Long Form Music
Video); Monitor Awards for We Stand Alone(Best Audio Mixer, Documentaries);
Alias, Pilot(Best Color Correction, Film
Originated Television Series) and
Almost a Woman(Best Color Correction, Film Originated Television Specials),
United Airlines, Pager(Best Audio Mixing, National Commercial), FX, Born to
be Wild(Best Audio Mixing, On Air Promotions), Nike, Horror(Best Audio
Mixing for a National Commercial), Book of Virtues(Best Audio Mixing for
Childrens Programming), Sega, Obsidian Egg(Best Audio Mixing), Sega,
Apocalypse(Best Audio Post), Infiniti, Motorcade(Best Audio Post), The
Rolling Stones, Stripped(Best Audio Mixing), Arizona Department of Health
Services, Why Smoke(Best Audio Mixing for Public Service Announcement); a
Clio Award for Snap.com, New Friend(Best Sound Design); a Mexican Silver
Ariel Award for Amores Perros(Best Sound), and a Cinema Audio Society Award
and TEC Award for our sound effects work on Gladiator. We have also been an
Emmy recipient for a Governors Award for The Native Americans.

We provide music editing, music recording, music composition and
clearance, music supervision, overseas music recording, score production and
song placement. Feature film and television producers utilize our studio
facilities and creative staff for the creation of sound effects, replacement of
dialog, and the re-recording of audio elements for integration with film and
video elements. Re-recording combines sound effects, dialogue, music and
laughter or applause to complete the final product. In addition, the
re-recording process enhances the listening experience by adding specialized sound
treatments and formats.

Media Management Services Group

The Media Management Services Group provides owners of content libraries
with an entire complement of facilities and services necessary to optimize,
archive, manage and repurpose media assets for global distribution via freight,
satellite, fiber and the Internet. We provide access to all forms of content,
duplication and formatting services, language conversions and laybacks,
restoration and preservation of old or damaged content, mastering from motion
picture film to high resolution or data formats, digital audio and video
encoding services and digital media management services for global home video,
broadcast, pay-per-view, video-on-demand, streaming media and other emerging
new media distribution channels. We believe our competitive advantages include
client loyalty, reputation, capacity to handle large-scale projects and our
ability to offer integrated content management solutions on a global
basis. Our media facilities are located in Burbank, Hollywood, and Santa
Monica, California; Northvale, New Jersey; Barcelona, Spain and London,
England.

We anticipate continued growth, primarily due to the emergence of new
digital distribution platforms, including digital cable television,
pay-per-view, and VOD, as well as the growing international demand for content
particularly in Asia and Europe. We also expect to develop new revenue streams as
the demand for services related to the management and exploitation of
resolution independent virtual media (as opposed to physical media) grows. In
fiscal year 2002, the Media Management Services group contributed $104.9
million, or 19.5% of our total revenues, as compared to $104.1 million, or
17.6%, in fiscal year 2001 and $56.8 million, or 18.5%, in fiscal year 2000. A
more detailed description of the key services provided by our Media Management
Services group is presented below.

Storage of original elements and working masters.The storage and handling
of videotape and film elements requires specialized security and environmental
control procedures. Throughout the entertainment industry, content is stored in
physically small units that are subject to the risk of loss resulting from
physical deterioration, natural disaster, unauthorized duplication or theft.
Our archives are designed to store working master videotapes and film elements
in a highly controlled environment protected from temperature and humidity
variation, seismic disturbance, fire, theft and other external events. In
addition to the physical security of the archive, content owners require
frequent and regular access to their libraries. Speed and accuracy of access is
a critical factor that benefits our clients. We are an independent archive
provider and believe we are advanced with respect to security, environmental
control and access features.

Asset management center.Physical elements stored in the archive are
uniquely barcoded and maintained in a library management database offering
rapid access to elements, concise reporting of element status and element
tracking throughout its travel through the Companys operations.

Restoration and preservation of existing and damaged content.
Substantially all film elements originating prior to 1983 have faded, degraded
or been damaged. Damaged film negative must be restored because sub-masters

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produced from damaged film will generally not meet the minimum quality
standards required in domestic and international broadcast markets. Our
technicians restore damaged film negative to original and sometimes enhanced
quality through the use of proprietary optical and electronic equipment and
techniques. In order to protect film assets from degradation, older film is
frequently converted to new archival film stock. Modern film stock is the
preferred archival medium because it has the highest image resolution of any
image storage medium and a shelf life that exceeds 100 years. Using a
proprietary process, we take the original or restored film negative and create
a new negative. Due to technical and operational advances in our proprietary
restoration and preservation processes, we are able to provide restoration and
preservation services for existing film content.

Transferring film to digital media.A considerable amount of film content
ultimately is distributed to the home video, broadcast, cable or pay-per-view
television markets. This requires film images to be transferred to a video
format. Each frame must be color corrected and adapted to the size and aspect
ratio of a television screen in order to ensure the highest level of conformity
to the original film version. Because certain film formats require transfers
with special characteristics, it is not unusual for a motion picture to be
mastered in many different versions. Technological developments, such as the
domestic introduction of television sets with a 16 x 9 aspect ratio and the
implementation of advanced and high definition digital television systems for
terrestrial and satellite broadcasting, are expected to contribute to the
growth of our film transfer business.

Converting videotape or digital media to film.Production companies may
choose to originate their work on videotape or in other media
formats, even though the destination market is
a theatrical release on film. We use advanced electronic systems to
transform content from all current broadcast standards and formats to 16mm or 35mm
film. This process is used for all forms of theatrical film
distribution, including short form and long form advertising, commercials, studio promotions and trailers, as well as theatrical length presentations
including feature films, concerts and special events.

Audio restoration and integration.Audio layback is the process of
creating duplicate digital masters with sound tracks that are different from
the original recorded master sound track. Content owners selling their assets
in international markets require the original dialog to be replaced with dialog
in the local language. In some cases, all of the audio elements, including
dialogue, sound effects, music and laughs, must be recreated, remixed and
synchronized with the original master elements.

Professional duplication and standards conversion.Professional
duplication is the process of creating broadcast quality and resolution
independent sub-masters for distribution to professional end users. Master
elements are used to make sub-masters in numerous domestic and international
broadcast standards as well as up to 22 different tape formats. Standards
conversion is the process of changing the frame rate of a video signal from one
video standard, such as the United States standard (NTSC), to another, such as
a European standard (PAL or SECAM). Content is regularly copied and converted
for use in intermediate processes, such as editing, on-air backup and
screening, and for final delivery to cable and pay-per-view programmers,
broadcast networks, television stations, airlines, home video duplicators and
foreign distributors. Our duplication and standards conversion facilities are
technically advanced with unique characteristics that significantly increase
equipment capacity while reducing error rates and labor cost.

Digital Media
Management Center. We are developing a digital media management
infrastructure, also referred to in this report as the Digital Media
Management Center. For more information on the Digital  Media Management Center, see
DEVELOPING BUSINESSESDigital Media Management Center in this
Item I below.

Network Services Group

The acquisitions of the assets and operations that comprise our Network
Services Group have created a global operation primarily focused on the
broadcasting and distribution of content via satellite and fiber. We provide
facilities and services necessary to assemble and distribute programming
content for cable and broadcast networks via fiber and satellite to viewers in
North America, Europe and Asia. We facilitate the timely creation of original
programming such as hosted and news segments and live shows, providing language
translation and subtitling, all the way to assembling programming provided by
the customer into a 24-hour network format. In addition, we provide
facilities and services for the delivery of syndicated television programming
in the United States and Canada and also transmit special events, sports or
news segments for insertion in broadcast, cable and other third party
networks. On December 23, 2002, we divested our equity ownership in the Triumph entities.
As a result of this divestiture, our Network Services Group
significantly reduced its point-of-presence facilities and its
internal fiber capabilities within the U.S. Our Network Services
Group, however, continues to maintain, in a more cost effective
manner, its fiber capabilities through third party providers.

We see continued growth opportunities with current and prospective clients
who are seeking higher quality and/or lower cost solutions for broadcasting and
distribution particularly where new technologies can accomplish these
objectives and support the creation of new revenue streams in the digital media
space. We believe our competitive advantages lie in our ability to distribute
content worldwide, our ability to package our services in a cost-effective

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manner, our backup distribution paths and our reputation for distribution
on multiple technological platforms. Our broadcast facilities are located in
California, Minnesota, Maryland, New York, New Jersey, Connecticut, Florida,
the United Kingdom and Singapore. . In fiscal year 2002, the Network Services
group contributed $159.1 million, or 29.5% of our total revenues, as compared to
$155.6 million, or 26.2%, in fiscal year 2001 and $28.6 million, or 9.3%, in
fiscal year 2000. A more detailed description of the key services provided by
our Network Services group is presented below.

Production.Timely broadcast programming, such as live shows and news,
requires immediate and precise coordination of on-camera talent, the script,
pre-recorded videotape, promotional and interstitial materials and the
broadcast schedule. We operate television production studios in Stamford,
Connecticut and Singapore with live-to-satellite interview services, cameras,
production and audio control rooms, videotape playback and record,
multi-language prompters, computerized lighting, and dressing and makeup rooms.
Our Singapore facility also offers field and teleconferencing services.

On-air promotion.On-screen marketing and broadcast continuity depend on
on-air promotional material to support the channels brand identity and
programming. We work with the clients writers and producers to offer a
complete on-air promotion service, including graphics, editing, voice-over
record, sound effects editing, sound mixing and music composition.

Language translation.Programming designed for export to other markets is
prepared through language translation and either subtitling or voice dubbing.
We provide dubbed language versioning with an audio layback and conform service
that supports various audio and videotape formats to create original
international language-specific master videotape. Our Burbank facility also
creates music and effects tracks from programming that is filmed before an
audience to prepare television situation comedies for dialogue recording and
international distribution. Our Singapore facility supports translation, and a
complete on-screen and closed-caption subtitling facility.

Syndication and
Commercial Integration.We provide programming to most United States broadcast
television stations through daily satellite transmissions. Prior to
broadcast, all material is quality control checked and may be pre-compiled into
final broadcast form prior to on-air playback. Pre-compilation is performed in
our editing facilities, often using proprietary systems and software which
permit the efficient assembly of high production value visual effects. We also
prepare syndicated programming for distribution with commercials and similar
elements that are inserted prior to distribution. We use control procedures to
ensure on-air reliability and provide formatting and time compression services,
which are used to prepare programming for distribution. We perform commercial,
promotional, billboard, warning, logo and other integration, as well as closed
captioning for the hearing impaired and source identification encoding. We also
provide programmers with: traffic support; affiliate relations and station
coordination; library storage of broadcast master tapes; a syndication program
library and recycled videotape inventory.

Origination and distribution.We provide videotape and computer server
based playback and origination to cable, pay-per-view and direct-to-home
networks. We accept daily program schedules, programs, promos and advertising,
and deliver 24 hours of seamless daily programming to cable affiliates and DBS
subscribers. We use automated systems for broadcast playback. We also operate
industry-standard encryption and/or compression systems as needed for customer
satellite distribution. We use a customized approach to satisfy each customers
timeliness, flexibility and reliability requirements. We also offer quality
control, tape storage and trafficking services. Currently, over 50 24-hour
channels are supported by our facilities in Singapore; London, England;
Burbank, California; Minneapolis, Minnesota; New York, New York; Northvale, New
Jersey; Stamford, Connecticut; and Palm Bay, Florida.

Satellite transport.We operate satellite earth station facilities in
Singapore; Burbank, California; New York, New York; Northvale, New Jersey;
Minneapolis, Minnesota; Stamford, Connecticut; and Palm Bay, Florida. Our
facilities are generally staffed 24 hours a day and may be used for downlink,
turnaround and uplink services. We access various satellite neighborhoods,
including basic and premium cable, broadcast syndication direct-to-home and DBS
markets. We resell transponder capacity for occasional and full-time use and
bundle our transponder capacity with other broadcast and syndication services
to provide a complete broadcast package at a fixed price. Our teleports are
high-bandwidth communications gateways for satellite, optical fiber and
microwave transmission. Our facilities offer satellite antennae capable of
transmitting and receiving feeds in both C-Band and Ku-Band frequencies. We
also provide transportable services, including point-to-point microwave
transmission, transportable up-link and downlink transmission, and broadcast
quality teleconference services.

Engineering and systems integration.Through our wholly-owned subsidiary,
A.F. Associates, also referred to as AFA, we design, build, install, and
service advanced video systems for the broadcast and cable television
industries for professional and corporate markets. Over 50% of AFAs business
is repeat business from clients who seek AFAs

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technical and engineering expertise. AFA also serves as the in house
engineering department for the Network Services Group, enabling us to quickly
respond to customer needs and new services. AFAs clients include major
broadcast networks, numerous cable channels, corporate television networks, and
numerous production and post-production facilities. We believe that increases
in cable, direct satellite and independent broadcasting made possible by
emerging digital media technologies, as well as the migration of broadcasting
standards from analog to digital, will provide significant opportunities for
AFA to expand its customer base.

Broadcast equipment rental.We rent broadcast and industrial video
equipment to the broadcast and professional video industries, and provide
support and maintenance for such services. We specialize in network sports
production rental needs.

DEVELOPING BUSINESSES

Digital Media Management Center

We are implementing a
new digital media management infrastructure called the Digital Media
Management Center, which
will provide asset management services to create, edit, assemble, manage, process, catalog,
transport and deliver all forms of digital media content. The creation of this
digital media management platform provides for an integrated, extensible and
scaleable asset management environment across all of our business segments and
operating divisions. It also supports the workflows and media assets of our
clients. We have developed a set of services for the motion picture,
television, commercial and advertising markets and currently use
services to edit, assemble, manage and deliver digital assets within the Company and for clients. Our digital media management initiative also provides an operating
framework for implementation of new services, such as metadata creation,
ingestion and processing, compression and encryption, digital content
cataloging as well as media versioning and file based transport and delivery of
media content that bring value to our clients. This business applies to
multiple traditional distribution platforms as well as new media distribution
businesses such as VOD.

Our digital media management initiative requires custom design and
development of a comprehensive suite of next generation services designed to
complement our existing businesses, as well as providing a migration path
toward servicing the new media initiatives of our clients. As such, the project
represents a long term strategic investment designed to position us ahead of
our competitors by providing migration paths from the management of existing
(physical) media to automated real time management of new (file based) media
types. Examples of services that we are currently developing or have begun
implementing include the following:

Dailies gateway.The Dailies Gateway will provide multi-tiered services
for the review, approval and digital transfer of film based project dailies.
Clients will need only a password and a broadband modem to receive Tier One
service, which will stream up to three days worth of dailies in Windows or
MPEG-4 Media formats. Tier Two service will include DVD-quality files streamed
over a private network. Tier Three service will digitize Avid OMF files with a
telecine session for videotape-free private network delivery of transferred
film dailies directly to offline editors.

Virtual sessions.The Virtual Session allows producers to work
collaboratively with editors, effects specialists and telecine artists in an
online interactive environment, minimizing costs and other logistics associated
with long-distance travel. Real-time sessions can be conducted live, enabling
shoulder-to-shoulder collaboration around the globe, with full-resolution
images delivered via private or public networks. Other services include online
posting of edited commercials, online discussion groups, project timeline
management and shared, simultaneous viewing sessions.

Virtual vault.The Virtual Vault offers commercial advertising, music
video and promotional material producers complete range of media management
services including online, near line and offline storage solutions, video and
audio duplication, and distribution. Clients may order copies, compilation
reels and customized playlists in a variety of formats, including recordable
digital versatile disc, or DVDR. These elements can be routed quickly and
efficiently to clients, broadcasters, and other distributors by either physical
distribution or electronic file transfer. Two tiers of service are optimized
for customer needs, including Tier One, which gives password-protected access
to clients through each facilitys portal; and Tier Two, which creates a
client-branded library site for clients to use within their own in-house
operations.

New Products Group

We are implementing initiatives through our newly-created New Products
Group that develops new products that will often involve one or more divisions
and newer technology. These products are targeted at generating incremental
revenue or enhancing current offerings utilizing existing operational
infrastructure as a foundation.

The initiatives that the New Products Group is currently developing or has
begun implementing include the

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following:

VOD/SVOD.Many cable operators see video-on-demand, or VOD, as the key to
providing them a competitive advantage over DBS operators. The core
functionality gives consumers the ability to access on demand a wide range of
content services that are stored on servers located in cable headends. Once a
program is selected from a menu of choices, consumers have the ability to
pause, rewind, fast-forward, and bookmark a program for later viewing. Networks
such as Starz!/Encore, Discoveryand HBOhave launched subscription
video-on-demand, or SVOD, services on various cable systems across the country.
With SVOD, a cable subscriber pays a monthly subscription fee and can watch any
of the stored programs whenever and how often they desire. We are positioning
ourselves to be the preferred provider of essential VOD/SVOD services
by expanding our existing services for file encoding, metadata creation, promotional material creation, file delivery
and service reporting into a VOD/SVOD infrastructure and by leveraging existing
relationships with cable operators and content owners. In addition, we expect to provide support for the other
interactive services expected to complement the VOD/SVOD environment.

Interactive Television.Complementing our work in the VOD/SVOD space, we
will continue to closely follow developments in the interactive television
space. Over time, we expect that the authoring, hosting and distribution of interactive media will parallel the production and distribution
process of the traditional entertainment services industry. We believe that the
most artistically correct and cost-effective way to produce, archive and
distribute interactive television elements is for the material to be produced,
post-produced, archived and distributed at the same time and under the same
creative control as the traditional elements.

Store and Forward.Store and Forward is a technology architecture that
allows content to be transported in a cost efficient and timely manner. Many of our
current clients require content to be shipped around the globe within tight
time frames. Store and Forward allows video and data content to become broken into
data packets wrapped in an IP distribution format thus enabling it to be sent as data files
over a variety of transport mechanisms. We are exploring opportunities
to expand our existing content distribution services into the Store
and Forward space.

CUSTOMERS

For the year ended December 31, 2002, no single customer accounted for
more than 10% of our consolidated revenues. No customer accounted for
more than 10% of the Creative Services Group revenue, one customer
accounted for 11.1% of the Media Management Services Group revenue, and two
customers accounted for 14.3% and 11.8%, respectively, of the Network Services
Group revenue. The Creative Services client base
is composed of the major domestic film studios, independent television
production companies, broadcast networks, advertising agencies, creative
editorial companies and corporate media producers. The Media Management
Services client base includes the major motion picture studios and their
international divisions as well as independent owners of television and film
libraries. The Network Services client base consists of broadcast and cable
television networks, local television channels, broadcast syndicators,
satellite broadcasters and corporate television networks.

A loss of any of our
large customers would reduce our revenues. Although we serviced over
3,500 customers during the year ended December 31, 2002, our ten
largest customers accounted for approximately 37.5% of our
consolidated revenues and our single largest customer accounted for
approximately 6.5% of our consolidated revenues during the
period. The loss of, and the failure to replace, any significant
portion of the services provided to any significant customer could
have a material adverse effect on us.

COMPETITION

The creative media services industry is highly competitive with much of
the competition centered in Los Angeles, California, the largest and most
competitive market, particularly for domestic television and feature film
production as well as for the management of content libraries. We expect that
competition will increase as a result of industry consolidation and alliances,
as well as the emergence of new competitors. In particular, major motion
picture studios such as Paramount Pictures, Sony Pictures Corporation,
Twentieth Century Fox, Universal Pictures, The Walt Disney Company,
Metro-Goldwyn-Mayer and Warner Brothers, while our customers, can perform
similar services in-house with substantially greater financial, technical,
creative, marketing and other resources than we have. These studios could
also outsource their requirements to other independent providers like
us or to other studios. We also actively compete with certain industry
participants that may be smaller but have a unique operating niche or specialty
business. There is no assurance that we will be able to compete
effectively against these competitors, but we believe that our breadth of services is unique among
most competitors in the entertainment services industry in terms of the range
of service offerings within each business segment. We believe that our reputation
and brand names are acknowledged and recognized for their
contribution to creating quality content and that our ability to
offer integrated solutions within and across our business segments sets us apart
from our competitors.

EMPLOYEES

We have approximately 3,825 employees who work in five countries providing
services from approximately 70 operating facilities.

REGULATION

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Some of our subsidiary companies hold licenses and authorizations from
the Federal Communications Commission, or FCC, required for the conduct of
their businesses, including earth station and various classes of wireless
licenses and an authorization to provide certain services pursuant to Section
214 of the Communications Act. Most of the FCC licenses held by our
subsidiaries are for transmit/receive earth stations, which cannot be operated
without individual licenses. The licenses for these stations are granted for a
period of fifteen years and, while the FCC generally renews licenses for
satellite earth stations, there can be no assurance that these licenses will be
renewed at their expiration dates. Registration with the FCC, rather than
licensing, is required for receiving transmissions from domestic satellites
from points within the United States. We rely on third party licenses or
authorizations when we transmit domestic satellite traffic through earth
stations operated by third parties. The FCC establishes technical standards for
satellite transmission equipment that change from time to time and requires
coordination of earth stations with land-based microwave systems at certain
frequencies to assure non-interference. Transmission equipment must also be
installed and operated in a manner that avoids exposing humans to harmful
levels of radio-frequency radiation. The placement of earth stations or other
antennae also is typically subject to regulation under local zoning ordinances.

GEOGRAPHIC AREAS

Please see Part IV,
Item 15, EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K for Consolidated Financial Statements included in this
report for financial information in each geographic area in which we conduct
business.




ITEM 2. PROPERTIES.

The Companys operations are conducted in approximately 70 owned, leased or
licensed operating facilities, located throughout the world.

Domestically, our Creative Services Group, Media Management Services
Group, and Network Services Group, operate primarily in California and the
Eastern seaboard (New York and New Jersey). Our Creative Services Group also
operates facilities in Georgia and Florida; our Media Management Services Group
also operates facilities in Florida; and our Network Services Group also
operates facilities in Connecticut, Minnesota and Florida.

Internationally, our Creative Services Group, Media Management Services
Group, and Network Services Group, operate primarily in London, England. Our
Creative Services Group also operates facilities in Mexico City, Mexico; our
Media Management Services Group also operates facilities in Barcelona, Spain;
and our Network Services Group also operates facilities in the Republic of
Singapore.

Worldwide, we lease approximately 1.3 million square feet and own another
400,000 square feet. In the United States, our leased facilities total
approximately 1.1 million square feet and have terms expiring between June 2003
and December 2012. Several of these agreements have extension options. The
leased properties are used for our technical operations, office space and media
storage. Our international leases have terms that expire between December 2003
and August 2019, and are also used for our technical operations, office space
and media storage. Over half of the international leases have extension
clauses. Approximately 320,000 square feet of our owned facilities are located
in Southern California, with another 80,000 square feet located in Northvale,
New Jersey; Atlanta, Georgia; and Stamford, Connecticut. In addition, we own
approximately 50,000 square feet in London, England. Nearly all of our owned
facilities are purpose-built for our technical and creative service operations.
Our facilities are adequate to support our current near term growth needs.




ITEM 3. LEGAL PROCEEDINGS

Paul Dujardin v. Liberty Media Corporation and Ascent Media Group, Inc.
Mr. Paul Dujardin filed a complaint (the Complaint) in U.S. District Court,
Southern District of New York, on November 30, 2001, against Liberty Media and
the Company, alleging violations of Section 10(b), Rule 10b-5 and Section 20(a)
of the Securities Exchange Act of 1934, common law fraud, negligent
misrepresentation, breach of the earnout provisions of an acquisition agreement
involving the sale of Mr. Dujardins company, Triumph Communications
(Triumph), to the Company in July 2000 (the Triumph Acquisition), and
breach of contract for failure to make Mr. Dujardin head of the Companys
Network Services Group. The securities claims in the Complaint allege that, in
a series of transactions during 2000, Liberty Media agreed to secretly
contribute assets to the Company in exchange for the Companys stock,

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at prices that ultimately were below the NASDAQ trading price on the date
the transactions were consummated. The Complaint alleges that the Company and
Liberty Media fraudulently concealed these below-market transactions and
that, as a result, the Companys stock price was inflated. In reality, all of
these allegedly concealed transactions were fully disclosed in numerous
public filings made with the Securities and Exchange Commission. According to
this theory, Mr. Dujardin claims approximately $15 million in damages, plus
punitive damages. Mr. Dujardin also claims that, pursuant to the acquisition
agreement between Triumph and the Company, he is entitled to an earnout
entitling him to approximately 88,000 shares of the Companys stock. The
earnout provision allows Mr. Dujardin to collect the entire amount upon his
termination on August 29, 2001, unless the Company had grounds to terminate Mr.
Dujardin for failure to perform his job duties and commission of misconduct
injurious to the Company. Based on the arbitrators decision in a related
arbitration proceeding with Mr. Dujardin, we returned the earnout shares to Mr.
Dujardin on August 6, 2002. Mr. Dujardin rejected delivery of the shares and
claims that he instead is owed the lost value of the earnout shares as of
August 29, 2001, which he claims is approximately $682,000. On February 13,
2003, the Company and Liberty Media filed a motion to dismiss the Complaint in
its entirety. We are still awaiting a decision on the motion from the federal
court. We will vigorously defend our interests in this matter.




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

Restated Certificate of Incorporation

On November 15, 2002, the holders of 99% of the voting power of the issued
and outstanding shares of capital stock of the Company adopted a restated
certificate of incorporation for the Company (Restated Certificate of
Incorporation), through a written consent of stockholders to action without a
meeting, which was delivered to the Company the same day. The Restated
Certificate of Incorporation, which became effective on November 20, 2002,
changed the name of the Company to Ascent Media Group, Inc. and amended
information with respect to the Companys registered agent in Delaware. On
November 18, 2002, the Company mailed a notice regarding such taking of action
by written consent to the persons (other than the persons who executed and
delivered the written consent) who were the holders of record of issued and
outstanding capital stock of the Company on November 15, 2002, such date being
the date that the signed written consent of stockholders was delivered to the
Company.

Annual Meeting of Stockholders

On December 20, 2002, the Company filed with the SEC and mailed to its
stockholders a definitive proxy statement for its 2002 annual meeting of
stockholders, which was held on January 23, 2003. Stockholders of record as of
December 16, 2002 voted as follows on the following matters:



| | (1) |  | Election of the three nominees listed below (in alphabetical
order) to Class III of the Companys board of directors. The names
of the nominees and votes for each nominee were as follows:
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                     
| | --------------------
| | i. Robert R. Bennett

|            |  |          |        | 
|----------- |  | -------- | ------ | 
|FOR         |  | WITHHELD
|            |  |         
|480,795,444 |  |          | 52,282 | 

| |                          
| | -------------------------
| | ii. William R. Fitzgerald

|            |  |          |         | 
|----------- |  | -------- | ------- | 
|FOR         |  | WITHHELD
|            |  |         
|480,733,640 |  |          | 114,086 | 

| |                      
| | ---------------------
| | iii. Larry E. Romrell

|            |  |          |        | 
|----------- |  | -------- | ------ | 
|FOR         |  | WITHHELD
|            |  |         
|480,835,885 |  |          | 11,841 | 



| | (2) |  | Approval of the issuance of shares of Class B common stock
and convertible notes convertible into shares of Class B common
stock after the date of the annual meeting of stockholders pursuant
to Supplement No. 3 (referred to in this report as Supplement No.
3), dated as of August 13, 2002, to the First Amended and Restated
Credit Agreement, dated as of December 22, 2000, between the Company
and Liberty Media (referred to in this report as the Liberty
Subordinated Credit Agreement); the potential issuance of shares of
Class B common stock and convertible notes convertible into shares
of Class B common stock pursuant to future supplements to the
Liberty
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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| |  |  | Subordinated Credit Agreement for a purchase price per share or
with an initial conversion price per share, as applicable,
determined in a manner no less favorable to the Company than as
provided in Supplement No. 3; and the potential issuance of shares
of Class B common stock upon conversion of convertible notes
convertible into shares of Class B common stock issued pursuant to
Supplement No. 3 and outstanding on the date of the annual meeting
of stockholders. For details on the Liberty Subordinated Credit
Agreement and Supplement No. 3, see Part II, Item 7, MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS  Liquidity and Capital Resources  Liberty Subordinated
Credit Agreement below.
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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|            |  |         |        |         |  |           |     |  |  |  |           | 
|----------- |  | ------- | ------ | ------- |  | --------- | --- |  |  |  | --------- | 
|FOR         |  | AGAINST |        | ABSTAIN |  | NON-VOTES
|            |  |         |        |         |  |          
|477,830,683 |  |         | 13,582 |         |  |           | 749 |  |  |  | 3,002,712 | 



| | (3) |  | Ratification of the appointment of KPMG LLP as independent
auditors for the Company for the year ending December 31, 2002.
| | --- |  | --------------------------------------------------------------------------------------------------------------------------

|            |  |         |       |         |  |  |     | 
|----------- |  | ------- | ----- | ------- |  |  | --- | 
|FOR         |  | AGAINST |       | ABSTAIN
|            |  |         |       |        
|480,837,121 |  |         | 9,671 |         |  |  | 934 | 

The term of office for the following directors continued after the 2002
annual meeting of stockholders (in alphabetical order):

Gary S. Howard (Class II Director)
     David P. Malm (Class I Director)
     Brian C. Mulligan (Class I Director)
     Barney W. Schotters (Class II Director)

The Class I
Directors term expires at the 2003 annual meeting of stockholders
and the Class II Directors term expires at the 2004 annual
meeting of stockholders.

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PART II




ITEM 5. MARKET FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER MATTERS.

Class A Common Stock

Our Class A common stock, par value $.01 per share, is traded on the
National Market tier of the Nasdaq Stock Market under the symbol AMGIA, which
was changed from LWIRA on November 20, 2002 in connection with our corporate
name change. The Transfer Agent and Registrar for our Class A common stock is
Continental Stock Transfer and Trust Company, 17 Battery Place, 8th Floor, New
York, New York 10004-1123. We have not paid cash dividends during the last two
fiscal years and do not expect to pay cash dividends in the foreseeable future.
As of December 31, 2002, there were 310 record holders of our Class A common
stock. The number of holders of Class A common stock does not include an
indeterminate number of stockholders whose shares are held by brokers in
street name. The following table sets forth, for the periods indicated, the
high and low sales prices for our Class A common stock for each full quarterly
period within the two most recent fiscal years, as reported on the Nasdaq Stock
Market.

|                                    |  |          |      |         |  |  |      | 
|----------------------------------- |  | -------- | ---- | ------- |  |  | ---- | 
|Fiscal Year Ended December 31, 2002 |  | High ($) |      | Low ($)
|                                    |  |          |      |        
|Fourth Quarter                      |  |          | 3.74 |         |  |  | 0.87 | 
|Third Quarter                       |  |          | 3.15 |         |  |  | 1.33 | 
|Second Quarter                      |  |          | 6.00 |         |  |  | 2.63 | 
|First Quarter                       |  |          | 7.60 |         |  |  | 5.56 | 

|                                    |  |          |       |         |  |  |      | 
|----------------------------------- |  | -------- | ----- | ------- |  |  | ---- | 
|Fiscal Year Ended December 31, 2001 |  | High ($) |       | Low ($)
|                                    |  |          |       |        
|Fourth Quarter                      |  |          | 8.28  |         |  |  | 5.20 | 
|Third Quarter                       |  |          | 12.60 |         |  |  | 4.75 | 
|Second Quarter                      |  |          | 8.98  |         |  |  | 3.13 | 
|First Quarter                       |  |          | 14.38 |         |  |  | 3.25 | 

Class B Common Stock

A holder of shares of our Class B common stock, par value $.01 per share,
has ten votes per share, as compared to one vote per share for holders of the
Class A common stock. We have not paid cash dividends during the last two
fiscal years and do not expect to pay cash dividends in the foreseeable future.
Pursuant to our Restated Certificate of Incorporation, our Class B common stock
is convertible into shares of Class A common stock at any time at the option of
the holder, at a conversion ratio of one-to-one, as the same may be adjusted
from time to time as the result of any stock split, reverse stock split or
similar event effecting the Class A common stock. In all other respects, the
Class A common stock and Class B common stock are substantially identical and
have equal rights and privileges, except that shares of Class B common stock
are convertible into shares of Class A common stock, on a one-to-one basis, at
the option of the holder at any time. All of our Class B common stock is held
by Liberty Media and its subsidiaries and is not publicly traded. We act as
transfer agent for our Class B common stock.

Recent Sales of Unregistered Securities

The following paragraph sets forth certain required information with
respect to securities of the Company that were sold by the Company and were not registered under the Securities Act of 1933,
as amended (referred to in this report as the Securities Act). All of the
securities so issued were issued in reliance upon the exemption from
registration under the Securities Act afforded by Section 4(2) thereof.

On December 31, 2002, we issued 2,056,506 shares of our Class B common
stock to Liberty Media, 1,756,770 of our Class B common stock to Liberty LWR,
Inc., and 857,471 shares of our Class B common stock to Liberty Livewire
Holdings, Inc., as quarterly interest payments under the Liberty Subordinated
Credit Agreement. For details on the Liberty Subordinated Credit Agreement, see
Part II, Item 7, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS  Liquidity and Capital Resources  Liberty
Subordinated Credit Agreement below, and for details on stock
sales to Liberty Media, see Part II, Item 7, MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS  Liquidity and Capital Resources
 Supplement No. 3 and  Other Stock Issuances to Liberty
Media below.

Equity Compensation Plan Information

For Equity Compensation Plan Information, see Part III, Item 12, SECURITY
OWNERSHIP OF CERTAIN

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BENEFICIAL OWNERS AND MANAGEMENT  Non-Security Holder-Approved Equity
Compensation Plans.




ITEM 6. SELECTED FINANCIAL DATA.

|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |            | 
|-------------------------------------------- | ------- | ------------ | ------------ | ------------ | ------- | ------------ | -------- | ---------- | ------ | ------------ | --------- | ---------- | ----- | ---------- | ------- | ---------- | - | - | ------- | ---------- |  | - | ------- | --------- |  | - | ------- | ---------- | 
|                                             |         |              | Ascent Media |              | Todd-AO
|                                             |         |              |              |              |        
|                                             |         |              |              |              |         |              |          |            |        |              | Seven     |            | Five  |            | Four    |            |   |   |         |            |  |   |        
|                                             |         |              | Year         |              | Year    |              | Months   |            | Months |              | Months    |            | Year  |            | Year   
|                                             |         |              | Ended        |              | Ended   |              | Ended    |            | Ended  |              | Ended     |            | Ended |            | Ended  
|(in thousands,                               |         | December 31, |              | December 31, |         | December 31, |          | May 31,    |        | December 31, |           | August 31, |       | August 31,
|except share data)                           |         | 2002         |              | 2001         |         | 2000         |          | 2000       |        | 1999         |           | 1999       |       | 1998      
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |           
|Net revenues                                 |         | $            | 539,333      |              |         | $            | 592,732  |            |        | $            | 253,099   |            |       | $          | 53,243  |            |   | $ | 43,261  |            |  | $ | 118,517 |           |  | $ | 102,614 |           
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|Net (loss) income                            |         | $            | (135,186     | )            |         | $            | (436,289 | )          |        | $            | (9,793    | )          |       | $          | (1,675  | )          |   | $ | 449     |            |  | $ | 1,313   |           |  | $ | 3,419   |           
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|Income (loss) per share of
common stock:     |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|                                             | Basic   |              | $            | (3.07        | )       |              | $        | (11.52     | )      |              | $         | (0.28      | )     |            | $       | (0.16      | ) |   | $       | 0.05       |  |   | $       | 0.14      |  |   | $       | 0.34       | 
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|                                             | Diluted |              | $            | (3.07        | )       |              | $        | (11.52     | )      |              | $         | (0.28      | )     |            | $       | (0.16      | ) |   | $       | 0.04       |  |   | $       | 0.13      |  |   | $       | 0.33       | 
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|Total assets                                 |         | $            | 793,326      |              |         | $            | 919,691  |            |        | $            | 1,175,845 |            |       | $          | 159,448 |            |   | $ | 162,004 |            |  | $ | 153,180 |           |  | $ | 135,366 |           
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|Long-term debt and capital
lease obligations |         | $            | 588,355      |              |         | $            | 608,241  |            |        | $            | 492,573   |            |       | $          | 61,210  |            |   | $ | 65,866  |            |  | $ | 65,520  |           |  | $ | 44,654  |           
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|Cash dividends per share:                    |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|                                             | Class A |              | $            |             |         |              | $        |           |        |              | $         |           |       |            | $       |           |   |   | $       |           |  |   | $       | 0.05      |  |   | $       | 0.06       | 
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|                                             | Class B |              | $            |             |         |              | $        |           |        |              | $         |           |       |            | $       |           |   |   | $       |           |  |   | $       | 0.04      |  |   | $       | 0.05       | 
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|Weighted average shares
outstanding:         |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|                                             | Basic   |              |              | 43,971,836   |         |              |          | 37,858,123 |        |              |           | 34,463,373 |       |            |         | 10,768,773 |   |   |         | 9,927,077  |  |   |         | 9,570,187 |  |   |         | 9,987,429  | 
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           
|                                             | Diluted |              |              | 43,971,836   |         |              |          | 37,858,123 |        |              |           | 34,463,373 |       |            |         | 10,768,773 |   |   |         | 10,656,340 |  |   |         | 9,832,614 |  |   |         | 11,218,051 | 
|                                             |         |              |              |              |         |              |          |            |        |              |           |            |       |            |         |            |   |   |         |            |  |   |         |           |  |   |         |           

The periods presented above reflect the results of the change in control
on June 9, 2000. See Note 1 to the Consolidated Financial Statements.




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

Managements discussion and analysis of financial condition and results of
operations contain certain forward-looking statements. Words such as may,
will, should, expect, plan, anticipate, believe, estimate,
predict, potential, or continue or the negative of such terms and similar
expressions reflecting something other than historical fact may be intended to
identify forward-looking statements, but are not the exclusive means of
identifying such statements. These forward-looking statements involve known and
unknown risks and uncertainties. The actual levels of our activity,
performance, achievements or industry may differ materially from those
expressed or implied by any forward-looking statement due to such risks and
uncertainties. Factors that may cause or contribute to such differences include
factors described in this and our other filings with the Securities and
Exchange Commission including, but not limited to, those set forth in this
section under the caption, Factors That May Affect Future Results of
Operations. We disclaim any obligation to update any of the forward-looking
statements contained in this discussion to reflect any future events or
developments. The discussion that follows should be read in conjunction with
the accompanying Consolidated Financial Statements and the Notes to
Consolidated Financial Statements.

Overview

Ascent Media Group provides technical and creative services to the
entertainment industry. Our clients include the major motion picture studios,
independent producers, broadcast networks, cable channels, advertising agencies
and other companies that produce, own and/or distribute entertainment content.
Our assets and operations are primarily comprised of ten companies acquired
during 2001 and 2000. The combination and integration of these acquired
entities allow us to offer our clients a complete range of services, from image
capture to last mile distribution. We are able to offer outsourcing solutions
for the technical and creative requirements of our clients. We have organized
our facilities and operations into the three business segments, that we call
Groups, as described below.

Creative Services Group.Our Creative Services Group provides services
necessary to complete the creation of original content including feature films,
television shows, movies of the week/mini series for television, television
commercials, music videos, promotional and identity campaigns and corporate
communications programming. Our services begin after principal photography and
cover a wide range of services necessary to complete a project. This may
include film to video tape transfers, color correction, creative editorial
services, graphics and title sequences, electronic assembly, two-dimension
compositing, creation of computer generated images, sound editorial, sound
mixing, music composition, sound design and integration of interactive program
elements. The Creative Services Group has three divisions: Entertainment
Television, Commercial Television and Audio.

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Media Management Services Group.Our Media Management Services Group
optimizes, archives, manages and repurposes media assets for global
distribution. We provide access to all forms of content, duplication and
formatting services, language conversions and laybacks, restoration and
preservation of old or damaged content, mastering from motion picture film to
high resolution or data formats, digital audio and video encoding services and
digital media management services for global home video, broadcast,
pay-per-view, video-on-demand, streaming media and other emerging new media
distribution channels.

Network Services Group.Our Network Services Group provides the services
necessary to assemble and distribute programming for cable and broadcast
networks via fiber and satellite to audiences in North America, Europe and
Asia. Our Network Services Group primarily provides dedicated facilities and
resources designed for specific client requirements on the basis of contractual
agreements.

Acquisitions in 2001

On February 1, 2001, we acquired GWNS from Viacom, Inc. On August 23,
2001, we acquired from Cinram U.S. Holdings, Inc. the 51% interest in
Cinram-POP that we did not already own. On September 6, 2001, we acquired the
remaining 99% interest in LNS that we did not already own, thereby acquiring
the operations of Ascent Network Services.

Joint Venture in 2002

On May 6, 2002, we contributed assets and obligations of our former
subsidiary, The Post Edge, Inc., doing business as Manhattan Transfer-Miami,
into a newly formed Miami, Florida-based limited liability company with
Broadcast Video, Inc. The new entity, BVI-Miami, consists of the operations of
The Post Edge, Inc. and the operations of Broadcast Video, Inc. and certain of
its affiliated businesses. We own a 40% membership interest in BVI-Miami.
Broadcast Video, Inc. owns the remaining 60% membership interest and manages
BVI-Miamis operations. The net book value of the assets and liabilities of
$2.5 million were reclassified as an investment. We do not have any current or
contingent material obligations to BVI-Miami.

Divestiture in 2002

On December 23, 2002, we sold to Leafco Communications, Inc. all of our
equity interest in Triumph for nominal consideration plus the assumption of net
liabilities in the amount of $4.0 million. In connection with this sale, we
entered into an agreement to loan the buyer an amount not to exceed $4.0
million. As of date of this report, such loan agreement has been terminated by
the parties and the buyer has repaid us all monies advanced pursuant to such
loan. In connection with this loan termination, we entered into an agreement
to loan Rapco Enterprises, Inc., an affiliate of Leafco Communications, Inc.,
$2.0 million. The above transactions, in the aggregate, resulted in a gain
from this divestiture of $1.6 million.

Earnings Before Interest Taxes Depreciation and Amortization

We believe that Earnings Before Interest Taxes Depreciation and
Amortization, or EBITDA, is an important measure of our financial performance.
We define EBITDA as earnings before interest, taxes, depreciation and
amortization, excluding gains and losses on asset sales and unusual charges
such as restructuring, integration and impairment. Our investments in new
infrastructure, machine capacity, technology and goodwill arising from our
significant acquisition activity have produced a relatively high depreciation
and, prior to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, amortization expense,
which have historically been significant annual non-cash charges to earnings.
EBITDA is calculated before depreciation and amortization charges and, in
businesses with significant non-cash expenses, is widely used as a measure of
cash flow available to pay interest and repay debt, and, to the extent
available after debt service and other required uses, to make acquisitions or
invest in capital equipment and new technologies. As a result, we view EBITDA
as an important measure of our financial performance and valuation and have
included EBITDA as a measure of financial performance herein. EBITDA does not
represent cash generated from operating activities in accordance with generally
accepted accounting principles (GAAP) and should not be considered in
isolation or as a substitute for other measures of performance prepared in
accordance with GAAP. EBITDA does not reflect that portion of our capital
expenditures that may be required to maintain our market share, revenues and
leadership position in our industry. Moreover, not all EBITDA will be available
to pay interest or repay debt. Additionally, our presentation of EBITDA may not
be comparable to similarly titled measures reported by other companies.

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Critical Accounting Policies

Valuation of Long-lived Assets and Amortizable Other Intangible Assets. We
perform impairment tests for our long-lived assets if an event or circumstance
indicates that the carrying amount of our long-lived assets may not be
recoverable. In response to changes in industry and market conditions, we may
also strategically realign our resources and consider restructuring, disposing
of, or otherwise exiting businesses. Such activities could result in impairment
of our long-lived assets or other intangible assets. We are subject to the
possibility of impairment of long-lived assets arising in the ordinary course
of business. We regularly consider the likelihood of impairment and recognize
impairment if the carrying amount of a long-lived asset or intangible asset is
not recoverable from its undiscounted cash flows in accordance with SFAS No.
144, Accounting for Impairment or Disposal of Long-Lived Assets. Impairment is measured as the difference between the carrying amount and
the fair value of the asset.

Valuation of Goodwill and Non-amortizable Other Intangible Assets. We
assess the impairment of goodwill annually and whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important which could trigger an impairment review include
significant underperformance to historical or projected future operating
results, substantial changes in our strategy or the manner of use of our
assets, and significant negative industry or economic trends. Effective January
1, 2002, we adopted SFAS No. 142 and in accordance with its provisions, during
the first quarter of fiscal year 2002, we recorded a transitional impairment
charge of $20.2 million against goodwill related to our Entertainment
Television reporting unit, which is part of our Creative Services Group. Such
charge has been reflected as a cumulative effect of a change in accounting
principle. Additionally, as a result of our annual impairment testing, we
recorded a goodwill impairment charge of $83.7 million during the fourth
quarter of fiscal 2002. Of this impairment charge, $56.8 million impairment
related to our Entertainment Television reporting unit and $26.9 million
related to our Commercial Television reporting unit. Fair value of each
reporting unit was determined through the use of an outside independent
valuation consultant. The consultant used both the income approach and market
approach in determining fair value.

In accordance with SFAS No. 142, we ceased amortizing goodwill totaling
$421.7 million at the beginning of fiscal year 2002 and $17.5 million of
acquired assembled workforce previously classified as identifiable intangible
assets. Additionally, in accordance with SFAS No. 142, we ceased amortizing
$1.7 million of tradename classified as an other intangible asset. As a result,
for the year ended December 31, 2002, we did not recognize $27.8 million of
amortization expense that would have been recognized had the previous standards
been in effect. For additional information regarding SFAS No. 142, see Notes 2
and 3 in the Notes to Consolidated Financial Statements.

Valuation of Trade Receivables. We must make estimates of the
collectibility of our trade receivables. Our management analyzes the
collectibility based on historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer payment
terms. We record an allowance for doubtful accounts based upon specifically
identified receivables that we believe are uncollectible. In addition, we also
record an amount based upon a percentage of each aged category of our trade
receivables. These percentages are estimated based upon our historical
experience of bad debts. Our trade receivables balance was $96.1 million, net
of allowance for doubtful accounts of $9.0 million, as of December 31, 2002.

Valuation of Deferred Tax Assets.In accordance with SFAS No. 109,
Accounting for Income Taxes, we review the nature of each component of our
deferred income taxes for reasonableness. We have determined that it is more
likely than not that we will not realize a portion of our tax benefits
associated with certain cumulative net operating loss carry forwards and
impairment reserves, and as such, we have reserved for a portion of our
deferred income tax assets and incurred charges of $24.7 million and $93.8
million during the years ended December 31, 2002 and 2001. For additional
information regarding SFAS No. 109, see Notes 2 and 10 in the Notes to
Consolidated Financial Statements.

Results of Operations

The Creative Services Groups revenues are primarily generated from fees
for video and audio post production, special effects and editorial services for
the television, film and advertising industries. The Media Management Services
Group provides owners of film libraries a broad range of restoration,
preservation, archiving, professional mastering and duplication services. The
Media Management Services Groups results also include our Digital Media
Management initiative. The Network Services Groups revenues consist of fees
relating to facilities and services necessary to assemble and distribute
programming for cable and broadcast networks across the world via fiber,
satellite and the Internet. The Network Services Groups results also include
our Bandwidth Management initiative, predominantly Triumph, which was disposed
on December 23, 2002. Corporate related items and unallocated revenues and
expenses are reflected in Corporate and Other, below. Additionally, Corporate
and Other includes the results of our New Products Group which is leading our
efforts in developing new products and businesses such as VOD and

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SVOD, Interactive Television and Store and Forward. Cost of services and
operating expenses consists primarily of production wages, facility costs and
other direct costs, selling, general and administrative expenses, depreciation
and amortization and impairment charges.

Our consolidated results of operations for the year ended December 31,
2002, include a full twelve months of results for GWNS, Cinram-POP and LNS. For
these subsidiaries, our consolidated results of operations for the year ended
December 31, 2001 include the results of GWNS from February 1, 2001, include
the results of Cinram-POP from September 1, 2001 and include the results of LNS
from September 1, 2001. Additionally, certain reclassifications have been made
to the prior years EBITDA in the Comparison of Reported Results for the Year
Ended December 31, 2002 to the year ended December 31, 2001 section below to
conform to the current years presentation.

Comparison of Reported Results for the Year Ended December 31, 2002 to the Year Ended December 31, 2001

|                                |  |              |         |              |  |   |         | 
|------------------------------- |  | ------------ | ------- | ------------ |  | - | ------- | 
|                                |  | Year Ended   |         | Year Ended  
|                                |  | December 31, |         | December 31,
|Segment Revenues (in thousands) |  | 2002         |         | 2001        
|                                |  |              |         |             
|Creative Services Group         |  | $            | 275,119 |              |  | $ | 332,921 | 
|Media Management Services Group |  |              | 104,938 |              |  |   | 104,063 | 
|Network Services Group          |  |              | 159,123 |              |  |   | 155,550 | 
|Corporate and Other             |  |              | 153     |              |  |   | 198     | 
|                                |  |              |         |              |  |   |         | 
|                                |  | $            | 539,333 |              |  | $ | 592,732 | 
|                                |  |              |         |              |  |   |         | 

|                                |  |              |          |              |  |   |          |  
|------------------------------- |  | ------------ | -------- | ------------ |  | - | -------- | -
|                                |  | Year Ended   |          | Year Ended  
|                                |  | December 31, |          | December 31,
|Segment EBITDA (in thousands)   |  | 2002         |          | 2001        
|                                |  |              |          |             
|Creative Services Group         |  | $            | 50,150   |              |  | $ | 67,052   |  
|Media Management Services Group |  |              | 30,889   |              |  |   | 31,672   |  
|Network Services Group          |  |              | 51,320   |              |  |   | 49,265   |  
|Corporate and Other             |  |              | (45,070  | )            |  |   | (42,246  | )
|                                |  |              |          |              |  |   |          |  
|                                |  | $            | 87,289   |              |  | $ | 105,743  |  
|                                |  |              |          |              |  |   |          |  
|Net loss                        |  | $            | (135,186 | )            |  | $ | (436,289 | )
|                                |  |              |          |              |  |   |          |  

Revenues decreased $53.4 million, or 9.0%, to $539.3 million for the year
ended December 31, 2002 from $592.7 million for the year ended December 31,
2001. Creative Services Group revenues decreased by $57.8 million resulting
from unfavorable comparisons to 2001, which benefited from increased television
and feature film production as a result of the threatened actors and writers
strikes. Consequently, 2002 experienced lower film production due to a soft
feature market while studios released stock-piled product. Additionally,
Creative Services Group revenues suffered as a result of challenging economic
conditions impacting film and television post production, and sluggishness in
the advertising market reducing television advertising spending. Furthermore,
Creative Services Group revenues were impacted by the consolidation of certain
facilities as we continued to streamline our operations. Media Management
Services Group revenues increased by $.9 million as a result of higher demand
for DVD mastering partially offset by lower spending from larger clients for
traditional media services. Network Services Group revenues increased by $3.6
million resulting from the full year impact of the GWNS and LNS acquisitions of
$7.4 million and an increase in our Bandwidth Management revenue of $1.2
million partially offset by a net decrease of $5.0 million due to cancellation
and timing of various contracts, large network construction and installation
projects.

Costs of services decreased $48.2 million, or 13.0%, to $322.0 million for
the year ended December 31, 2002 from $370.2 million for the year ended
December 31, 2001. The decrease is attributed to a $53.1 million decline
across all of our Groups primarily in production material, production personnel
and equipment expenses as a result of the decreased production activity noted
above, offset by $4.9 million increase resulting from full year impact of 2001
acquisitions discussed above.

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Selling, general and administrative expenses increased $3.2 million, or
2.5%, to $130.0 million for the year ended December 31, 2002 from $126.8
million for the year ended December 31, 2001. The increase is primarily
attributed to $3.9 million in severance costs and $.7 million resulting from
the full year impact of 2001 acquisitions, partially offset by lower personnel
and support costs.

As a result of the above, EBITDA, as defined, decreased $18.5 million, or
17.5%, to $87.2 million for the year ended December 31, 2002, from $105.7
million for the year ended December 31, 2001. Creative Services Group EBITDA
decreased $16.9 million partially due to the lower revenues described above
offset by lower costs, including savings from fiscal 2001 facility
consolidations and restructuring activities. Media Management Services Group
EBITDA decreased $.8 million resulting from increased spending on our Digital
Media Management initiative of $1.5 million partially offset by realization of higher
revenues. Network Services Group EBITDA increased $2.0 million due to higher
margin projects secured early in the year as well as cost savings and
streamlining initiatives partially offset by additional investments of $1.4
million in our Bandwidth Management initiative. Corporate and Other EBITDA
decreased $2.8 million primarily due to severance costs of $3.9 million, higher
professional fees including legal and marketing of $.7 million offset by
reduced costs resulting from the consolidation of our corporate activities.

Depreciation and amortization decreased $61.3 million, or 47.7%, to $67.3
million for the year ended December 31, 2002, from $128.6 million for the year
ended December 31, 2001. Approximately $39.8 million of the decrease is
attributed to the Companys adoption of SFAS No. 142 pursuant to which goodwill
and other identifiable intangible assets with indefinite lives are no longer
amortized. An additional $19.8 million of decrease is attributed to reduced
depreciation expense primarily resulting from the property and equipment
impairment charge recorded in the fourth quarter of 2001 (more fully explained
in 2001 Impairment Charge below), the sale of
certain owned facilities, and divestitures (more fully discussed in the
Divestiture in 2002 earlier). The remaining $1.7 million decrease is the
result of reduced amortization resulting from the 2001 impairment of certain
identifiable intangible assets.

Non-cash compensation expense decreased $4.3 million, or 101.1%, to
$48,000 in income for the year ended December 31, 2002, from $4.3 million in
expense reported for the year ended December 31, 2001. Results for the twelve
months ended December 31, 2002 primarily included income of $3.2 million
relating to a decline in the value of the underlying stock price used to value
employee stock appreciation rights, or SARs, and unearned stock compensation
income of $135,000, offset by compensation expense of $3.2 million relating to
the issuance of in-the-money stock options pursuant to our 2001 incentive
compensation plan. The expense recorded in the twelve months ended December 31,
2001 related primarily to the increase in value of the underlying stock price
used to value employee SARs of $2.5 million and issuance of in-the-money
stock options as discussed above of $1.6 million.

Impairment of goodwill, intangible and long-lived assets decreased $224.2
million, or 72.8%, to $83.7 million for the year ended
December 31, 2002, from $307.9 million for the year ended
December 31, 2001. Results for
the twelve months ended December 31, 2002 include a charge of $83.7 million
during the fourth quarter of fiscal 2002, resulting from the annual impairment
test of goodwill in accordance with SFAS No. 142. We recorded a $56.8 million
impairment charge in our Entertainment Television reporting unit and a $26.9
million impairment charge in our Commercial Television reporting unit, both
part of our Creative Services Group. During the year ended December 31, 2001,
we recorded $307.9 million in impairment charges relating to long-lived assets,
goodwill and intangibles, which are more fully explained in 2001 Impairment
Charge below.

Restructuring and other charges decreased $6.0 million to $.4
million in income for the year ended December 31, 2002. During the year ended
December 31, 2001 we recorded a restructuring charge of
$5.6 million intended to improve operating efficiencies and
effectiveness. Income
in fiscal year 2002 represents a revision of estimates for certain restructuring
reserves recorded in fiscal year 2001.

Interest expense increased $1.7 million, or 2.7%, to $64.8 million for the
year ended December 31, 2002, from $63.1 million for the year ended December
31, 2001. The increase is primarily attributed to additional interest on our
interest rate swaps, and increased borrowings under the Liberty Subordinated
Credit Agreement offset by a decrease in interest on our Senior Credit
Facility. Interest expense for fiscal year 2002 included $21.3 million of
non-cash expense related to payments under the Liberty Subordinated Credit
Agreement, $18.5 million related to interest under our Senior Credit Facility,
$16.2 million related to interest rate swaps (of which $6.5 million is
non-cash), $5.4 million of amortization of debt discount and debt issuance
cost, and $3.7 million of interest related to capital leases, notes, and
mortgages, partially offset by $.3 million of interest income.

Other income and
expense increased $25.4 million, or 231.8%, to $14.5 million in
income for the year ended December 31, 2002, from $10.9 million in expense for
the year ended December 31, 2001. Other income for the year ended December 31,
2002 primarily includes $8.3 million related to the increase in the market
value of certain freestanding interest rate swap instruments, $4.1 million
related to the termination of certain interest rate swaps, $1.8 million from a

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gain on sale of certain real estate and a $1.6 million gain on the sale of
Triumph, offset by $2.3 million related to the payment of an arbitration award
more fully discussed in the Arbitration Settlement below. In contrast, the
year ended 2001 primarily included $9.9 million loss from the sale of domestic
real estate property and $3.8 million as a result of a decrease in the market
value of the freestanding interest rate swap agreements.

As a result of the above, the loss before income taxes and change in
accounting principle decreased $311.2 million to $113.5 million for the year
ended December 31, 2002 from $424.7 million for the year ended December 31,
2001.

The provision for income taxes decreased $10.2 million, or 87.9%, to $1.4
million for the year ended December 31, 2002, from $11.6 million for the year
ended December 31, 2001. The decrease is primarily due to a valuation allowance
recorded on deferred tax assets during the year ended December 31, 2001. Our
fiscal year 2002 effective income tax rate was approximately 1.1 % compared to
2.7% for 2001.

Effective January 1, 2002, we adopted SFAS No. 142 and, in accordance with
its provisions, we recorded a transitional impairment charge of goodwill of
$20.2 million during the first quarter of fiscal 2002. This charge has been
reflected as a cumulative effect of a change in accounting principle.

As a result, our net loss decreased $301.1 million to $135.2 million for
the year ended December 31, 2002 from $436.3 million for the year ended
December 31, 2001.

Comparison of Reported Results for the Combined Year Ended December 31, 2001 to
Reported Results for the Combined Year Ended December 31, 2000.

For the purpose of the table and discussion below, our operating results
for the seven months ended December 31, 2000 have been combined with the
operating results of Todd-AO for the five months ended May 31, 2000 (the
combined year ended December 31, 2000), The operating results are not
comparable between the annual periods as the five months ended May 31, 2000 do
not include the effects of purchase accounting adjustments related to the Todd
Merger, and the subsequent period representing the seven months ended
December 31, 2000 does include the effects of the purchase accounting adjustments
related to the Todd Merger.

|                                |  |              |          |              |  |              |         |              |  |      |         |   |  |   |        |  
|------------------------------- |  | ------------ | -------- | ------------ |  | ------------ | ------- | ------------ |  | ---- | ------- | - |  | - | ------ | -
|                                |  | Ascent Media |          | Todd-AO     
|                                |  |              |          |             
|                                |  |              |          |              |  | Combined     |         | Seven        |  | Five
|                                |  | Year Ended   |          | Year Ended   |  | Months Ended |         | Months Ended
|                                |  | December 31, |          | December 31, |  | December 31, |         | May 31,     
|Segment Revenues (in thousands) |  | 2001         |          | 2000         |  | 2000         |         | 2000        
|                                |  |              |          |              |  |              |         |             
|Creative Services Group         |  | $            | 332,921  |              |  | $            | 220,971 |              |  | $    | 177,808 |   |  | $ | 43,163 |  
|Media Management Services Group |  |              | 104,063  |              |  |              | 56,756  |              |  |      | 46,676  |   |  |   | 10,080 |  
|Network Services Group          |  |              | 155,550  |              |  |              | 28,615  |              |  |      | 28,615  |   |  |   |       |  
|Corporate and Other             |  |              | 198      |              |  |              |        |              |  |      |        |   |  |   |       |  
|                                |  |              |          |              |  |              |         |              |  |      |         |   |  |   |        |  
|                                |  | $            | 592,732  |              |  | $            | 306,342 |              |  | $    | 253,099 |   |  | $ | 53,243 |  
|                                |  |              |          |              |  |              |         |              |  |      |         |   |  |   |        |  
|                                |  |              |          |              |  |              |         |              |  |      |         |   |  |   |        |  
|                                |  | Ascent Media |          | Todd-AO     
|                                |  |              |          |             
|                                |  |              |          |              |  | Combined     |         | Seven        |  | Five
|                                |  | Year Ended   |          | Year Ended   |  | Months Ended |         | Months Ended
|                                |  | December 31, |          | December 31, |  | December 31, |         | May 31,     
|Segment EBITDA (in thousands)   |  | 2001         |          | 2000         |  | 2000         |         | 2000        
|                                |  |              |          |              |  |              |         |             
|Creative Services Group         |  | $            | 64,369   |              |  | $            | 43,627  |              |  | $    | 38,178  |   |  | $ | 5,449  |  
|Media Management Services Group |  |              | 30,967   |              |  |              | 15,775  |              |  |      | 13,704  |   |  |   | 2,071  |  
|Network Services Group          |  |              | 48,969   |              |  |              | 3,194   |              |  |      | 3,194   |   |  |   |       |  
|Corporate and Other             |  |              | (38,562  | )            |  |              | (20,314 | )            |  |      | (20,314 | ) |  |   |       |  
|                                |  |              |          |              |  |              |         |              |  |      |         |   |  |   |        |  
|                                |  | $            | 105,743  |              |  | $            | 42,282  |              |  | $    | 34,762  |   |  | $ | 7,520  |  
|                                |  |              |          |              |  |              |         |              |  |      |         |   |  |   |        |  
|Net loss                        |  | $            | (436,289 | )            |  | $            | (11,468 | )            |  | $    | (9,793  | ) |  | $ | (1,675 | )
|                                |  |              |          |              |  |              |         |              |  |      |         |   |  |   |        |  

Revenues increased $286.4 million, or 93.5%, to $592.7 million for the
year ended December 31, 2001 from $306.3 million for the combined year ended
December 31, 2000. The contribution of 4MC combined with the

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acquisitions of LNS, GWNS, Cinram-POP, Visiontext, VSC, Soundelux, Triumph and
Soho contributed $290.6 million, or 101.5%, of the overall revenue increase
among all of our segments. The overall increase was partially offset by a
decrease in revenues for the Creative Services Group as a result of the impact
of a recessionary market environment and a reduction in television advertising
spending.

Costs of services increased $172.0 million, or 86.8%, to $370.2 million
for the year ended December 31, 2001 from $198.2 million for the combined year
ended December 31, 2000. The contribution of 4MC combined with the acquisitions
of LNS, GWNS, Cinram-POP, Visiontext, VSC, Soundelux, Triumph and Soho
contributed $171.5 million, or 99.7%, of the overall increase.

Selling, general and administrative expenses increased $60.3 million, or
90.7%, to $126.8 million for the year ended December 31, 2001 from $66.5
million for the combined year ended December 31, 2000. The contribution of 4MC
combined with the acquisitions of LNS, GWNS, Cinram-POP, Visiontext, VSC,
Soundelux, Triumph and Soho contributed $42.9 million, or 71.1%, of the overall
increase. The remainder of the increase was primarily due to corporate
centralization activities and increases in professional and legal fees.

As a result of the above, EBITDA, as defined, increased $63.4 million, or
149.9%, to $105.7 million for the year ended December 31,2001, from $42.3
million for the combined year ended December 31, 2000.

Depreciation and amortization increased $70.1 million, or 119.8%, to
$128.6 million for the year ended December 31, 2001, from $58.5 million for the
combined year ended December 31, 2000. The increase was primarily due to the
equipment, goodwill and other intangibles acquired with respect to the
acquisitions previously mentioned and new capital additions incurred during the
year ended December 31, 2001.

Non-cash compensation expense was $4.3 million for the year ended December
31, 2001, as compared to $29.6 million in income reported for the combined year
ended December 31, 2000, an increase of $33.9 million. The income recorded
during the combined year ended December 31, 2000 was related to a decline in
value of the underlying financial instruments used to value employee stock
appreciation rights or SARs. The expense in the year ended December 31, 2001
related primarily to the increase in value of the underlying financial
instruments used to value employee SARs in addition to the issuance of in the
money stock options pursuant to our 2001 incentive compensation plan.

Interest expense increased $42.3 million, or 203.4%, to $63.1 million for
the year ended December 31, 2001, from $20.8 million for the combined year
ended December 31, 2000. The increase is attributable to additional borrowings
under the Senior Credit Agreement, the Liberty Subordinated Credit Agreement
and other borrowings incurred primarily related to the funding of acquisitions.
Interest expense for fiscal year 2001 included non-cash expense related to
payments under the Liberty Subordinated Credit Agreement totaling $17.9
million, $6.2 million related to interest rate swaps, and $4.1 million of
amortization of debt discount and debt issuance cost. Interest expense for the
combined year ended December 31, 2000 included $254,000 of non-cash expense
related to payments under the Liberty Subordinated Credit Agreement.

Included in operating expenses for the year ended December 31, 2001 is
$307.9 million in impairment charges relating to long-lived assets, goodwill
and intangibles, which is more fully explained in the 2001 Impairment Charge
section below.

Additionally, during the fourth quarter of fiscal 2001 we completed
certain restructuring activities intended to improve operating efficiencies and
effectiveness to strengthen our competitive position in the marketplace through
cost and expense reductions. In connection with this initiative, we recorded a
pre-tax restructuring charge of $5.6 million. This charge includes payments
$5.2 million related to lease charges due to planned facility closures and
$425,000 for employee severance payments.

Other expense increased $10.8 million to $11.0 million for the year ended
December 31, 2001 from $198,000 for the combined year ended December 31, 2000.
The increase was primarily due to losses on the disposal of assets totaling
$9.9 million and charges related to the decline in market value of certain
freestanding interest rate swap instruments totaling $2.1 million. These
expenses were partially offset by other income.

As a result of the above, the loss before income taxes and change in
accounting principle increased $416.5 million to $424.7 million for the year
ended December 31, 2001 from $8.2 million for the combined year ended December
31, 2000.

The provision for income taxes increased $8.4 million, or 262.5%, to $11.6
million for the year ended December 31,

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2001, from $3.2 million for the combined year ended December 31, 2000. The
increase is due to valuation allowances recorded on deferred tax assets during
the year ended December 31, 2001. Our fiscal year 2001 effective income tax
rate was approximately 2.7% primarily due to disallowed deductions for goodwill
of $204.0 million and valuation allowances of $246.0 million.

As a result, our net loss increased $424.8 million to $436.3 million for
the year ended December 31, 2001 from $11.5 million for the combined year ended
December 31, 2000.

Comparison of Pro Forma Results (unaudited) for the Year Ended December 31,
2001 to the Pro Forma Results for the Year Ended December 31, 2000 (unaudited).

As a result of the significance and timing of the contribution of 4MC and
the acquisitions of LNS, GWNS, Cinram-POP, Visiontext, VSC, Soundelux, Triumph
and Soho in 2001 and 2000, certain information for the years ending December
31, 2001 and 2000 is being presented on a pro forma basis. Our management
believes that these pro forma revenue and EBITDA results provide additional
information useful in analyzing the underlying business results. However, pro
forma operating results should be considered in addition to, and not as a
substitute for, actual results of operations. The following unaudited pro forma
financial information is presented as if each acquisition was consummated on
January 1, 2000.

|                                |  |              |         |              |  |   |         | 
|------------------------------- |  | ------------ | ------- | ------------ |  | - | ------- | 
|                                |  | Year Ended   |         | Year Ended  
|                                |  | December 31, |         | December 31,
|Segment Revenues (in thousands) |  | 2001         |         | 2000        
|                                |  |              |         |             
|Creative Services Group         |  | $            | 332,921 |              |  | $ | 367,847 | 
|Media Management Services Group |  |              | 105,204 |              |  |   | 99,530  | 
|Network Services Group          |  |              | 169,180 |              |  |   | 173,488 | 
|Corporate and Other             |  |              | 198     |              |  |   |        | 
|                                |  |              |         |              |  |   |         | 
|                                |  | $            | 607,503 |              |  | $ | 640,865 | 
|                                |  |              |         |              |  |   |         | 

|                                |  |              |          |              |  |   |         |  
|------------------------------- |  | ------------ | -------- | ------------ |  | - | ------- | -
|                                |  | Year Ended   |          | Year Ended  
|                                |  | December 31, |          | December 31,
|Segment EBITDA (in thousands)   |  | 2001         |          | 2000        
|                                |  |              |          |             
|Creative Services Group         |  | $            | 64,369   |              |  | $ | 74,552  |  
|Media Management Services Group |  |              | 31,313   |              |  |   | 26,126  |  
|Network Services Group          |  |              | 52,367   |              |  |   | 41,939  |  
|Corporate and Other             |  |              | (38,562  | )            |  |   | (26,166 | )
|                                |  |              |          |              |  |   |         |  
|                                |  | $            | 109,487  |              |  | $ | 116,451 |  
|                                |  |              |          |              |  |   |         |  
|Net loss                        |  | $            | (439,351 | )            |  | $ | (45,266 | )
|                                |  |              |          |              |  |   |         |  

Pro forma revenues decreased by $33.4 million, or 5.2%, to $607.5 million
for the year ended December 31, 2001 from $640.9 million for the year ended
December 31, 2000. This decrease was primarily due to a $34.9 million decrease
in Creative Services Group revenue as a result of reduced television
advertising spending. Additionally, the Network Services Group experienced a
$4.3 million, or 2.5%, decrease in revenue attributed to the timing of certain
large projects. These decreases were partially offset by an increase of $5.7
million, or 5.7%, in Media Management Services Group revenue resulting from the
expansion of business.

Pro forma EBITDA decreased by $7.0 million, or 6.0%, to $109.5 million for
the year ended December 31, 2001 from $116.5 million for the year ended
December 31, 2000. This decrease was primarily the result of a $10.2 million
decrease in the Creative Services Groups EBITDA due to the revenue shortfall
as described above offset by cost savings. Such reductions were partially
offset by a $5.2 million, or 19.9% increase in Media Management Services Group
EBITDA and a $10.4 million, or 24.9%, increase in Network Services Group
EBITDA, both as a result of significant reductions in their cost structures
resulting from integration and reorganization activities. Additionally, EBITDA
decreased by $6.6 million due to additional costs associated with our new
Interactive Media business initiative and by $5.8 million due to increases in
other expenses, primarily associated with corporate centralization activities
and increased professional and legal fees. This combined increase in costs of
$12.4 million, as presented above, is reflected in Corporate and Other.

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Pro forma net loss increased $394.1 million to $439.4 million for the year
ended December 31, 2001, from $45.3 million for the combined year ended
December 31, 2000. The increase in net loss was primarily driven by the
impairment charge described below and higher depreciation and amortization,
interest, non-cash compensation and other expenses.

Arbitration Settlement

During the year ended December 31, 2002, the previously reported
arbitration proceeding arising from (i) the termination of Paul Dujardins
employment with us, and (ii) the disposition of 440,981 shares of our Class A
common stock (the Hold-Back Shares) owned by Mr. Dujardin and held by us
concluded. Pursuant to an arbitrators decision, we were ordered to pay $3.4
million plus interest at 9% from August 29, 2001 to July 25, 2002, the date we
paid the award, for a total amount of $3.7 million (Arbitration Award). In
determining the award, the arbitrator concluded that at August 29, 2001, the
value of the Hold-Back Shares was $3.4 million, or $7.67 per share. In
accordance with generally accepted accounting principles, we were deemed to
have paid $3.20 per share for the Hold-Back Shares with the difference of $4.47
per share, or $2.3 million, recorded to other expense. The Hold-Back Shares
were originally issued to Mr. Dujardin in partial consideration for the
Companys acquisition of Triumph on July 25, 2000.

2001 Impairment Charge

During fiscal year 2001, challenging economic conditions impacted overall
business trends. In particular, both the entertainment and technology sectors
suffered a substantial decline in economic activity. These challenges were
further exacerbated by the events of September 11, 2001, resulting in a
continued negative economic impact. These factors contributed largely to our
inability to meet our 2001 financial and operating objectives and have resulted
in reduced expectations and opportunities for the near term.

Accordingly, we evaluated the recoverability of our goodwill, intangible
assets and long-lived assets carrying values pursuant to Accounting Principles
Board (APB) No. 17, Intangible Assets, and SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
This involved writing-down goodwill, intangibles and certain long-lived assets
to their fair value, which was based upon both fair market comparables and by
discounting the future cash flows of these assets through their remaining
useful lives. As these definite-lived intangible assets and long-lived assets
will remain in service, the remaining net book value of the assets will be
depreciated over their remaining estimated useful lives.

Therefore, during the quarter ended December 31, 2001, we recorded asset
impairment charges totaling $286.9 million. These charges primarily represent a
write-off of goodwill, intangible assets and long-lived assets of our existing
feature film and entertainment television sound services, and certain assets
associated with the development of our fiber optic transport and IP hosting
transport services. Part of our original valuation of these assets was affected
by our expectation that the development and delivery of interactive television
and other interactive services, including the rollout of a broadband
infrastructure, would have materialized sooner and therefore would have
provided more immediate growth opportunities.

Additionally, during the fourth quarter of 2001 we completed certain
integration and consolidation activities intended to improve operating
efficiencies and effectiveness and to strengthen our competitive position in
the marketplace through cost and expense reductions. In connection with these
initiatives, we recorded a charge of $21.0 million for impairment of certain
equipment and other fixed assets.

Liquidity and Capital Resources

Overview

We continue to monitor the credit markets and other sources of capital in
case we are unable to generate sufficient cash flow from operations to service
our indebtedness or to make capital expenditures and other discretionary
investments. If we are required to raise capital in the future, there can be no
assurance that we will be able do so on favorable terms. If we are unable to
generate sufficient cash flow from operations in the future to service our debt
and working capital needs, we may be required to reduce capital expenditures,
sell assets or refinance all or a portion of our existing debt or obtain
additional financing. Our ability to make scheduled principal debt payments, to
pay interest or to refinance our indebtedness depends on our future financial
position and results of operations, which, to a certain extent, are subject to
general conditions in or affecting our industry and our customers and to
general economic, political, financial, competitive, legislative and regulatory
factors beyond our control.

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We expect to fund our capital expenditure requirements with cash flows
from operating activities and, to the extent permitted by the Senior Credit
Agreement, proceeds derived from leasing transactions and sales of
non-strategic assets. To the extent that such cash flows, leasing transactions
and proceeds may be insufficient (after servicing our existing indebtedness and
funding our working capital requirements) to provide adequate funds for planned
capital expenditures, we are exploring alternatives to funding capital
expenditures consistent with the restrictions contained in the Senior Credit
Agreement, such as loans and equity investments. Although we monitor the
credit markets and other sources of capital, there can be no assurance that we
will be able to secure funds for capital expenditures or that, if such funds
are available, such funds will be available on favorable terms. If we cannot
obtain additional funds for our capital expenditures, and the cash flows,
leasing transactions and proceeds described above are insufficient (after
servicing our existing indebtedness and funding our working capital
requirements) to provide adequate funds for planned capital expenditures, we
may be required to reduce our planned capital expenditures. Any such reduction
in capital expenditures may have a negative effect on our business.

Cash Flows

Cash flows provided by operations for the year ended December 31, 2002
were $42.6 million, as compared to $73.6 million for the year ended December
31, 2001. The decrease in net cash flows provided from operations is
primarily attributable to lower revenues and EBITDA and changes in working capital. Cash and cash
equivalents were $12.0 million at December 31, 2002, a decrease of $11.4
million from December 31, 2001. This decrease relates primarily to cash used
for capital expenditures and payments on long-term debt and capital lease
obligations offset by cash provided by operating activities.

Net cash flows used in investing activities was $50.6 million for the year
ended December 31, 2002 compared to net cash flows provided by financing
activities of $191.7 million for the year ended December 31, 2001. The decrease
is primarily attributed to the 2001 acquisitions of GWNS for $108.2 million,
LNS for $31.3 million, and Cinram-POP for $0.5 million. Additionally, we
invested $55.4 million in property, plant and equipment during the year ended
December 31, 2002 compared to $73.7 million for the year ended December 31,
2001. These expenditures reflected continued investments in the Creative, Media
and Network Services Groups as well as our shared corporate infrastructure. The
decrease from the year ended December 31, 2001 was primarily due to lower
spending throughout all Groups. During the year ended December 31, 2002, we
sold certain domestic real estate properties that generated net proceeds of
$4.8 million.

During the year ended December 31, 2002, net cash flows used in financing
activities was $7.0 million compared to $119.9 million for the year ended
December 31, 2001. Net cash flows provided by financing activities for the
year ended December 31, 2001 was primarily borrowings under our Liberty
Subordinated Agreement and were used for acquisitions. For descriptions and
details of financing activities during fiscal year 2002 see discussion below
and at Note 8 in the Notes to Consolidated Financial Statements.

Senior Credit Agreement

At December 31, 2002, we had borrowed $363.9 million under the Senior
Credit Agreement (including Letters of Credit of $.6 million) and $3.7 million
was available for future borrowings, subject to the terms of the Senior Credit
Agreement. During the year ended December 31, 2002, we borrowed $5.0 million
under the Senior Credit Agreement which was primarily used to fund capital
expenditures and working capital. During the year ended December 31, 2002, we
repaid $33.4 million under our Senior Credit Agreement.

During the year ended December 31, 2002, we had two additional amendments
to the Senior Credit Agreement; one amendment, dated March 26, 2002 (the March
26, 2002 Amendment), and another amendment, dated November 13, 2002 (the
November 13, 2002 Amendment).

The March 26,
2002 Amendment and the November 13, 2002 Amendment each amended
the Senior Credit Agreement to
provide greater financial flexibility to us by allowing for more favorable
leverage ratio tests and a more favorable fixed charge coverage ratio
test. Each also removes some restrictions on transactions we may enter into. In
consideration for the above changes, we agreed to (1) higher interest rates on
the loans until our leverage ratio is reduced below 4.00 to 1.00, (2) new
restrictions on the use of the proceeds from the sale of assets and (3) a
permanent reduction of $40.0 million in the

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amount available for the future borrowings under the Senior Credit
Agreement. After giving effect to this amendment, $3.7 million is available
for future borrowings under the Senior Credit Agreement as of December 31,
2002.

Under the Senior
Credit Agreement, the Companys Total Leverage Ratio may not
exceed 4.55 to 1.00 for any measurement period from December 31,
2002 to June 30, 2003. Thereafter, the Total Leverage Ratio is
reduced over subsequent measurement periods until it reaches a Total
Leverage Ratio of 3.50 to 1.00 for any measurement period after
January 1, 2005. At December 31, 2002, the Companys Total Leverage Ratio was 4.12
to 1.00. The Company was not subject to a Fixed Charge Coverage Ratio
covenant at or prior to December 31, 2002. For any measurement period
beginning January 1, 2003, the Companys Fixed Charge
Coverage Ratio may not be less than 0.85 to 1.00, which increases
over the succeeding two quarters until October 1, 2003, when the
Companys Fixed Charge Coverage Ratio may not be less than 1.00 to
1.00 for the remainder of the term of the Senior Credit Agreement.
At December 31, 2002, the Company's Fixed Charge Coverage Ratio was
1.07 to 1.00. The Companys failure to generate anticipated levels of revenue
or its failure to procure capital equipment necessary to generate
such revenues could result in its failure to satisfy the financial
covenants described above.

Liberty Subordinated Credit Agreement

At December 31, 2002, we had borrowed $224.3 million under the Liberty
Subordinated Credit Agreement and $81.9 million was available for future
borrowings under the terms of the Liberty Subordinated Credit Agreement with
the consent of, and on terms determined by, Liberty Media. During the year
ended December 31, 2002, we borrowed $18.1 million under the Liberty
Subordinated Credit Agreement which was used for working capital, to fund the
Arbitration Award, capital expenditures and repayment of principal under the
Senior Credit Agreement. Such amounts were borrowed pursuant to Supplements
No. 1, 2 and 3 to the Liberty Subordinated Credit Agreement discussed below.
The remaining $206.2 million, borrowed as of December 31, 2001, was used to
fund several acquisitions (Acquisitions Funds) and was represented by
convertible notes in the amount borrowed, which are convertible into our Class
B common stock at $10.00 per share. The effective annual interest rate for
2002 on the Liberty Subordinated Credit Agreement is 10.0%.

Supplement No.1 and Supplement No.2

The Liberty Subordinated Credit Agreement allows us to borrow the
Acquisition Funds and up to an additional $100.0 million from Liberty Media
with the consent of, and on terms determined by, Liberty Media (the Additional
Available Funds). The parties to the Senior Credit Agreement agreed in a
letter dated June 28, 2002 (the Senior Credit Agreement Consent Letter) and
the parties to an agreement between us and Heller Financial Leasing, Inc. (the
Heller Credit Agreement), agreed in a separate letter dated June 28, 2002 (the
Heller Consent Letter and, together with the Senior Credit Agreement Consent
Letter, the June 2002 Consent Letters), that, with respect to $25.0 million
of the Additional Available Funds, (1) convertible notes could be issued that
could be convertible into our Class B common stock at a price per share
determined by us, rather than at $10.00 per share as permitted under the Senior
Credit Agreement, and (2) to the extent these funds were borrowed to purchase
capital assets and to fund the Arbitration Award, such borrowed funds could be
repaid to Liberty Media before we pay amounts owed under the Senior Credit
Agreement, provided that, among other conditions, such repayment is funded
solely with proceeds of additional equity contributions from Liberty Media or
any of its affiliates other than ourselves or any of our subsidiaries. Our
ability to determine the conversion rights under the Liberty Subordinated
Credit Agreement with respect to Additional Available Funds does not affect the
conversion rights for amounts previously borrowed under the Liberty
Subordinated Credit Agreement and may be determined on a case by case basis
only on amounts borrowed with respect to the $25.0 million of Additional
Available Funds to which the June 2002 Consent Letters apply.

On June 28, 2002, we entered into Supplement No. 1 to the Liberty
Subordinated Credit Agreement with Liberty Media, under which we borrowed $6.5
million for the purchase of capital assets, and issued a promissory note, that
is convertible into our Class B common stock at $3.50 per share.

On July 24, 2002, we entered into Supplement No. 2 to the Liberty
Subordinated Credit Agreement with Liberty Media, under which we borrowed an
additional $2.3 million to fund part of the Arbitration Award, and issued a
promissory note in the same amount that is convertible into our Class B common
stock at $3.50 per share.

Supplement No.3

On August 13, 2002, we entered into Supplement No. 3 to the Liberty
Subordinated Credit Agreement with Liberty Media under which we may draw $25.0
million of Additional Available Funds, as needed, at Liberty Medias option:
(a) through loans under the Liberty Subordinated Credit Agreement of
subordinated convertible loans with a conversion price per share equal to 115%
of the average market price of our Class A common stock for the five most
recent trading days ending on and including the date which is two business days
prior to the date of the borrowing, (b) through sales of our Class B common
stock to Liberty Media at a purchase price per share equal to the average
market price of our Class A common stock for the five most recent trading days
ending on and including the date which is two business days prior to the date
of the stock sale, or (c) through any combination of (a) or (b) (Supplement
No. 3). Any draws under Supplement No. 3 are subject to us obtaining any
necessary consents and approvals and issuing any required notices, including,
to the extent applicable, stockholder approval of the issuance of shares of
Class B common stock to Liberty Media, whether as a sale of stock or upon
conversion of a loan (Stockholder Consent). Liberty Media, which then held
over 87% of the outstanding common stock and over 99% of the voting power of
the

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outstanding common stock and now holds over 91% of the outstanding common
stock and over 99% of the voting power of the outstanding common stock, agreed
in Supplement No. 3 to vote in favor of any Stockholder Consent. As a result,
at a meeting of our stockholders on January 23, 2003, our stockholders
(including Liberty Media) approved (1) the potential issuance of shares of our
Class B common stock upon conversion of convertible notes convertible into
shares of our Class B common stock pursuant to Supplement No. 3 and outstanding
on January 23, 2003, (2) the issuance of our Class B common stock and
convertible notes convertible into shares of our Class B common stock after
January 23, 2003, pursuant to Supplement No. 3 and (3) the potential issuance
of shares of our Class B common stock upon conversion of convertible notes
convertible into shares of our Class B common stock issued pursuant to future
supplements to the Liberty Subordinated Credit Agreement for a purchase price
per share or with an initial conversion price per share, as applicable,
determined in a manner no less favorable to us than as provided in Supplement
No. 3. Proceeds of the loans or stock sales under Supplement No. 3 must be used
for capital expenditures, payment of the principal amount of loans made under
the Senior Credit Agreement or working capital.

On September 26, 2002, the parties to the Senior Credit Agreement and the
parties to the Heller Credit Agreement agreed in separate letters,
(collectively, the September 2002 Consent Letters), with respect to an
additional $25.0 million of the Additional Available Funds (over and above the
$25.0 million contemplated in the June 2002 Consent Letters), convertible notes
could be issued that could be convertible into our Class B common stock at a
price per share determined by us that was no less than 115% of the average
daily market price of our Class A common stock for the five most recent trading
days ending on and including the date which is two business days prior to the
date of the borrowing.

On September 30, 2002, we received $17.2 million under Supplement No. 3 in
consideration for our issuance of a convertible note in the amount of $5.3
million that is convertible into our Class B common stock at $1.94 per share
and sale of 7,070,000 unregistered shares of our Class B common stock at a
price of $1.69 per share for total proceeds of $11.9 million. The conversion
price of the convertible note and purchase price of the shares sold were
calculated in accordance with Supplement No. 3. The proceeds were used to
repay borrowings under the Senior Credit Agreement, for capital expenditures
and for working capital.

On October 17, 2002, we borrowed an additional $4.0 million under
Supplement No. 3 and issued a convertible note in the same amount that is
convertible into our Class B common stock at $1.56 per share. The conversion
price was calculated in accordance with Supplement No. 3. The proceeds were
used for purchase of capital assets.

Mortgage Debt,
Capital Leases and Other Borrowings

During the year ended December 31, 2002, we borrowed $4.0 million under
certain property mortgages and repaid $12.5 million of debt related to capital
leases, mortgage notes and other borrowings.

Stock Sales to Liberty Media

In addition to the sale of 7,070,000 unregistered shares
of our Class B common stock to Liberty Media discussed above, on July 24, 2002,
under Supplement No. 2, we sold 440,981 unregistered shares of
our Class B common stock to Liberty Media for $3.05 per share for proceeds of
approximately $1.4 million. The closing price of our Class A common stock on
July 24, 2002 was $1.95 per share. The proceeds of the stock sale were used to
fund part of the Arbitration Award.

Other Stock Issuances to Liberty
Media

During the year ended December 31, 2002, we issued 10,436,853 shares of
our Class B common stock to Liberty Media and its affiliates in payment of
$21.3 million in interest under the Liberty Subordinated Credit Agreement.
Shares of our Class B common stock are convertible into shares of our Class A
common stock, on a one-for-one basis, at any time at the option of the holder.

Other

On July 1, 2002, we terminated our $165.0 million notional interest rate
swap for $1.4 million in cash proceeds. Additionally, we terminated a $200.0
million notional interest rate swap for cash proceeds of $1.4 million on
September 20, 2002 and $1.3 million on September 30, 2002.

Contractual Obligations

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

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|                        |                               |        |                        |           |  |           |        |               |  |       |         |         |  |   |         |         |  |   |         |         | 
|----------------------- | ----------------------------- | ------ | ---------------------- | --------- |  | --------- | ------ | ------------- |  | ----- | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                        |                               |        | Payments Due By Period |           |  |           |       
|                        |                               |        |                        |           |  |           |       
|                        |                               |        | Less than              |           |  |           |        |               |  |       |         |         |  |   |         |         |  |   |        
|Contractual Obligations |                               | 1 year |                        | 1-3 years |  | 4-5 years |        | After 5 years |  | Total
|                        |                               |        |                        |           |  |           |        |               |  |      
|(In thousands)          |                               |        |                        |           |  |           |        |               |  |       |         |         |  |   |         |         |  |   |         |        
|Long term debt          |                               | $      | 13,945                 |           |  | $         | 64,277 |               |  | $     | 297,222 |         |  | $ | 217,440 |         |  | $ | 592,884 |        
|Capital leases          |                               |        | 4,984                  |           |  |           | 7,490  |               |  |       | 1,925   |         |  |   |        |         |  |   | 14,399  |        
|Operating leases        |                               |        | 25,003                 |           |  |           | 45,893 |               |  |       | 42,390  |         |  |   | 79,691  |         |  |   | 192,977 |        
|                        |                               |        |                        |           |  |           |        |               |  |       |         |         |  |   |         |         |  |   |         |        
|                        | Total contractual
obligations |        | $                      | 43,932    |  |           | $      | 117,660       |  |       | $       | 341,537 |  |   | $       | 297,131 |  |   | $       | 800,260 | 
|                        |                               |        |                        |           |  |           |        |               |  |       |         |         |  |   |         |         |  |   |         |        

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

New Accounting Pronouncements

The Financial Accounting Standards Board, or FASB, issued SFAS No. 145,
Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement
No. 13, and Technical Corrections, in April 2002; SFAS No. 146, Accounting for
Costs Associated with Exit and Disposal Activities,in June 2002; and SFAS No.
148, Accounting for Stock-Based Compensation  Transition and Disclosure, in
December 2002. In November 2002, the FASB issued Interpretation No. 45,
Guarantors Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others(FIN 45) and in February 2003,
the FASB issued Interpretation No. 46, Consolidation of Variable Interest
Entities(FIN 46). In November 2002, the FASBs Emerging Issues Task Force
issued EITF 00-21, Revenue Arrangements with Multiple Deliverables.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections. SFAS 145 rescinds SFAS 4, which required all gains and losses
from extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effect. Upon adoption of SFAS
145, we will be required to apply the criteria in APB Opinion No. 30, Reporting
the Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions(Opinion No. 30), in determining the classification of gains and
losses resulting from the extinguishment of debt. Additionally, SFAS 145
amends SFAS 13 to require that certain lease modifications that have economic
effects similar to sale-leaseback transactions be accounted for in the same
manner as sale-leaseback transactions. SFAS 145 will be effective for fiscal
years beginning after May 15, 2002 with early adoption of the provisions
related to the rescission of SFAS 4 encouraged. Upon adoption, companies must
reclassify prior period items that do not meet the extraordinary item
classification criteria in Opinion No. 30. We believe the adoption of SFAS 145
will not have a material impact on our financial statements.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit and Disposal Activities.SFAS 146 nullifies EITF 94-3,
Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring).
Under EITF 94-3, a liability for an exit cost is recognized at the date of an
entitys commitment to an exit plan. Under SFAS 146, the liabilities associated
with an exit or disposal activity will be measured at fair value and recognized
when the liability is incurred and meets the definition of a liability in the
FASBs conceptual framework. This statement is effective for exit or disposal
activities initiated after December 31, 2002. We believe the adoption of SFAS
146 will not have a material impact on our financial statements.

On December 31, 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure, which amends SFAS No.
123, Accounting for Stock-Based Compensation. SFAS 148 amends the disclosure
requirements in SFAS 123 for stock-based compensation for annual periods ending
after December 15, 2002 and for interim periods beginning after December 15,
2002. The disclosure requirements apply to all companies, including those that
continue to recognize stock-based compensation under APB Opinion No. 25,
Accounting for Stock Issued to Employees. Effective for financial statements
for fiscal years ending after December 15, 2002, SFAS 148 also provides three
alternative transition methods for companies that choose to adopt the fair
value measurement provisions of SFAS 123. We do not choose to adopt the fair
value measurement provisions of SFAS 123.

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In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others,which addresses the disclosure to be made
by a guarantor in its interim and annual financial statements about its
obligations under guarantees. The disclosure requirements are effective for
interim and annual financial statements ending after December 15, 2002. We do
not have any guarantees that require disclosure under FIN 45.

FIN 45 also requires the recognition of a liability by a guarantor at the
inception of certain guarantees. FIN 45 requires the guarantor to recognize a
liability for the non-contingent component of a guarantee, which is the
obligation to stand ready to perform in the event that specified triggering
events or conditions occur. The initial measurement of this liability is the
fair value of the guarantee at inception. The recognition of the liability is
required even if it is not probable that payments will be required under the
guarantee or if the guarantee was issued with a premium payment or as part of a
transaction with multiple elements. The initial recognition and measurement
provisions are effective for all guarantees within the scope of FIN 45 issued
or modified after December 31, 2002.

As noted above we have adopted the disclosure requirements of FIN 45 and
will apply the recognition and measurement provisions for all guarantees
entered into or modified after December 31, 2002. To date we have not entered
into any guarantees within the purview of FIN 45.

In February 2003, the FASB issued Interpretation No. 46, Consolidation of
Variable Interest Entities, which addresses the consolidation by business
enterprises of variable interest entities, which have one or both of the
following characteristics: (1) the equity investment at risk is not sufficient
to permit the entity to finance its activities without additional financial
support from other parties, or (2) the equity investors lack one or more of the
following essential characteristics of a controlling financial interest: (a)
the direct or indirect ability to make decisions about the entitys activities
through voting or similar rights, (b) the obligation to absorb the expected
losses of the entity if they occur, or (c) the right to receive the expected
residual returns of the entity if they occur. FIN 46 will have a significant
effect on existing industry practice because it requires existing variable interest
entities to be consolidated if those entities do not effectively disburse risks
among parties involved. In addition, FIN 46 contains detailed disclosure
requirements. FIN 46 applies immediately to variable interest entities created
after January 31, 2003, and to variable interest entities in which an
enterprise obtains an interest after that date. It applies in the first fiscal
year or interim period beginning after June 15, 2003, to variable interest
entities in which an enterprise holds a variable interest that it acquired
before February 1, 2003. This Interpretation may be applied prospectively with
a cumulative-effect adjustment as of the date on which it is first applied or
by restating previously issued financial statements for one or more years with
a cumulative-effect adjustment as of the beginning of the first year
restated. We believe the adoption of FIN 46 will not have a
material impact on our financial statements.

In November 2002, the FASBs Emerging Issues Task Force issued EITF
00-21, Revenue Arrangements with Multiple Deliverables. EITF 00-21 addresses
certain aspects of the accounting by a vendor for arrangements under which it
will perform multiple revenue-generating activities. Specifically, EITF 00-21
addresses how to determine whether an arrangement involving multiple
deliverables contains more than one unit of accounting. In applying EITF
00-21, separate contracts with the same entity or related parties that are
entered into at or near the same time are presumed to have been negotiated as a
package and should, therefore, be evaluated as a single arrangement in
considering whether there are one or more units of accounting. That
presumption may be overcome if there is sufficient evidence to the contrary.
EITF 00-21 also addresses how arrangement consideration should be measured and
allocated to the separate units of accounting in the arrangement. The guidance
in this Issue is effective for revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. Alternatively, companies may elect to
report the change in accounting as a cumulative-effect adjustment. Early
application of this consensus is permitted. We believe the adoption
of EITF 00-21 will not have a material impact on our financial
statements.

Factors That May Affect Future Results of Operations

Factors that may affect future results of operations include, but are not
limited to, industry-wide market factors such as the timing of, spending on,
and technological, regulatory or other developments in feature film and
television programming production, foreign and domestic television advertising,
and foreign and domestic spending by broadcasters, cable companies and
syndicators on first run and existing content libraries. In addition, our
failure to maintain relationships with key customers and certain key personnel,
the possibility of an industry-wide strike or other job action by a major
entertainment industry union, more rapid than expected technological
obsolescence, significant capital expenditure investments prior to generating
revenue, and any failure to compete in the highly-competitive post-production
business could also cause actual results to differ materially from those
described in forward-looking statements.

We have incurred significant indebtedness to fund the past acquisitions.
This indebtedness may result in a significant percentage of our cash flow being
applied to the payment of interest, and there can be no assurance that our
operations will generate sufficient cash flow to service the indebtedness. This
indebtedness, as well as any indebtedness we may incur in the future, may
adversely affect our ability to finance operations, as financial covenant

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limitations reach their maximum which could limit our ability to pursue
business opportunities that may be in our best interests and that of our
stockholders.

As part of our business strategy, we have acquired substantial operations
in several different geographic locations in the prior two years. These
businesses have experienced varying profitability or losses in recent periods.
Since the aforementioned dates of acquisition, we have continued to work
extensively on the integration of these businesses. However, there can be no
assurances regarding the ultimate success of our integration efforts or
regarding our ability to maintain or improve the results of operations of these
businesses.

We derive our revenue
primarily from the motion picture and television production
industries and the content distribution industry.
Fundamental changes in the business practices of any of these client
industries, whether due to regulatory, technological or other
developments, could cause a material reduction in demand by our
clients for the services offered by us. Any reduction in demand would
have a material adverse effect on our results of operations. The
post-production industry is characterized by technological change,
evolving customer needs and emerging technical standards, and the
content distribution  industry is highly competitive
with several companies providing services similar to ours. Our
existing credit agreements currently limit our ability to make
capital investments. There are no assurances that we will be able to
obtain or fund the implementation of any of these technologies, that
we will be able to effectively implement these technologies on a
cost-effective or timely basis or that such technologies will not
render obsolete our role as a provider of motion picture and
television production services. If our competitors have technology
that enables them to provide services that are more reliable, faster,
less expensive, reach more customers or have other advantages over
the services we provide, then the demand for our services may
decrease. See Part I, Item 1,
BUSINESS  Customers.

We incur substantial incremental costs (primarily
labor) and make significant capital expenditures prior to generating
revenues. For example, we have expanded our operations through
various acquisitions of key companies, which has increased labor and
depreciation expenses significantly, through the addition of new
personnel and the purchase
of new equipment and the construction and maintenance of
infrastructure. We incur such costs before the equipment and
infrastructure generate revenues or achieve capacity utilization. The
incurrence of incremental costs prior to the generation of revenues
will have an adverse effect on our net income. In addition, we may
elect to discontinue services that fail to generate sufficient levels
of revenue and write off the net book value of the assets related to
such services. Our failure to generate anticipated levels of revenue
or the write-off of assets would have an adverse effect on our
results of operations and financial condition.

A number of our
services are provided on a non-contractual basis. Clients may desire
to accelerate, postpone or cancel previously scheduled services prior
to the commencement of the project. As a result, we are susceptible
to scheduling changes and cancellations by customers and may not be
able to reschedule or secure additional work to replace previously
scheduled projects. The rescheduling or cancellation of several significant
projects may have a material effect on our quarterly and/or annual
operating results.




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

Interest Rate Risks

We seek to reduce cash flow volatility associated with changes in interest
rates by entering into financial arrangements intended to provide a hedge
against the risk associated with such volatility. We continue to have exposure
to such risks to the extent they are not hedged. We assess interest rate cash
flow risk by continually identifying and monitoring changes in interest rate
exposures that may adversely impact expected future cash flows and by
evaluating hedging opportunities. Interest rate swap agreements are the primary
instruments used to manage interest rate fluctuation affecting our $385.5
million of variable rate debt primarily associated with our Senior Credit
Agreement. At December 31, 2002, we had three interest rate swap agreements
with a combined fair market value of $7.1 million in favor of our
counterparties. In one swap agreement, we receive variable interest rate
payments and make fixed interest rate payments on a notional amount of $365.0
million. This swap agreement matures on June 30, 2003. In addition, we had two
interest rate swap agreements in the UK with a fair value of $0.6 million in
favor of our counterparties. These swap agreements mature on March 10, 2016.

On July 1, 2002, we terminated our $165.0 million notional interest rate
swap for $1.4 million in cash proceeds. Additionally, we terminated a $200.0
million notional interest rate swap for cash proceeds of $1.4 million on
September 20, 2002 and $1.3 million on September 30, 2002.

Tabular presentation of interest rate risk

The table below represents in the prescribed tabular form, the contractual
principal (or notional) balances of our interest risk sensitive instruments at
the expected maturity dates as well as the fair value of those instruments for
the period ended December 31, 2002. All instruments are reported in U.S.
dollars, our reporting currency.

|                                       |                |      |             |        |   |      |   |        |   |      |   |            |   |       |   |            |   |  |   |        |   |  |   |       |   |  |   |         |   |  |   |         | 
|-------------------------------------- | -------------- | ---- | ----------- | ------ | - | ---- | - | ------ | - | ---- | - | ---------- | - | ----- | - | ---------- | - |  | - | ------ | - |  | - | ----- | - |  | - | ------- | - |  | - | ------- | 
|                                       |                |      | Fiscal Year |        |   |      |   |        |   |      |  
|                                       |                |      |             |        |   |      |   |        |   |      |  
|(In thousands)                         |                | 2003 |             | 2004   |   | 2005 |   | 2006   |   | 2007 |   | Thereafter |   | Total |   | Fair Value
|                                       |                |      |             |        |   |      |   |        |   |      |   |            |   |       |   |           
|Mortgage loans                         |                |      |             |        |   |      |   |        |   |      |   |            |   |       |   |            |   |  |   |        |   |  |   |       |   |  |   |         |   |  |   |        
|                                       | Fixed rate     |      | $           | 10     |   |      | $ | 406    |   |      | $ | 237        |   |       | $ | 255        |   |  | $ | 257    |   |  | $ | 7,687 |   |  | $ | 8,852   |   |  | $ | 8,852   | 
|                                       | Interest rate  |      |             | 7.81   | % |      |   | 7.81   | % |      |   | 7.81       | % |       |   | 7.81       | % |  |   | 7.82   | % |  |   | 7.81  | % |  |   | 7.81    | % |  |   |        | 
|Capital leases (fixed rate) / Other    |                |      |             |        |   |      |   |        |   |      |   |            |   |       |   |            |   |  |   |        |   |  |   |       |   |  |   |         |   |  |   |        
|                                       | Fixed rate     |      | $           | 2,850  |   |      | $ | 1,484  |   |      | $ | 1,340      |   |       | $ | 1,925      |   |  | $ |       |   |  |   |      |   |  | $ | 7,599   |   |  | $ | 7,599   | 
|                                       | Interest rate  |      |             | 13.52  | % |      |   | 15.00  | % |      |   | 15.00      | % |       |   | 15.00      | % |  |   |       |   |  |   |      |   |  |   | 14.44   | % |  |   |        | 
|Senior credit facility                 |                |      |             |        |   |      |   |        |   |      |   |            |   |       |   |            |   |  |   |        |   |  |   |       |   |  |   |         |   |  |   |        
|                                       | Variable rate  |      | $           | 14,436 |   |      | $ | 22,460 |   |      | $ | 31,835     |   |       | $ | 240,325    |   |  | $ | 54,875 |   |  | $ |      |   |  | $ | 363,932 |   |  | $ | 363,932 | 
|                                       | Interest rate  |      |             | 5.06   | % |      |   |       |   |      |   |           |   |       |   |           |   |  |   |       |   |  |   |      |   |  |   | 5.06    | % |  |   |        | 
|Mortgage loans                         |                |      |             |        |   |      |   |        |   |      |   |            |   |       |   |            |   |  |   |        |   |  |   |       |   |  |   |         |   |  |   |        
|                                       | Variable rate  |      | $           | 114    |   |      | $ | 1,089  |   |      | $ | 8,251      |   |       | $ | 763        |   |  | $ | 747    |   |  | $ | 4,453 |   |  | $ | 15,417  |   |  | $ | 15,417  | 
|                                       | Interest rate  |      |             | 4.46   | % |      |   |       |   |      |   |           |   |       |   |           |   |  |   |       |   |  |   |      |   |  |   | 4.46    | % |  |   |        | 
|Capital leases (variable rate) / other |                |      |             |        |   |      |   |        |   |      |   |            |   |       |   |            |   |  |   |        |   |  |   |       |   |  |   |         |   |  |   |        
|                                       | Variable rate  |      | $           | 2,133  |   |      | $ | 2,133  |   |      | $ | 2,533      |   |       | $ |           |   |  | $ |       |   |  | $ |      |   |  | $ | 6,800   |   |  | $ | 6,800   | 
|                                       | Interest rate  |      |             | 4.65   | % |      |   |       |   |      |   |           |   |       |   |           |   |  |   |       |   |  |   |      |   |  |   | 4.65    | % |  |   |        | 
|Variable to fixed swaps                |                |      |             |        |   |      |   |        |   |      |   |            |   |       |   |            |   |  |   |        |   |  |   |       |   |  |   |         |   |  |   |        
|                                       | Pay fixed rate |      | $           | 374    |   |      | $ | 9      |   |      | $ | 7          |   |       | $ | 7          |   |  | $ | 6      |   |  | $ | 3     |   |  | $ |        |   |  | $ |        | 
|                                       | Interest rate  |      |             | 4.88   | % |      |   | 5.73   | % |      |   | 5.73       | % |       |   | 5.73       | % |  |   | 5.73   | % |  |   | 5.73  | % |  |   |        |   |  |   |        | 

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Foreign Currency Risk

We continually monitor our economic exposure to changes in foreign
exchange rates and may enter into foreign exchange agreements where and when
appropriate. Whenever possible, we utilize local currency borrowings to fund
foreign acquisitions. At December 31, 2002, we did not have any foreign
exchange agreements. Substantially all of our foreign transactions are
denominated in foreign currencies, including the liabilities of our foreign
subsidiaries. Although our foreign transactions are not generally subject to
significant foreign exchange transaction gains or losses, the financial
statements of our foreign subsidiaries are translated into United States
dollars as part of our consolidated financial reporting. As a result,
fluctuations in exchange rates affect our financial position and results of
operations.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

For all Financial Statements and Supplementary Data, see Part IV, Item 15
of this Annual Report on Form 10-K.




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

None.

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PART III




Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following lists our directors and executive officers as of the date of
this report.

|                             |  |                   |  |                                                                                               
|---------------------------- |  | ----------------- |  | ----------------------------------------------------------------------------------------------
|Name                         |  | Date of Birth     |  | Position with Company                                                                         
|                             |  |                   |  |                                                                                               
|William R. Fitzgerald
(1)(2) |  | May, 20, 1957     |  | Chairman of the Board, President, Chief Executive
Officer and Class III Director              
|Robert R. Bennett(1)         |  | April 19, 1958    |  | Class III Director                                                                            
|Gary S. Howard (2)(3)        |  | February 22, 1951 |  | Class II Director                                                                             
|David P. Malm (2) (3)        |  | July 4, 1964      |  | Class I Director                                                                              
|Brian C. Mulligan (2)        |  | June 11, 1959     |  | Class I Director                                                                              
|Larry E. Romrell             |  | December 30, 1939 |  | Class III Director                                                                            
|Barney W. Schotters (3)      |  | November 25, 1944 |  | Class II Director                                                                             
|Scott Davis                  |  | July 10, 1951     |  | President, Networks Division                                                                  
|Richard C. Fickle            |  | June 9, 1957      |  | Executive Vice President, Business Development                                                
|Aidan P. Foley               |  | October 12, 1957  |  | Executive Vice President and Chief Marketing Officer
and President, Enterprise Solutions Group
|William A. Humphrey          |  | April 16, 1955    |  | President, Media Division                                                                     
|William E. Niles             |  | August 19, 1963   |  | Executive Vice President, General Counsel and Secretary                                       
|George C. Platisa            |  | March 2, 1957     |  | Executive Vice President and Chief Financial Officer                                          
|Gavin W. Schutz              |  | December 29, 1953 |  | Executive Vice President and Chief Technology Officer                                         
|Robert S. Solomon            |  | May 21, 1958      |  | Executive Vice President and Chief Operating Officer,
Creative Services                       
|Kenneth S. Williams          |  | December 31, 1955 |  | Chief Operating Officer                                                                       



---

|(1) |  | Member of the Executive Committee.   
|--- |  | -------------------------------------
|   
|   
|   
|   
|(2) |  | Member of the Compensation Committee.
|   
|   
|   
|   
|(3) |  | Member of the Audit Committee.       

William R. Fitzgeraldwas appointed as the Companys President and acting
Chief Executive officer on May 17, 2002, and continues to serve as the
Companys Chairman of the Board and a director since his appointment on July
26, 2000. He has served as a Senior Vice President of the Companys parent
company, Liberty Media, since August 2000. Mr. Fitzgerald served as Chief
Operating Officer, Operations Administration, of AT&T Broadband, formerly known
as Tele-Communications, Inc., or TCI, from August 1999 to May 2000, and
Executive Vice President and Chief Operating Officer of TCI from March 1999 to
August 1999. Mr. Fitzgerald served as Executive Vice President and Chief
Operating Officer of TCI Communications, Inc., or TCIC, the domestic cable
subsidiary of TCI, from November 1998 to March 1999, served as Executive Vice
President of TCIC from December 1997 to March 1999, and served as Senior Vice
President of TCIC from March 1996 to December 1997. Mr. Fitzgerald is a
director of the Companys affiliates, On Command Corporation and Liberty
Satellite & Technology, Inc. (which is referred to in this report as LSAT).

Robert R. Bennettwas elected as a director in June 2000. Mr. Bennett has
served as President and Chief Executive Officer of Liberty Media since April
1997, and as a member of the Board of Directors of Liberty Media since
September 1994. Mr. Bennett served as Executive Vice President of TCI from
April 1997 to March 1999. Mr. Bennett also served as Executive Vice President,
Secretary and Treasurer of Liberty Media from June 1995 through March 1997, and
as its Chief Financial Officer from May 1996 through March 1997. Mr. Bennett
also served as acting Chief Financial Officer of Liberty Digital, Inc. from
June 1997 to July 1997. Mr. Bennett is also a director of LSAT, USA
Interactive, UnitedGlobalCom, Inc. and OpenTV, Inc.

Gary S. Howardwas elected as a director in June 2000. Mr. Howard has
served as Executive Vice President and Chief Operating Officer of Liberty Media
since July 1998. Mr. Howard served as Chief Executive Officer of LSAT from
December 1996 to April 2000. Mr. Howard also served as Executive Vice President
of TCI from December 1997 to March 1999; as Chief Executive Officer, Chairman
of the Board and a director of TV Guide, Inc. from June 1997 to March 1999; and
as President and Chief Executive Officer of TCI Ventures Group, LLC from
December 1997 to March 1999. Mr. Howard is also a director of Liberty Media,
LSAT, UnitedGlobalCom, Inc., SpectraSite, Inc. and On Command Corporation and
is Chairman of the Board of LSAT and On Command Corporation.

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David P. Malmhas served as a director since 1997, except for a period
between June 9, 2000 and July 18, 2000. He is currently a partner of Halpern,
Denny & Company, a Boston-based private equity investment firm, which he formed
in 1991.

Brian C. Mulliganwas appointed by the board as a director, effective
December 6, 2002. Mr. Mulligan was an Executive Advisor to The Boston
Consulting Group, a management consulting firm, from April 2002 to October
2002. From January 2001 to March 2002, Mr. Mulligan served as Chairman of, and
Consultant to, Fox Television, a division of The News Corporation Limited, or
NewsCorp, where he oversaw the Fox Television Stations group, Fox Sports, the
Fox Cable Networks Services Group and the business operations of the FOX
Broadcasting Network. Mr. Mulligan also served as Executive Vice President and
Chief Financial Officer of The Seagram Company Ltd., then a company with four
business segments in music, filmed entertainment, recreation, and spirits and
wine, where he was responsible for all corporate financial and strategic
business matters, from December 1999 to December 2000. Mr. Mulligan served as
Co-Chairman of Universal Pictures, Inc. from June 1999 to December 1999, where
he was jointly responsible for worldwide operations including development,
production, marketing and distribution, and in several positions at Universal
Studios, Inc., including, Executive Vice President, Operations and Finance from
December 1998 to June 1999 and Senior Vice President, Business Development and
Strategic Planning from June 1995 to December 1998.

Larry E. Romrellwas elected as a director in June 2000. Mr. Romrell
served as Executive Vice President of TCI from January 1994 to March 1999, and
has served as a consultant to AT&T Broadband since March 1999. Mr. Romrell also
served, from December 1997 to March 1999, as Executive Vice President and Chief
Executive Officer of TCI Business Alliance and Technology Co., a former
subsidiary of TCI that oversaw and developed TCIs technology activities; from
December 1997 to March 1999, as Senior Vice President of TCI Ventures Group,
LLC, and, from September 1994 to October 1997, as President of TCI Technology
Ventures, Inc., a former subsidiary of TCI that invested in and developed
companies engaged in advancing telecommunications technology. Mr. Romrell is
also a director of Liberty Media and Arris Group, Inc.

Bernard W. Schotterswas elected as a director in December 2001. Mr.
Schotters is currently a consultant and private equity investor. Since April
2000, he has been a member of Telecom Partners, a venture capital firm based in
Denver, Colorado. From March 1999 through March 2000, Mr. Schotters served as
an Executive Vice President of TCI, and its successor, AT&T Broadband. Mr.
Schotters also served as TCIs Executive Vice President, Finance and Treasury,
and Principal Financial Officer from March 1998 to March 1999, and, prior to
March 1998, as its Senior Vice President, Finance and Treasury and Principal
Financial Officer. Mr. Schotters is a member of the National Association of
Treasurers and the National Cable Television Association and a past member of
The Nasdaq Stock Markets Issuer Affairs Committee.

Scott Davishas served as President of the Companys Network Services
Group since September 2000. Prior to joining us, Mr. Davis served as the Senior
Vice President, Consumer Product Management for Cablevision Systems
Corporation, a cable television system operator, from 1998 to 2000. From 1995
to 1998, Mr. Davis served as Executive Vice President at MTV Networks.

Richard C. Ficklewas appointed as Executive Vice President, Strategic
Development in November 2001. Mr. Fickle was previously employed with AT&T
Broadband and its predecessor, TCI, from 1987 to 1992 and from 1994 to November
2001, where he held several positions, including Senior Vice President,
overseeing Headend In The Sky (HITS) and interactive television product
development.

Aidan P. Foleyjoined the Company in March 2002. Mr. Foley served as
Executive Vice President, Business Development from May 2002 to June 2002, and
then as Executive Vice President and Chief Marketing Officer since June 2002.
Since March 2002, he has also served as President, Enterprise Solutions Group.
Prior to joining the Company, Mr. Foley was Chief Executive Officer of
ClearView Networks, a video networks company, from January 2001 to November
2001. From October 1994 to November 2000, he was President and Chief Executive
Officer of Eastman Kodaks Digital Motion Imaging, a global group of companies
and divisions encompassing the entertainment services of Eastman Kodak.

William A. Humphreyhas served as President of the Companys Media
Management Services Group since August 2002. Prior to joining the Company, he
was President and Chief Operating Officer of NextLeft, Inc., an e-business
consulting firm, from April 1999 to August 2002 and Executive Vice President,
Business Development, Technology and Entertainment Operations at Turner
Broadcasting Systems, Inc., a content and programming provider, from August
1999 to April 2000. From April 1984 to August 1999, Mr. Humphrey also held
various management positions at Sony Pictures Entertainment, most recently as
Executive Vice President of Sonys Digital Studios from

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March 1997 to August 1999. Mr. Humphrey received a Technical Emmy Award in
1998 and Sonys 50th Anniversary Project Award in 1997. He also served as
co-chair of the Montreux International Digital Post Production Symposium for
1998-1999.

William E. Nileswas appointed the Companys Executive Vice President,
General Counsel and Secretary in January 2002. Prior to this appointment, Mr.
Niles served as the Companys Executive Vice President of Business and Legal
Affairs from October 2001 to January 2002, and as the Companys Senior Vice
President and Assistant Secretary from June 2000 to October 2001. Mr. Niles was
General Counsel and Vice President of Business Affairs of Four Media Company
from February 1998 to June 2000. From 1997 to February 1998, Mr. Niles served
as General Counsel and Vice President of Business Affairs of Visualize, a
post-production company doing business as POP that was acquired by Four Media
Company, now a Company subsidiary, in February 1998. Prior to his appointment
at POP, Mr. Niles practiced law as a partner of Stein & Kahan, a law
corporation.

George C. Platisawas appointed as the Companys Chief Financial Officer
and Executive Vice President in May 2001. Mr. Platisa served as Chief Financial
Officer of Broadband Sports, a creator and distributor of athlete and sports
news content, fantasy sports news and services and authentic sports
memorabilia, from 2000 to 2001, and as Chief Financial Officer of Pacificare of
California, a health and consumer services company, from 1998 to 2000. From
1993 to 1998, Mr. Platisa served in several positions in financial management
with The Walt Disney Company, including Vice President, Operations Planning,
and Vice President, Controllership.

Gavin W. Schutzwas appointed Executive Vice President and Chief
Technology Officer of the Company in November 2000. Mr. Schutz has been with
Four Media Company since 1993, prior to which he spent 13 years as Vice
President and Director of Engineering of Image Transform, Inc., a company that
Four Media Company acquired in 1993. Mr. Schutz has been the principal
architect of the Companys deployment of digital infrastructure.

Robert S. Solomonwas appointed both Executive Vice President and Chief
Operating Officer of the Creative Services Group in March 2003. Prior to this
appointment, Mr. Solomon was Senior Vice President and Chief Financial Officer
of the Creative Services Group from June 2000 to March 2003. From September
1998 to June 2000, Mr. Solomon was Senior Vice President of the Pictures Group
at Four Media Company, which acquired Encore in September 1998, where Mr.
Solomon had served as Chief Financial Officer from February 1997 to September
1998.

Kenneth S. Williamsjoined the Company in August 2002 and serves as the
Companys Chief Operating Officer. Mr. Williams previously served as President
of Technicolor Digital Cinema, LLC, a joint venture between Technicolor and
Qualcomm to develop distribution technology and support services for digital
content, from January 2002 to August 2002, and as President and Chief Executive
Officer of Stan Lee Media, Inc., a digital entertainment studio, from August
2000 to December 2001. Mr. Williams spent 18 years with Columbia Pictures and
Sony Pictures Entertainment, most recently as President of the Digital Studios
Division from January 1997 to July 2000. Mr. Williams is a board member and
past president of the Los Angeles Conservancy, a board member of the Music
Center/Los Angeles, and a member and past chair of the Entertainment Technology
Council, University of Southern California.

Board Composition

The authorized number of directors of the Company is currently nine. The
Company has a classified board of directors that is to consist of three Class I
directors, three Class II directors and three Class III directors. At each
annual meeting of stockholders, one class of directors is elected for a full
term of three years. The Class III directors were elected at the 2002 annual
meeting of stockholders, held on January 23, 2003, to serve until the 2005
annual meeting of stockholders. At the 2003 annual meeting of stockholders,
the Class I directors term will expire, and elections will be held for a new
three-year term to expire at the 2006 annual meeting of stockholders. At the
2004 annual meeting, the Class II directors term will expire, and elections
will be held for a new three-year term to expire at the 2007 annual meeting of
stockholders. With the resignations of Class I Directors Salah Hassanein
(effective February 27, 2002) and Robert Walston (effective May 17, 2002), and
Class II Director Sydney Pollack (effective November 8, 2002), and the
appointment of Class I Director Brian C. Mulligan (effective December 6, 2002),
the Company currently has seven members on the board of directors. The board is
actively seeking to fill the remaining two vacancies on the board of directors.
Vacancies resulting from such resignations may be filled by the affirmative
vote of a majority of the remaining directors then in office (even though less
than a quorum) or by the sole remaining director. Any director elected in this
manner will hold office for the remainder of the full term of the class of
directors in which the vacancy occurred and until such directors successor is
elected and qualified.

Board of Directors Meetings in 2002

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For the year ended December 31, 2002, the Companys board of directors met
three times. During 2002, each director other than Robert R. Bennett and Larry
E. Romrell attended, either in person or telephonically, at least 75% of the
aggregate of the total number of board of directors meetings and the total
number of meetings held by the committees of the board of directors on which
they served.

Board Committees

The Companys board of directors has a standing Executive Committee, Audit
Committee and Compensation Committee.

Executive Committee. The principal responsibilities of the Executive
Committee are to, if necessary, exercise all the powers and authority of the
board of directors in the management of the business and affairs of the Company
to the fullest extent permitted by applicable law, and the Companys Restated
Certificate of Incorporation and bylaws, as each may be amended from time to
time. Robert R. Bennett and William R. Fitzgerald are the current members on
the Executive Committee and both have served on the committee since July 26,
2000. Robert T. Walston served on the Executive Committee from August 3, 2001
to May 17, 2002, when he resigned from the board. The Executive Committee did
not meet in 2002, but did act by unanimous written consent in lieu of meeting.

Audit Committee. The Audit Committee operates under a written charter
adopted by the board of directors, a copy of which was attached as Annex A to
the Companys proxy statement for the annual meeting of stockholders held on
December 19, 2001. The Audit Committee reviews the scope and approach of the
annual audit, the annual financial statements and the auditors report thereon
and the auditors comments relative to the adequacy of the Companys system of
internal controls and accounting systems. The Audit Committee is also
responsible for recommending to the board of directors the appointment of
independent public accountants for the following year. The Audit Committee met
four times in 2002.

From January 1, 2002 to March 5, 2002, the Companys Audit Committee was
comprised of David P. Malm, Sydney Pollack and Bernard W. Schotters. Each
member was independent within the meaning of Nasdaq Marketplace Rule
4200(a)(14). Effective March 5, 2002, Mr. Pollack resigned from the Audit
Committee, citing an inability to serve thereon due to the extent of his other
professional obligations. (Mr. Pollack subsequently resigned from the Board of
Directors, effective November 8, 2002, again citing an inability to serve
thereon due to the extent of his other professional obligations.)

Following Mr. Pollacks resignation from the Audit Committee, the board of
directors appointed Gary S. Howard as the third member of the Audit Committee,
effective March 5, 2002. As Executive Vice President and Chief Operating
Officer of Liberty Media, Mr. Howard is not an independent director under
Nasdaq Marketplace Rule 4200(a)(14). Mr. Howard is a current member of the
board of directors and has extensive professional training and experience in
finance and accounting matters, having served as both a CPA and a
treasurer/senior vice president of finance. The board determined that Mr.
Howards membership on the Audit Committee was in the Companys and the
stockholders best interests and the lack of any other independent directors
created exceptional and limited circumstances under which, pursuant to Nasdaq
Marketplace Rule 4350(d)(2), the Company could allow one member of the board of
directors who was not independent, and who was not a current employee or an
immediate family member of an employee, to be appointed to the Audit Committee.
On December 6, 2002, the board filled one of the vacancies on the board of
directors with Brian C. Mulligan, a director who is an independent director
under the Nasdaq Marketplace Rules. On that same day, Mr. Mulligan was
appointed to, and Mr. Howard resigned from, the Audit Committee.

Compensation Committee. The purpose of the Compensation Committee is to
review management compensation levels and provide recommendations to the board
of directors regarding salaries and other compensation for the Companys
executive officers, including bonuses and incentive programs. From January 1,
2002 to March 5, 2002, the members of the Compensation Committee were Messrs.
Fitzgerald, Howard, Malm and Pollack, and Mr. Schotters was an alternate member
of the Compensation Committee. On March 5, 2002, Mr. Pollack resigned from the
Compensation Committee, citing an inability to serve thereon due to the extent
of his other professional obligations, and Mr. Schotters was appointed as a
full member of the Compensation Committee. The Compensation Committee met one
time in 2002.

Compensation of Directors

Members of the Companys board of directors who are also full-time
employees or consultants of the Company or Liberty Media, or any of their
respective subsidiaries, or any other affiliate of Liberty Media, do not
receive any additional compensation for their services as a member of the
Companys board of directors.

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##### Table of Contents



Members of the Companys board of directors who are not full-time
employees or consultants of the Company or Liberty Media or any of their
respective subsidiaries, which we refer to collectively as Independent
Directors for purposes of this discussion, receive a directors fee of $16,000
per year. Members of the Companys Audit Committee who are Independent
Directors also receive $750 for (i) each telephonic or in-person meeting of the
Audit Committee that is not convened simultaneously with, or immediately
preceding or following the conduct of, any regularly scheduled or special
meeting of the board of directors, and (ii) each monthly financial update
teleconference of the board of directors which is not held simultaneously with,
or immediately preceding or following the conduct of, any meeting of the Audit
Committee or the board of directors. Directors are not otherwise separately
compensated for service on board committees. Independent Directors are also
reimbursed for expenses incurred to attend any meeting of the board or board
committee on which they serve.

On November 28, 2000, the board of directors adopted the Companys 2000
Nonemployee Director Stock Option Plan, which was approved at the Companys
annual meeting of stockholders on December 19, 2001. Pursuant to the 2000
Nonemployee Director Stock Option Plan, each Independent Director, as of
November 28, 2000, was granted options to purchase 15,000 shares of the
Companys Class A common stock. In addition, each person who became, or
becomes, an Independent Director after November 28, 2000 was, or will be,
automatically granted options to purchase up to 15,000 shares of the Companys
Class A common stock upon such person becoming a director. The 2000 Nonemployee
Director Stock Option Plan provides that the per share exercise price of each
option granted under the plan will be equal to the fair market value of the
Companys Class A common stock on the date such option is granted. In general,
fair market value is determined by reference to the last sale price for shares
of the Companys Class A common stock on the date of grant. Options granted
pursuant to the 2000 Nonemployee Director Stock Option Plan will be
exercisable, on a cumulative basis, as to 20% of the number of shares of the
Companys Class A common stock subject to the option on each of the first,
second, third, fourth and fifth anniversary of the date the option was granted.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934 requires that the
Companys directors and executive officers, and persons who beneficially own
more than 10% of a registered class of the Companys equity securities, file
with the Securities and Exchange Commission initial reports of ownership and
reports of changes in ownership of the Companys Class A common stock and other
equity securities within a specified period following a change. Officers,
directors and greater than 10% stockholders are required by Securities and
Exchange Commission regulations to furnish us with copies of all Section 16(a)
forms they file. Based solely on a review of the copies of Forms 3, 4 and 5 and
amendments thereto furnished to us with respect to our most recent fiscal year
and our actual knowledge, or written representations that no Forms 5 were
required, the Company believes that, during the year ended December 31, 2002,
the Companys officers, directors and greater-than-ten-percent beneficial
owners complied with all Section 16(a) filing requirements.

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##### Table of Contents






Item 11. EXECUTIVE COMPENSATION.

The following table shows certain compensation earned during the fiscal
years ending December 31, 2002, 2001 and 2000, by the Companys Named Executive
Officers.

The columns for other annual compensation, restricted stock awards and
long-term incentive plans have been omitted because there was no compensation
required to be reported in such columns.

|                                  |  |             |      |            |  |                     |         |              |  |                  |        |  |  |                    |         |           |  |  |           |     
|--------------------------------- |  | ----------- | ---- | ---------- |  | ------------------- | ------- | ------------ |  | ---------------- | ------ |  |  | ------------------ | ------- | --------- |  |  | --------- | ----
|                                  |  |             |      |            |  |                     |         |              |  |                  |        |  |  | Long-Term          |         |           |  | 
|                                  |  |             |      |            |  | Annual Compensation |         | Compensation |  |                  |        | 
|                                  |  |             |      |            |  |                     |         |              |  |                  |        | 
|                                  |  |             |      |            |  |                     |         |              |  |                  |        |  |  | Securities         |         |           |  | 
|                                  |  |             |      |            |  |                     |         |              |  |                  |        |  |  | Underlying Options |         | All Other
|Name and Principal Position       |  | Fiscal Year |      | Salary ($) |  | Bonus ($)           |         | (#)          |  | Compensation ($)
|                                  |  |             |      |            |  |                     |         |              |  |                 
|William R. Fitzgerald (1)         |  |             | 2002 |            |  |                     | 232,500 | (2)          |  |                  |       |  |  |                    |        |           |  |  |          | (3) 
|Chairman of the Board,            |  |             | 2001 |            |  |                     | 225,000 | (2)          |  |                  |       |  |  |                    |        |           |  |  |          | (3) 
|President, Chief Executive        |  |             | 2000 |            |  |                     |        |              |  |                  |       |  |  |                    |        |           |  |  |          |     
|Officer                           |  |             |      |            |  |                     |         |              |  |                  |        |  |  |                    |         |           |  |  |           |     
|                                 
|Robert T. Walston (4)             |  |             | 2002 |            |  |                     | 753,846 | (5)          |  |                  |       |  |  |                    |        |           |  |  | 2,305,500 | (8) 
|Former Chief Executive Officer    |  |             | 2001 |            |  |                     | 601,154 |              |  |                  |       |  |  |                    | 775,000 | (7)       |  |  | 5,250     | (9) 
|and President                     |  |             | 2000 |            |  |                     | 288,462 | (6a)         |  |                  |       |  |  |                    |        |           |  |  | 3,400     | (10)
|                                 
|Lawrence Chernoff (11)            |  |             | 2002 |            |  |                     | 451,620 |              |  |                  |       |  |  |                    |        |           |  |  | 2,135     | (13)
|Former President, Creative        |  |             | 2001 |            |  |                     | 357,524 |              |  |                  |       |  |  |                    | 275,000 | (12)      |  |  | 1,538     | (14)
|Services Group                    |  |             | 2000 |            |  |                     | 145,041 | (6b)         |  |                  |       |  |  |                    |        |           |  |  | 1,538     | (10)
|                                 
|Scott Davis                       |  |             | 2002 |            |  |                     | 350,000 |              |  |                  |       |  |  |                    |        |           |  |  | 2,135     | (13)
|President, Network Services Group |  |             | 2001 |            |  |                     | 350,000 |              |  |                  |       |  |  |                    | 175,000 |           |  |  |          |     
|                                  |  |             | 2000 |            |  |                     | 84,808  | (15)         |  |                  |       |  |  |                    |        |           |  |  |          |     
|                                 
|George C. Platisa                 |  |             | 2002 |            |  |                     | 400,000 |              |  |                  |       |  |  |                    |        |           |  |  |          |     
|Executive Vice President and      |  |             | 2001 |            |  |                     | 246,154 | (16)         |  |                  | 50,000 |  |  |                    | 250,000 |           |  |  |          |     
|Chief Financial Officer           |  |             | 2000 |            |  |                     |        |              |  |                  |       |  |  |                    |        |           |  |  |          |     
|                                 
|Gavin W. Schutz                   |  |             | 2002 |            |  |                     | 350,000 |              |  |                  |       |  |  |                    |        |           |  |  | 4,510     | (13)
|Executive Vice President and      |  |             | 2001 |            |  |                     | 292,885 |              |  |                  |       |  |  |                    | 185,000 |           |  |  | 3,663     | (17)
|Chief Technology Officer          |  |             | 2000 |            |  |                     | 274,670 | (6c)         |  |                  |       |  |  |                    |        |           |  |  | 984,497   | (10)
|                                 
|Marcus O. Evans (18)              |  |             | 2002 |            |  |                     | 363,462 | (19)         |  |                  |       |  |  |                    |        |           |  |  |          |     
|Former Executive Vice President,  |  |             | 2001 |            |  |                     | 348,701 |              |  |                  |       |  |  |                    | 250,000 | (20)      |  |  |          |     
|Secretary and General Counsel     |  |             | 2000 |            |  |                     | 215,385 | (6d)         |  |                  |       |  |  |                    |        |           |  |  |          |     



---

|(1) |  | Mr. Fitzgerald was appointed as Chairman of the Board, effective July 26,
2000, and was appointed Chief Executive Officer and President, effective
May 17, 2002.                                                                                                                                                                                                                                                                        
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | This represents the portion of Mr. Fitzgeralds salary, benefits and
401(k) contribution to the Liberty Media 401(k) Savings Plan paid by the
Company as part of the fees paid to Liberty Media, as described under Part
III, Item 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSServices
Received From Liberty Media below. The remainder of Mr. Fitzgeralds
salary, benefits and 401(k) contribution is paid by Liberty Media.
|   
|   
|   
|   
|(3) |  | Mr. Fitzgerald receives 401(k) contributions to the Liberty Media 401(k)
Savings Plan made by both the Company and Liberty Media. The portion of
such 401(k) contributions made by the Company are part of his annual
salary, described in this table and Note 2 above.                                                                                                                                                                 
|   
|   
|   
|   
|(4) |  | Mr. Walston resigned as President, Chief Executive Officer and a
director, effective May 17, 2002.                                                                                                                                                                                                                                                                                                                                      
|   
|   
|   
|   
|(5) |  | This amount represents payments to Mr. Walston during and after his
employment with the Company, pursuant to the terms of his employment
agreement, dated January 1, 1999, with the Companys subsidiary, Four
Media Company (referred to in this report as the 4MC Agreement). For
more information about the 4MC Agreement, see Employment Agreements with
Named Executive OfficersRobert T. Walston in this Item 11 below.      

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##### Table of Contents



|(6)  |  | These amounts represent salary for seven months ended December 31, 2000.
These amounts do not include:                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(a)  |  | $192,307 of salary for the five months ended May 31, 2000
earned by Mr. Walston at Four Media Company prior to its acquisition
by the Company;                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|    
|    
|    
|(b)  |  | $116,194 of salary for the five months ended May 31, 2000
earned by Mr. Chernoff at Four Media Company prior to its
acquisition by the Company;                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|    
|    
|    
|(c)  |  | $105,769 of salary for the five months ended May 31, 2000
earned by Mr. Schutz at Four Media Company prior to its acquisition
by the Company; and                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|    
|    
|    
|(d)  |  | $40,835 of salary for the period commencing March 15, 2000
through June 1, 2000 earned by Mr. Evans and paid by Four Media
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|    
|    
|    
|(7)  |  | Mr. Walstons options terminated unexercised at December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|    
|    
|    
|(8)  |  | This amount represents (i) the forgiveness of a $2.0 million loan and
accrued interest on the loan of $300,000 pursuant to the 4MC Agreement and
(ii) contributions of $5,500 made by the Company to the Liberty Media
401(k) Savings Plan. For more information regarding (i) the 4MC Agreement,
see Employment Agreements with Named Executive OfficersRobert T.
Walston in this Item 11 below, and (ii) the Companys contributions to
the Liberty Media 401(k) Savings Plan, see Liberty Media 401(k) Savings
Plan Contributions in this Item 11 below.       
|    
|    
|    
|    
|(9)  |  | This amount represents contributions of $3,077 made by the Company to the
Four Media Company 401(k) Plan for the four months ended April 30, 2001,
and $2,173 made by the Company to the Liberty Media 401(k) Savings Plan
for the eight months ended December 31, 2001 after the Four Media Company
401(k) Plan merged into the Liberty Media 401(k) Savings Plan. For more
information regarding the Companys contributions to the Liberty Media
401(k) Savings Plan, see Liberty Media 401(k) Savings Plan Contributions
in this Item 11 below.                  
|    
|    
|    
|    
|(10) |  | This amount represents (i) $981,097 paid by Liberty Media to Mr. Schutz
upon exercise of his Four Media Company stock options prior to the
acquisition of Four Media Company by Liberty Media in April 2000 and (ii)
contributions of $3,4000 made by the Company to the Four Media Company
401(k) Plan on the respective executives behalf, for the seven months
ended December 31, 2000. For more information on the acquisition of Four
Media Company, see Part I, item 1, BUSINESS  Formation  Change in
Control and Subsequent Acquisitions and Divestitures.
|    
|    
|    
|    
|(11) |  | Mr. Chernoff resigned as the President of the Creative Services group,
effective December 31, 2002, and was appointed, pursuant to a consulting
agreement, as Chairman of the Creative Services group. For more
information about the consulting agreement, see Part III, Item 13,
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  Consulting Agreement
with Named Executive Officer below.                                                                                                                                                                         
|    
|    
|    
|    
|(12) |  | On November 15, 2001, the Company granted Mr. Chernoff an option to
purchase 275,000 shares of the Companys Class A common stock, the first
25% of which vested on December 31, 2002. Pursuant to a consulting
agreement between the Company and Mr. Chernoff, the remaining 75%
terminated on January 1, 2003, upon the commencement of the consulting
agreement. For more information about the consulting agreement, see Part
III, Item 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  Consulting
Agreement with Named Executive Officer below.            
|    
|    
|    
|    
|(13) |  | This amount represents contributions made by the Company to the Liberty
Media 401(k) Savings Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|    
|    
|    
|(14) |  | This amount represents contributions made by the Company to the Four
Media Company 401(k) Plan for the four months ended April 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|    
|    
|    
|(15) |  | Mr. Davis joined the Company as President, Network Services on September
27, 2000. This amount represents salary for the four months ended
December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|    
|    
|    
|(16) |  | Mr. Platisa joined the Company as Executive Vice President and Chief
Financial Officer on May 14, 2001. This amount represents salary for the
seven months ended December 31, 2001.                                                                                                                                                                                                                                                                                                                                                                                    

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|(17) |  | This amount represents contributions of $1,692 made by the Company to the
Four Media Company 401(k) Plan for the four months ended April 30, 2001,
and $1,971 made by the Company to the Liberty Media 401(k) Savings Plan
for the eight months ended December 31, 2001 after the Four Media Company
401(k) Plan merged into the Liberty Media 401(k) Savings Plan. For more
information regarding the Companys contributions to the Liberty Media
401(k) Savings Plan, see Liberty Media 401(k) Savings Plan Contributions
in this Item 11 below.                                                                                               
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(18) |  | Mr. Evans resigned as Executive Vice President, Secretary and General
Counsel, effective January 21, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|    
|    
|    
|(19) |  | This amount also represents payments to Mr. Evans after his employment
with the Company, pursuant to the terms of his severance agreement and
general release, dated January 21, 2002, with the Company and Liberty
Media. For more information about this severance agreement and general
release, see Severance Agreements with Named Executive OfficersMarcus O.
Evans in this Item 11 below.                                                                                                                                                                                                                                                 
|    
|    
|    
|    
|(20) |  | On November 15, 2001, the Company granted Mr. Evans an option to purchase
250,000 shares of the Companys Class A common stock. Pursuant to a
severance agreement and general release among the Company, Liberty Media
and Mr. Evans, effective January 21, 2002, the Company accelerated the
vesting of 62,500 shares, representing 25%, of such option, and the
original option grant was terminated as to the remaining 187,500 shares,
representing 75% of such option. For more information about this
severance agreement and general release, see Severance Agreements with
Named Executive OfficersMarcus O. Evans in this Item 11 below.

45



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##### Table of Contents



Liberty Media 401(k) Savings Plan Contributions

Since June 2001, the Companys employees, including its executive
officers, have been eligible to enroll in the Liberty Media 401(k) Savings
Plan. The Liberty Media 401(k) Savings Plan provides the Companys employees
with an opportunity to save for retirement. Subject to the maximum limits
allowed by law, eligible participants may contribute up to 99% of their
compensation. The Company will match 50% of the participants contribution up
to 6% of compensation, which matching contribution is invested in a Liberty
Media stock fund. The participants contributions to the savings plan are fully
vested upon contribution. The Companys matching contributions are vested as
follows:

|                 |  |                    |     |  
|---------------- |  | ------------------ | --- | -
|Years of Service |  | Vesting Percentage
|                 |  |                   
|Less than one    |  |                    | 0   | %
|1-2              |  |                    | 33  | %
|2-3              |  |                    | 66  | %
|3 or more        |  |                    | 100 | %

Options Grants in Fiscal Year 2002

No Named Executive
Officers were granted options in fiscal year 2002.

Aggregate Option Exercises and Fiscal Year-End Option Values

No Named Executive Officers exercised options in fiscal year 2002. The Company has
not issued any SARs.

|                      |  |                    |  |                    |  |                                                |  |                  
|--------------------- |  | ------------------ |  | ------------------ |  | ---------------------------------------------- |  | -----------------
|                      |  |                    |  |                    |  |                                                |  | Value of         
|                      |  |                    |  |                    |  |                                                |  | Unexercised      
|                      |  |                    |  |                    |  | Number of Securities                           |  | In-The-Money     
|                      |  |                    |  |                    |  | Underlying Unexercised                         |  | Options At Fiscal
|                      |  |                    |  |                    |  | Options at Fiscal                              |  | Year End ($)     
|                      |  | Shares Acquired on |  |                    |  | Year-End (#)                                   |  | Exercisable/     
|Name                  |  | Exercise (#)       |  | Value Realized ($) |  | Exercisable/Unexercisable                      |  | Unexercisable    
|                      |  |                    |  |                    |  |                                                |  |                  
|William R. Fitzgerald |  |                   |  |                   |  |                                               |  |                 
|Robert T. Walston     |  |                   |  |                   |  |  (1)                                          |  |                 
|Lawrence Chernoff     |  |                   |  |                   |  | Exercisable: 68,750
Unexercisable: 206,250 (2) |  |                 
|Scott Davis           |  |                   |  |                   |  | Exercisable: 43,750
Unexercisable: 131,250     |  |                 
|George C. Platisa     |  |                   |  |                   |  | Exercisable: 0
Unexercisable: 250,000          |  |                 
|Gavin W. Schutz       |  |                   |  |                   |  | Exercisable: 0
Unexercisable: 185,000          |  |                 
|Marcus O. Evans       |  |                   |  |                   |  | Exercisable: 62,500
Unexercisable: 0           |  |                 



---

|(1) |  | Mr. Walstons right to exercise 193,750 shares of the Companys Class A
common stock terminated unexercised on December 31, 2002.                                                                                                                                                                                                                 
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Pursuant to Mr. Chernoffs consulting agreement, the 206,250 shares that
were unexercisable at December 31, 2002 terminated on January 1, 2003.
For more information about Mr. Chernoffs consulting agreement, see Part
III, Item 13, CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS  Consulting
Agreement with Named Executive Officer below.

Long-Term Incentive Plan Awards in Fiscal Year 2002

No long-term incentive plan awards were granted in fiscal year 2002.

Report on Repricing of Options

The Company did not, at any time during 2002, change the exercise price of
stock options or SARs previously awarded to any of its executive officers.

46



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##### Table of Contents



Employment Agreements with Named Executive Officers

Robert T. Walston. Prior to Mr. Walstons resignation as the Companys
President, Chief Executive Officer and director on May 17, 2002, Mr. Walston
had an employment agreement with Four Media Company, the Companys subsidiary,
which was executed on January 1, 1999 and expired on December 31, 2003 (the
4MC Agreement). Under the terms of the 4MC Agreement, among other things, Mr.
Walston was to be paid an annual salary of $500,000 as Four Media Companys
Chairman and Chief Executive Officer. Although Mr. Walstons agreement had not
been modified, effective August 6, 2001, upon assumption of duties as the
Companys then-current President and Chief Executive Officer, Mr. Walston began
receiving an annual salary of $700,000. On November 15, 2001, Mr. Walston was
granted stock options permitting him to purchase 775,000 shares of the
Companys Class A common stock at an exercise price of $7.00 per share under
the terms of the Companys 2001 Incentive Plan.

On May 17, 2002, Mr. Walstons employment with the Company ended. Under
the terms of his employment agreement, the Company is paying Mr. Walston his
annual base salary of $700,000 until the end of the term of his employment
agreement on December 31, 2003 and automatically forgave a loan of $2.0 million
and accrued interest on the loan of $300,000. In addition, Mr. Walstons option
to purchase 1,654,191 shares of Liberty Media Series A common stock became
exercisable upon the termination of his employment and remained exercisable
until January 31, 2003 at which time it expired unexercised. For more
information on the loan to Mr. Walston, see Part III, Item 13, CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS  Executive Officer Loan below.

The Company is
currently negotiating severance arrangements with Mr. Walston,
the terms of which have not been agreed upon.

Scott Davis. Mr. Davis currently has an employment agreement, dated May
30, 2002, with the Company. During the five-year term of this employment
agreement, Mr. Davis is paid an annual base salary of $350,000 and is eligible
for a bonus payment, if any, based on an incentive bonus plan to be established
and administered by the Compensation Committee of the board of directors. Mr.
Davis also acknowledged receipt of an option to purchase 175,000 shares of the
Companys Class A common stock at an exercise price of
$7.00 granted to him on November 15, 2001 under the terms of
Companys 2001 Incentive Plan.

George C. Platisa. Mr. Platisa currently has an employment agreement,
dated May 21, 2001, with the Company. During the five-year term of this
employment agreement, Mr. Platisa is paid an annual base salary of $400,000,
received a one-time signing bonus of $50,000 and is eligible for an annual
bonus payment based on the sole discretion of the Chief Executive Officer. Mr.
Platisa also received an option to purchase 250,000 shares of the Companys
Class A common stock at an exercise price of $7.00 under the terms of Companys
2001 Incentive Plan.

Gavin W. Schutz. Mr. Schutz currently has an employment agreement, dated
May 21, 2002, with the Company. During the five-year term of this employment
agreement, Mr. Schutz is paid an annual base salary of $350,000 and is eligible
for a bonus payment, if any, based on an incentive bonus plan to be established
and administered by the Compensation Committee of the board of directors. Mr.
Schutz also acknowledged receipt of an option to purchase 185,000 shares of the
Companys Class A common stock at an exercise price of $7.00 granted to him on November 15, 2001 under the terms of
Companys 2001 Incentive Plan.

Severance Agreements with Named Executive Officers

Marcus O. Evans. On January 21, 2002, Marcus O. Evans entered into a
severance agreement and general release with the Company and Liberty Media
specifying the terms of the termination of his position as Executive Vice
President, General Counsel and Secretary. Pursuant to the provisions of this
severance agreement, effective January 21, 2002, Mr. Evans will continue to
receive an amount equal to his then annual base salary of $350,000 per year as
severance payments until January 31, 2004 and reimbursement for medical
benefits through January 31, 2004. In addition, effective January 21, 2002, the
Company accelerated the vesting of Mr. Evans existing stock options with
respect to 62,500 shares of its Class A common stock, which represented 25% of
the original option grant to Mr. Evans on November 15, 2001 to purchase 250,000
shares of the Companys Class A common stock, and the original option grant was
terminated as to the remaining 187,500 shares. The vested option shares are
exercisable through January 31, 2004, at an exercise price of $7.00 per share
subject to the terms of the 2001 Incentive Plan.

Compensation Committee Interlocks and Insider Participation

The following members of the Companys board of directors serve as members
of the Compensation Committee of the board of directors: William R. Fitzgerald,
Gary S. Howard, David P. Malm and Bernard W. Schotters. None of the members of
the Compensation Committee (i) is an officer or employee of the Company or any
of its subsidiaries, (ii) was formerly an officer or employee of the Company or
any of its subsidiaries, or (iii) had any related party transactions, except
that Mr. Fitzgerald is the President and Chief Executive Officer of the Company
and an officer of each of the Companys U.S. subsidiaries. Messrs. Howard and
Fitzgerald are each officers, and Mr.

47



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##### Table of Contents



Howard is a director of, Liberty Media, and Mr. Fitzgerald and another
director of the Company own interests in a subsidiary of Liberty Media that
owns equity securities of the Company, including convertible notes issued under
the Liberty Subordinated Credit Agreement.




ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

Security Ownership of Certain Beneficial Owners

The following table lists stockholders believed by the Company to be the
beneficial owners of more than five percent of either class of its outstanding
common stock as of December 31, 2002. The number of shares beneficially owned
by each stockholder is determined under rules promulgated by the Securities and
Exchange Commission, and the information is not necessarily indicative of
beneficial ownership for any other purpose. Under such rules, beneficial
ownership generally includes any shares as to which the individual has sole or
shared voting power or investment power. Inclusion in the table below of such
shares, however, does not constitute an admission that the named stockholder is
a direct or indirect beneficial owner of such shares. Shares issuable upon
exercise or conversion of options and convertible securities that were
exercisable or convertible within 60 days after December 31, 2002 and upon
vesting of restricted shares are deemed to be outstanding for the purpose of
computing the percentage ownership and overall voting power of persons believed
to beneficially own such securities, but have not been deemed to be outstanding
for the purpose of computing the percentage ownership or overall voting power
of any other person. For purposes of the following presentation, beneficial
ownership of shares of the Companys Class B common stock, though convertible
on a one-for-one basis into shares of Class A common stock, is reported as
beneficial ownership of shares of Class B common stock only. Voting power in
the table is computed with respect to a general election of directors. So far
as is known to the Company, the persons indicated below have sole voting and
investment power with respect to the shares indicated as believed to be owned
by them, except as otherwise stated in the notes to the table. Shares of the
Companys Class A common stock are represented in the table as AMGIA and shares
of the Companys Class B common stock are represented in the table as AMGIB.

|                                     |                                                |                |       |                    |         |                     |                  |             |       |        |  |  |              |       |                 |  | 
|------------------------------------ | ---------------------------------------------- | -------------- | ----- | ------------------ | ------- | ------------------- | ---------------- | ----------- | ----- | ------ |  |  | ------------ | ----- | --------------- |  | 
|                                     |                                                |                |       |                    |         |                     |                  |             |       |        |  |  |              |       | Combined Voting
|                                     |                                                |                |       |                    |         |                     | Number of Shares |             |       |        |  |  | Power of All
|Name and Address of Beneficial Owner |                                                | Title of Class |       | Beneficially Owned |         | Percent of Class(1) |                  | Holdings(1)
|                                     |                                                |                |       |                    |         |                     |                  |            
|Liberty Media Corporation            |                                                | AMGIA          |       |                    | 45,600  |                     |                  |             | *     |        |  |  |              |      
|                                     | 12300 Liberty Boulevard                        |                | AMGIB |                    |         | 75,475,040          | (2)              |             |       | 100.00 |  |  |              | 99.31 | %              
|                                     | Englewood, Colorado                            |                |       |                    |         |                     |                  |             |       |        |  |  |              |       |                 |  | 
|Robert A. Naify                      |                                                | AMGIA          |       |                    | 876,985 | (3)                 |                  |             | 17.96 |        |  |  |              |      
|                                     | 172 Golden Gate Avenue                         |                | AMGIB |                    |         |                    |                  |             |       |       |  |  |              | *     |                
|                                     | San Francisco, California                      |                |       |                    |         |                     |                  |             |       |        |  |  |              |       |                 |  | 
|David P. Beddow                      |                                                | AMGIA          |       |                    | 387,500 | (4)                 |                  |             | 7.93  |        |  |  |              |      
|                                     | c/o Ascent Media Group, Inc.                   |                | AMGIB |                    |         |                    |                  |             |       |       |  |  |              | *     |                
|                                     | 520 Broadway, 5th Floor
Santa Monica, CA 90401 |                |       |                    |         |                     |                  |             |       |        |  |  |              |       |                 |  | 
|Royce & Associates                   |                                                | AMGIA          |       |                    | 380,900 | (5)                 |                  |             | 7.80  |        |  |  |              |      
|                                     | 1414 Avenue of the Americas                    |                | AMGIB |                    |         |                    |                  |             |       |       |  |  |              | *     |                
|                                     | New York, New York 10019                       |                |       |                    |         |                     |                  |             |       |        |  |  |              |       |                 |  | 



---

|*   |  | Less than one percent.                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(1) |  | Based on 4,884,559 shares of the Companys Class A common stock and
52,341,164 shares of the Companys Class B common stock issued and
outstanding as of December 31, 2002.                                                                                                                                                                                                                     
|   
|   
|   
|   
|(2) |  | Includes 23,133,876 shares of the Companys Class B common stock
that are issuable upon conversion of convertible notes that are
convertible within 60 days of December 31, 2002 (and includes those shares that became convertible on January 23, 2003). Of the shares shown as
beneficially owned by Liberty Media, 29,614,075 are owned by direct and
indirect subsidiaries of Liberty Media.

48



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##### Table of Contents



|   
|---
|   
|   
|   
|(3)
|   
|   
|   
|   
|(4)
|   
|   
|   
|   
|(5)

Security Ownership of Management

The following table sets forth information with respect to the beneficial
ownership of shares of the Companys Class A common stock by each of the
Companys directors; by each individual serving as chief executive officer in
2002, by the Companys four most highly-compensated executive
officers other than the chief executive officer (based
on their salary and all other compensation) at December 31, 2002 and by two
executives who would have been among the four most highly compensated executive
officers but were not serving as executive officers at December 31, 2002
(referred to in this report as the Named Executive Officers), and by all of the
Companys directors and executive officers as a group. In addition, the table
sets forth information with respect to the beneficial ownership of such
individuals of shares of Series A common stock and Series B common stock of
Liberty Media, which owns a controlling interest in the Company. The Liberty
Media charter provides that holders of Liberty Media Series A common stock are
entitled to one vote per share held and holders of Liberty Media Series B
common stock are entitled to ten votes per share held and, except as otherwise
required by Delaware law, vote together as a single class.

The following information is given as of December 31, 2002 and in case of
percentage ownership information, is based on 4,884,559 shares of the Companys
Class A common stock and 52,341,164 shares of the Companys Class B common
stock, 2,476,953,566 shares of Liberty Media Series A common stock and
212,044,128 shares of Liberty Media Series B common stock issued and
outstanding on that date. Shares issuable upon exercise or conversion of
options and convertible securities that were exercisable or convertible within
60 days of December 31, 2002 and upon vesting of restricted shares are deemed
to be outstanding for the purpose of computing the percentage ownership and
overall voting power of persons believed to beneficially own such securities,
but have not been deemed to be outstanding for the purpose of computing the
percentage ownership or overall voting power of any other persons. For purposes
of the following presentation, beneficial ownership of shares of Liberty Media
Series B common stock, though convertible on a one-for-one basis into shares of
Liberty Media Series A common stock, is reported as beneficial ownership of
shares of Liberty Media Series B common stock only.

The number of shares beneficially owned by each of the Companys directors
and each of its Named Executive Officers is determined under rules promulgated
by the Securities and Exchange Commission, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership generally includes any shares as to which the
individual has sole or shared voting power or investment power. Inclusion in
the table below of such shares, however, does not constitute an admission that
the named director or Named Executive Officer is a direct or indirect
beneficial owner of such shares. Voting power in the table is computed with
respect to a general election of directors. So far as is known to the Company,
the persons indicated below have sole voting and investment power with respect
to the shares indicated as believed to be owned by them, except as indicated in
the notes to the table. Shares of the Companys Class A common stock will be
represented in the table as AMGIA.

49



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##### Table of Contents



|                          |                   |                          |       |                    |           |                    |        |                   |     |                     |   |              |     |   |   |                 |  | 
|------------------------- | ----------------- | ------------------------ | ----- | ------------------ | --------- | ------------------ | ------ | ----------------- | --- | ------------------- | - | ------------ | --- | - | - | --------------- |  | 
|                          |                   |                          |       |                    |           |                    |        |                   |     |                     |   |              |     |   |   | Combined Voting
|                          |                   |                          |       |                    |           |                    |        | Number of Shares  |     | Percent of Class or |   | Power of all
|Name                      |                   | Title of Class or Series |       | Beneficially Owned |           | Series             |        | Classes or Series
|                          |                   |                          |       |                    |           |                    |        |                  
|Directors:                |                   |                          |       |                    |           |                    |        |                   |     |                     |   |              |     |   |   |                
|                          |                   | William R. Fitzgerald    |       | AMGIA              |           |                    |       |                   |     |                     |  |              |     |   |  |                
|                          |                   | Liberty Media Series A   |       |                    | 653,642   | (1)(2)(3)(29)      |        |                   | *   |                     |   |              | *   |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |    |  
|                          |                   | Robert R. Bennett        |       | AMGIA              |           |                    |       |                   |     |                     |  |              |     |   |  |                
|                          |                   | Liberty Media Series A   |       |                    | 3,799,842 | (4)(5)(6)(7)       |        |                   | *   |                     |   |              | 1.8 | %
|                          |                   | Liberty Media Series B   |       |                    | 7,923,330 | (6)                |        |                   | 3.6 | %                   |   |              |     |  
|                          |                   |                          |       |                    |           |                    |        |                   |     |                     |   |              |     |   |   |                
|                          |                   | Gary S. Howard           |       | AMGIA              |           |                    |       |                   |     |                     |  |              |     |   |  |                
|                          |                   | Liberty Media Series A   |       |                    | 5,650,822 | (8)(9)(10)(11)(12) |        |                   | *   |                     |   |              | *   |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  
|                          |                   | David P. Malm            |       | AMGIA              |           |                    | 6,000  | (13)              |     |                     | * |              |     |   | * |                
|                          |                   | Liberty Media Series A   |       |                    |          |                    |        |                   |    |                     |   |              |    |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  
|                          |                   | Brian C. Mulligan        |       | AMGIA              |           |                    |       |                   |     |                     |  |              |     |   |  |                
|                          |                   | Liberty Media Series A   |       |                    |          |                    |        |                   |    |                     |   |              |    |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  
|                          |                   | Larry E. Romrell         |       | AMGIA              |           |                    |       |                   |     |                     |  |              |     |   |  |                
|                          |                   | Liberty Media Series A   |       |                    | 210,365   | (14)(29)           |        |                   | *   |                     |   |              | *   |  
|                          |                   | Liberty Media Series B   |       |                    | 3,240     | (14)               |        |                   | *   |                     |   |              |     |  
|                          |                   | Bernard W. Schotters     |       | AMGIA              |           |                    | 3,000  | (15)              |     |                     | * |              |     |   | * |                
|                          |                   | Liberty Media Series A   |       |                    | 2,834,000 | (16)(17)           |        |                   | *   |                     |   |              | *   |  
|                          |                   | Liberty Media Series B   |       |                    | 3,656     | (18)               |        |                   | *   |                     |   |              |     |  
|Named Executive Officers: |                   |                          |       |                    |           |                    |        |                   |     |                     |   |              |     |   |   |                
|                          |                   | Robert T. Walston (19)   |       | AMGIA              |           |                    |       |                   |     |                     |  |              |     |   |  |                
|                          |                   | Liberty Media Series A   |       |                    | 1,654,778 | (20)(21)           |        |                   | *   |                     |   |              | *   |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  
|                          |                   | Lawrence Chernoff        |       | AMGIA              |           |                    | 68,750 | (22)              |     |                     | * |              |     |   | * |                
|                          |                   | Liberty Media Series A   |       |                    | 49,446    | (23)(24)           |        |                   | *   |                     |   |              | *   |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  
|                          |                   | Scott Davis              |       | AMGIA              |           |                    | 1,000  |                   |     |                     | * |              |     |   | * |                
|                          |                   | Liberty Media Series A   |       |                    |          |                    |        |                   |    |                     |   |              |    |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  
|                          | George C. Platisa |                          | AMGIA |                    |           |                   |        |                   |     |                    |   |              |     |  |  
|                          |                   | Liberty Media Series A   |       |                    |          |                    |        |                   |    |                     |   |              |    |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  
|                          | Gavin W. Schutz   |                          | AMGIA |                    |           |                   |        |                   |     |                    |   |              |     |  |  
|                          |                   | Liberty Media Series A   |       |                    |          |                    |        |                   |    |                     |   |              |    |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  
|                          | Marcus O. Evans   |                          | AMGIA |                    |           | 62,500             | (25)   |                   |     | *                   |   |              |     | * |  
|                          |                   | Liberty Media Series A   |       |                    |          |                    |        |                   |    |                     |   |              |    |  
|                          |                   | Liberty Media Series B   |       |                    |          |                    |        |                   |    |                     |   |              |     |  

50



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|                                     |                      |                          |                        |                    |                |        |      |                   |  |                     |      |              |  |  |  |                 |  | 
|------------------------------------ | -------------------- | ------------------------ | ---------------------- | ------------------ | -------------- | ------ | ---- | ----------------- |  | ------------------- | ---- | ------------ |  |  |  | --------------- |  | 
|                                     |                      |                          |                        |                    |                |        |      |                   |  |                     |      |              |  |  |  | Combined Voting
|                                     |                      |                          |                        |                    |                |        |      | Number of Shares  |  | Percent of Class or |      | Power of all
|Name                                 |                      | Title of Class or Series |                        | Beneficially Owned |                | Series |      | Classes or Series
|                                     |                      |                          |                        |                    |                |        |      |                  
|All Directors and executive
officers |                      |                          |                        |                    |                |        |      |                   |  |                     |      |              |  |  |  |                
|                                     | (as of December 31,  |                          | AMGIA                  |                    | 78,750(26)     |        | 1.6% |                   |  | *                   |     
|                                     | 2002) as a group (16 |                          | Liberty Media Series A |                    | 13,302,529(27) |        |      | *                 |  |                     | 2.0%
|                                     | persons)             |                          | Liberty Media Series B |                    | 7,930,226(28)  |        | 3.6% |                   | 



---

|*    |  | Less than one percent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(1)  |  | Includes stock options to acquire 611,274 shares of Liberty Media
Series A common stock, all of which are exercisable within 60 days of
December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|    
|    
|    
|(2)  |  | Includes 6,168 shares held by Liberty Medias 401(k) Savings Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|    
|    
|    
|(3)  |  | Does not include Mr. Fitzgeralds ownership of a 7.9488% equity
interest in common stock of Liberty Livewire Holdings, Inc. See
footnote 29 below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|    
|    
|    
|(4)  |  | Includes 22,287 shares of Liberty Media Series A common stock held
by the Liberty Media 401(k) Savings Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    
|    
|    
|    
|(5)  |  | Includes beneficial ownership of 349,307 restricted shares of
Liberty Media Series A common stock, none of which were vested at
December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    
|    
|    
|    
|(6)  |  | Includes beneficial ownership
of 25,640 shares of Liberty Media Series A common stock and 7,922,930 shares of Liberty Media
Series B common stock which may be acquired within 60 days of December
31, 2002 upon exercise of stock options. Mr. Bennett has the right to
convert the options for shares of Liberty Media Series B common stock
into options for shares of Liberty Media Series A common stock.
The number of shares subject to these options and the applicable
exercise prices were adjusted as of October 31, 2002, the record
date of a rights offering by Liberty Media, as a result of its
incentive stock plans antidilution provisions. Also
includes 400 shares of Liberty Media Series B common stock beneficially
owned by Mr. Bennett.
|    
|    
|    
|    
|(7)  |  | Includes 1,246,580 shares of
Liberty Media Series A common stock owned by Hilltop
Investments, Inc., which is jointly owned by Mr. Bennett and his
wife, Mrs. Deborah Bennett.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|    
|    
|    
|(8)  |  | Includes 291,089 restricted shares of Liberty Media Series A common
stock held by a Grantor Retained Annuity Trust, none of which were
vested at December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|    
|    
|    
|(9)  |  | Includes beneficial ownership of 4,173,183 shares of Liberty Media
Series A common stock which may be acquired within 60 days of December
31, 2002, pursuant to stock options. The number of shares subject to these options and the applicable
exercise prices were adjusted as of October 31, 2002, the record
date of a rights offering by Liberty Media, as a result of its
incentive stock plans antidilution provisions.                                                                                                                                                                                                                                                                                                                                   
|    
|    
|    
|    
|(10) |  | Includes 40,623 shares of Liberty Media Series A common stock held
by the Liberty 401(k) Savings Plan for the benefit of Mr. Howard.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|    
|    
|    
|(11) |  | Includes 12,284 shares of Liberty Media Series A common stock owned by Mr.
Howards wife, Leslie D. Howard, and 185,120 shares of Liberty Media Series B common stock
owned by Mrs. Leslie D. Howard, and held by a Grantor
Retained Annuity Trust, as to which shares Mr. Howard has disclaimed
beneficial ownership.                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    
|    
|    
|    
|(12) |  | Includes 314,376 shares of
Liberty Media Series A common stock owned by a Grantor Retained
Annuity Trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    
|    
|    
|    
|(13) |  | Assumes the exercise in full of stock options to acquire 6,000
shares of the Companys Class A common stock, all of which are
exercisable within 60 days of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|    
|    
|    
|(14) |  | Does not include Mr. Romrells ownership of a 7.9488% equity
interest in common stock of Liberty Livewire Holdings, Inc. See
footnote 29 below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    
|    
|    
|    
|(15) |  | Assumes the exercise in full of stock options to acquire 3,000
shares of the Companys Class A common stock, all of which are
exercisable within 60 days of December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    
|    
|    
|    
|(16) |  | Includes 4,788 shares of Liberty Media Series A common stock held
in a custodial account for the benefit of family members. Mr. Schotters
is the custodian of this account and disclaims beneficial ownership of
the shares therein.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    
|    
|    
|    
|(17) |  | Includes stock options to acquire 1,096,456 shares of Liberty Media
Series A common stock, all of which are exercisable within 60 days of
December 31, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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|(18) |  | Includes 328 shares of Liberty Media Series B common stock held by
Communications Capital Partners, LLC, an entity controlled by Bernard
and Nancy Schotters.                                                                                                                                                                                                                                                                               
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|    
|    
|    
|(19) |  | Mr. Walston resigned as President, Chief Executive Officer and a
director, effective May 17, 2002.                                                                                                                                                                                                                                                                                                                                          
|    
|    
|    
|    
|(20) |  | Represents 587 shares held by Liberty Medias 401(k) Savings Plan.                                                                                                                                                                                                                                                                                                                                                                          
|    
|    
|    
|    
|(21) |  | Assumes the exercise in full
of stock options to acquire 1,654,191 shares of Liberty
Media Series A common stock that may be exercised within
60 days of December 31, 2002. These stock options
terminated unexercised on January 31, 2003.                                                                                                                                                                                                 
|    
|    
|    
|    
|(22) |  | Assumes the exercise in full
of stock options to acquire 68,750 shares of the Companys
Class A common stock that may be exercised within 60 days
of December 31, 2002.                                                                                                                                                                                                                                                                     
|    
|    
|    
|    
|(23) |  | Assumes the exercise in full of stock options to acquire 47,311
shares of Liberty Media Series A common stock that may be exercised
within 60 days of December 31, 2002. The number of shares subject to the stock
options and the applicable exercise prices were adjusted as of
October 31, 2002, the record date of a rights offering by
Liberty Media, as a result of its incentive plans antidilution
provisions.                     
|    
|    
|    
|    
|(24) |  | Includes 2,135 shares held by Liberty Medias 401(k) Savings Plan.                                                                                                                                                                                                                                                                                                                                                                          
|    
|    
|    
|    
|(25) |  | Assumes the exercise in full of stock options to acquire 62,500
shares of Liberty Media Series A common stock that may be exercised
within 60 days of December 31, 2002, pursuant to Mr. Evans severance
agreement with Liberty Media and the Company. For a description of Mr.
Evans severance agreement, see Part III, Item 11, COMPENSATION
INFORMATION  Severance Agreements with Named Executive Officers 
Marcus O. Evans above.
|    
|    
|    
|    
|(26) |  | Includes shares described in
footnotes 13, 15, 22 and 24 above.                                                                                                                                                                                                                                                                                                                                                                             
|    
|    
|    
|    
|(27) |  | Includes the following:                                                                                                                                                                                                                                                                                                                                                                                                                     

|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|

|    
|----
|    
|    
|    
|(28)

|    
|----
|    
|    
|    
|(29)

Equity Compensation Plan Information

|                                                           |                                                |                                                        |                                                        |            |                   |                                                        |                                                       
|---------------------------------------------------------- | ---------------------------------------------- | ------------------------------------------------------ | ------------------------------------------------------ | ---------- | ----------------- | ------------------------------------------------------ | ------------------------------------------------------
|                                                           |                                                |                                                        |                                                        |            |                   |                                                        | Number of                                             
|                                                           |                                                |                                                        |                                                        |            |                   |                                                        | securities                                            
|                                                           |                                                |                                                        |                                                        |            |                   |                                                        | remaining available                                   
|                                                           |                                                |                                                        | Number of                                              |            |                   |                                                        | for future issuance                                   
|                                                           |                                                |                                                        | Securities to be                                       |            |                   |                                                        | under equity                                          
|                                                           |                                                |                                                        | issued upon                                            |            | Weighted-average  |                                                        | compensation plans                                    
|                                                           |                                                |                                                        | exercise of                                            |            | exercise price of |                                                        | (excluding                                            
|                                                           |                                                |                                                        | outstanding                                            |            | outstanding       |                                                        | securities                                            
|                                                           |                                                |                                                        | options, warrants                                      |            | options, warrants |                                                        | reflected in column                                   
|Plan Category                                              |                                                | and rights                                             |                                                        | and rights |                   | (a))                                                  
|                                                           |                                                |                                                        |                                                        |            |                   |                                                        |                                                       
|                                                           |                                                |                                                        | (a)                                                    |            | (b)               |                                                        | (c)                                                   
|                                                           |                                                |                                                        |                                                        |            |                   |                                                        |                                                       
|Equity compensation
plans approved by
security holders     |                                                |                                                        |                                                        |            |                   |                                                       
|                                                           | 2001 Incentive Plan(1)                         |                                                        | 5,153,750 shares of
the Companys Class
A common stock |            | $7.06             |                                                        | 1,846,250 shares of
the Companys Class
A common stock
|                                                           | 2000 Nonemployee
Director Stock Option
Plan(1) |                                                        | 51,000 shares of
the Companys Class
A common stock(2) |            | $6.47             |                                                        | 99,000 shares of
the Companys Class
A common stock   
|Equity compensation
plans not approved by
security holders |                                                |                                                        |                                                        |            |                   |                                                       
|                                                           | None                                           |                                                        | N/A                                                    |            | N/A               |                                                        | N/A                                                   
|Total                                                      |                                                | 5,204,750 shares of
the Companys Class
A common stock |                                                        | $7.06      |                   | 1,945,250 shares of
the Companys Class
A common stock



---

|(1) |  | Approved by our stockholders at the 2001 Annual Meeting of Stockholders, held December 19, 2001.                                                                                                                                                                                                                                                                                         
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Of the 15,000 shares of our Class A common stock granted in an option to
Sydney Pollack, a former nonemployee director who resigned from our board
of directors on November 8, 2002, 6,000 shares had vested as of the date
of his resignation, which were exercisable until February 6, 2003. Mr.
Pollack did not exercise his option as to these vested shares before
February 6, 2003.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Liberty Subordinated Credit Agreement with Liberty Media and Supplements to
Liberty Subordinated Credit Agreement with Liberty Media

The Company and Liberty Media, which owns over 91% of the Companys
outstanding common stock and over 99% of the voting power of the Companys
outstanding common stock, are parties to the Liberty Subordinated Credit
Agreement as well as Supplements Nos. 1, 2 and 3 thereto. For a discussion of
such agreements and borrowings and stock sales made pursuant to such
agreements, see the discussion contained in Part II, Item 7, MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
Liquidity and Capital Resources  Liberty Subordinated Credit Agreement, -
Supplement No. 1 and Supplement No. 2 and  Supplement No. 3.

Sales of Stock to Liberty Media

For a discussion of the Companys sales of stock to Liberty Media, in
addition to those sales referred to in -Liberty Subordinated Credit Agreement
with Liberty Media and Supplements to Liberty Subordinated Credit Agreement
with Liberty Media above, see the discussion contained in Part II, Item 7,
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS  Liquidity and Capital Resources  Stock Sales to Liberty Media.

Tax Sharing Agreement between Liberty Media and the Company

In November 2000, the Company and Liberty Media became parties to a tax
sharing agreement, whereby the Company is obligated to make a cash payment to
Liberty Media in each year that it (taken together with all of the Companys
domestic subsidiaries) has positive taxable income measured on a separate
return basis. The amount of the payment would be equal to the amount of that positive
taxable income multiplied by the highest corporate tax rate. In the event that
(1) the Company and its subsidiaries, when treated as a separate group, have a
net operating loss or are entitled to a net tax credit for a particular year,
and (2) Liberty Media is able to use such loss or credit to reduce its tax
liability for any year, the Company would become entitled to a credit against
future payments to Liberty Media under the agreement. If the Company becomes
disaffiliated from Liberty Media and the group of companies that file tax
returns jointly with Liberty Media (i.e., if the value or voting power of
Liberty Medias stock ownership of the Company were to drop below 80%) prior to
the time that the Company is able to use such credit, the Company would be
entitled to a payment from Liberty Media at the earlier of the time that (1)
the Company shows it could have used the net operating loss carry forward or
net tax credit to reduce the Companys own separately computed tax liability or
(2) the value or voting power of Liberty Medias stock ownership of us drops
below 20%. In addition, under the tax sharing agreement, the Company has the
right to participate in the defense of claims of the Internal Revenue Service
that might affect its liability under the agreement, and to participate in tax
refunds paid to Liberty Media where such refunds are due in part to its
operations.

53



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Services Received From Liberty Media

Liberty Media allocates salaries, benefits, business insurance and certain
other general and administrative expenses (including a portion of the salary of
William R. Fitzgerald, the Companys President and Chief Executive Officer) to
the Company. In addition, the Company reimburses Liberty Media for certain
expenses, such as employee medical costs, and business property and casualty
insurance paid by Liberty Media on behalf of the Company. The Company has
determined the allocated and reimbursed amounts to be reasonable and equal to
the fair value of the expenses charged. Amounts allocated from Liberty Media to
the Company totaled $14.1 million and $5.4 million for the years ended December
31, 2002 and 2001, respectively. The increase in such amounts is primarily
attributed to medical insurance being purchased through Liberty Media starting
fiscal 2002.

Executive Officer Loan

On April 8, 1999, Mr. Walston was granted a loan from Four Media Company
in the principal amount of $2.0 million in conjunction with the execution of
his agreement with Four Media Company, dated January 1, 1999, for employment as
its President and Chief Executive Officer. Four Media Company became a
subsidiary of the Company in June 2000 and Mr. Walston became the Companys
acting President and Chief Executive Officer in April 2001 and was the
Companys President and Chief Executive Officer from August 2001 to May 2002.

The loan was unsecured and bore interest at an annual rate of 4.59%,
compounded semiannually. Mr. Walston was required to repay the outstanding
balance of the loan, if any, and any accrued interest thereon, no later than
May 8, 2004. Notwithstanding the foregoing terms of the loan, Mr. Walstons
employment agreement provided that the outstanding balance of the loan, if any,
and any accrued interest thereon would be automatically forgiven, upon the
occurrence of any of the following events: (1) a change of control of Four
Media Company during the five-year term of the loan; or (2) termination of Mr.
Walstons employment without cause or for good reason; or (3) the Company (as
successor to Four Media Company) achieving $327.0 million or more in
consolidated gross operating revenues (as defined in the note governing the
loan) during the 365 day period beginning April 8, 2003 (referred to in this
report as the Measurement Period); or (4) the Company (as successor to Four
Media Company) achieving $87.0 million or more in consolidated earnings before
interest, taxes, depreciation and amortization during the Measurement Period;
or (5) the board of directors, in its sole and absolute discretion, determining
that the payments under the loan should be forgiven following the expiration
of the Measurement Period. In April 2000, Mr. Walston agreed to waive the
forgiveness of the loan that would otherwise have resulted from the acquisition
of Four Media Company by Liberty Media.

On January 25, 2002, our Compensation Committee approved, subject to
stockholder approval, an amendment and restatement of the loan agreement (i) to
modify the performance benchmarks, which, if satisfied, would result in a
cancellation of the loan, (ii) to provide for our payment of all tax liability
incurred by Mr. Walston associated with any forgiveness of the loan, and (iii)
to extend the term of the loan from May 8, 2004 to February 15, 2005. Since
the annual meeting of stockholders was held on January 23, 2003, after Mr.
Walstons employment with the Company terminated, the proposed loan amendment
was not submitted for stockholder approval.

On May 17, 2002, Mr. Walstons employment with the Company terminated and,
pursuant to his employment agreement, the outstanding balance under the loan of
$2.0 million plus accrued interest of $300,000 was automatically
forgiven. The Company is
currently negotiating severance arrangements with Mr. Walston,
the terms of which have not been agreed upon.

Services Received From SMH
Entertainment, Inc.

In connection with
Liberty Medias acquisition of a controlling interest in our
Company, we, Mr. Hassanein (then a member of our board of
directors who later resigned as of February 27, 2002), SMH
Entertainment, Inc., a corporation under Mr. Hassaneins
control, and Liberty Media entered into a three-year consulting
agreement, dated December 10, 1999, and commencing as of
June 9, 2000, as amended by certain stock option agreements, the
terms of which are as follows: (1) SMH Entertainment receives
$150,000 annually as compensation for Mr. Hassaneins
consulting services to us during the terms of the agreement; and
(2) Mr. Hassanein received a stock option to purchase
50,000 shares of our Class A common stock at an exercise price
of $7.00 per share, all of which are fully vested and exercisable,
and an additional stock option to purchase 100,000 shares of our
Class A common stock at an exercise price of $10.27 per share,
all of which are fully vested
and exercisable. The above-mentioned options were granted to Mr. Hassanein
on August 6, 2001, pursuant to stock option agreements dated as
of June 1, 2001, and they all expire on the earlier of
June 9, 2010, a change of control of the Company, or two years
after the death or permanent disability of Mr. Hassanein, if not
previously exercised.

Consulting Agreement with Named Executive Officer

The Company has entered into a three-year consulting agreement with
Lawrence Chernoff, dated November 20, 2002 and amended and restated January 1,
2003 to include Mr. Chernoffs company, Larry Chernoff & Associates, as a
signatory to the consulting agreement, pursuant to which Mr. Chernoffs
employment with the Company terminated effective December 31, 2002 and he
became a consultant to the Company effective January 1, 2003. Under the
consulting agreement, Mr. Chernoff will provide advice, guidance and
consultation to the Company with respect to

55



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(a) the operation, management, and strategic vision of the Companys
Creative Services Group, (b) marketing, client retention and development, and
new business development for the Creative Services Group, and (c) new
technologies and their deployment. For these services, Mr. Chernoff will be
paid a minimum of $350,000 per year and will have the opportunity to earn
additional compensation up to a maximum of $130,000 per year. Mr. Chernoff
received no severance payment in connection with the termination of his
employment, but 68,750 of the shares covered by Mr. Chernoffs option to
purchase 275,000 of the Companys Class A common stock vested on December 31,
2002, and will remain exercisable in accordance with the terms of the Companys
2001 Incentive Plan for so long as Mr. Chernoff remains a consultant to the
Company. The option terminated as to the remaining 206,250 shares on January 1,
2003. Mr. Chernoffs option to purchase a total of 59,139 shares of Liberty
Media Series A common stock (47,311 shares of which have already vested) will
continue to vest in accordance with its current vesting schedule and will
remain exercisable in accordance with the terms of the Four Media Company 1997
Stock Plan for so long as Mr. Chernoff remains a consultant to the Company. The
term of the consulting agreement will automatically extend for two additional
one-year periods unless Mr. Chernoff gives prior notice of his intention to
terminate the consulting agreement.

Services Agreements with OnCommand Corporation

Effective
October 1, 2002, the Company entered into a short-term agreement
with OnCommand Corporation (OnCommand), a controlled
subsidiary of Liberty Media, pursuant to which the Company is
supplying OnCommand with uplink and satellite transport services at a
cost of $150,000 through March 31, 2003. OnCommand has been
utilizing the Companys services to test the satellite delivery
of content updates to OnCommands downlink sites at various
hotels. The Company executed a Content Preparation and Distribution
Services Agreement, dated March 24, 2003, with a wholly-owned
subsidiary of OnCommand, under which the Company will provide uplink
and satellite transport services for a negotiated rate of
approximately $250,000 per year for a period of five years and
content preparation services valued at a negotiated rate for each use
of covered services for a period of five years at OnCommands
request. The parties are also negotiating an agreement for the
installation by the Company of satellite equipment at
OnCommands downlink sites at hotels for a set fee per
installation completed.




ITEM 14. CONTROLS AND PROCEDURES.

The Companys chief executive officer and chief financial officer
performed an evaluation of the Companys disclosure controls and procedures (as
defined in Rule 13a-14(c) and Rule 15d-14(c) of the Securities Exchange Act of
1934, as amended) as of a date within 90 days prior to the filing of this
report. Based on this evaluation, the Companys chief executive officer and
chief financial officer conclude that such controls and procedures effectively
insure that information required to be disclosed in this report is
appropriately recorded, processed and reported. There have been no significant
changes in the Companys internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.

56



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##### Table of Contents






PART IV




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

|    |  |                                           
|--- |  | ------------------------------------------
|(a) |  | Financial Statement Schedules and Exhibits

|    |  |                                                                                                                                                                       
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) |  | Financial Statements and Schedules are as listed in the Index
to Financial Statements and Financial Statement Schedule on
page F-1 of this Annual Report on Form 10-K.
|   
|(2) |  | See Exhibit Index on page 61 of this Annual Report on Form 10-K.                                                                                                      

|    |  |                                                                                                                                                                                                                                                                                                                                                                                  
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | Reports on Form 8-K                                                                                                                                                                                                                                                                                                                                                              
|   
|    |  | Current Report on Form 8-K, filed with the Commission on October 8, 2002 (regarding transactions under Supplement No. 3 to the
Liberty Subordinated Credit Agreement on September 30, 2002).                                                                                                                                                                                     
|   
|    |  | Current Report on Form 8-K, filed with the Commission on November 14, 2002 (attaching certifications by the Companys chief
executive officer and chief financial officer pursuant to section 906 of the Sarbanes-Oxley Act of 2002 in connection with the
Companys filing of its Quarterly Report on Form 10-Q, which was also filed with the Commission on November 14, 2002).
|   
|    |  | Current Report on Form 8-K, filed with the Commission on November 18, 2002 (regarding a written consent of stockholders in lieu
of a meeting to amend the Companys articles of incorporation to change the name of the Company to Ascent Media Group and
amends certain information with respect to the Companys registered agent in Delaware).                              
|   
|(c) |  | Exhibits                                                                                                                                                                                                                                                                                                                                                                         
|   
|    |  | Exhibits are as listed in the Exhibit Index on page 61 of this Annual Report on Form 10-K.                                                                                                                                                                                                                                                                                       

57



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SIGNATURES

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

| |  |                                                                                                                                        
| |  | ---------------------------------------------------------------------------------------------------------------------------------------
| |  | ASCENT MEDIA GROUP, INC.
/s/ William R. Fitzgerald
William R. Fitzgerald
President, Chief Executive Officer and Director
March 27, 2003

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints William R. Fitzgerald and George C.
Platisa, and each or any one of them, his true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments to this report, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or their
or his substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.

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

|               |  |                                                                                                                      |  |                |  |                                                                                            
|-------------- |  | -------------------------------------------------------------------------------------------------------------------- |  | -------------- |  | -------------------------------------------------------------------------------------------
|March 27, 2003 |  | /s/ William R. Fitzgerald
William R. FitzgeraldChairman of the Board
President, Chief Executive
Officer and Director |  | March 27, 2003 |  | /s/ Robert R.
Bennett
Robert R. BennettDirector                                            
|              
|March 27, 2003 |  | /s/ Gary S. Howard
Gary S. HowardDirector                                                                            |  | March 27, 2003 |  | /s/ David P. Malm
David P. MalmDirector                                                    
|              
|March 27, 2003 |  | /s/ Brian C. Mulligan
Brian C. MulliganDirector                                                                      |  | March 27, 2003 |  | /s/ Larry E. Romrell
Larry E. RomrellDirector                                              
|              
|March 27, 2003 |  | /s/ Bernard W. Schotters
Bernard W. SchottersDirector                                                                |  | March 27, 2003 |  | /s/ George C.
Platisa
George C.
PlatisaChief Financial Officer and
Executive Vice President
|              
|March 27, 2003 |  | /s/ Jay Singh
Jay SinghSenior Vice President and
Chief Accounting Officer                                            |  |                |  |                                                                                            

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CERTIFICATIONS

Certification of Chief Executive Officer

I, William R. Fitzgerald, certify that:

1. I have reviewed this annual report on Form 10-K of Ascent Media Group, Inc.;

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

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

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



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

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



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 27, 2003

/s/ William R. Fitzgerald

William R. Fitzgerald
Chief Executive Officer

59



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##### Table of Contents



Certification of Chief Financial Officer

I, George C. Platisa, certify that:

1. I have reviewed this annual report on Form 10-K of Ascent Media Group, Inc.;

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

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

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



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report is
being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        

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



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        

6. The registrants other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls or in
other factors that could significantly affect internal controls subsequent to
the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

Date: March 27, 2003

/s/ George C. Platisa

George C. Platisa
Chief Financial Officer

60



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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3.1     |  | Restated Certificate of Incorporation of the Company (Incorporated by
reference to Exhibit 99.1 to the Companys Current Report on Form 8-K
dated November 18, 2002, filed with the Securities and Exchange Commission (the "Commission") on November 18,
2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|3.2     |  | Amended and Restated Bylaws of the Company (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|4.1     |  | Specimen certificate for shares of Class A common stock; par
value $0.01 per share, of the Company (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|4.2     |  | Specimen certificate for shares of Class B common stock, par value
$0.01 per share, of the Company (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|10.1    |  | Liberty Livewire Corporation 2001 Incentive Plan (Incorporated by
reference to Annex B to the Companys Proxy Statement filed with the
Commission on November 20, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|10.2    |  | 2000 Nonemployee Director Stock Option Plan of Liberty Livewire
Corporation (Incorporated by reference to Annex C to the Companys
Proxy Statement filed with the Commission on November 20, 2001).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|10.3    |  | Subordination Agreement dated as of June 2001, between the Company
and Liberty Media Corporation (Incorporated by reference to Exhibit
10.17 to the Companys Annual Report on Form 10-K, filed with the
Commission on April 1, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10.4    |  | Amendment No. 1 to the Senior Credit Agreement, dated as of November
1, 2001 among Liberty Livewire Corporation, the several banks and
other financial institutions from time to time parties to the
Agreement, Bank of America, N.A., as issuer of certain letters of
credit and as swingline lender, Banc of America Securities LLC, as
lead arranger and book manager, Bank of America, N.A., as
administrative agent for the lenders, Salomon Smith Barney Inc., as
syndication agent for the lenders and the Bank of New York Company,
Inc. as documentation agent for the lenders (Incorporated by
reference to Exhibit 10.16 to the Companys Annual Report on Form
10-K, filed with the Commission on April 1, 2002).
|10.5    |  | Amendment No. 2, dated as of March 26, 2002, to the Credit Agreement,
     , dated as of December 22, 2000, among Liberty Livewire Corporation,
as Borrower, the Several Lenders from Time to Time Parties Thereto;
Banc of America Securities LLC, as Lead Arranger and Book Manager;
Bank of America, N.A., as Issuer and Swingline Lender; Bank of
America, N.A., as Administrative Agent; Salomon Smith Barney Inc., as
Syndication Agent; and The Bank of New York Company, Inc., as
Documentation Agent (Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q, filed with the Commission on
May 15, 2002).                                                                         
|10.6    |  | Amendment No. 3, dated as of November 13, 2002, to the Credit
Agreement, dated as of December 22, 2000, among Liberty Livewire
Corporation, as Borrower, the Several Lenders from Time to Time
Parties Thereto; Banc of America Securities LLC, as Lead Arranger and
Book Manager; Bank of America, N.A., as Issuer and Swingline Lender;
Bank of America, N.A., as Administrative Agent; Salomon Smith Barney
Inc., as Syndication Agent; and The Bank of New York Company, Inc.,
as Documentation Agent (Incorporated by reference to Exhibit 10.5 to
the Companys Quarterly Report on Form 10-Q, filed with the
Commission on November 14, 2002).                                                                        
|10.7    |  | Senior Credit Agreement Consent Letter, dated June 28, 2002
(Incorporated by reference to Exhibit 10.1 to the Companys Quarterly
Report on Form 10-Q, filed with the Commission on August 14, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.8    |  | Heller Consent Letter, dated June 28, 2002 (Incorporated by reference
to Exhibit 10.2 to the Companys Quarterly Report on Form 10-Q, filed
on August 14, 2002).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

61



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                 
|10.9    |  | Supplement No. 1 to the First Amended and Restated Credit Agreement,
dated June 28, 2002, by and between Liberty Livewire Corporation and
Liberty Media Corporation, and Promissory Note, dated June 28, 2002,
from Liberty Livewire Corporation in favor of Liberty Media
Corporation (Incorporated by reference to Exhibit 10.3 to the
Companys Quarterly Report on Form 10-Q, filed with the Commission on
August 14, 2002).
|10.10   |  | Supplement No. 2 to the First Amended and Restated Credit Agreement,
dated July 24, 2002, by and between Liberty Livewire Corporation and
Liberty Media Corporation, and Promissory Note, dated July 24, 2002,
from Liberty Livewire Corporation in favor of Liberty Media
Corporation (Incorporated by reference to Exhibit 10.4 to the
Companys Quarterly Report on Form 10-Q, filed with the Commission on
August 14, 2002).
|10.11   |  | Supplement No. 3 to the First Amended and Restated Credit Agreement,
dated August 13, 2002, by and between Liberty Livewire Corporation
and Liberty Media Corporation (Incorporated by reference to Exhibit
10.5 to the Companys Quarterly Report on Form 10-Q, filed with the
Commission on August 14, 2002).                                                                                                                 
|10.12   |  | Consent Letter of Parties to the Senior Credit Agreement, dated
September 26, 2002 (Incorporated by reference to Exhibit 10.1 to the
Companys Quarterly Report on Form 10-Q, filed with the Commission on
November 14, 2002).                                                                                                                                                                                                  
|10.13   |  | Consent Letter of Heller Financial Leasing, Inc., dated September 26,
2002 (Incorporated by reference to Exhibit 10.2 to the Companys
Quarterly Report on Form 10-Q, filed with the Commission on November
14, 2002).                                                                                                                                                                                                          
|10.14   |  | Stock Purchase Agreement, dated as of September 30, 2002, by and
between the Company and Liberty Media Corporation (Incorporated by
reference to Exhibit 99.5 to the Companys Current Report on Form 8-K
as filed with the Commission on October 8, 2002).                                                                                                                                                                     
|10.15   |  | Promissory Note, dated September 30, 2002 of the Company in the
original principal amount of $5,349,700 for the benefit of Liberty
Media Corporation (Incorporated by reference to Exhibit 99.6 to the
Companys Current Report on Form 8-K as filed with the Commission on
October 8, 2002).                                                                                                                                   
|10.16   |  | Promissory Note, dated October 17, 2002 of the Company in the
original principal amount of $4,000,000 for the benefit of Liberty
Media Corporation (filed herewith).                                                                                                                                                                                                                                                            
|10.17   |  | Employment Agreement, dated January 1, 1999, by and between Robert T.
Walston and Four Media Company (Incorporated by reference to Exhibit
10.20 to the Companys Annual Report on Form 10-K, filed on April 1,
2002).                                                                                                                                                                                                          
|10.18   |  | Employment Agreement, dated May 30, 2002, by and between Scott Davis
and the Company (filed herewith).                                                                                                                                                                                                                                                                                                                          
|10.19   |  | Employment Agreement, dated May 21, 2001, by and between George C.
Platisa and the Company (filed herewith).                                                                                                                                                                                                                                                                                                                    
|10.20   |  | Employment Agreement, dated May 21, 2002, by and between Gavin Schutz
and the Company (filed herewith).                                                                                                                                                                                                                                                                                                                         
|10.21   |  | Consulting Agreement, dated January 1, 2003, by and among Lawrence
Chernoff, Larry Chernoff & Associates and the Company (filed
herewith).                                                                                                                                                                                                                                                                                      
|10.22   |  | Registration Rights Agreement, dated as of June 1, 2001, between the
Company and Salah M. Hassanein (Incorporated by reference to Exhibit
10.22 to the Companys Annual Report on Form 10-K, filed on April 1,
2002).                                                                                                                                                                                                           
|10.23   |  | Stock Option Agreement, dated as of June 1, 2001, between the Company
and Salah M. Hassanein (option for 50,000 shares) (Incorporated by
reference to Exhibit 10.23 to the Companys Annual Report on Form
10-K, filed on April 1, 2002).                                                                                                                                                                                       

62



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|        |  |                                                                                                                                                                                                                                           
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                           
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                           
|10.24   |  | Stock Option Agreement, dated as of June 1, 2001, between the Company
and Salah M. Hassanein (option for 100,000 shares) (Incorporated by
reference to Exhibit 10.24 to the Companys Annual Report on Form
10-K, filed on April 1, 2002).
|11.1    |  | Computation of Per Share Earnings.
See Note 2 of Notes to Financial Statements.                                                                                                                                                           
|18.1    |  | Changes in Accounting Principles.
See Note 2 of Notes to Financial Statements.                                                                                                                                                            
|21.1    |  | Subsidiaries of the Company (filed herewith).                                                                                                                                                                                             
|24      |  | Power of Attorney (included with the signature page hereof).                                                                                                                                                                              
|99.1    |  | Certification pursuant to section 906 of the Sarbanes-Oxley Act of
2002. Pursuant to Commission Release 34-47551 this certification shall
not be deemed to be filed with the Commission but shall be deemed to accompany this report.     

63



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ASCENT MEDIA GROUP, INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

|                                                                                                                                                                                                                 |  |      |      | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                                                                                                                 |  | Page
|                                                                                                                                                                                                                 |  |     
|Independent Auditors Report                                                                                                                                                                                     |  |      | F-2  | 
|Consolidated Balance Sheets at December 31, 2002 and 2001                                                                                                                                                        |  |      | F-3  | 
|Consolidated Statements of Operations for the Years Ended December
31, 2002 and 2001, the Seven Months Ended December 31, 2000, and
the Five Months Ended May 31, 2000                                           |  |      | F-4  | 
|Consolidated Statements of Stockholders Equity and Comprehensive
Income (Loss) for the Years Ended December 31, 2002 and 2001, the
Seven Months Ended December 31, 2000, and the Five Months Ended
May 31, 2000 |  |      | F-5  | 
|Consolidated Statements of Cash Flows for the Years Ended December
31, 2002 and 2001, the Seven Months Ended December 31, 2000, and
the Five Months Ended May 31, 2000                                           |  |      | F-7  | 
|Notes to Consolidated Financial Statements                                                                                                                                                                       |  |      | F-8  | 
|Schedule II: Valuation and Qualifying Accounts for the Years Ended
December 31, 2002 and 2001, the Seven Months Ended December 31,
2000, and the Five Months Ended May 31, 2000                                  |  |      | F-37 | 

Schedules other than those listed above have been omitted because of the
absence of the conditions under which they are required or because the required
information, where material, is shown in the financial statements or the notes
thereto.

F-1



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##### Table of Contents



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

Independent Auditors Report

The Shareholders and Board of Directors
Ascent Media Group, Inc.:

We have audited the accompanying consolidated financial statements of
Ascent Media Group, Inc. (formerly known as Liberty Livewire Corporation) and
subsidiaries as listed in the accompanying index. In connection with our audits
of the consolidated financial statements, we also have audited the financial
statement schedule as listed in the accompanying index. These consolidated
financial statements and financial statement schedule are the responsibility of
the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ascent
Media Group, Inc. (formerly known as Liberty Livewire Corporation) and
subsidiaries as of December 31, 2002 and 2001, and the results of their
operations and their cash flows for the years ended December 31, 2002 and 2001,
the seven months ended December 31, 2000, and the five months ended May 31,
2000, in conformity with accounting principles generally accepted in the United
States of America. Also in our opinion, the related financial statement
schedule when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.

As discussed in Note 1 to the consolidated financial statements, effective
June 9, 2000, Liberty Media Corporation obtained a controlling interest in
Ascent Media Group, Inc. (formerly known as Liberty Livewire Corporation) in
a business combination accounted for as a purchase. As a result of the business
combination, the consolidated financial information for the period after the
acquisition is presented on a different cost basis than that for the periods
before the acquisition and thereof, is not comparable.

As discussed in Note 3 to the consolidated financial statements, the
Company adopted Statement of Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective January 1, 2002, and accordingly, has changed its
method of accounting for goodwill and other intangible assets for the year
ended December 31, 2002.

/s/   KPMG LLP

February 18, 2003

Los Angeles, California

F-2



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##### Table of Contents



ASCENT MEDIA GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)

|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |          |         |     |         | 
|------------------------------------------- | ------------------------------------------------------------------------------------------- | -------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | ------- | ------------ | ------- | -------- | ------- | --- | ------- | 
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         | December 31,
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |             
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         | 2002         |         | 2001    
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|ASSETS                                     
|Current Assets:                             |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            | Cash and cash equivalents                                                                   |                      | $                                                                                                                                                       | 11,998                     |         |              | $       | 23,433   |        
|                                            | Trade receivables, net                                                                      |                      |                                                                                                                                                         | 96,091                     |         |              |         | 96,696   |        
|                                            | Inventories                                                                                 |                      |                                                                                                                                                         | 4,314                      |         |              |         | 4,016    |        
|                                            | Deferred income taxes, net                                                                  |                      |                                                                                                                                                         | 6,176                      |         |              |         | 5,006    |        
|                                            | Prepaid expenses and other current assets                                                   |                      |                                                                                                                                                         | 15,862                     |         |              |         | 14,237   |        
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            |                                                                                             | Total current assets |                                                                                                                                                         |                            | 134,441 |              |         |          | 143,388 |    
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            | Property, plant and equipment, net                                                          |                      |                                                                                                                                                         | 300,497                    |         |              |         | 316,077  |        
|                                            | Goodwill and other intangible assets, net                                                   |                      |                                                                                                                                                         | 343,057                    |         |              |         | 448,909  |        
|                                            | Other assets, net                                                                           |                      |                                                                                                                                                         | 15,331                     |         |              |         | 11,317   |        
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            |                                                                                             |                      |                                                                                                                                                         | Total assets               |         | $            | 793,326 |          |         | $   | 919,691 | 
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|LIABILITIES AND STOCKHOLDERS EQUITY       
|Current Liabilities:                        |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            | Current maturities of long-term debt and capital lease obligations                          |                      | $                                                                                                                                                       | 18,928                     |         |              | $       | 19,129   |        
|                                            | Accounts payable                                                                            |                      |                                                                                                                                                         | 31,280                     |         |              |         | 38,906   |        
|                                            | Accrued expenses and other current liabilities                                              |                      |                                                                                                                                                         | 61,266                     |         |              |         | 76,345   |        
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            |                                                                                             |                      |                                                                                                                                                         | Total current liabilities  |         |              | 111,474 |          |         |     | 134,380 | 
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            | Long-term debt and capital lease obligations                                                |                      |                                                                                                                                                         | 383,056                    |         |              |         | 424,556  |        
|                                            | Convertible subordinated notes, net                                                         |                      |                                                                                                                                                         | 205,299                    |         |              |         | 183,685  |        
|                                            | Due to parent company, net                                                                  |                      |                                                                                                                                                         | 14,107                     |         |              |         | 5,439    |        
|                                            | Deferred income taxes, net                                                                  |                      |                                                                                                                                                         | 1,506                      |         |              |         | 5,006    |        
|                                            | Other liabilities                                                                           |                      |                                                                                                                                                         | 9,661                      |         |              |         | 13,177   |        
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            |                                                                                             |                      |                                                                                                                                                         | Total liabilities          |         |              | 725,103 |          |         |     | 766,243 | 
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|Commitments and contingencies (See Note 15) |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|Stockholders Equity:                       |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            | Common Stock:                                                                               |                      |                                                                                                                                                         |                            |         |              |         |          |        
|                                            |                                                                                             |                      | Class A; authorized 300,000,000 shares of $0.01
par value; 4,884,559 and 5,334,022 issued and
outstanding at December 31, 2002 and 2001,
respectively   |                            |         | 49           |         |          |         | 53  |        
|                                            |                                                                                             |                      | Class B; authorized 100,000,000 shares of $0.01
par value; 52,341,164 and 34,393,330 issued and
outstanding at December 31, 2002 and 2001,
respectively |                            |         | 523          |         |          |         | 344 |        
|                                            | Additional paid-in capital                                                                  |                      |                                                                                                                                                         | 653,842                    |         |              |         | 617,933  |        
|                                            | Treasury stock; 16,251 and 1,508 shares at cost at December 31, 2002 and 2001,
respectively |                      |                                                                                                                                                         | (124                       | )       |              |         | (28      | )      
|                                            | Accumulated deficit                                                                         |                      |                                                                                                                                                         | (581,268                   | )       |              |         | (446,082 | )      
|                                            | Other                                                                                       |                      |                                                                                                                                                         | 161                        |         |              |         | (1,356   | )      
|                                            | Accumulated other comprehensive loss                                                        |                      |                                                                                                                                                         | (4,960                     | )       |              |         | (17,416  | )      
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|                                            |                                                                                             |                      |                                                                                                                                                         | Total stockholders equity |         |              | 68,223  |          |         |     | 153,448 | 
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         
|Total liabilities and stockholders equity  |                                                                                             | $                    | 793,326                                                                                                                                                 |                            |         | $            | 919,691 |         
|                                            |                                                                                             |                      |                                                                                                                                                         |                            |         |              |         |         

See accompanying notes to consolidated financial statements

F-3



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ASCENT MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share data)

|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |            |  
|--------------------------------------------------------------------------- | -------------------------------------------------------- | - | ------------ | ---------- | ------------ | - | ------------------ | ---------- | ------------- | - | ------- | ---------- | - | - | ------ | ---------- | -
|                                                                            |                                                          |   | Ascent Media |            | Todd-AO     
|                                                                            |                                                          |   |              |            |             
|                                                                            |                                                          |   | Year Ended   |            | Year Ended   |   | Seven Months       |            | Five Months  
|                                                                            |                                                          |   | December 31, |            | December 31, |   | Ended December 31, |            | Ended May 31,
|                                                                            |                                                          |   | 2002         |            | 2001         |   | 2000               |            | 2000         
|                                                                            |                                                          |   |              |            |              |   |                    |            |              
|Net revenues                                                                |                                                          | $ | 539,333      |            |              | $ | 592,732            |            |               | $ | 253,099 |            |   | $ | 53,243 |           
|Cost of services                                                            |                                                          |   | 322,007      |            |              |   | 370,191            |            |               |   | 161,633 |            |   |   | 36,563 |           
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|                                                                            | Gross profit                                             |   |              | 217,326    |              |   |                    | 222,541    |               |   |         | 91,466     |   |   |        | 16,680     |  
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|Operating expenses:                                                         |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|                                                                            | Selling, general and administrative                      |   |              | 130,037    |              |   |                    | 126,783    |               |   |         | 57,352     |   |   |        | 9,160      |  
|                                                                            | Depreciation and amortization                            |   |              | 67,272     |              |   |                    | 128,603    |               |   |         | 51,545     |   |   |        | 6,925      |  
|                                                                            | Non-cash compensation (income)
expense                   |   |              | (48        | )            |   |                    | 4,293      |               |   |         | (29,577    | ) |   |        |           |  
|                                                                            | Impairment of goodwill, intangible
and long-lived assets |   |              | 83,718     |              |   |                    | 307,932    |               |   |         |           |   |   |        |           |  
|                                                                            | Restructuring and other charges                          |   |              | (435       | )            |   |                    | 5,558      |               |   |         |           |   |   |        |           |  
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|                                                                            | Total operating expenses                                 |   |              | 280,544    |              |   |                    | 573,169    |               |   |         | 79,320     |   |   |        | 16,085     |  
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|Income (loss) from operations                                               |                                                          |   | (63,218      | )          |              |   | (350,628           | )          |               |   | 12,146  |            |   |   | 595    |           
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|                                                                            | Interest expense, net                                    |   |              | 64,820     |              |   |                    | 63,119     |               |   |         | 19,132     |   |   |        | 1,641      |  
|                                                                            | Other (income) expense, net                              |   |              | (14,515    | )            |   |                    | 10,974     |               |   |         | (872       | ) |   |        | 1,070      |  
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|Loss before income taxes and change in accounting principle                 |                                                          |   | (113,523     | )          |              |   | (424,721           | )          |               |   | (6,114  | )          |   |   | (2,116 | )         
|Provision (benefit) for income taxes                                        |                                                          |   | 1,436        |            |              |   | 11,568             |            |               |   | 3,679   |            |   |   | (441   | )         
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|Loss before change in accounting principle                                  |                                                          |   | (114,959     | )          |              |   | (436,289           | )          |               |   | (9,793  | )          |   |   | (1,675 | )         
|Change in accounting principle                                              |                                                          |   | (20,227      | )          |              |   |                   |            |               |   |        |            |   |   |       |           
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|Net loss                                                                    |                                                          | $ | (135,186     | )          |              | $ | (436,289           | )          |               | $ | (9,793  | )          |   | $ | (1,675 | )         
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|Weighted average number of common and common equivalent
shares outstanding: |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|                                                                            | Basic and diluted                                        |   |              | 43,971,836 |              |   |                    | 37,858,123 |               |   |         | 34,463,373 |   |   |        | 10,768,773 |  
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|Net loss per common share  basic and diluted:                              |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|                                                                            | Loss before change in accounting
principle               |   | $            | (2.61      | )            |   | $                  | (11.52     | )             |   | $       | (0.28      | ) |   | $      | (0.16      | )
|                                                                            | Change in accounting principle                           |   |              | (.46       | )            |   |                    |           |               |   |         |           |   |   |        |           |  
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           
|                                                                            | Net loss per common share                                |   | $            | (3.07      | )            |   | $                  | (11.52     | )             |   | $       | (0.28      | ) |   | $      | (0.16      | )
|                                                                            |                                                          |   |              |            |              |   |                    |            |               |   |         |            |   |   |        |           

See accompanying notes to consolidated financial statements

F-4



---



##### Table of Contents



ASCENT MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
AND COMPREHENSIVE INCOME (LOSS)
(Amounts in thousands, except share data)

|                             |                                                       |  |           |            |         |   |            |     |                   |  |            |            |          |   |     |     |  |   |         |         |   |   |          |          |  
|---------------------------- | ----------------------------------------------------- |  | --------- | ---------- | ------- | - | ---------- | --- | ----------------- |  | ---------- | ---------- | -------- | - | --- | --- |  | - | ------- | ------- | - | - | -------- | -------- | -
|                             |                                                       |  | Class A   |            | Class B |   | Additional |     | Retained Earnings
|                             |                                                       |  |           |            |         |   | Paid-in    |     | (Accumulated     
|                             |                                                       |  | Shares    |            | Amount  |   | Shares     |     | Amount            |  | Capital    |            | Deficit)
|                             |                                                       |  |           |            |         |   |            |     |                   |  |            |            |         
|Balance at December 31, 1999 |                                                       |  | 8,951,404 |            |         |   | 91         |     |                   |  | 1,747,178  |            |          |   | 17  |     |  |   | 47,089  |         |   |   | 21,881   |         
|                             | Exercise of stock options                             |  |           | 151,318    |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | 776     |   |   |          |         |  
|                             | Other comprehensive income                            |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          |         |  
|                             | Net loss                                              |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          | (1,675   | )
|                             |                                                       |  |           |            |         |   |            |     |                   |  |            |            |          |   |     |     |  |   |         |         |   |   |          |         
|Balance at May 31, 2000      |                                                       |  | 9,102,722 |            |         |   | 91         |     |                   |  | 1,747,178  |            |          |   | 17  |     |  |   | 47,865  |         |   |   | 20,206   |         
|                             | Conversion of equity in Todd
Merger                   |  |           | (4,828,403 | )       |   |            | (48 | )                 |  |            | 4,772,729  |          |   |     | 48  |  |   |         | 91,474  |   |   |          | (20,206  | )
|                             | Unearned stock compensation                           |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | (2,458  | ) |   |          |         |  
|                             | Exercise of stock options                             |  |           | 348,959    |         |   |            | 4   |                   |  |            | 296,039    |          |   |     | 3   |  |   |         | 1,413   |   |   |          |         |  
|                             | Stock issued for acquisitions                         |  |           | 683,465    |         |   |            | 6   |                   |  |            | 24,796,770 |          |   |     | 248 |  |   |         | 413,974 |   |   |          |         |  
|                             | SAR adjustments                                       |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          |         |  
|                             | Contribution to capital                               |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | 17,918  |   |   |          |         |  
|                             | Other comprehensive loss                              |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          |         |  
|                             | Net loss                                              |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          | (9,793   | )
|                             |                                                       |  |           |            |         |   |            |     |                   |  |            |            |          |   |     |     |  |   |         |         |   |   |          |         
|Balance at December 31, 2000 |                                                       |  | 5,306,743 |            |         |   | 53         |     |                   |  | 31,612,716 |            |          |   | 316 |     |  |   | 570,186 |         |   |   | (9,793   | )       
|                             | Stock compensation                                    |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | 1,661   |   |   |          |         |  
|                             | Issuance of stock                                     |  |           | 28,787     |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | 252     |   |   |          |         |  
|                             | Beneficial conversion on
subordinated debt            |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | 25,475  |   |   |          |         |  
|                             | SAR adjustments                                       |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          |         |  
|                             | Contribution to capital                               |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | 2,496   |   |   |          |         |  
|                             | Purchase of treasury shares                           |  |           | (1,508     | )       |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          |         |  
|                             | Payment of interest on
convertible subordinated
notes |  |           |           |         |   |            |    |                   |  |            | 2,780,614  |          |   |     | 28  |  |   |         | 17,863  |   |   |          |         |  
|                             | Other comprehensive loss                              |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          |         |  
|                             | Net loss                                              |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          | (436,289 | )
|                             |                                                       |  |           |            |         |   |            |     |                   |  |            |            |          |   |     |     |  |   |         |         |   |   |          |         
|Balance at December 31, 2001 |                                                       |  | 5,334,022 |            |         | $ | 53         |     |                   |  | 34,393,330 |            |          | $ | 344 |     |  | $ | 617,933 |         |   | $ | (446,082 | )       
|                             | Stock compensation                                    |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | 2,799   |   |   |          |         |  
|                             | Issuance of stock                                     |  |           | 6,261      |         |   |            |    |                   |  |            | 7,510,981  |          |   |     | 75  |  |   |         | 13,218  |   |   |          |         |  
|                             | SAR adjustments                                       |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         | 135     |   |   |          |         |  
|                             | Redemption of stock                                   |  |           | (440,981   | )       |   |            | (4  | )                 |  |            |            |          |   |     |     |  |   |         | (1,407  | ) |   |          |         |  
|                             | Purchase of treasury shares                           |  |           | (14,743    | )       |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          |         |  
|                             | Payment of interest on
convertible subordinated
notes |  |           |           |         |   |            |    |                   |  |            | 10,436,853 |          |   |     | 104 |  |   |         | 21,164  |   |   |          |         |  
|                             | Other comprehensive loss                              |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          |         |  
|                             | Net loss                                              |  |           |           |         |   |            |    |                   |  |            |           |          |   |     |    |  |   |         |        |   |   |          | (135,186 | )
|                             |                                                       |  |           |            |         |   |            |     |                   |  |            |            |          |   |     |     |  |   |         |         |   |   |          |         
|Balance at December 31, 2002 |                                                       |  | 4,884,559 |            |         | $ | 49         |     |                   |  | 52,341,164 |            |          | $ | 523 |     |  | $ | 653,842 |         |   | $ | (581,268 | )       
|                             |                                                       |  |           |            |         |   |            |     |                   |  |            |            |          |   |     |     |  |   |         |         |   |   |          |         

See accompanying notes to consolidated financial statements

F-5



---



##### Table of Contents



|                             |                                                       |   |          |     |       |   |               |        |               |   |             |         |   |   |         |          |  
|---------------------------- | ----------------------------------------------------- | - | -------- | --- | ----- | - | ------------- | ------ | ------------- | - | ----------- | ------- | - | - | ------- | -------- | -
|                             |                                                       |   |          |     |       |   |               |        |               |   | Accumulated |         |   |   |        
|                             |                                                       |   |          |     |       |   |               |        |               |   | Other       |         |   |   |        
|                             |                                                       |   | Treasury |     |       |   |               |        | Comprehensive |   |             |         |  
|                             |                                                       |   | Stock    |     | Other |   | Income (Loss) |        | Total        
|                             |                                                       |   |          |     |       |   |               |        |              
|Balance at December 31, 1999 |                                                       |   | (47      | )   |       |   |              |        |               |   | (171        | )       |   |   | 68,860  |         
|                             | Exercise of stock options                             |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 776      |  
|                             | Other comprehensive income                            |   |          |    |       |   |               |       |               |   |             | 5,643   |   |   |         | 5,643    |  
|                             | Net loss                                              |   |          |    |       |   |               |       |               |   |             |        |   |   |         | (1,675   | )
|                             |                                                       |   |          |     |       |   |               |        |               |   |             |         |   |   |         |         
|Balance at May 31, 2000      |                                                       |   | (47      | )   |       |   |              |        |               |   | 5,472       |         |   |   | 73,604  |         
|                             | Conversion of equity in Todd Merger                   |   |          | 28  |       |   |               | (2,858 | )             |   |             |        |   |   |         | 68,438   |  
|                             | Unearned stock compensation                           |   |          |    |       |   |               | 2,585  |               |   |             |        |   |   |         | 127      |  
|                             | Exercise of stock options                             |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 1,420    |  
|                             | Stock issued for acquisitions                         |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 414,228  |  
|                             | SAR adjustments                                       |   |          |    |       |   |               | (409   | )             |   |             |        |   |   |         | (409     | )
|                             | Contribution to capital                               |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 17,918   |  
|                             | Other comprehensive loss                              |   |          |    |       |   |               |       |               |   |             | (12,406 | ) |   |         | (12,406  | )
|                             | Net loss                                              |   |          |    |       |   |               |       |               |   |             |        |   |   |         | (9,793   | )
|                             |                                                       |   |          |     |       |   |               |        |               |   |             |         |   |   |         |         
|Balance at December 31, 2000 |                                                       |   | (19      | )   |       |   | (682          | )      |               |   | (6,934      | )       |   |   | 553,127 |         
|                             | Stock compensation                                    |   |          |    |       |   |               | 179    |               |   |             |        |   |   |         | 1,840    |  
|                             | Issuance of stock                                     |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 252      |  
|                             | Beneficial conversion on subordinated debt            |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 25,475   |  
|                             | SAR adjustments                                       |   |          |    |       |   |               | (853   | )             |   |             |        |   |   |         | (853     | )
|                             | Contribution to capital                               |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 2,496    |  
|                             | Purchase of treasury shares                           |   |          | (9  | )     |   |               |       |               |   |             |        |   |   |         | (9       | )
|                             | Payment of interest on convertible subordinated notes |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 17,891   |  
|                             | Other comprehensive loss                              |   |          |    |       |   |               |       |               |   |             | (10,482 | ) |   |         | (10,482  | )
|                             | Net loss                                              |   |          |    |       |   |               |       |               |   |             |        |   |   |         | (436,289 | )
|                             |                                                       |   |          |     |       |   |               |        |               |   |             |         |   |   |         |         
|Balance at December 31, 2001 |                                                       | $ | (28      | )   |       | $ | (1,356        | )      |               | $ | (17,416     | )       |   | $ | 153,448 |         
|                             | Stock compensation                                    |   |          |    |       |   |               | 255    |               |   |             |        |   |   |         | 3,054    |  
|                             | Issuance of stock                                     |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 13,293   |  
|                             | SAR plan adjustments                                  |   |          |     |       |   |               | 1,262  |               |   |             |         |   |   |         | 1,397    |  
|                             | Redemption of stock                                   |   |          |    |       |   |               |       |               |   |             |        |   |   |         | (1,411   | )
|                             | Purchase of treasury shares                           |   |          | (96 | )     |   |               |       |               |   |             |        |   |   |         | (96      | )
|                             | Payment of interest on convertible
subordinated notes |   |          |    |       |   |               |       |               |   |             |        |   |   |         | 21,268   |  
|                             | Other comprehensive loss                              |   |          |    |       |   |               |       |               |   |             | 12,456  |   |   |         | 12,456   |  
|                             | Net loss                                              |   |          |    |       |   |               |       |               |   |             |        |   |   |         | (135,186 | )
|                             |                                                       |   |          |     |       |   |               |        |               |   |             |         |   |   |         |         
|Balance at December 31, 2002 |                                                       | $ | (124     | )   |       | $ | 161           |        |               | $ | (4,960      | )       |   | $ | 68,223  |         
|                             |                                                       |   |          |     |       |   |               |        |               |   |             |         |   |   |         |         

See accompanying notes to consolidated financial statements

F-6



---



##### Table of Contents



ASCENT MEDIA GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)

|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |      |        |        |   |  |  |  |  | 
|--------------------------------------------------------- |  | ------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | - | -------- | ------------ | -------- | ------------ | -------- | ------------ | -------- | ------------ | ------ | -------- | ------ | ---- | ------ | ------ | - |  |  |  |  | 
|                                                          |  |                                                                                 |                                                                        |   |          | Ascent Media |          | Todd-AO      |          |              |          |             
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |             
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        | Seven    |        | Five |        |        |   | 
|                                                          |  |                                                                                 |                                                                        |   |          | Year Ended   |          | Year Ended   |          | Months Ended |          | Months Ended |        |          |        |     
|                                                          |  |                                                                                 |                                                                        |   |          | December 31, |          | December 31, |          | December 31, |          | May 31,      |        |          |        |     
|                                                          |  |                                                                                 |                                                                        |   |          | 2002         |          | 2001         |          | 2000         |          | 2000         |        |          |        |     
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Cash flows from operating activities:                     |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|                                                          |  | Net loss                                                                        |                                                                        | $ | (135,186 | )            |          | $            | (436,289 | )            |          | $            | (9,793 | )        |        | $    | (1,675 | )     
|                                                          |  | Adjustments to reconcile net loss to net cash provided by operating
activities: |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |      |        |       
|                                                          |  |                                                                                 | Depreciation and amortization                                          |   |          | 67,272       |          |              |          | 128,603      |          |              |        | 51,545   |        |      |        | 6,925  |  
|                                                          |  |                                                                                 | Non-cash interest expense                                              |   |          | 27,666       |          |              |          | 25,507       |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | Amortization of discount                                               |   |          | 3,462        |          |              |          | 2,968        |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | Change in market value of derivative                                   |   |          | (8,314       | )        |              |          | 2,119        |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | Non-cash compensation expense                                          |   |          | (48          | )        |              |          | 4,293        |          |              |        | (29,577  | )      |      |        |       |  
|                                                          |  |                                                                                 | Impairment of long-lived assets                                        |   |          | 83,718       |          |              |          | 307,932      |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | Change in accounting principle                                         |   |          | 20,227       |          |              |          |              |          |              |        |          |        |      |        |        |  
|                                                          |  |                                                                                 | Restructuring and other charges                                        |   |          | (435         | )        |              |          | 5,388        |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | Deferred income taxes (benefit), net                                   |   |          | (4,670       | )        |              |          | 5,541        |          |              |        | 12,995   |        |      |        | 565    |  
|                                                          |  |                                                                                 | Realized loss on sale of marketable securities                         |   |          |             |          |              |          | 1,402        |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | (Gain) loss on disposal of fixed assets                                |   |          | (1,766       | )        |              |          | 9,867        |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | Gain on sale of Triumph                                                |   |          | (1,599       | )        |              |          |             |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | Other                                                                  |   |          | 424          |          |              |          | (1,323       | )        |              |        |         |        |      |        |       |  
|                                                          |  | Changes in assets and liabilities (net of acquisitions):                        |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |      |        |       
|                                                          |  |                                                                                 | Trade receivables, net                                                 |   |          | 1,676        |          |              |          | 17,867       |          |              |        | (7,442   | )      |      |        | 2,469  |  
|                                                          |  |                                                                                 | Inventories, prepaid expenses and other assets                         |   |          | (7,858       | )        |              |          | 9,398        |          |              |        | (2,000   | )      |      |        | (115   | )
|                                                          |  |                                                                                 | Accounts payable, accrued expenses and other liabilities               |   |          | (5,407       | )        |              |          | (22,918      | )        |              |        | 2,401    |        |      |        | (2,021 | )
|                                                          |  |                                                                                 | Due to/from parent company                                             |   |          | 8,668        |          |              |          | 3,917        |          |              |        | (7,246   | )      |      |        |       |  
|                                                          |  |                                                                                 | Other non-current liabilities                                          |   |          | (5,193       | )        |              |          | 9,309        |          |              |        | 866      |        |      |        | (1,695 | )
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Net cash flows provided by operating activities           |  |                                                                                 | 42,637                                                                 |   |          |              | 73,581   |              |          |              | 11,749   |              |        |          | 4,453  |     
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Cash flows from investing activities:                     |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|                                                          |  |                                                                                 | Proceeds from sales of marketable securities and
investments           |   |          |             |          |              |          | 7,834        |          |              |        |         |        |      |        | 1,951  |  
|                                                          |  |                                                                                 | Purchases of marketable securities and investments                     |   |          |             |          |              |          | (300         | )        |              |        | (5,093   | )      |      |        |       |  
|                                                          |  |                                                                                 | Proceeds from disposal of fixed assets                                 |   |          | 4,791        |          |              |          | 14,475       |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 | Capital expenditures                                                   |   |          | (55,352      | )        |              |          | (73,705      | )        |              |        | (76,700  | )      |      |        | (4,038 | )
|                                                          |  |                                                                                 | Acquisitions, net of cash acquired                                     |   |          |             |          |              |          | (140,014     | )        |              |        | (23,607  | )      |      |        |       |  
|                                                          |  |                                                                                 | Other assets                                                           |   |          |             |          |              |          |             |          |              |        |         |        |      |        | (1,669 | )
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Net cash flows used in investing activities               |  |                                                                                 | (50,561                                                                | ) |          |              | (191,710 | )            |          |              | (105,400 | )            |        |          | (3,756 | )   
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Cash flows from financing activities:                     |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|                                                          |  |                                                                                 | Borrowings of long-term debt                                           |   |          | 8,955        |          |              |          | 53,384       |          |              |        | 384,472  |        |      |        | 400    |  
|                                                          |  |                                                                                 | Payments of long-term debt and capital lease obligations               |   |          | (45,883      | )        |              |          | (46,508      | )        |              |        | (385,485 | )      |      |        | (2,669 | )
|                                                          |  |                                                                                 | Borrowings under convertible subordinated notes                        |   |          | 18,151       |          |              |          | 113,738      |          |              |        | 92,454   |        |      |        |       |  
|                                                          |  |                                                                                 | Proceeds from exercise of stock options                                |   |          |             |          |              |          |             |          |              |        | 5,366    |        |      |        | 776    |  
|                                                          |  |                                                                                 | Proceeds from issuance of common stock                                 |   |          | 13,293       |          |              |          |             |          |              |        | 7,053    |        |      |        |       |  
|                                                          |  |                                                                                 | Purchase of treasury stock                                             |   |          | (96          | )        |              |          | (757         | )        |              |        | 23       |        |      |        |       |  
|                                                          |  |                                                                                 | Redemption of stock                                                    |   |          | (1,411       | )        |              |          |             |          |              |        |         |        |      |        |       |  
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Net cash flows (used in) provided by financing activities |  |                                                                                 | (6,991                                                                 | ) |          |              | 119,857  |              |          |              | 103,883  |              |        |          | (1,493 | )   
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Effect of exchange rate changes on cash                   |  |                                                                                 | 3,480                                                                  |   |          |              | 2,239    |              |          |              | (203     | )            |        |          | (67    | )   
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Net (decrease) increase in cash and cash equivalents      |  |                                                                                 | (11,435                                                                | ) |          |              | 3,967    |              |          |              | 10,029   |              |        |          | (863   | )   
|Cash and cash equivalents at beginning of period          |  |                                                                                 | 23,433                                                                 |   |          |              | 19,466   |              |          |              | 9,437    |              |        |          | 10,300 |     
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Cash and cash equivalents at end of period                |  | $                                                                               | 11,998                                                                 |   |          | $            | 23,433   |              |          | $            | 19,466   |              |        | $        | 9,437  |     
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|Supplemental disclosure of cash flow information:         |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|                                                          |  | Cash paid during the year for:                                                  |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |      |        |       
|                                                          |  |                                                                                 | Interest                                                               |   | $        | 35,748       |          |              | $        | 35,834       |          |              | $      | 18,583   |        |      | $      | 2,689  |  
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|                                                          |  |                                                                                 | Income taxes                                                           |   | $        | 1,874        |          |              | $        | 1,611        |          |              | $      | 2,406    |        |      | $      |       |  
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|                                                          |  | Non-cash investing and financing activities:                                    |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |      |        |       
|                                                          |  |                                                                                 | Capital lease obligations incurred on equipment                        |   | $        |             |          |              | $        | 14,354       |          |              | $      |         |        |      | $      |       |  
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|                                                          |  |                                                                                 | Stock issued for payment of interest on convertible
subordinated notes |   | $        | 21,268       |          |              | $        | 17,891       |          |              | $      |         |        |      | $      |       |  
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     
|                                                          |  |                                                                                 | Divestiture of Triumph                                                 |   | $        | (1,599       | )        |              | $        |             |          |              | $      |         |        |      | $      |       |  
|                                                          |  |                                                                                 |                                                                        |   |          |              |          |              |          |              |          |              |        |          |        |     

See accompanying notes to consolidated financial statements

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ASCENT MEDIA GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, CHANGE IN CONTROL AND BASIS OF PRESENTATION

Organization Ascent Media Group, Inc. (Ascent Media or the Company)
provides services necessary to complete the creation of original content
including feature films, television shows, television commercials, music
videos, promotional and identity campaigns and corporate communications
programming; services necessary to facilitate the global maintenance,
management and distribution of existing content libraries; and services
necessary to assemble and distribute programming for cable and broadcast
networks via fiber, satellite and the Internet.

The Companys assets and operations are primarily comprised of the assets
and operations of the following ten companies acquired during 2001 and 2000:
Four Media Company (4MC); Virgin Media Group Limited (Virgin);, the sound
post-production and certain related businesses of SounDelux Entertainment Group
of Delaware, Inc. (Soundelux); Triumph Communications, Inc. (Triumph);
Video Services Corporation (VSC); Group W Network Services and 100% of the
capital stock of Asia Broadcast Centre Pte. Ltd. and Group W Broadcast Pte.
Ltd. (collectively GWNS); Livewire Network Services, LLC (LNS); Soho Group
Limited (Soho); Visiontext Limited (Visiontext); and Cinram-POP DVD Center
LLC (Cinram-POP). The combination and integration of the acquired entities
allows the Company to offer its clients a range of services, from image capture
to last mile distribution, a complete outsourcing solutions for the technical
and creative requirements.

Change in Control On June 9, 2000, the stockholders of the Company, then
called The Todd-AO Corporation, approved a series of transactions including:
(1) a reclassification of the existing common stock of Todd-AO; (2) the merger
of B-Group Merger Corp., as a wholly-owned subsidiary of Liberty Media
Corporation, with and into Todd-AO, and related merger proposals, referred to
as the Todd Merger; (3) certain post-merger business combinations set forth in
an agreement between Todd-AO and Liberty Media Corporation, dated as of
February 11, 2000; and (4) the change of Todd-AOs name to Liberty Livewire
Corporation. On November 20, 2002, the Company changed its name from Liberty
Livewire Corporation to Ascent Media Group, Inc.

In the Todd Merger, each issued and outstanding share of Todd-AO common
stock was converted into the right to receive 0.4 shares of Ascent Media Class
A common stock and 0.5 shares of Liberty Media Group Class A common stock, a
tracking stock held by AT&T Corporation (AT&T). Liberty Medias aggregate
ownership interest in the Company as of December 31, 2002 consists of both the
Companys Class A common stock and Class B common stock, representing over 91%
of the Companys outstanding equity. Liberty Media beneficially holds and
controls all of Ascent Medias outstanding Class B common stock both directly
and indirectly through its wholly owned subsidiary, Liberty LWR, Inc., and
through Liberty LWR, Inc.s majority owned subsidiary, Liberty Livewire
Holdings, Inc. This ownership gives Liberty Media approximately 99% voting
control of the Company.

Until August 10, 2001, Liberty Media was an indirect wholly owned
subsidiary of AT&T Corporation. Its former parent, Tele-Communications, Inc.
(TCI), was acquired by AT&T in March 1999. Liberty Media and its subsidiaries
constituted all of the businesses and assets of the Liberty Media Group.
Liberty Media Group Class A common stock and Liberty Media Group class B common
stock, were tracking stocks of AT&T that were intended to reflect the economic
performance of the Liberty Media Group. On August 10, 2001, Liberty Media
Corporation split-off from AT&T and began trading as an independent publicly
held company. In the split-off, each share of Liberty Media Group Class A and
Class B common stock were redeemed, on a one-for-one basis, for one share of
Liberty Media Corporations Series A and Series B common stock, respectively.

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Basis of Presentation- Due to the level of ownership of the Company
obtained by Liberty Media as a result of the Todd Merger, as discussed above,
and Liberty Medias contribution of 4MC to the Company as further described in
Note 5, Liberty Media applied push down accounting and transferred to the
Company the estimated fair value adjustments relating to the assets and
liabilities of Todd-AO at June 9, 2000. The assets and liabilities of 4MC have
been recorded at Liberty Medias historical value including fair value
adjustments resulting from the acquisition of 4MC by Liberty Media.

On August 10, 2000, the Board of Directors of the Company approved the
change of the Companys fiscal year end from August 31 to December 31.

The accompanying statements of operations, cash flows and stockholders
equity for the five months ended May 31, 2000 represent the results of
operations of Todd-AO before its acquisition by Liberty Media. The consolidated
financial statements for the years ended December 31, 2002 and 2001, and the
seven months ended December 31, 2000 represent the consolidated financial
condition and results of operations of the Company after giving effect to the
Todd Merger. For financial statement purposes, the acquisition by Liberty Media
is deemed to have occurred on June 1, 2000.

2. SIGNIFICANT ACCOUNTING POLICIES

The following is a summary of significant accounting policies used in
preparation of the accompanying consolidated financial statements. Such
policies are in accordance with accounting principles generally accepted in the
United States of America and have been consistently applied. The preparation of
financial statements in conformity with generally accepted accounting
principles (GAAP) requires management to make estimates and assumptions that
affect the reported amounts of revenues and expenses for each reporting period.
The significant estimates made in preparation of the Companys consolidated
financial statements primarily relate to valuation of goodwill, other
intangible assets, long-lived assets, deferred tax assets, and the amount of
the allowance for doubtful accounts. While management believes that the
carrying value of such assets and liabilities is adequate as of December 31,
2002 and 2001, actual results could differ from the estimates upon which the
carrying values were based.

Principles of Consolidation The consolidated financial statements
include the accounts of the Company and its majority-owned subsidiaries after
elimination of all significant intercompany transactions and accounts.

Cash Equivalents The Company considers investments with original
purchased maturities of three months or less to be cash equivalents.

Trade Receivables Trade receivables are shown net of an allowance based
on historical collection trends and managements judgment on the collectibility
of these accounts. These collection trends, as well as prevailing and
anticipated economic conditions, are routinely monitored by management, and any
adjustments required are reflected in current operations. The allowance for
doubtful accounts as of December 31, 2002 and 2001 was $9.0 million and $12.0
million, respectively.

Concentration of Credit Risk and Significant Customers For the years
ended December 31, 2002 and 2001, the seven months ended December 31, 2000, and
the five months ended May 31, 2000, no single customer accounted for more than
10% of consolidated revenues.

Inventories Inventories are valued at the lower of cost or market using
the first in, first out method. Inventories are primarily comprised of unused
audio and video tapes.

Income Taxes The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.SFAS No.
109 is an asset and liability approach that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
events that have been recognized in the Companys financial statements or tax
returns. In estimating future tax consequences, SFAS No. 109 generally
considers all expected future events other than proposed changes in the tax law
or rates.

Property, Plant and Equipment Property, plant and equipment are stated
at cost less accumulated depreciation and amortization. Depreciation and
amortization are computed on a straight-line basis over the assets estimated
useful lives. Principal lives are as follows: buildings, 10-20 years;
equipment, 3-5 years. Leaseholds, leasehold improvements, and lease acquisition
costs are amortized over the estimated useful life or the lease term, whichever
is shorter. Maintenance and repairs are charged to expense as incurred.
Depreciation expense for property, plant and equipment was $64.2 million, $83.9
million, $30.4 million and $6.4 million for the year ended December 31, 2002

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and 2001, seven months ended December 31, 2000, and five months ended May 31,
2000, respectively.

Goodwill and Non-amortizable Other Intangible AssetsEffective January 1,
2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets
and ceased amortizing goodwill and non-amortizable other intangible assets. In
accordance with SFAS No. 142, the Company reviews the impairment of goodwill
annually and whenever events or changes in circumstances indicate that the
carrying value may not be recoverable. The effect of the adoption was to
record a transitional impairment of $20.2 million during the first quarter of
fiscal 2002 reflected as a change in accounting principle on the statements of
operations.

Other Intangible Assets Amortizable other intangible assets are amortized
on a straight-line basis over their estimated useful lives of 3 to 5 years.

Long-Lived AssetsManagement reviews the realizability of its long-lived
assets whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In evaluating the value and future
benefits of long-term assets, their carrying value is compared to managements
best estimate of undiscounted future cash flows over the remaining amortization
period. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying value of the assets
exceeds the estimated fair value of the assets.

Foreign Currency Translation The Companys foreign subsidiaries
functional currencies are their respective local currencies. Assets and
liabilities of foreign operations are translated into U.S. dollars using
current exchange rates, and revenues and expenses are translated into U.S.
dollars using average exchange rates. The effects of the foreign currency
translation adjustments are deferred and are included in stockholders equity
as a component of accumulated other comprehensive loss.

Net Income Per Common Share The Company presents earnings per share
(EPS) in accordance with SFAS No. 128, Earnings Per Share. Under SFAS No.
128, basic EPS is computed by dividing earnings available to common
shareholders by the weighted average number of common shares outstanding for
the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. When dilutive, stock options are included as share
equivalents in computing diluted earnings per share using the treasury stock
method.

As a result of losses, convertible subordinated notes, warrants and stock
options that could potentially dilute basic EPS in the future that were not
included in the computation of diluted EPS because to do so would have been
anti-dilutive are as follows: 36,303,057 for the year ended December 31, 2002,
29,251,674 for the year ended December 31, 2001, 11,745,357 for the seven
months ended December 31, 2000 and 849,391 for the five months ended May 31,
2000.

Fair Value of Financial Instruments The carrying amounts of cash and
cash equivalents, accounts receivable and accounts payable approximate fair
value because of the short-term maturity of these instruments. Notes payable
are carried at amounts approximating fair value based on current rates offered
to the Company for debt with similar terms.

Interest Rate Swap Agreements The Company utilizes interest rate swap
agreements to manage interest rate exposures and accounts for these swaps in
accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, andSFAS No. 138, Accounting for Certain Derivative Instruments and
Certain Hedging Activities  an Amendment of SFAS No. 133. The Company records
all derivatives on the balance sheet at fair value. The Company has one swap
which is a freestanding derivative instrument and changes in fair value are
reflected in earnings. The Company also has two swaps which are hedging
instruments and changes in fair value are reflected in accumulated other
comprehensive income.

Revenue Recognition Revenues from post production related services are
recognized primarily based upon the number of hours of work performed each
month and the agreed upon billing rate. Revenues for certain Network related
services are recognized when services are provided. Revenues on other long-term
contracts are recorded on the basis of the estimated percentage of completion
of individual contracts. Estimated losses on long-term contracts are recognized
in the period in which a loss becomes evident.

Stock-Based Compensation The Company has one stock-based employee
compensation plan, which is more fully described in Note 12. The Company
applies the intrinsic-value-based method of accounting prescribed by Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations including FASB Interpretation No. 44,
Accounting for Certain Transactions involving Stock Compensation, an
interpretation of APB Opinion No. 25, issued in March 2000, to account for its
fixed-plan stock options. Under this

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method, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeded the exercise price. SFAS
No. 123, Accounting for Stock-Based Compensation, established accounting and
disclosure requirements using a fair-value-based method of accounting for
stock-based employee compensation plans. As allowed by SFAS No. 123, the
Company has elected to continue to apply the intrinsic-value-based method of
accounting described above, and has adopted only the disclosure requirements of
SFAS No. 123. The following table illustrates the effect on net loss if the
fair-value-based method had been applied to all outstanding and unvested awards
in each period (in thousands, except per share data).

|                                                                                                  |                               |   |              |       |              |   |                    |        |               |   |        |       |   |   |        |       |  
|------------------------------------------------------------------------------------------------- | ----------------------------- | - | ------------ | ----- | ------------ | - | ------------------ | ------ | ------------- | - | ------ | ----- | - | - | ------ | ----- | -
|                                                                                                  |                               |   | Ascent Media |       | Todd - AO   
|                                                                                                  |                               |   |              |       |             
|                                                                                                  |                               |   | Year Ended   |       | Year Ended   |   | Seven Months       |        | Five Months  
|                                                                                                  |                               |   | December 31, |       | December 31, |   | Ended December 31, |        | Ended May 31,
|                                                                                                  |                               |   | 2002         |       | 2001         |   | 2000               |        | 2000         
|                                                                                                  |                               |   |              |       |              |   |                    |        |              
|Net loss as reported                                                                              |                               | $ | (135,186     | )     |              | $ | (436,289           | )      |               | $ | (9,793 | )     |   | $ | (1,675 | )    
|Stock-based employee compensation
expense included in reported net
loss                           |                               |   | 3,189        |       |              |   | 1,625              |        |               |   |       |       |   |   |       |      
|Stock-based employee compensation
expense determined under fair
value based method for all awards |                               |   | (4,256       | )     |              |   | (4,633             | )      |               |   |       |       |   |   | (52    | )    
|                                                                                                  |                               |   |              |       |              |   |                    |        |               |   |        |       |   |   |        |      
|Adjusted net loss                                                                                 |                               | $ | (136,253     | )     |              | $ | (439,297           | )      |               | $ | (9,793 | )     |   | $ | (1,727 | )    
|                                                                                                  |                               |   |              |       |              |   |                    |        |               |   |        |       |   |   |        |      
|Net loss per share                                                                                |                               |   |              |       |              |   |                    |        |               |   |        |       |   |   |        |      
|                                                                                                  | As reported basic and diluted |   | $            | (3.07 | )            |   | $                  | (11.52 | )             |   | $      | (0.28 | ) |   | $      | (0.16 | )
|                                                                                                  |                               |   |              |       |              |   |                    |        |               |   |        |       |   |   |        |      
|                                                                                                  | Adjusted basic and diluted    |   | $            | (3.10 | )            |   | $                  | (11.60 | )             |   | $      | (0.28 | ) |   | $      | (0.16 | )
|                                                                                                  |                               |   |              |       |              |   |                    |        |               |   |        |       |   |   |        |      

Reclassifications Certain reclassifications have been made to the prior
years consolidated financial statements to conform to the current years
presentation.

3. GOODWILL AND OTHER INTANGIBLE ASSETS

SFAS No. 142 addresses the financial accounting and reporting for acquired
goodwill and other intangible assets. Under the new rules, the Company is no
longer required to amortize goodwill and other intangible assets with
indefinite lives, but is required to test such assets annually for impairment.
SFAS No. 142 also requires that intangible assets with estimable useful lives
be amortized over their respective estimated useful lives to their estimated
residual values, and be reviewed for impairment.

Effective January 1, 2002, the Company adopted SFAS No. 142 and in
accordance with its provisions, the Company recorded, during the first quarter
of fiscal 2002, a transitional impairment charge of $20.2 million against
goodwill related to its Entertainment Television reporting unit, which is part
of the Creative Services Group. Such charge has been reflected as a cumulative
effect of a change in accounting principle. Also, the Company recorded a
goodwill impairment charge of $83.7 million during the fourth quarter of fiscal
2002, as a result of its annual impairment test of goodwill in accordance with
SFAS No. 142. Of this impairment charge, $56.8 million related to the
Entertainment Television reporting unit and $26.9 million related to the
Commercial Television reporting unit, both part of the Creative Services
Group. Fair value of each reporting unit was determined through the use of an
outside independent valuation consultant. The consultant used both the income
approach and market approach in determining fair value.

In accordance with SFAS No. 142, the Company has ceased amortizing
goodwill totaling $421.7 million as of the beginning of fiscal year 2002 and
$17.5 million of acquired assembled workforce previously classified as
identifiable intangible assets. Additionally, in accordance with SFAS No. 142,
the Company has ceased amortizing $1.7 million of tradenames classified as
intangible assets. As a result, for the year ended December 31, 2002, the
Company did not recognize $27.8 million of amortization expense that would have
been recognized had the previous standards been in effect.

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The following table presents other intangible assets subject to
amortization and estimated future amortization under the provisions of SFAS No.
142 as of December 31, 2002 (in thousands):

|                               |                          |      |        |        |       | 
|------------------------------ | ------------------------ | ---- | ------ | ------ | ----- | 
|Other intangible assets        |                          |      |        |       
|                               | Employment agreements    |      | $      | 8,188  |      
|                               | Non-compete agreements   |      |        | 2,840  |      
|                               |                          |      |        |       
|                               |                          |      | 11,028 |       
|                               | Accumulated amortization |      |        | (5,625 | )    
|                               |                          |      |        |       
|                               |                          | $    | 5,403  |       
|                               |                          |      |        |       
|Estimated amortization expense |                          |      |        |       
|                               |                          | 2003 |        |        | 2,186 | 
|                               |                          | 2004 |        |        | 2,186 | 
|                               |                          | 2005 |        |        | 1,031 | 
|                               |                          |      |        |       
|                               |                          | $    | 5,403  |       
|                               |                          |      |        |       

For the year ended December 31, 2002, the Company recorded $2.3 million of
amortization expense for other intangible assets.

The following table presents the impact of SFAS No. 142 on net loss and
net loss per share had the standard been in effect for fiscal 2001 and 2000
(amounts in thousands, except per share data):

|                                                         |                                                                |                 |          |              |   |              |          |              |        |               |        |        |        |   |        |       |     | 
|-------------------------------------------------------- | -------------------------------------------------------------- | --------------- | -------- | ------------ | - | ------------ | -------- | ------------ | ------ | ------------- | ------ | ------ | ------ | - | ------ | ----- | --- | 
|                                                         |                                                                |                 |          | Ascent Media |   | Todd-AO     
|                                                         |                                                                |                 |          |              |   |             
|                                                         |                                                                |                 |          |              |   |              |          |              |        |               |        | Seven  |        |   |        |      
|                                                         |                                                                |                 |          | Year Ended   |   | Year Ended   |          | Months Ended |        | Five Months  
|                                                         |                                                                |                 |          | December 31, |   | December 31, |          | December 31, |        | Ended May 31,
|                                                         |                                                                |                 |          | 2002         |   | 2001         |          | 2000         |        | 2000         
|                                                         |                                                                |                 |          |              |   |              |          |              |        |              
|Reported net loss                                        |                                                                | $               | (135,186 | )            |   | $            | (436,289 | )            |        | $             | (9,793 | )      |        | $ | (1,675 | )    
|                                                         | Amortization of goodwill                                       |                 |          |             |   |              |          | 31,606       |        |               |        | 15,265 |        |   |        | 1,031 |    
|                                                         | Amortization of acquired assembled
workforce intangible assets |                 |          |             |   |              |          | 8,215        |        |               |        | 3,489  |        |   |        |      |    
|                                                         | Income tax effect                                              |                 |          |             |   |              |          |             |        |               |        | (1,057 | )      |   |        | (208  | )  
|                                                         |                                                                |                 |          |              |   |              |          |              |        |               |        |        |        |   |        |      
|                                                         |                                                                | Net adjustments |          |              |  |              |          |              | 39,821 |               |        |        | 17,697 |   |        |       | 823 | 
|Adjusted net (loss) income                               |                                                                | $               | (135,186 | )            |   | $            | (396,468 | )            |        | $             | 7,904  |        |        | $ | (852   | )    
|                                                         |                                                                |                 |          |              |   |              |          |              |        |               |        |        |        |   |        |      
|Reported net (loss) income per share 
basic and diluted |                                                                | $               | (3.07    | )            |   | $            | (11.52   | )            |        | $             | (.28   | )      |        | $ | (.16   | )    
|                                                         |                                                                |                 |          |              |   |              |          |              |        |               |        |        |        |   |        |      
|Adjusted net (loss) income per share  basic             |                                                                | $               | (3.07    | )            |   | $            | (10.47   | )            |        | $             | .23    |        |        | $ | (.08   | )    
|                                                         |                                                                |                 |          |              |   |              |          |              |        |               |        |        |        |   |        |      
|Adjusted net (loss) income per share 
diluted           |                                                                | $               | (3.07    | )            |   | $            | (10.47   | )            |        | $             | .18    |        |        | $ | (.08   | )    
|                                                         |                                                                |                 |          |              |   |              |          |              |        |               |        |        |        |   |        |      

4. IMPAIRMENT AND RESTRUCTURING CHARGES

During fiscal year 2001, challenging economic conditions impacted overall
business trends. In particular, the entertainment and technology sectors
suffered substantial economic declines. These challenges were further
exacerbated by the events of September 11, 2001, resulting in a continued
negative economic impact during the latter part of the year. These factors
contributed largely to the Companys inability to meet its 2001 operating
objectives and have created reduced expectations and opportunities for the near
term.

Accordingly, the Company evaluated the recoverability of its goodwill and
long-lived asset carrying values pursuant to APB Opinion No. 17, Intangible
Assets,and SFAS No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of. This involved writing-down
goodwill, intangible assets and certain long-lived assets to their fair values,
which was based upon both fair market comparables and by discounting the future
cash flows of these assets through their useful life. As these assets will
remain in service, the remaining net book value of the assets will be
depreciated over their remaining estimated useful lives.

During the quarter ended December 31, 2001, the Company recorded goodwill,
intangible asset, long-lived assets and other asset impairments of $213.9
million, $11.0 million, $59.9 million and $2.1 million, respectively, totaling
$286.9 million. These charges were recorded in each of the Companys three
business segments, but were primarily related to a write-off of goodwill,
intangible assets and long-lived assets for the Companys existing feature film
and entertainment television sound services, and certain assets associated with
the development of the Companys fiber optic transport and IP hosting transport
services. Part of the Companys original valuation of these assets was affected
by its expectation that the development and delivery of interactive television
and other interactive services, including the rollout of a broadband
infrastructure, would have materialized sooner and therefore would have
provided more

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immediate growth opportunities.

Additionally, during the fourth quarter of 2001 the Company completed
certain restructuring activities designed to improve operating efficiencies and
effectiveness and to strengthen its competitive position in the marketplace
primarily through cost and expense reductions. In connection with these
integration and consolidation initiatives, we recorded a charge of $21.0
million for impairment of certain equipment and other fixed assets and $5.6
million for restructuring, which includes $5.2 million related to excess lease
commitments due to planned facility closures and $425,000 for employee
severance payments. Our continuing efforts to integrate acquired businesses
may require further charges for exit and separations plans.

The following table provides the activity and balances of the
restructuring reserve account for the years ended December 31, (in thousands):

|                      |                   |   |         |       |           |   |            |   |         |   |       |       |        |   |       |       | 
|--------------------- | ----------------- | - | ------- | ----- | --------- | - | ---------- | - | ------- | - | ----- | ----- | ------ | - | ----- | ----- | 
|                      |                   |   | Opening |       |           |   |            |   |         |   |       |       | Ending
|                      |                   |   | Balance |       | Additions |   | Deductions |   | Balance
|                      |                   |   |         |       |           |   |            |   |        
|Excess facility costs |                   | $ | 5,133   |       |           | $ |           |   |         | $ |      |       |        | $ | 5,133 |      
|Employee separations  |                   |   | 425     |       |           |   |           |   |         |   | 170   |       |        |   | 255   |      
|                      |                   |   |         |       |           |   |            |   |         |   |       |       |        |   |       |      
|                      | December 31, 2001 |   | $       | 5,558 |           |   | $          |  |         |   | $     | 170   |        |   | $     | 5,388 | 
|                      |                   |   |         |       |           |   |            |   |         |   |       |       |        |   |       |      
|Excess facility costs |                   | $ | 5,133   |       |           | $ |           |   |         | $ | 2,906 |       |        | $ | 2,227 |      
|Employee separations  |                   |   | 255     |       |           |   |           |   |         |   | 255   |       |        |   |      |      
|                      |                   |   |         |       |           |   |            |   |         |   |       |       |        |   |       |      
|                      | December 31, 2002 |   | $       | 5,388 |           |   | $          |  |         |   | $     | 3,161 |        |   | $     | 2,227 | 
|                      |                   |   |         |       |           |   |            |   |         |   |       |       |        |   |       |      

5. ACQUISITIONS

On April 10, 2000, Liberty Media acquired Four Media Company (4MC) for
$123.3 million in cash plus 3,182,300 shares of Class A Liberty Media tracking
stock valued at $137.7 million, converted 4MC vested options into stock
appreciation rights valued at $52.9 million, and issued a warrant valued at
$7.8 million. The total consideration was allocated based on the estimated fair
values of the assets and liabilities acquired with the excess consideration of
$270.7 million recorded as goodwill and $19.8 million as identifiable
intangible assets. On May 31, 2000, 4MC acquired six entities from the Virgin
Media Group Limited (Virgin) for $39.5 million in cash. The consideration was
allocated based on the estimated fair values of the assets and liabilities
acquired with the excess consideration of $21.1 million recorded as goodwill.
On June 9, 2000, Liberty Media contributed all of the issued and outstanding
shares of 4MC to the Company in exchange for 16,614,952 shares of the Companys
Class B common stock, valued at $279.7 million pursuant to a Contribution
Agreement between Liberty Media and the Company. The assets and liabilities of
4MC, including Virgin, were recorded based on Liberty Medias historical
values, which includes the effect of Liberty Medias acquisitions of 4MC and
Virgin. Assets acquired were $291.6 million (including cash of $14.1) and
liabilities assumed were $302.5 million. 4MC provides technical and creative
services to owners, producers and distributors of television programming,
television commercials, feature films and other entertainment content. 4MCs
California facilities are located in Los Angeles, Hollywood, Burbank and Santa
Monica. It has international facilities in Mexico City, Mexico; London,
England; and the Republic of Singapore.

On July 19, 2000, a wholly-owned subsidiary of Liberty Media (Liberty
Sub), acquired Soundelux, which consists of certain of the assets and
operations of SounDelux Entertainment Group of Delaware, Inc. Immediately
following the closing of this asset purchase, Liberty Media contributed 100% of
its ownership interest in Liberty Sub to the Company in exchange for 8,181,818
shares of the Company s Class B common stock pursuant to a previously
negotiated contribution agreement between Liberty Media and the Company. The
acquisition has been accounted for as a purchase and the acquisition cost of
$90.0 million has been allocated to the assets acquired and liabilities assumed
based on estimates of their fair values. Assets acquired were $12.3 million and
liabilities assumed were $4.0 million with the excess consideration of $71.0
million recorded as goodwill and $10.7 million as identifiable intangible
assets. The Companys consolidated financial statements have incorporated
Soundeluxs activity from the effective date of the acquisition. Soundelux
provides sound design and re-recording services for feature films, television,
advertising and new media. Soundelux operations are located in Los Angeles,
California.

On July 25, 2000, the Company acquired (i) Triumph Communications Inc.,
(ii) Triumph Communications & Fiber Services, LLC, (iii) Triumph Communications
& Leasing Services Inc., (iv) American Simulcast Corp., and (v) The Triumph
Switch Company LLC (collectively, Triumph) in exchange for a cash payment to
the seller totaling $5.7 million, forgiveness of existing notes payable to the
Company from Triumph totaling $4.5 million, and 705,554 shares of the Companys
Class A common stock which had an aggregate market value at the time of
issuance of

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$44.6 million, partially offset by $1.7 million of cash acquired. The
acquisition has been accounted for as a purchase and the acquisition cost of
$53.1 million has been allocated to the assets acquired and liabilities assumed
based on estimates of their fair values. Assets acquired were $3.5 million and
liabilities assumed were $7.2 million with the excess consideration of $53.6
million recorded as goodwill and $3.2 million as identifiable intangible
assets. The Companys consolidated financial statements have incorporated
Triumphs activity from the effective date of the acquisition. Triumph, located
in New York City, designs, engineers and implements video transmission services
for clients seeking to distribute or transport content including cable
networks, broadcasters, news, sports, infomercials, and corporate
organizations. Services provided include fiber optic, satellite, compression
system, encoding and encryption, and IRD sales and authorization. Triumph was
sold on December 23, 2002, which is discussed further in Note 6 below.

On August 11, 2000, a wholly owned subsidiary of the Company in the United
Kingdom acquired all of the outstanding shares of Soho Group Limited (Soho)
for $27.0 million in cash (net of approximately $200,000 of cash acquired). The
acquisition has been accounted for as a purchase and the acquisition costs were
allocated to the assets acquired and liabilities assumed based on estimates of
their fair values. Assets acquired were $21.0 million and liabilities assumed
were $2.8 million with the excess consideration of $8.7 million recorded as
goodwill. The Companys consolidated financial statements have incorporated
Sohos activity from the effective date of the acquisition. Soho provides
services primarily to the commercial advertising industry including negative
developing, negative cutting services (using a proprietary computerized
technology), film to digital media transfer, 2D and 3D compositing and
animation and television commercial finishing.

On October 9, 2000, a wholly owned subsidiary of the Company in the
United Kingdom acquired all of the outstanding shares of Visiontext Limited
(Visiontext) for $2.9 million in cash (net of approximately $300,000 of cash
acquired) plus a note payable to the sellers for $1.9 million. The acquisition
has been accounted for as a purchase and the acquisition costs of $4.8 million
were allocated to the assets acquired and liabilities assumed based on
estimates of their fair values. Assets acquired were $1.3 million and
liabilities assumed were $757,000 with the excess consideration of $4.3 million
recorded as goodwill. The Companys consolidated financial statements have
incorporated Visiontexts activity from the effective date of the acquisition.
Visiontext is located in London, England and Los Angeles, California and
provides subtitling services to commercial advertising and home video markets.

On December 22, 2000, Liberty Media acquired Video Services Corporation
(VSC). The total consideration paid by Liberty Media was valued at $119.7
million. The $119.7 million was comprised of $38.0 million in cash, paid to the
shareholders of VSC, and an additional $46.5 million of debt of VSC paid or
assumed by Liberty Media for a total of $84.5 million in cash. In addition,
Liberty Media issued 1,441,212 shares of Liberty Media Group Class A common
stock and options to purchase 119,666 shares of Liberty Media Group Class A
common stock, with an aggregate estimated fair market value of $35.2 million at
the time of signing of the transaction.

Pursuant to the terms of a contribution agreement between Liberty Media
and the Company, Liberty Media contributed the equity of VSC to the Company on
December 22, 2000. In consideration for the contribution of VSC, the Company
issued to Liberty Media a convertible promissory note in the principal amount
of $92.5 million. The convertible note was issued to Liberty Media under the
terms of the Liberty Subordinated Credit Agreement. An additional $9.6 million
was paid by the Company to pay down debt of VSC. The total value of the
consideration paid by the Company in connection with the contribution of VSC
was $102.1 million.

As part of the contribution of VSC from Liberty Media to the Company, the
Company assumed Liberty Medias acquisition basis of $119.7 million. The $17.6
million difference between the $119.7 million paid by Liberty Media and the
$102.1 million paid by the Company has been accounted by the Company as a
contribution to the capital of the Company . The acquisition has been accounted
for as a purchase and the acquisition cost of $119.7 million was allocated to
the assets acquired and liabilities assumed based on estimates of their fair
values. Assets acquired were $69.4 million and liabilities assumed were $33.5
million, with $77.7 million of the excess consideration recorded as goodwill
and the remaining $6.1 million of the excess consideration recorded as
identifiable intangible assets. The Companys consolidated financial statements
have incorporated VSCs activity from the effective date of the acquisition.
VSC provides engineering, production and distribution services for the video
and broadcast industries, nationally and internationally. It has locations in
New York, New Jersey, Florida, and California.

On January 5, 2001, the Company entered into an agreement pursuant to
which it purchased a 1% ownership interest in Livewire Network Services, LLC
(LNS) from an affiliate of Liberty Media in exchange for $300,000 in cash.
Simultaneously, the Company and Liberty Media entered into a formal operating
agreement (the Operating Agreement) under which the Company was appointed as
manager of LNS. The Operating Agreement contained a put-call provision,
pursuant to which on September 6, 2001 the Company acquired the remaining 99%
ownership interests of LNS for $31.3 million (net of $425,000 of cash acquired)
financed from debt from the Liberty

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Subordinated Credit Agreement. The tangible assets, goodwill and liabilities of
LNS were recorded based on Liberty Medias historical values of $8.5 million,
$25.6 million and $2.8 million, respectively. LNS provides operational,
installation, maintenance and support services for satellite communication
systems and their users. LNS is located in Melbourne, Florida and is included
in the Network Services Group for segment reporting.

On February 1, 2001, the Company acquired substantially all of the U.S.
assets of Group W Network Services, from Viacom, Inc., including 100% of the
capital stock of Asia Broadcast Centre Pte., Ltd. and Group W Broadcast Pte.,
Ltd. (collectively, GWNS). The acquisition was financed in part with debt
from the Liberty Subordinated Credit Agreement, in the amount of $82.0 million,
other borrowings from Liberty Media evidenced by additional non-convertible
subordinated notes in the aggregate amount of $13.8 million, $13.4 million from
the Companys revolving credit facility and $1.5 million of cash from
operations. The acquisition has been accounted for as a purchase and the
acquisition cost of $108.2 million (net of $2.5 million of cash acquired) has
been allocated to the assets acquired and liabilities assumed based on
estimates of their fair values. Assets acquired and liabilities assumed were
$60.1 million and $18.9 million, respectively, with the excess consideration of
$67.0 million recorded as goodwill. The Companys consolidated financial
statements have incorporated GWNSs activity from the effective date of the
acquisition. GWNS provides production and distribution services for the
broadcast and cable industries from locations in the Republic of Singapore,
Minneapolis, Minnesota and Stamford, Connecticut.

On August 23, 2001, the Company acquired the remaining 51% of Cinram-POP
DVD Center LLC (Cinram-POP), which it did not already own from Cinram U.S.
Holdings, Inc. The acquisition has been accounted for as a purchase and the
acquisition cost of $536,000 (net of $295,000 of cash acquired) has been
allocated to the assets acquired and liabilities assumed based on estimates of
their fair values. Assets acquired and liabilities assumed were approximately
$796,000 and $209,000 respectively. Subsequent to the elimination of the
Companys $432,000 equity investment in the Cinram-POP joint venture, excess
consideration of $381,000 was recorded as goodwill. The Companys consolidated
financial statements have incorporated Cinram-POPs activity under the equity
method through September 6, 2001, and consolidated thereafter. Goodwill will
not be amortized for this transaction pursuant to SFAS No. 142, as described in
Note 3. Cinram-POP provides DVD design, authoring and encoding services to the
home video market. Cinram-POP is located in Santa Monica, California and is
included in the Media Management Services Group for segment reporting.

In accordance with the requirements of APB Opinion No. 16, Business
Combinations, and SFAS No. 141, Business Combinations, the following unaudited
pro forma consolidated financial information is presented as if each
acquisition was consummated on January 1, 2000. The unaudited pro forma
information includes the results of operations for the period prior to the
acquisitions, adjusted for amortization of goodwill, depreciation, interest
expense on borrowings incurred to fund the acquisitions, and income taxes. The
unaudited pro forma information is not necessarily indicative of the results of
operations had these events actually occurred on January 1, 2000, nor is it
necessarily indicative of future results. No pro forma adjustments have been
included for the pre-acquisition time periods for potential fluctuations in the
liability recorded for the stock appreciation rights granted in the 4MC
acquisition, including effects of market fluctuations or estimates of exercises
(in thousands, except per share data):

|                                       |  |      |          |      |  |   |         |  
|-------------------------------------- |  | ---- | -------- | ---- |  | - | ------- | -
|                                       |  | 2001 |          | 2000
|                                       |  |      |          |     
|Net revenues                           |  | $    | 607,503  |      |  | $ | 640,865 |  
|                                       |  |      |          |      |  |   |         |  
|Net loss                               |  | $    | (439,351 | )    |  | $ | (45,266 | )
|                                       |  |      |          |      |  |   |         |  
|Net loss per share  basic and diluted |  | $    | (11.61   | )    |  | $ | (1.16   | )
|                                       |  |      |          |      |  |   |         |  

Included in the unaudited proforma net loss is goodwill amortization
expense of $31.6 million and $16.3 for the years ended December 31, 2001 and
2000, respectively. As discussed in Note 3, the Company has ceased amortizing
goodwill effective January 1, 2002.

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The following table provides supplemental disclosure related to the Companys
fiscal year 2001 acquisitions (in thousands):

|                                                      |                                              |   |         |         |            |   |      |      |   |   |        |        |  
|----------------------------------------------------- | -------------------------------------------- | - | ------- | ------- | ---------- | - | ---- | ---- | - | - | ------ | ------ | -
|                                                      |                                              |   | GWNS    |         | Cinram-POP |   | LNS 
|                                                      |                                              |   |         |         |            |   |     
|Assets acquired                                       |                                              |   |         |         |            |   |      |      |   |   |        |       
|                                                      | Trade and other receivables, net             |   | $       | 7,203   |            |   | $    | 425  |   |   | $      | 681    |  
|                                                      | Inventories, prepaid and other assets        |   |         | 6,243   |            |   |      | 9    |   |   |        | 1,075  |  
|                                                      | Property, plant and equipment                |   |         | 46,622  |            |   |      | 362  |   |   |        | 6,727  |  
|                                                      | Goodwill                                     |   |         | 67,041  |            |   |      | 381  |   |   |        | 25,597 |  
|Liabilities assumed                                   |                                              |   |         |         |            |   |      |      |   |   |        |       
|                                                      | Accounts payable, accrued expenses and other |   |         | (5,129  | )          |   |      | (209 | ) |   |        | (2,768 | )
|                                                      | Long-term debt and capital lease obligations |   |         | (13,814 | )          |   |      |     |   |   |        |       |  
|Elimination of the Companys investment in Cinram-POP |                                              |   |        |         |            |   | (432 | )    |   |   |       |       
|                                                      |                                              |   |         |         |            |   |      |      |   |   |        |       
|Net assets acquired                                   |                                              | $ | 108,166 |         |            | $ | 536  |      |   | $ | 31,312 |       
|                                                      |                                              |   |         |         |            |   |      |      |   |   |        |       

The following table provides supplemental disclosure related to the
Companys fiscal year 2000 acquisitions (in thousands):

|                    |                                              |   |         |          |           |   |         |        |      |   |            |        |     |   |        |        |   |   |       |       |   |   |         |         |  
|------------------- | -------------------------------------------- | - | ------- | -------- | --------- | - | ------- | ------ | ---- | - | ---------- | ------ | --- | - | ------ | ------ | - | - | ----- | ----- | - | - | ------- | ------- | -
|                    |                                              |   | 4MC     |          | Soundelux |   | Triumph |        | Soho |   | Visiontext |        | VSC
|                    |                                              |   |         |          |           |   |         |        |      |   |            |        |    
|Assets acquired     |                                              |   |         |          |           |   |         |        |      |   |            |        |     |   |        |        |   |   |       |       |   |   |         |        
|                    | Cash                                         |   | $       | 14,066   |           |   | $       |       |      |   | $          |       |     |   | $      |       |   |   | $     |      |   |   | $       | 696     |  
|                    | Trade and other receivables,                 |   |         | 46,723   |           |   |         | 4,154  |      |   |            | 218    |     |   |        | 4,470  |   |   |       | 620   |   |   |         | 20,683  |  
|                    | Inventories, prepaid and other               |   |         | 13,627   |           |   |         | 1,777  |      |   |            | 669    |     |   |        | 223    |   |   |       | 15    |   |   |         | 5,860   |  
|                    | Deferred income taxes, net                   |   |         | 21,504   |           |   |         |       |      |   |            | 40     |     |   |        |       |   |   |       |      |   |   |         | 6,911   |  
|                    | Property, plant and equipment                |   |         | 195,680  |           |   |         | 6,324  |      |   |            | 2,539  |     |   |        | 16,316 |   |   |       | 656   |   |   |         | 35,208  |  
|                    | Goodwill                                     |   |         | 270,744  |           |   |         | 71,042 |      |   |            | 53,566 |     |   |        | 8,732  |   |   |       | 4,314 |   |   |         | 77,681  |  
|                    | Identifiable intangible assets               |   |         | 19,820   |           |   |         | 10,730 |      |   |            | 3,190  |     |   |        |       |   |   |       |      |   |   |         | 6,090   |  
|Liabilities assumed |                                              |   |         |          |           |   |         |        |      |   |            |        |     |   |        |        |   |   |       |       |   |   |         |        
|                    | Accounts payable, accrued
expenses and other |   |         | (70,580  | )         |   |         | (4,027 | )    |   |            | (6,832 | )   |   |        | (1,924 | ) |   |       | (757  | ) |   |         | (24,764 | )
|                    | Long-term debt and capital
lease obligations |   |         | (231,922 | )         |   |         |       |      |   |            | (332   | )   |   |        | (848   | ) |   |       |      |   |   |         | (8,702  | )
|                    |                                              |   |         |          |           |   |         |        |      |   |            |        |     |   |        |        |   |   |       |       |   |   |         |        
|Net assets acquired |                                              | $ | 279,662 |          |           | $ | 90,000  |        |      | $ | 53,058     |        |     | $ | 26,969 |        |   | $ | 4,848 |       |   | $ | 119,663 |        
|                    |                                              |   |         |          |           |   |         |        |      |   |            |        |     |   |        |        |   |   |       |       |   |   |         |        

On June 9, 2000, approximately 60% of the Companys outstanding common
stock was acquired by Liberty Media through the Todd Merger, as described in
Note 1. In connection with this acquisition, the Company made the following
purchase accounting adjustments (in thousands):

|                                        |  |   |         |  
|--------------------------------------- |  | - | ------- | -
|Property, plant and equipment, net      |  | $ | (11,002 | )
|Marketable securities                   |  |   | (54     | )
|Trade receivables and other, net        |  |   | 98      |  
|Goodwill                                |  |   | 75,417  |  
|Identifiable intangible assets          |  |   | 14,140  |  
|Other assets, net                       |  |   | (23     | )
|Accounts payable and accrued expenses   |  |   | (1,568  | )
|Deferred income taxes payable           |  |   | (12,119 | )
|Additional paid-in capital              |  |   | (91,474 | )
|Unearned compensation                   |  |   | 2,858   |  
|Treasury stock                          |  |   | (28     | )
|Unearned gain/loss on marketable equity |  |   | 4,448   |  
|Foreign exchange adjustment             |  |   | (899    | )
|Retained earnings                       |  |   | 20,206  |  
|                                        |  |   |         |  
|                                        |  | $ |        |  
|                                        |  |   |         |  

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6. DIVESTITURE

On December 23, 2002, the Company sold to Leafco Communications, Inc. all
of its equity interest in Triumph for nominal consideration plus the assumption
of net liabilities in the amount of $4.0 million. In connection with this
sale, the Company entered into an agreement to loan the buyer an amount not to
exceed $4.0 million. As of date of this report, such loan agreement has been
terminated by the parties and the buyer has repaid to the Company all monies
advanced to buyer pursuant to this loan. In connection with this loan
termination, the Company entered into an agreement to loan Rapco Enterprises,
Inc., an affiliate of Leafco Communications, Inc., $2.0 million. The above
transactions, in the aggregate resulted in a gain from the divestiture of $1.6
million.

7. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

The following table provides additional detail related to the Companys
consolidated balance sheets (in thousands):

|                                               |                                    |   |         |         |      |   |         |          |  
|---------------------------------------------- | ---------------------------------- | - | ------- | ------- | ---- | - | ------- | -------- | -
|                                               |                                    |   | 2002    |         | 2001
|                                               |                                    |   |         |         |     
|Prepaid expenses and other current assets      |                                    |   |         |         |      |   |         |         
|                                               | Prepaid expenses                   |   | $       | 11,882  |      |   | $       | 9,387    |  
|                                               | Security deposits                  |   |         | 623     |      |   |         | 1,307    |  
|                                               | Income tax receivable              |   |         | 2,635   |      |   |         | 1,732    |  
|                                               | Other receivables                  |   |         | 722     |      |   |         | 1,811    |  
|                                               |                                    |   |         |         |      |   |         |         
|                                               |                                    | $ | 15,862  |         |      | $ | 14,237  |         
|                                               |                                    |   |         |         |      |   |         |         
|Property, plant and equipment, net             |                                    |   |         |         |      |   |         |         
|                                               | Land                               |   | $       | 71,343  |      |   | $       | 63,079   |  
|                                               | Buildings                          |   |         | 126,266 |      |   |         | 125,354  |  
|                                               | Equipment                          |   |         | 184,133 |      |   |         | 275,389  |  
|                                               | Accumulated depreciation           |   |         | (81,245 | )    |   |         | (147,745 | )
|                                               |                                    |   |         |         |      |   |         |         
|                                               |                                    | $ | 300,497 |         |      | $ | 316,077 |         
|                                               |                                    |   |         |         |      |   |         |         
|Goodwill, net                                  |                                    |   |         |         |      |   |         |         
|                                               | Goodwill                           |   | $       | 335,219 |      |   | $       | 421,670  |  
|                                               |                                    |   |         |         |      |   |         |         
|                                               |                                    | $ | 335,219 |         |      | $ | 421,670 |         
|                                               |                                    |   |         |         |      |   |         |         
|Other intangible assets, net                   |                                    |   |         |         |      |   |         |         
|                                               | Assembled workforce                |   | $       |        |      |   | $       | 17,510   |  
|                                               | Employment agreements              |   |         | 8,188   |      |   |         | 8,188    |  
|                                               | Non-compete agreements             |   |         | 2,840   |      |   |         | 3,414    |  
|                                               | Tradenames                         |   |         | 2,435   |      |   |         | 1,694    |  
|                                               | Accumulated amortization           |   |         | (5,625  | )    |   |         | (3,567   | )
|                                               |                                    |   |         |         |      |   |         |         
|                                               |                                    | $ | 7,838   |         |      | $ | 27,239  |         
|                                               |                                    |   |         |         |      |   |         |         
|Other assets, net                              |                                    |   |         |         |      |   |         |         
|                                               | Long term receivable               |   | $       | 107     |      |   | $       | 66       |  
|                                               | Investments                        |   |         | 4,493   |      |   |         | 2,408    |  
|                                               | Other assets                       |   |         | 10,731  |      |   |         | 8,843    |  
|                                               |                                    |   |         |         |      |   |         |         
|                                               |                                    | $ | 15,331  |         |      | $ | 11,317  |         
|                                               |                                    |   |         |         |      |   |         |         
|Accrued expenses and other current liabilities |                                    |   |         |         |      |   |         |         
|                                               | Payroll and related expenses       |   | $       | 19,082  |      |   | $       | 16,267   |  
|                                               | Interest and interest rate swap    |   |         | 7,252   |      |   |         | 14,638   |  
|                                               | Deferred revenues                  |   |         | 6,278   |      |   |         | 9,062    |  
|                                               | Restructuring and severance        |   |         | 2,227   |      |   |         | 5,388    |  
|                                               | Taxes and other                    |   |         | 26,427  |      |   |         | 30,990   |  
|                                               |                                    |   |         |         |      |   |         |         
|                                               |                                    | $ | 61,266  |         |      | $ | 76,345  |         
|                                               |                                    |   |         |         |      |   |         |         
|Other liabilities                              |                                    |   |         |         |      |   |         |         
|                                               | Deferred rent and deposits         |   | $       | 5,161   |      |   | $       | 5,226    |  
|                                               | Other liabilities                  |   |         | 2,495   |      |   |         | 5,045    |  
|                                               | Income taxes payable  non current |   |         | 2,005   |      |   |         | 2,906    |  
|                                               |                                    |   |         |         |      |   |         |         
|                                               |                                    | $ | 9,661   |         |      | $ | 13,177  |         
|                                               |                                    |   |         |         |      |   |         |         

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8. LONG-TERM DEBT

The Companys long-term debt at December 31, consisted of the following (in
thousands):

|                                           |  |      |         |      |  |   |         |  
|------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|                                           |  | 2002 |         | 2001
|                                           |  |      |         |     
|Revolver                                   |  | $    | 187,236 |      |  | $ | 208,800 |  
|Term loan A                                |  |      | 118,750 |      |  |   | 125,000 |  
|Term loan B                                |  |      | 57,330  |      |  |   | 57,915  |  
|Convertible subordinated notes             |  |      | 224,343 |      |  |   | 206,192 |  
|Discount on convertible subordinated notes |  |      | (19,044 | )    |  |   | (22,507 | )
|Real property mortgage notes               |  |      | 24,269  |      |  |   | 21,328  |  
|Capital lease obligations and other        |  |      | 14,399  |      |  |   | 30,642  |  
|                                           |  |      |         |      |  |   |         |  
|                                           |  |      | 607,283 |      |  |   | 627,370 |  
|Less: current maturities                   |  |      | (18,928 | )    |  |   | (19,129 | )
|                                           |  |      |         |      |  |   |         |  
|                                           |  | $    | 588,355 |      |  | $ | 608,241 |  
|                                           |  |      |         |      |  |   |         |  

Borrowings have the following scheduled maturities (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2003       |  | $ | 18,928  | 
|2004       |  |   | 27,572  | 
|2005       |  |   | 44,197  | 
|2006       |  |   | 243,268 | 
|2007       |  |   | 55,879  | 
|Thereafter |  |   | 217,439 | 
|           |  |   |         | 
|           |  | $ | 607,283 | 
|           |  |   |         | 

Senior Credit Agreement

Overview

At December 31, 2002, $363.9 million was outstanding under the Senior
Credit Agreement (including Letters of Credit of $.6 million) and $3.7 million
was available for future borrowings, subject to the terms of the Senior Credit
Agreement. During the year ended December 31, 2002, the Company repaid $33.4
million under the Senior Credit Agreement. During the year ended December 31,
2002, the Company borrowed $5.0 million under the Senior Credit Agreement
which was primarily used to fund capital expenditures and working capital.

Background

The Company entered into the Senior Credit Agreement, dated as of December
22, 2000, as amended by Amendment No. 1, No. 2, and No. 3, dated as of November
1, 2001, March 26, 2002, and November 13, 2002, respectively, with several
lenders from time to time parties to the credit agreement, BANC OF AMERICA
SECURITIES LLC, as Lead Arranger and Book Manager, BANK OF AMERICA, N.A., as
administrative agent for the Lenders, SALOMON SMITH BARNEY INC., as Syndication
Agent, and THE BANK OF NEW YORK COMPANY, INC., as Documentation Agent (the
Senior Credit Agreement). Under the agreement, as amended, the Company may
borrow up to $367.6 million in term and revolving loans, subject to new lenders
being added to the facility and compliance with certain financial covenants and
other borrowing conditions. As of December 31, 2002, the Senior Credit
Agreement commitment comprised of Term loan A and Term loan B, and a revolving
credit facility (the Revolver). Term loan A, which matures on December 22,
2006, has a commitment of $118.8 million. Term loan B, which matures on June
30, 2007, has a commitment of $57.3 million. In general, semi-annual principal
payments on Term loan A began in September 2002 and continue through fiscal
2006 and semi-annual principal payments on Term loan B began in fiscal 2001 and
continue through fiscal 2007. The Revolver has a commitment of $191.5 million
under which loans are available through maturity on December 22, 2006, at which
time all outstanding balances are due. The Revolver also includes a $25.0
million sub-limit for the issuance of standby and commercial letters of credit.
As of December 31, 2002, the outstanding letters of credit totaled $.6 million.
The Senior Credit Agreement loans are collateralized by substantially all of
the operating assets of the Company.

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The March 26,
2002 Amendment and the November 13, 2002 Amendment each amended the Senior Credit
Agreement to provide greater financial flexibility to the Company by allowing
for more favorable leverage ratio tests and a more favorable fixed charge
coverage ratio test. Each also removes some restrictions on transactions the
Company may enter into. In consideration for the above changes, the Company
agreed to (1) higher interest rates on the loans until the Companys leverage
ratio is reduced below 4.00 to 1.00, (2) new restrictions on the use of the
proceeds from the sale of assets and (3) a permanent reduction of $40.0 million
in the amount available for the future borrowings under the Senior Credit
Agreement. After giving effect to this amendment, $3.6 million is available
for future borrowings under the Senior Credit Agreement as of December 31,
2002.

Under the Senior Credit Agreement,
the Companys Total Leverage Ratio may not exceed 4.55 to 1.00
for any measurement period from December 31, 2002 to
June 30, 2003. Thereafter, the Total Leverage Ratio is reduced
over subsequent measurement periods until it reaches a Total Leverage
Ratio of 3.50 to 1.00 for any measurement period after
January 1, 2005. At December 31, 2002, the Companys
Total Leverage Ratio was 4.12 to 1.00. The Company was not subject to
a Fixed Charge Coverage Ratio at or prior to December 31, 2002.
For any measurement period beginning January 1, 2003, the
Companys Fixed Charge Coverage Ratio may not be less than 0.85
to 1.00, which increases over the succeeding two quarters until
October 1, 2003, when the Companys Fixed Charge Coverage
Ratio may not be less than 1.00 to 1.00 for the remainder of the term
of the Senior Credit Agreement.

Interest related to the Senior Credit Agreement is paid monthly,
bi-monthly or quarterly in arrears and is based on the Alternate Base Rate or
the Eurodollar Rate, whichever is applicable to the loan, plus margins based
on the leverage ratio as defined in the agreement for Term loan A and the
Revolver and defined margins for Term loan B. The Alternate Base Rate is a
daily fluctuating rate per annum equal to the higher of the Federal Funds Rate
plus 0.5% or the Prime Rate. The Eurodollar Rate is the rate per annum equal to
the average British Bankers Association Interest Settlement Rate for deposits
in the relevant currency or an alternate base, as defined in the agreement, if
that rate is unavailable. As of December 31, 2002, the effective interest rates
on Term loan A, Term loan B and the Revolver borrowings were 4.65%, 5.4% and
4.68%, respectively.

The Senior Credit Agreement requires certain financial ratios to be
maintained and contains other restrictive covenants, including restrictions on
incurring additional indebtedness. As of December 31, 2002, the Company was in
compliance with all covenants in the Senior Credit Agreement.

Liberty Subordinated Credit Agreement

Overview

At December 31, 2002, $224.3 million was outstanding under the Liberty
Subordinated Credit Agreement and $81.9 million was available for future
borrowings under the terms of the Liberty Subordinated Credit Agreement with
the consent of, and on terms determined by, Liberty Media.

On December 22, 2000, the Company and Liberty Media finalized the First
Amended and Restated Credit Agreement (the Liberty Subordinated Credit
Agreement), pursuant to which Liberty Media agreed to make subordinated
convertible loans (Convertible Subordinated Notes) to the Company of $206.2
million (Acquisition Funds), for the funding of several acquisitions as
described in Note 5. The Convertible Subordinated Notes are convertible at the
option of Liberty Media at any time prior to maturity, into shares of the
Companys Class B common stock at a conversion price of $10.00 per share. If
not earlier converted, the notes will become due and payable on June 30, 2008.
Interest accrues on the notes at a rate of 10% per annum, payable quarterly
either in cash, shares of the Companys Class B common stock or a combination
thereof, at the Companys discretion, subject to certain limits. Under the
agreement, shares of the Companys Class B common stock issued as payment for
interest are valued at 95% of the ten-day trailing average closing price of
shares of the Companys Class A common stock on the interest payment date.

Under the Liberty Subordinated Credit Agreement, the Company has borrowed
$206.2 million, which is comprised of $92.5 million, $82.0 million and $31.7
million related to the acquisitions of VSC, GWNS and LNS respectively, as
described in Note 5. On the date of the GWNS draw, the fair value of common
stock exceeded the conversion price by $2.81 per share and as such, a
beneficial conversion of $23.0 million was recorded as a discount to the
Convertible Subordinated Notes and an increase to additional paid-in capital.
On the date of the LNS draw, the fair value of common stock exceeded the
conversion price by $0.76 per share, and as such, a beneficial conversion of
$2.4 million was recorded. The discounts are being amortized as non-cash
charges to interest expense over the earlier of the remaining term of the
Liberty Subordinated Credit Agreement or date of conversion. During fiscal year
2002 and 2001, approximately $3.5 million and $3.0 million, respectively, was
included as a non-cash charge to interest expense in the statement of
operations, related to the amortization of the total discount.

In accordance with the terms of the Senior Credit Agreement, the Company
also borrowed $13.8 million from an affiliate of Liberty Media to fund the
acquisition of GWNS, as evidenced by two non-convertible notes with principal
balances of $9.4 million and $4.4 million. These non-convertible notes were
fully repaid during the quarter ended June 30, 2001.

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During the year ended December 31, 2002, the Company entered into three
supplemental agreements under the Liberty Subordinated Credit Agreement: 1)
Supplement No. 1, dated June 28, 2002; 2) Supplement
No. 2, dated July 24, 2002;
and; 3) Supplement No. 3, dated August 13, 2002. The Company borrowed an
aggregate amount of $18.1 million pursuant to the three supplements. Proceeds
from the three supplemental borrowings were used for working capital, to fund
the award in an arbitration matter with Paul Dujardin (the Arbitration
Award), capital expenditures and repayment of principal under the Senior
Credit Agreement.

Supplement
No. 1 and Supplement No. 2

The Liberty Subordinated Credit Agreement allows the Company to borrow the
Acquisition Funds and up to an additional $100.0 million from Liberty Media
with the consent of, and on terms determined by, Liberty Media (the Additional
Available Funds). The parties to the Senior Credit Agreement agreed in a
letter dated June 28, 2002 (the Senior Credit Agreement Consent Letter) and
the parties to an agreement between the Company and Heller Financial Leasing,
Inc. (the Heller Credit Agreement), agreed in a separate letter dated June
28, 2002 (the Heller Consent Letter and, together with the Senior Credit
Agreement Consent Letter, the June 2002 Consent Letters), that, with respect
to $25.0 million of the Additional Available Funds, (1) convertible notes could
be issued that could be convertible into the Companys Class B common stock at
a price per share determined by the Company, rather than at $10.00 per share as
permitted under the Senior Credit Agreement, and (2) to the extent these funds
were borrowed to purchase capital assets and to fund the Arbitration Award,
such borrowed funds could be repaid to Liberty Media before the Company pays
amounts owed under the Senior Credit Agreement, provided that, among other
conditions, such repayment is funded solely with proceeds of additional equity
contributions from Liberty Media or any of its affiliates other than the
Company or any of its subsidiaries. The Companys ability to determine the
conversion rights under the Liberty Subordinated Credit Agreement with respect
to Additional Available Funds does not affect the conversion rights for amounts
previously borrowed under the Liberty Subordinated Credit Agreement and may be
determined on a case by case basis only on amounts borrowed with respect to the
$25.0 million of Additional Available Funds to which the June 2002 Consent
Letters apply.

On June 28, 2002, the Company and Liberty Media entered into Supplement
No. 1 to the Liberty Subordinated Credit Agreement, under which the Company
borrowed $6.5 million for the purchase of capital assets, and issued a
promissory note, dated June 28, 2002, in the same amount that is convertible
into the Companys Class B common stock at $3.50 per share, which represents a
$0.56 per share premium over the $2.94 per share closing price of the Companys
Class A common stock on that day.

On July 24, 2002, the Company and Liberty Media entered into Supplement
No. 2 to the Liberty Subordinated Credit Agreement, under which the Company
borrowed an additional $2.3 million to fund part of the Arbitration Award, and
issued a promissory note in the same amount that is convertible into the
Companys Class B common stock at $3.50 per share which represents a $1.55 per
share premium over the $1.95 per share closing price of the Companys Class A
common stock on that day.

Supplement
No. 3

On August 13, 2002, the Company entered into Supplement No. 3 to the
Liberty Subordinated Credit Agreement with Liberty Media under which the
Company may draw $25.0 million of Additional Available Funds, as needed, at
Liberty Medias option: (a) through loans under the Liberty Subordinated Credit
Agreement of subordinated convertible loans with a conversion price per share
equal to 115% of the average market price of the Companys Class A common stock
for the five most recent trading days ending on and including the date which is
two business days prior to the date of the borrowing, (b) through sales of the
Companys Class B common stock to Liberty Media at a purchase price per share
equal to the average market price of the Companys Class A common stock for the
five most recent trading days ending on and including the date which is two
business days prior to the date of the stock sale, or (c) through any
combination of (a) or (b) (Supplement No. 3). Any draws under Supplement No.
3 are subject to the Company obtaining any necessary consents and approvals and
issuing any required notices, including, to the extent applicable, stockholder
approval of the issuance of shares of Class B common stock to Liberty Media,
whether as a sale of stock or upon conversion of a loan (Stockholder
Consent). Liberty Media, which then held over 87% of the outstanding common
stock and over 99% of the voting power of the outstanding common stock and now
holds over 91% of the outstanding common stock and over 99% of the voting power
of the outstanding common stock, agreed in Supplement No. 3 to vote in favor of
any Stockholder Consent. As a result, at a meeting of the Companys
stockholders on January 23, 2003, the Companys stockholders (including Liberty
Media) approved (1) the potential issuance of shares of the Companys Class B
common stock upon conversion of convertible notes convertible into shares of
the Companys Class B common stock pursuant to Supplement No. 3 and outstanding
on January 23, 2003, (2) the issuance of the Companys Class B common stock and
convertible notes convertible into shares of the

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Companys Class B common stock after January 23, 2003, pursuant to
Supplement No. 3 and (3) the potential issuance of shares of the Companys
Class B common stock upon conversion of convertible notes convertible into
shares of the Companys Class B common stock issued pursuant to future
supplements to the Liberty Subordinated Credit Agreement for a purchase price
per share or with an initial conversion price per share, as applicable,
determined in a manner no less favorable to the Company than as provided in
Supplement No. 3. Proceeds of the loans or stock sales under Supplement No. 3
must be used for capital expenditures, payment of the principal amount of loans
made under the Senior Credit Agreement or working capital.

On September 26, 2002, the parties to the Senior Credit Agreement agreed
in a letter, dated September 26, 2002, and the parties to the Heller Credit
Agreement agreed in a separate letter, dated September 26, 2002 (collectively,
the September 2002 Consent Letters), with respect to an additional $25.0
million of the Additional Available Funds (over and above the $25.0 million
contemplated in the June 2002 Consent Letters), convertible notes could be
issued that could be convertible into the Companys Class B common stock at a
price per share determined by the Company that was no less than 115% of the
average daily market price of the Companys Class A common stock for the five
most recent trading days ending on and including the date which is two business
days prior to the date of the borrowing.

On September 30, 2002, the Company received $17.2 million under Supplement
No. 3 in consideration for the Companys issuance of a convertible note in the
amount of $5.3 million that is convertible into the Companys Class B common
stock at $1.94 per share and sale of 7,070,000 unregistered shares of its Class
B common stock at a price of $1.69 per share for total proceeds of $11.9
million. The conversion price of the convertible note and purchase price of
the shares sold were calculated in accordance with Supplement No. 3. The
proceeds were used to repay borrowings under the Senior Credit Agreement, for
capital expenditures and for working capital.

On October 17, 2002, the Company borrowed $4.0 million under Supplement
No. 3 and issued a convertible note in the same amount that is convertible into
the Companys Class B common stock at $1.56 per share. The conversion price
was calculated in accordance with Supplement No. 3. The proceeds
were used for purchase of capital assets.

Property Mortgages and Other Debt

In April 1999, a wholly-owned subsidiary of the Company in the United
Kingdom financed the purchase of a property in London, England with a ten-year
term mortgage note in the amount of $5.2 million bearing interest at 6.725% per
annum, based upon a twenty-five year amortization period. Principal and
interest payments of approximately $100,000 per year are payable from fiscal
year 1999 through 2008 with the remaining principal balance of $3.6 million due
in fiscal year 2009. In June 2000, the same subsidiary financed the purchase of
an adjoining property with a ten-year mortgage note in the amount of $3.9
million bearing interest at 8.02% per annum, based upon a twenty-five year
amortization period. Principal and interest payments of less than $100,000 per
year are payable from fiscal year 2000 through 2009 with the remaining
principal balance of $3.1 million due in fiscal year 2010. Both loans are
collateralized by their respective properties.

In April 2001, the Company entered into a $2.0 million mortgage loan with
United California Bank (UCB), collateralized by a deed of trust covering one
of the Companys properties in Burbank, California. The mortgage loan requires
monthly interest payments based on the relevant one, two, three or six-month
London interbank market rate (LIBOR) for the period determined by the
Company, plus 2.25%. The loan matured on April 23, 2002 and was fully paid. In
addition, the Company holds a $7.7 million mortgage loan through UCB,
collateralized by a deed of trust covering the same property. Principal
payments of $113,976 began in fiscal 1997 and continue through fiscal year
2004, with a final principal payment of approximately $7.5 million due at
maturity on January 31, 2005.

In June 2001, the Company borrowed $10.0 million from Heller Financial
Leasing Inc. in order to pay down $9.7 million of outstanding debt under the
Revolver. Quarterly principal payments of $533,333 are due from September 30,
2001 through March 31, 2005 with a final $2.0 million principal payment due at
maturity on June 30, 2005. Interest is payable quarterly with principal, and is
based on the relevant three-month LIBOR for the quarter, plus 3.25%. The
interest rate in effect as of December 31, 2002 was 4.65%. The loan is
collateralized by certain equipment used in the Companys Creative Services
Group and Media Management Services Groups.

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In September 2001, two of the Companys wholly owned subsidiaries in the
United Kingdom entered into separate loan agreements with National Westminster
Bank Plc., for the purpose of funding capital expenditure initiatives for the
Companys United Kingdom operations. In accordance with the terms of the
agreements, the Company may borrow up to $18.7 million. As of December 31,
2002, $16.3 million was outstanding and $2.4 million was available for future
borrowings. The Company anticipates repaying the debt in 60 equal quarterly
principal repayments which began in 2002. Interest is calculated based on the
relevant one, two, three or six-month LIBOR for the period determined by the
Company, plus 1.25%. As of December 31, 2002, the effective interest rate was
5.262%.

The Company has entered into various capital leases related to the
purchase of equipment with interest rates varying from 3.9% to 19.4%. Future
minimum lease payments under noncancellable capital lease agreements are as
follows: 2003, $5.3 million; 2004, $3.3 million; 2005, $3.9 million; 2006, $1.9
million; and; 2007, $-0-. Included in such minimum lease payments for
capital leases is interest in the aggregate amount of $2.3 million.

9. COMPREHENSIVE INCOME (LOSS)

The following summarizes comprehensive income (loss) and comprehensive
income (loss) reclassification adjustments included in the statements of
stockholders equity (in thousands):

|                                                                                     |  |              |          |              |  |              |          |              |  |       |         |      |  |   |        |  
|------------------------------------------------------------------------------------ |  | ------------ | -------- | ------------ |  | ------------ | -------- | ------------ |  | ----- | ------- | ---- |  | - | ------ | -
|                                                                                     |  | Ascent Media |          | Todd-AO     
|                                                                                     |  |              |          |             
|                                                                                     |  |              |          |              |  |              |          |              |  | Seven |         | Five
|                                                                                     |  | Year Ended   |          | Year Ended   |  | Months Ended |          | Months Ended
|                                                                                     |  | December 31, |          | December 31, |  | December 31, |          | May 31,     
|                                                                                     |  | 2002         |          | 2001         |  | 2000         |          | 2000        
|                                                                                     |  |              |          |              |  |              |          |             
|Net loss                                                                             |  | $            | (135,186 | )            |  | $            | (436,289 | )            |  | $     | (9,793  | )    |  | $ | (1,675 | )
|Unrealized gain (loss) on available for sale
securities (1)                          |  |              |         |              |  |              | 1,463    |              |  |       | (4,200  | )    |  |   | 6,078  |  
|Unrealized loss on cash flow hedge                                                   |  |              | (548     | )            |  |              | (12,624  | )            |  |       |        |      |  |   |       |  
|Gain (loss) on foreign currency translation                                          |  |              | 6,606    |              |  |              | (6,361   | )            |  |       | (2,043  | )    |  |   | (435   | )
|Conversion of equity in Todd Merger                                                  |  |              |         |              |  |              |         |              |  |       | (3,549  | )    |  |   |       |  
|Acquisition of 4MC                                                                   |  |              |         |              |  |              |         |              |  |       | (2,614  | )    |  |   |       |  
|Reclassification adjustment for realized
losses on available for sale securities (2) |  |              |         |              |  |              | 815      |              |  |       |        |      |  |   |       |  
|Reclassification adjustment for amortization
of loss on cash flow hedge              |  |              | 6,398    |              |  |              | 6,225    |              |  |       |        |      |  |   |       |  
|                                                                                     |  |              |          |              |  |              |          |              |  |       |         |      |  |   |        |  
|Net gain (loss) recognized in other
comprehensive income                             |  |              | 12,456   |              |  |              | (10,482  | )            |  |       | (12,406 | )    |  |   | 5,643  |  
|                                                                                     |  |              |          |              |  |              |          |              |  |       |         |      |  |   |        |  
|Total comprehensive (loss) income                                                    |  | $            | (122,730 | )            |  | $            | (446,771 | )            |  | $     | (22,199 | )    |  | $ | 3,968  |  
|                                                                                     |  |              |          |              |  |              |          |              |  |       |         |      |  |   |        |  



---

|(1) |  | Net of tax expense of $957, tax benefit of $2.7 million and tax expenses of $4.5 million, for the years ended December 31,
2001, seven months ended December 31, 2000 and five months ended May 31, 2000, respectively.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Net of tax benefit of $533 for the year ended December 31, 2001.                                                                                                                                                       

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##### Table of Contents



10. INCOME TAXES

The Companys effective income tax rate differs from the federal statutory
income tax rate due to the following:

|                                                |  |              |       |              |  |              |       |              |  |       |       |      |  |  |       |  
|----------------------------------------------- |  | ------------ | ----- | ------------ |  | ------------ | ----- | ------------ |  | ----- | ----- | ---- |  |  | ----- | -
|                                                |  | Ascent Media |       | Todd-AO     
|                                                |  |              |       |             
|                                                |  |              |       |              |  |              |       |              |  | Seven |       | Five
|                                                |  | Year Ended   |       | Year Ended   |  | Months Ended |       | Months Ended
|                                                |  | December 31, |       | December 31, |  | December 31, |       | May 31,     
|                                                |  | 2002         |       | 2001         |  | 2000         |       | 2000        
|                                                |  |              |       |              |  |              |       |             
|Federal statutory income tax rate               |  |              | 35    | %            |  |              | 35    | %            |  |       | 35    | %    |  |  | 35    | %
|Adjust to actual company rate                   |  |              |      |              |  |              |      |              |  |       |      |      |  |  | (1.0  | )
|                                                |  |              |       |              |  |              |       |              |  |       |       |      |  |  |       |  
|Adjusted federal statutory
income tax rate      |  |              | 35    |              |  |              | 35    |              |  |       | 35    |      |  |  | 34    |  
|State and foreign taxes, net of
federal benefit |  |              | 1.7   |              |  |              | 0.3   |              |  |       | (8.5  | )    |  |  | (10.2 | )
|Non-deductible goodwill
amortization            |  |              | (24.3 | )            |  |              | (16.8 | )            |  |       | (86.2 | )    |  |  | (1.8  | )
|Valuation allowance                             |  |              | (17.6 | )            |  |              | (20.2 | )            |  |       |      |      |  |  |      |  
|Interest Expense                                |  |              | (6.5  | )            |  |              | (1.4  | )            |  |       |      |      |  |  |      |  
|Deemed Dividend                                 |  |              | (2.5  | )            |  |              |      |              |  |       |      |      |  |  |      |  
|Sale of Subsidiary                              |  |              | 11.8  |              |  |              |      |              |  |       |      |      |  |  |      |  
|Other, net                                      |  |              | 1.3   |              |  |              | .4    |              |  |       | (0.5  | )    |  |  | (4.0  | )
|                                                |  |              |       |              |  |              |       |              |  |       |       |      |  |  |       |  
|                                                |  |              | (1.1  | )%           |  |              | (2.7  | )%           |  |       | (60.2 | )%   |  |  | 18    | %
|                                                |  |              |       |              |  |              |       |              |  |       |       |      |  |  |       |  

Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future.
Such deferred income tax asset and liability computations are based on enacted
tax laws and rates applicable to periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary
to reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the
change during the period in deferred tax assets and liabilities. Components of
the income tax provision are as follows (in thousands):

|                    |          |   |              |       |              |   |              |        |              |   |         |         |      |   |      |      |  
|------------------- | -------- | - | ------------ | ----- | ------------ | - | ------------ | ------ | ------------ | - | ------- | ------- | ---- | - | ---- | ---- | -
|                    |          |   | Ascent Media |       | Todd-AO     
|                    |          |   |              |       |             
|                    |          |   |              |       |              |   |              |        |              |   | Seven   |         | Five
|                    |          |   | Year Ended   |       | Year Ended   |   | Months Ended |        | Months Ended
|                    |          |   | December 31, |       | December 31, |   | December 31, |        | May 31,     
|                    |          |   | 2002         |       | 2001         |   | 2000         |        | 2000        
|                    |          |   |              |       |              |   |              |        |             
|Current  domestic  |          | $ | (1,615       | )     |              | $ | (1,492       | )      |              | $ | (11,487 | )       |      | $ |     |     
|Deferred  domestic |          |   | 2,856        |       |              |   | 12,137       |        |              |   | (282    | )       |      |   | (633 | )   
|                    |          |   |              |       |              |   |              |        |              |   |         |         |      |   |      |     
|                    | Domestic |   |              | 1,241 |              |   |              | 10,645 |              |   |         | (11,769 | )    |   |      | (633 | )
|                    |          |   |              |       |              |   |              |        |              |   |         |         |      |   |      |     
|Current  foreign   |          |   | (202         | )     |              |   | 923          |        |              |   | 2,295   |         |      |   | 646  |     
|Deferred  foreign  |          |   | 397          |       |              |   |             |        |              |   | 13,153  |         |      |   | (454 | )   
|                    |          |   |              |       |              |   |              |        |              |   |         |         |      |   |      |     
|                    | Foreign  |   |              | 195   |              |   |              | 923    |              |   |         | 15,448  |      |   |      | 192  |  
|                    |          |   |              |       |              |   |              |        |              |   |         |         |      |   |      |     
|                    |          | $ | 1,436        |       |              | $ | 11,568       |        |              | $ | 3,679   |         |      | $ | (441 | )   
|                    |          |   |              |       |              |   |              |        |              |   |         |         |      |   |      |     

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##### Table of Contents



Components of pre-tax income (loss) are as follows (in thousands):

|         |  |              |          |              |  |              |          |              |  |       |         |      |  |   |        |  
|-------- |  | ------------ | -------- | ------------ |  | ------------ | -------- | ------------ |  | ----- | ------- | ---- |  | - | ------ | -
|         |  | Ascent Media |          | Todd-AO     
|         |  |              |          |             
|         |  |              |          |              |  |              |          |              |  | Seven |         | Five
|         |  | Year Ended   |          | Year Ended   |  | Months Ended |          | Months Ended
|         |  | December 31, |          | December 31, |  | December 31, |          | May 31,     
|         |  | 2002         |          | 2001         |  | 2000         |          | 2000        
|         |  |              |          |              |  |              |          |             
|Domestic |  | $            | (143,699 | )            |  | $            | (425,294 | )            |  | $     | (11,714 | )    |  | $ | (2,456 | )
|Foreign  |  |              | 9,949    |              |  |              | 573      |              |  |       | 5,600   |      |  |   | 340    |  
|         |  |              |          |              |  |              |          |              |  |       |         |      |  |   |        |  
|         |  | $            | (133,750 | )            |  | $            | (424,721 | )            |  | $     | (6,114  | )    |  | $ | (2,116 | )
|         |  |              |          |              |  |              |          |              |  |       |         |      |  |   |        |  

The Company filed its own consolidated federal income tax return up to
June 8, 2000. Commencing June 9, 2000, the Company was included in the
consolidated tax return of AT&T through August 10, 2001. Beginning August 11,
2001, the Company is included in the consolidated tax return of Liberty Media
and is party to a Tax Liability Allocation and Indemnification Agreement (the
Tax Sharing Agreement) entered into with Liberty Media, as described in Note
17. The income tax provision is calculated as if the Company were a separate
taxpayer.
Components of deferred tax assets and liabilities as of December 31, are as
follows (in thousands):

|                               |                                  |   |         |          |      |   |         |         |  
|------------------------------ | -------------------------------- | - | ------- | -------- | ---- | - | ------- | ------- | -
|                               |                                  |   | 2002    |          | 2001
|                               |                                  |   |         |          |     
|Current assets                 |                                  |   |         |          |      |   |         |        
|                               | Accounts receivable reserves     |   | $       | 3,693    |      |   | $       | 3,147   |  
|                               | Accrued liabilities              |   |         | 2,291    |      |   |         | 5,497   |  
|                               | Other                            |   |         | 5,142    |      |   |         | 497     |  
|                               |                                  |   |         |          |      |   |         |        
|                               |                                  |   | 11,126  |          |      |   | 9,141   |        
|Non current assets             |                                  |   |         |          |      |   |         |        
|                               | Net operating loss carryforwards |   |         | 51,467   |      |   |         | 56,504  |  
|                               | Impairment reserves              |   |         | 46,273   |      |   |         | 52,599  |  
|                               | Capital loss carryforward        |   |         | 15,990   |      |   |         |        |  
|                               | Accounts receivable reserves     |   |         | 5,079    |      |   |         |        |  
|                               | Other                            |   |         | 5,860    |      |   |         | 3,569   |  
|                               |                                  |   |         |          |      |   |         |        
|                               |                                  |   | 124,669 |          |      |   | 112,672 |        
|                              
|                               | Total deferred tax assets, gross |   |         | 135,795  |      |   |         | 121,813 |  
|                               | Valuation allowance              |   |         | (114,037 | )    |   |         | (96,556 | )
|                               |                                  |   |         |          |      |   |         |        
|                               | Total deferred tax assets, net   |   |         | 21,758   |      |   |         | 25,257  |  
|                              
|Current liabilities            |                                  |   |         |          |      |   |         |        
|                               | Prepaid expenses                 |   |         | (527     | )    |   |         | (690    | )
|                               | Other                            |   |         | (4,423   | )    |   |         | (3,445  | )
|                               |                                  |   |         |          |      |   |         |        
|                               |                                  |   | (4,950  | )        |      |   | (4,135  | )      
|Non current liabilities        |                                  |   |         |          |      |   |         |        
|                               | Depreciation                     |   |         | (5,259   | )    |   |         | (9,793  | )
|                               | Amortization                     |   |         | (6,879   | )    |   |         | (11,329 | )
|                               |                                  |   |         |          |      |   |         |        
|                               |                                  |   | (12,138 | )        |      |   | (21,122 | )      
|                               |                                  |   |         |          |      |   |         |        
|Total deferred tax liabilities |                                  |   | (17,088 | )        |      |   | (25,257 | )      
|                               |                                  |   |         |          |      |   |         |        
|Net deferred tax asset         |                                  | $ | 4,670   |          |      | $ |        |        
|                               |                                  |   |         |          |      |   |         |        

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##### Table of Contents



At December 31, 2002, the Company has $128.5 million and $162.0 million in
net operating loss carryforwards for federal and state tax purposes,
respectively. These net operating losses begin to expire, for federal purposes,
as noted in the following table (in thousands):

|            |  |          |         | 
|----------- |  | -------- | ------- | 
|            |  | Expiring
|Years       |  | NOL's   
|            |  |         
|2005  2010 |  | $        | 17,101  | 
|2011  2015 |  |          | 9,990   | 
|2016  2020 |  |          | 60,730  | 
|2021        |  |          | 40,712  | 
|            |  |          |         | 
|            |  | $        | 128,533 | 
|            |  |          |         | 

The state NOLs begin expiring in 2002 and continue through 2020. In
addition, the Company has approximately $600,000 of federal income tax credits,
which may be carried forward indefinitely. The Company has $2.2 million of
state income tax credits, of which $2.0 million will expire in the year 2012.

On the date of acquisition, the Companys net operating loss carryforwards
of $59.0 million were subject to the change in control provisions of Internal
Revenue Code Section 382. The limitations on the net operating loss
carryforwards do not have a significant impact on the availability and
utilization of the losses.

During the current year, management has determined that it is more likely
than not that the Company will not realize the tax benefits associated with
certain cumulative net operating loss carryforwards and impairment reserves,
and as such, the Company has increased its valuation allowance for federal and
state purposes. The net change in the total valuation allowance for the year
ended December 31, 2002, was an increase of $17.5 million.

Subsequent recognition of any tax benefits relating to the December 31,
2002 valuation allowance for deferred tax assets will be allocated as follows
(in thousands):

Income tax benefit that would be reported in:

|                                     |  |   |         | 
|------------------------------------ |  | - | ------- | 
|Consolidated statement of operations |  | $ | 110,545 | 
|Goodwill                             |  |   | 3,492   | 
|                                     |  |   |         | 
|                                     |  | $ | 114,037 | 
|                                     |  |   |         | 

During 2002, the Company provided $1.6 million of U.S. tax expense for
future repatriation of cash from its Asia operations pursuant to APB 23. This
charge represents all undistributed earnings from Asia not previously taxed in
the United States.

Undistributed earnings of foreign subsidiaries, other than the Asia
operations, aggregated $1.1 million on December 31, 2002, which, under existing
law, will not be subject to U.S. tax until distributed as dividends. Since the
earnings have been, or are intended to be, indefinitely reinvested in foreign
operations, no provision has been made for any U.S. taxes that may be
applicable thereto. Furthermore, any taxes paid to foreign governments on those
earnings may be used in whole or in part as credits against the U.S. tax on any
dividends distributed from such earnings. It is not practicable to estimate the
amount of unrecognized deferred U.S. taxes on these undistributed earnings.

11. STOCKHOLDERS EQUITY

On June 9, 2000, the Company amended its restated certificate of
incorporation to provide that each outstanding share of Old Class A Stock would
be converted into or reconstituted as 0.4 shares of Class A common stock and
each outstanding share of Old Class B Stock would be converted into or
reconstituted as 0.6 shares of Class B common stock. Immediately thereafter,
on June 9, 2000, in connection with the Todd Merger, the Company again amended
its restated certificate of incorporation such that the total number of shares
of capital stock authorized to be issued is 405,000,000; 400,000,000 of the
authorized shares are designated common stock and 5,000,000 are designated
preferred stock. As of December 31, 2002, no shares of the Companys preferred
stock had been issued. Of the total amount of authorized common stock,
300,000,000 shares have been designated as Class A common stock and 100,000,000
shares have been designated as Class B common stock. All the shares of common
stock and preferred stock have a par value of $0.01 per share. Holders of Class
A common stock are entitled to one vote per share and holders of Class B common
stock are entitled to ten votes per share. In all other respects, the Class A
and B common stock are substantially identical and have equal rights and
privileges, except that shares of Class B common stock are convertible into
shares of Class A common stock, on a one-to-one basis, at the option of the
holder at any time.

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##### Table of Contents



During fiscal 2002, the Company redeemed 440,981 shares of the Companys
Class A common stock related to an arbitration award for an amount of $1.4
million.

12. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

On December 19, 2001, the Companys stockholders approved both the 2001
Incentive Plan (the 2001 Incentive Plan), which had been previously adopted
by the Board of Directors on November 28, 2000 and amended August 6, 2001 and
November 8, 2001, subject to stockholder approval, and the 2000 Nonemployee
Director Stock Option Plan (the 2000 Nonemployee Director Plan), which had
been previously adopted by the Board of Directors on August 6, 2001, subject to
stockholder approval.

The 2001 Incentive Plan provides for the granting of non-qualified or
incentive stock options, performance awards, stock appreciation rights,
restricted shares, and stock units. Under the 2001 Incentive Plan, the maximum
number of shares of common stock with respect to which awards may be granted
during the term of the 2001 Incentive Plan is 7,000,000. Stock options under
the 2001 Incentive Plan have a maximum term of ten years and vest over a
five-year period commencing at the grant date.

The 2000 Nonemployee Director Plan provides that an automatic grant of
non-qualified stock options to purchase 15,000 shares of the Companys Class A
common stock shall be granted to (i) each nonemployee director who was a
director as of November 28, 2000, with a grant date of November 28, 2000; and
(ii) each individual who becomes a nonemployee director after November 28, 2000
upon his or her appointment to the Companys board of directors. Stock options
under the 2000 Nonemployee Director Plan have an exercise price equal to the
fair market value of the Companys Class A common stock on the date of grant,
have a maximum term of ten years and vest ratably over a five-year period
commencing on the grant date.

Through December 31, 2000, the Company had five stock option plans: The
1986, 1994, 1995, and 1997 Stock Option Plans and the 1998 Stock Incentive
Plan. No stock options or shares were issued from the 1998 plan. These plans
provided for the granting of either non-qualified or incentive stock options at
not less than 85% and 100% of the market value of the stock on the date of the
grant. Options generally became exercisable in installments commencing as of
the beginning of a fiscal year near the date of grant.

Pursuant to the Todd Merger on June 9, 2000, as described in Note 1, each
outstanding Todd-AO stock option under all plans became fully vested and was
converted into a rollover option to purchase 0.5 shares of Liberty Media and
0.4 shares of the Companys Class A common stock. These converted options
automatically expired on December 9, 2000, six months from the acquisition date
of June 9, 2000.

A Stock Option Fulfillment Agreement (Agreement) was executed between
Liberty Media and the Company as of June 10, 2000 to create a mechanism for
the Company to fulfill its obligations under the rollover options as they
pertain to shares of Liberty Media. Pursuant to the Agreement, the Company
purchased Liberty Media stock on the open market to fulfill the 0.5 Liberty
Media share portion of the options exercised. To fund such purchases, Liberty
Media contributed cash to the Company equal to (i) the number of Liberty Media
shares delivered pursuant to the rollover option elections times (ii) the
average of the high and low price per Liberty Media shares during the day the
rollover option was exercised (iii) less a pro rata share of proceeds received
from the option holder. In consideration for such capital contributions, the
Company issued shares of the Companys Class B common stock in an amount equal
to (i) the number of Liberty Media shares deliverable upon exercise, times (ii)
1.2.

During the seven months ended December 31, 2000, 830,871 Todd-AO converted
options were exercised for 332,348 shares of Ascent Media Class A common stock.
For the funding of the Liberty Media shares to the option holders, 296,039
shares of the Companys Class B common stock were issued to Liberty Media
valued at $5.1 million as consideration for payments made to the Company for
the purchase of Liberty Media stock on the open market. A gain of $836,000 has
been included in the consolidated statement of operations based on the decrease
in Liberty Media stock price between the date of option exercises and the date
the Liberty Media shares were purchased by the Company on the open market.

F-26



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##### Table of Contents



The following table summarizes information about stock option transactions
under the 2001 Incentive Plan:

|                     |           |  |           |            |       |   |          |      | 
|-------------------- | --------- |  | --------- | ---------- | ----- | - | -------- | ---- | 
|                     |           |  |           |            |       |   | Weighted
|                     |           |  |           |            |       |   | Average 
|                     |           |  |           |            |       |   | Exercise
|                     |           |  | Shares    |            | Price
|                     |           |  |           |            |      
|At January 1, 2001   |           |  |          |            |       | $ |         |     
|                     | Awarded   |  |           | 8,915,000  |       |   |          | 7.33 | 
|                     | Exercised |  |           |           |       |   |          |     | 
|                     | Cancelled |  |           | (2,782,500 | )     |   |          | 7.00 | 
|                     |           |  |           |            |       |   |          |     
|At December 31, 2001 |           |  | 6,132,500 |            |       | $ | 7.48     |     
|                     | Awarded   |  |           | 765,000    |       |   |          | 7.00 | 
|                     | Exercised |  |           |           |       |   |          |     | 
|                     | Cancelled |  |           | (1,743,750 | )     |   |          | 7.06 | 
|                     |           |  |           |            |       |   |          |     
|At December 31, 2002 |           |  | 5,153,750 |            |       | $ | 7.53     |     
|                     |           |  |           |            |       |   |          |     

The following tables summarize the information about stock options
outstanding as of December 31, 2002 and December 31, 2001, respectively, under
the 2001 Incentive Plan:

|                         |  |                         |           |                         |  |           |     |           |  |          |       |  |  |          |           |  |  |   |       | 
|------------------------ |  | ----------------------- | --------- | ----------------------- |  | --------- | --- | --------- |  | -------- | ----- |  |  | -------- | --------- |  |  | - | ----- | 
|                         |  | Outstanding at 12/31/02 |           | Exercisable at 12/31/02
|                         |  |                         |           |                        
|                         |  |                         |           |                         |  | Weighted  |     |           |  |          |       |  |  |          |           |  |  |  
|                         |  |                         |           |                         |  | Average   |     | Weighted  |  |          |       |  |  | Weighted
|                         |  |                         |           |                         |  | Remaining |     | Average   |  |          |       |  |  | Average 
|                         |  | Number of               |           | Years of                |  | Exercise  |     | Number of |  | Exercise
|Range of Exercise Prices |  | Options                 |           | Contractual Life        |  | Price     |     | Options   |  | Price   
|                         |  |                         |           |                         |  |           |     |           |  |         
|$7.00                    |  |                         | 4,666,250 |                         |  |           | 8.5 |           |  | $        | 7.00  |  |  |          | 763,750   |  |  | $ | 7.00  | 
|$10.27                   |  |                         | 100,000   |                         |  |           | 7.4 |           |  |          | 10.27 |  |  |          | 100,000   |  |  |   | 10.27 | 
|$13.47                   |  |                         | 387,500   |                         |  |           | 8.6 |           |  |          | 13.47 |  |  |          | 387,500   |  |  |   | 13.47 | 
|                         |  |                         |           |                         |  |           |     |           |  |          |       |  |  |          |           |  |  |   |       | 
|                         |  |                         | 5,153,750 |                         |  |           | 8.5 |           |  | $        | 7.53  |  |  |          | 1,251,250 |  |  | $ | 9.27  | 
|                         |  |                         |           |                         |  |           |     |           |  |          |       |  |  |          |           |  |  |   |       | 

The Company recognized $3.2 million and $1.6 million in stock compensation
expense during the years ended December 31, 2002 and 2001, respectively,
attributable to stock options granted with an exercise price less than the fair
market value on the date of grant. There was no stock option compensation
expense for other periods presented in the consolidated financial statements.

The following table presents the number and weighted average exercise
price of the Todd-AO Stock Options and the Company and Liberty Media options
that were issued in exchange for the Todd-AO options:

|                     |            |  |           |          |               |  |               |          |                  |  |          |          |   |   |      |       | 
|-------------------- | ---------- |  | --------- | -------- | ------------- |  | ------------- | -------- | ---------------- |  | -------- | -------- | - | - | ---- | ----- | 
|                     |            |  | Todd-AO   |          | Ascent Media  |  |               |          |                  |  | Weighted
|                     |            |  | Stock     |          | Class A Stock |  | Liberty Media |          | Average Exercise
|                     |            |  | Options   |          | Options       |  | Stock Options |          | Price           
|                     |            |  |           |          |               |  |               |          |                 
|At December 31, 1999 |            |  | 1,028,645 |          |               |  |              |          |                  |  |         |          |   | $ | 6.50 |      
|                     | Awarded    |  |           | 15,000   |               |  |               |         |                  |  |          |         |   |   |      | 10.94 | 
|                     | Exercised  |  |           | (152,318 | )             |  |               |         |                  |  |          |         |   |   |      | 6.56  | 
|                     | Forfeited  |  |           | (41,936  | )             |  |               |         |                  |  |          |         |   |   |      | 6.52  | 
|                     |            |  |           |          |               |  |               |          |                  |  |          |          |   |   |      |      
|At June 9, 2000      |            |  | 849,391   |          |               |  |              |          |                  |  |         |          |   |   | 6.57 |      
|                     | Conversion |  |           | (849,391 | )             |  |               | 339,756  |                  |  |          | 424,696  |   |   |      | 6.57  | 
|                     | Exercised  |  |           |         |               |  |               | (332,348 | )                |  |          | (415,436 | ) |   |      | 6.46  | 
|                     | Forfeited  |  |           |         |               |  |               | (7,408   | )                |  |          | (9,260   | ) |   |      | 11.40 | 
|                     |            |  |           |          |               |  |               |          |                  |  |          |          |   |   |      |      
|At December 31, 2000 |            |  |          |          |               |  |              |          |                  |  |         |          |   | $ |     |      
|                     |            |  |           |          |               |  |               |          |                  |  |          |          |   |   |      |      

SFAS No. 123 Accounting for Stock Based Compensation  Stock Options

The Company has adopted the disclosure-only provisions of SFAS No. 123.
Under SFAS No. 123, the estimated fair value of options granted during the
years ended December 31, 2002 and 2001, and the five months ended May 31, 2000
was approximately $1.6 million, $48.2 million and $52,000, respectively. There
were no options granted during the seven months ended December 31, 2000. The
fair value of each option grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions: dividend
yield of 0%, volatility of 41%-113%, a risk free interest rate of 3.98%-5.00%
for December 31, 2002; dividend yield of 0%-0.75%, volatility of 25-41%, a risk
free interest rate of 5.00% for December 31, 2001; and risk free interest rate
of 5.65% for May 31, 2000.

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Had the Company accounted for its stock based compensation pursuant to the
fair value based accounting method in SFAS No. 123, the Companys net income
(loss) and net income (loss) per share would have changed to the pro forma
amounts indicated below (in thousands, except per share data):

|                   |                               |  |              |          |              |  |                    |          |               |  |   |        |   |  |   |        |  
|------------------ | ----------------------------- |  | ------------ | -------- | ------------ |  | ------------------ | -------- | ------------- |  | - | ------ | - |  | - | ------ | -
|                   |                               |  | Ascent Media |          | Todd - AO   
|                   |                               |  |              |          |             
|                   |                               |  | Year Ended   |          | Year Ended   |  | Seven Months       |          | Five Months  
|                   |                               |  | December 31, |          | December 31, |  | Ended December 31, |          | Ended May 31,
|                   |                               |  | 2002         |          | 2001         |  | 2000               |          | 2000         
|                   |                               |  |              |          |              |  |                    |          |              
|Net loss           |                               |  |              |          |              |  |                    |          |               |  |   |        |   |  |   |       
|                   | As reported                   |  | $            | (135,186 | )            |  | $                  | (436,289 | )             |  | $ | (9,793 | ) |  | $ | (1,675 | )
|                   | Pro forma                     |  | $            | (136,253 | )            |  | $                  | (439,297 | )             |  | $ | (9,793 | ) |  | $ | (1,727 | )
|Net loss per share |                               |  |              |          |              |  |                    |          |               |  |   |        |   |  |   |       
|                   | As reported basic and
diluted |  | $            | (3.07    | )            |  | $                  | (11.52   | )             |  | $ | (0.28  | ) |  | $ | (0.16  | )
|                   | Pro forma basic and diluted   |  | $            | (3.10    | )            |  | $                  | (11.60   | )             |  | $ | (0.28  | ) |  | $ | (0.16  | )

The above pro forma disclosures may not be representative of the effects
on reported pro forma net income for future years. The weighted average fair
value of options granted in 2002 was $2.34 per share.

Stock Appreciation Rights

Pursuant to the acquisition of 4MC by Liberty Media, each outstanding 4MC
stock option was converted into a stock appreciation right (SARs) at a ratio
0.32258 shares of Liberty Media stock for each 1.0 share of 4MC stock. Upon
the election to exercise, holders of vested SARs have the option of receiving
any net cash appreciation of Liberty Media stock over the exercise price in
cash or shares of Liberty Media stock. On October 31, 2002, Liberty Media made
a rights offering, pursuant to which it has determined that stock appreciation
rights outstanding as of the record date will be adjusted to account for the
dilution associated with the rights offering. Effective as of the record date,
the base price of each outstanding stock appreciation right will be reduced by
2.5%. In addition, each outstanding 4MC stock option was converted at a ratio
of 1.0256. The following table presents the number and weighted average
exercise price of SARs to purchase Liberty Media stock for the year ended
December 31, 2002 and 2001.

|                          |            |  |           |          |          |   |          |       | 
|------------------------- | ---------- |  | --------- | -------- | -------- | - | -------- | ----- | 
|                          |            |  |           |          |          |   | Weighted
|                          |            |  |           |          |          |   | Average 
|                          |            |  | Number of |          | Exercise
|                          |            |  | SARs      |          | Price   
|                          |            |  |           |          |         
|Converted at June 9, 2000 |            |  | 3,856,112 |          |          | $ | 12.50    |      
|                          | Exercised  |  |           | (591,839 | )        |   |          | 11.59 | 
|                          |            |  |           |          |          |   |          |      
|At December 31, 2000      |            |  | 3,264,273 |          |          | $ | 12.66    |      
|                          | Exercised  |  |           | (53,308  | )        |   |          | 12.66 | 
|                          |            |  |           |          |          |   |          |      
|At December 31, 2001      |            |  | 3,210,965 |          |          |   | 12.66    |      
|                          | Exercised  |  |           | (55,464  | )        |   |          | 10.99 | 
|                          | Cancelled  |  |           | (287,895 | )        |   |          | 13.42 | 
|                          |            |  |           |          |          |   |          |      
|At October 31, 2002       |            |  | 2,867,606 |          |          |   | 12.62    |      
|                          | Conversion |  |           | 73,410   |          |   |          | 12.30 | 
|                          |            |  |           |          |          |   |          |      
|At December 31, 2002      |            |  | 2,941,017 |          |          | $ | 12.30    |      
|                          |            |  |           |          |          |   |          |      

Summarized information about the outstanding SARs at December 31, 2002 is as
follows:

|                  |  |             |           |                  |  |                   |      |           |  |                  |       |  |  |          |           |  |  |   |       | 
|----------------- |  | ----------- | --------- | ---------------- |  | ----------------- | ---- | --------- |  | ---------------- | ----- |  |  | -------- | --------- |  |  | - | ----- | 
|                  |  | Outstanding |           | Exercisable     
|                  |  |             |           |                 
|                  |  |             |           |                  |  | Weighted          |      |           |  |                  |       |  |  |          |           |  |  |  
|                  |  |             |           |                  |  | Average Remaining |      | Weighted  |  |                  |       |  |  | Weighted
|Range of Exercise |  | Number of   |           | Years of         |  | Average Exercise  |      | Number of |  | Average Exercise
|Prices            |  | SARs        |           | Contractual Life |  | Price             |      | SARs      |  | Price           
|                  |  |             |           |                  |  |                   |      |           |  |                 
|$9.82 to $12.66   |  |             | 2,598,849 |                  |  |                   | 5.79 |           |  |                  | 12.02 |  |  |          | 2,461,414 |  |  |   | 12.02 | 
|$13.03 to 15.11   |  |             | 342,168   |                  |  |                   | 5.54 |           |  |                  | 14.47 |  |  |          | 291,341   |  |  |   | 14.49 | 
|                  |  |             |           |                  |  |                   |      |           |  |                  |       |  |  |          |           |  |  |   |       | 
|                  |  |             | 2,941,017 |                  |  |                   | 5.75 |           |  | $                | 12.30 |  |  |          | 2,752,756 |  |  | $ | 12.28 | 
|                  |  |             |           |                  |  |                   |      |           |  |                  |       |  |  |          |           |  |  |   |       | 

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There was no accrued expense for the year ended December 31, 2002. The
accrued expense was $3.2 million as of December 31, 2001. The consolidated
statements of operations for the year ended December 31, 2002 include a
non-cash benefit of $3.2 million due to the changes in the stock price
underlying the SARs. During the year ended December 31, 2001, a $2.5 million
charge was recorded.

Upon delivery of an exercise notice to the Company by a participant in the
option plan, the Company forwards such notice to Liberty Media. Liberty Media
processes the exercise notice. If the participant has elected a cash settlement
for the options, Liberty Media will remit funds equivalent to the difference
between the Liberty Media share price established by a ten-day trailing average
as of the day prior to the exercise and the exercise price for the
participants options multiplied by the number of shares exercised. If the
participant elects to receive Liberty Media shares directly, the participant
will remit to the Company a payment equivalent to the exercise price for the
participants options multiplied by the number of shares exercised. Liberty
Media will issue shares directly to the participant equivalent to the number of
shares exercised.

Unearned Stock Compensation

Pursuant to the Todd Merger, the Company entered into a consulting
agreement with an executive of Todd-AO. The consulting agreement provides for
the grant of 150,000 options of Liberty Media stock that vest 50,000 per year
over three years beginning June 9, 2000. The fair value of the stock options
recorded as unearned stock compensation on the date of the Todd Merger was $2.9
million. During the year ended December 31, 2002 and 2001, the Company recorded
$135,000 of stock compensation income and $216,000 of stock compensation
expense, respectively, based on the fluctuation in the stock price underlying
the options.

13. EMPLOYEE BENEFIT PLAN

The Company offers a 401(k) defined contribution plan covering most of its
full-time domestic employees not covered by employees eligible to participate
in the Motion Picture Industry Pension and Health Plan (MPIPHP), a
multi-employer defined benefit pension plan. Contributions to the MPIPHP are
determined in accordance with the provisions of negotiated labor contracts and
generally are based on the number of hours worked. The Company also sponsors a
pension plan for eligible employees of its foreign subsidiaries. Employer
contributions are determined by the Companys Board of Directors. The plans are
funded by employee and employer contributions. Total pension plan expenses for
the periods presented were as follows (in thousands):

|              |  |              |       |              |  |              |       |              |  |       |       |      |  |   |     | 
|------------- |  | ------------ | ----- | ------------ |  | ------------ | ----- | ------------ |  | ----- | ----- | ---- |  | - | --- | 
|              |  | Ascent Media |       | Todd - AO   
|              |  |              |       |             
|              |  |              |       |              |  |              |       |              |  | Seven |       | Five
|              |  | Year Ended   |       | Year Ended   |  | Months Ended |       | Months Ended
|              |  | December 31, |       | December 31, |  | December 31, |       | May 31,     
|              |  | 2002         |       | 2001         |  | 2000         |       | 2000        
|              |  |              |       |              |  |              |       |             
|MPIPH         |  | $            | 2,082 |              |  | $            | 2,700 |              |  | $     | 297   |      |  | $ | 212 | 
|U.S. 401(k)   |  |              | 2,077 |              |  |              | 1,717 |              |  |       | 260   |      |  |   | 185 | 
|Foreign Plans |  |              | 1,635 |              |  |              | 1,175 |              |  |       | 532   |      |  |   | 380 | 
|              |  |              |       |              |  |              |       |              |  |       |       |      |  |   |     | 
|              |  | $            | 5,794 |              |  | $            | 5,592 |              |  | $     | 1,089 |      |  | $ | 777 | 
|              |  |              |       |              |  |              |       |              |  |       |       |      |  |   |     | 

14. HEDGING ACTIVITIES

The Company uses variable-rate debt to finance its operations. The debt
obligations expose the Company to variability in interest payments due to
changes in interest rates. The Company has interest-rate related derivative
instruments to manage its exposure to fluctuations in interest rates. By using
derivative financial instruments to hedge exposures to changes in interest
rates, the Company exposes itself to credit risk and market risk. Credit risk
is the failure of the counterparty to perform under the terms of the derivative
contract. When the fair value of a derivative contract is positive, the
counterparty owes the Company, which creates credit risk for the Company. When
the fair value of a derivative contract is negative, the Company owes the
counterparty and, therefore, it does not possess credit risk. The
counterparties to the Companys contractual arrangements are major financial
institutions with which the Company also has other financial relationships. The
Company monitors the credit worthiness of its counterparties and does not
expect nonperformance by its counterparties.

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Market risk is the adverse effect on the value of a financial instrument
that results from a change in interest rates, currency exchange rates, or
commodity prices. The market risk associated with an interest-rate contract is
managed by establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken.

The Company formally documents all relationships between hedging
instruments and hedged items, as well as its risk management objectives and
strategies for undertaking various hedge transactions. The Company links all
hedges that are designated as cash flow hedges to forecasted transactions or to
floating-rate liabilities on the balance sheet. The Company also assesses, both
at the inception of the hedge and on an ongoing basis, whether the derivatives
that are used in hedging transactions are highly effective in offsetting
changes in cash flows of hedged items.

The Company assesses interest rate cash flow risk by continually
identifying and monitoring changes in interest rate exposures that may
adversely impact expected future cash flows and by evaluating hedging
opportunities. The Company maintains risk management control systems to monitor
interest rate cash flow risk attributable to both the Companys outstanding or
forecasted debt obligations as well as the Companys offsetting hedge
positions. The risk management control systems involve the use of analytical
techniques, including cash flow sensitivity analysis, to estimate the expected
impact of changes in interest rates on the Companys future cash flows.

At December 22, 2000, the Company entered into an interest rate swap
agreement to manage variations in cash flows resulting from interest rate risk.
This swap changed a portion of the Companys variable-rate cash flow exposure
on the debt obligations to fixed cash flows (Variable to Fixed Swap). Under
the terms of the interest rate swap, the Company receives variable interest
rate payments and makes fixed interest rate payments, thereby synthetically
creating the equivalent of fixed-rate debt. The Company amended the contractual
terms of the Variable to Fixed Swap several times throughout fiscal 2001 and
each amended Variable to Fixed Swap has been accounted for as a separate cash
flow hedge with the previous swap de-designated at the same time. In November
2001, the remaining Variable to Fixed Swap designated as a cash flow hedge was
de-designated. Subsequent to de-designation, the contracts have been accounted
for as freestanding derivative instruments and changes in fair value have been
reflected in earnings. At November 1, 2001, the Company also entered into
interest rate swap agreements in which the Company receives fixed interest rate
payments and pays variable interest rate payments (Fixed to Variable Swaps).

Changes in the fair value of the interest rate swaps designated as hedging
instruments that effectively offset the variability of cash flows associated
with variable-rate, long-term debt obligations are reported in accumulated
other comprehensive income (AOCI). As a result of the de-designation of the
hedge on November 1, 2001, the accumulated balance included in AOCI was and has
been reclassified into interest expense as a yield adjustment of the hedged
debt obligation in the same period in which the related interest affects
earnings.

On July 1, 2002, September 20, 2002 and September 30, 2002, the Company
executed a series of transactions whereby it terminated all of its Fixed to
Variable Swaps. The total proceeds of these transactions was approximately $4.1
million.

Changes in the fair value of freestanding interest rate swaps are reported
within the statements of operations as other income or expense. Cash payments
or receipts due upon the contractual settlement of the swaps are recorded as
interest expense. No cash flow hedge ineffectiveness arose from differences
between the critical terms of the interest rate swap and the hedged debt
obligations during the ten months the Variable to Fixed Swaps were designated
as a hedge. As of December 31, 2002, $6.4 million of losses on the Variable to
Fixed Swaps included in AOCI was charged to interest expense with another $6.2
million charged to interest expense during fiscal 2001. The losses were
reclassified to interest expense as interest payments were throughout the
original terms of the Variable to Fixed Swaps.

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At December 31, 2002, the Company has three Variable to Fixed Interest
Rate Swaps with a combined notional of approximately $372 million. The largest
of which is a $365 million notional swap due to expire on June 30, 2003. The
Company has chosen to maintain this swap as a stand alone derivative and will
record all changes in market value from period to period through the statement
of operations to derive the benefit of approximately $6.0 million in other
income over the next 6 months. The other two swaps are held by the Companys
subsidiaries, Todd AO UK Limited and Studio Film and Video Holdings Limited, in
the UK. These swaps were entered into on January 17, 2002 and became effective
December 10, 2002, having a combined notional of $7.2 million and a maturity of
March 10, 2016. These swaps have been designated as effective hedges to the
variability of interest rate attributable to the LIBOR interest payments due on
the respective two UK mortgage loans. The changes in fair value for these
swaps are recorded in AOCI.

15. CONTINGENCIES

Future minimum lease payments under scheduled operating leases that have
initial or remaining noncancelable terms in excess of one year are as follows
(in thousands):

|                        |      |   |         |        | 
|----------------------- | ---- | - | ------- | ------ | 
|Year Ended December 31, |      |   |         |       
|                        | 2003 |   | $       | 25,003 | 
|                        | 2004 |   |         | 23,286 | 
|                        | 2005 |   |         | 22,607 | 
|                        | 2006 |   |         | 21,777 | 
|                        | 2007 |   |         | 20,613 | 
|Thereafter              |      |   | 79,691  |       
|                        |      |   |         |       
|                        |      | $ | 192,977 |       
|                        |      |   |         |       

Rent expense for noncancelable operating leases for real property and
equipment was $29.6 million, $28.4 million, and $13.9 million, for the years
ended December 31, 2002 and 2001, and the combined year ended December 31,
2000, respectively. Various lease arrangements contain options to extend terms
and are subject to escalation clauses.

At December 31, 2002, the Company is committed to compensation under
long-term employment agreements with its named executive officers as follows:
2003, $2.1 million; 2004, $1.1 million; 2005, $1.1 million; 2006, $1.1 million;
and 2007, $1.1 million.

The Company is involved in litigation and similar claims incidental to the
conduct of its business. In managements opinion, none of the pending actions
is likely to have a material adverse impact on the Companys financial position
or results of operations.

16. BUSINESS SEGMENT INFORMATION

The Companys business units have been aggregated into three reportable
segments: the Creative Services Group, the Media Management Services Group, and
the Network Services Group. Corporate related items and unallocated income and
expenses are reflected in the Corporate and Other column listed below.
Additionally, Corporate and Other includes the results of our New Products
Group which is leading our efforts in Interactive Media and other new business
initiatives.

The Creative Services Group is comprised of the Companys Entertainment
Television, Commercial Television and Audio divisions, which earn revenues by
providing services necessary to complete the creation of original content
including feature films, television shows, movies of the week/mini series,
television commercials, music videos, promotional and identity campaigns and
corporate communications programming. The Media Management Services Group
provides facilities and services necessary to optimize, archive,
manage and repurpose media assets for global distribution  via
freight, satellite, fiber and the Internet; access to all forms of
content, duplication and formatting services, language conversions and
laybacks, restoration and preservation of old or damaged content,
mastering from motion picture film to high resolution or data
formats, digital audio and video encoding services and digital media
management services for global home video,
broadcast, pay-per-view and emerging new media distribution channels. Additionally, the
Media Management Services Group also includes the results of the Companys
Digital Media Management initiative. The Network Services Group provides
services necessary to assemble and distribute programming for cable and
broadcast networks via fiber and satellite to viewers in North America, Europe
and Asia. Additionally, the Network Services Group includes the result of the
Companys Bandwidth management initiative, predominantly Triumph, which was
sold on December 23, 2002.

The Companys management identified its reportable segments based upon the
following factors: (1) the

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Companys Chief Operating Decision Maker (Chief Executive Officer) reviews the
results of operations for each of the following segments and each Group
President accountable for results, (2) a Group Presidents overall compensation
is based upon the related segments results, and (3) the Companys
organizational structure contains senior executives that oversee all of these
segments.

The accounting policies of the segments are the same as those described in
the summary of significant accounting policies and are consistent with GAAP.
The Company evaluates performance based upon several factors, including segment
income (loss) before income taxes, interest, depreciation and amortization of
intangibles.

The Company believes that EBITDA is an important measure of its financial
performance. EBITDA is defined as earnings before interest, taxes,
depreciation and amortization, excluding gains and losses on asset sales and
unusual charges such as restructuring, integration and impairment. The
Companys investments in new infrastructure, machine capacity, technology and
goodwill arising from its significant acquisition activity have produced a
relatively high depreciation and amortization expense and have historically
been a significant annual non-cash charge to earnings. EBITDA is calculated
before depreciation and amortization charges and, in businesses with
significant non-cash expenses, is widely used as a measure of cash flow
available to pay interest and repay debt, and, to the extent available after
debt service and other required uses, to make acquisitions or invest in capital
equipment and new technologies. As a result, the Company intends to report
EBITDA as a measure of financial performance. EBITDA does not represent cash
generated from operating activities in accordance with GAAP and should not be
considered in isolation or as a substitute for other measures of performance
prepared in accordance with GAAP. EBITDA does not reflect that portion of its
capital expenditures that may be required to maintain its market share,
revenues and leadership position in its industry. Moreover, not all EBITDA will
be available to pay interest or repay debt. The Companys presentation of
EBITDA may not be comparable to similarly titled measures reported by other
companies. Certain reclassifications have been made to the prior periods
reported herein to conform to the current periods presentation.

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Summarized financial information concerning the Companys reportable
segments is presented in the following tables (in thousands):

|                             |                                  |                |          |                |                  |                |         |           |           |       |   |         |  |  |   |         |   |  |   |         | 
|---------------------------- | -------------------------------- | -------------- | -------- | -------------- | ---------------- | -------------- | ------- | --------- | --------- | ----- | - | ------- |  |  | - | ------- | - |  | - | ------- | 
|                             |                                  |                | Creative |                | Media Management |                | Network |           | Corporate |       |   |         | 
|Ascent Media                 |                                  | Services Group |          | Services Group |                  | Services Group |         | and Other |           | Total
|                             |                                  |                |          |                |                  |                |         |           |           |      
|Year Ended December 31, 2002 |                                  |                |          |                |                  |                |         |           |           |       |   |         |  |  |   |         |   |  |   |        
|                             | Revenues from external customers |                | $        | 275,119        |                  |                | $       | 104,938   |           |       | $ | 159,123 |  |  | $ | 153     |   |  | $ | 539,333 | 
|                             | EBITDA                           |                |          | 50,150         |                  |                |         | 30,889    |           |       |   | 51,320  |  |  |   | (45,070 | ) |  |   | 87,289  | 
|                             | Capital expenditures             |                |          | 21,819         |                  |                |         | 7,457     |           |       |   | 9,958   |  |  |   | 16,118  |   |  |   | 55,352  | 
|                             | Depreciation and amortization    |                |          | 38,778         |                  |                |         | 7,483     |           |       |   | 18,863  |  |  |   | 2,148   |   |  |   | 67,272  | 
|                             | Total assets                     |                | $        | 370,427        |                  |                | $       | 154,062   |           |       | $ | 245,257 |  |  | $ | 23,580  |   |  | $ | 793,326 | 

|                             |                                  |                |          |                |                  |                |         |           |           |       |   |         |  |  |   |         |   |  |   |         | 
|---------------------------- | -------------------------------- | -------------- | -------- | -------------- | ---------------- | -------------- | ------- | --------- | --------- | ----- | - | ------- |  |  | - | ------- | - |  | - | ------- | 
|                             |                                  |                | Creative |                | Media Management |                | Network |           | Corporate |       |   |         | 
|Ascent Media                 |                                  | Services Group |          | Services Group |                  | Services Group |         | and Other |           | Total
|                             |                                  |                |          |                |                  |                |         |           |           |      
|Year Ended December 31, 2001 |                                  |                |          |                |                  |                |         |           |           |       |   |         |  |  |   |         |   |  |   |        
|                             | Revenues from external customers |                | $        | 332,921        |                  |                | $       | 104,063   |           |       | $ | 155,550 |  |  | $ | 198     |   |  | $ | 592,732 | 
|                             | EBITDA                           |                |          | 67,052         |                  |                |         | 31,672    |           |       |   | 49,265  |  |  |   | (42,246 | ) |  |   | 105,743 | 
|                             | Capital expenditures             |                |          | 39,746         |                  |                |         | 12,084    |           |       |   | 11,648  |  |  |   | 10,227  |   |  |   | 73,705  | 
|                             | Depreciation and amortization    |                |          | 67,887         |                  |                |         | 16,475    |           |       |   | 34,563  |  |  |   | 9,678   |   |  |   | 128,603 | 
|                             | Total assets                     |                | $        | 450,905        |                  |                | $       | 169,514   |           |       | $ | 277,929 |  |  | $ | 21,343  |   |  | $ | 919,691 | 

|                                     |                                  |                |          |                |                  |                |         |           |           |       |   |         |  |  |   |         |   |  |   |           | 
|------------------------------------ | -------------------------------- | -------------- | -------- | -------------- | ---------------- | -------------- | ------- | --------- | --------- | ----- | - | ------- |  |  | - | ------- | - |  | - | --------- | 
|                                     |                                  |                | Creative |                | Media Management |                | Network |           | Corporate |       |   |         | 
|Ascent Media                         |                                  | Services Group |          | Services Group |                  | Services Group |         | and Other |           | Total
|                                     |                                  |                |          |                |                  |                |         |           |           |      
|Seven Months Ended December 31, 2000 |                                  |                |          |                |                  |                |         |           |           |       |   |         |  |  |   |         |   |  |   |          
|                                     | Revenues from external customers |                | $        | 177,808        |                  |                | $       | 46,676    |           |       | $ | 28,615  |  |  | $ |        |   |  | $ | 253,099   | 
|                                     | EBITDA                           |                |          | 38,178         |                  |                |         | 13,704    |           |       |   | 3,194   |  |  |   | (20,314 | ) |  |   | 34,762    | 
|                                     | Capital expenditures             |                |          | 55,686         |                  |                |         | 3,663     |           |       |   | 10,358  |  |  |   | 6,993   |   |  |   | 76,700    | 
|                                     | Depreciation and amortization    |                |          | 30,778         |                  |                |         | 6,285     |           |       |   | 5,819   |  |  |   | 8,663   |   |  |   | 51,545    | 
|                                     | Total assets                     |                | $        | 577,341        |                  |                | $       | 216,355   |           |       | $ | 348,774 |  |  | $ | 33,375  |   |  | $ | 1,175,845 | 

|                               |                                  |                |          |                |                  |                |         |           |           |       |   |   |  |  |   |   |  |  |   |         | 
|------------------------------ | -------------------------------- | -------------- | -------- | -------------- | ---------------- | -------------- | ------- | --------- | --------- | ----- | - | - |  |  | - | - |  |  | - | ------- | 
|                               |                                  |                | Creative |                | Media Management |                | Network |           | Corporate |       |   |   | 
|Todd-AO                        |                                  | Services Group |          | Services Group |                  | Services Group |         | and Other |           | Total
|                               |                                  |                |          |                |                  |                |         |           |           |      
|Five Months Ended May 31, 2000 |                                  |                |          |                |                  |                |         |           |           |       |   |   |  |  |   |   |  |  |   |        
|                               | Revenues from external customers |                | $        | 43,163         |                  |                | $       | 10,080    |           |       | $ |  |  |  | $ |  |  |  | $ | 53,243  | 
|                               | EBITDA                           |                |          | 5,449          |                  |                |         | 2,071     |           |       |   |  |  |  |   |  |  |  |   | 7,520   | 
|                               | Capital expenditures             |                |          | 3,449          |                  |                |         | 589       |           |       |   |  |  |  |   |  |  |  |   | 4,038   | 
|                               | Depreciation and amortization    |                |          | 5,776          |                  |                |         | 1,149     |           |       |   |  |  |  |   |  |  |  |   | 6,925   | 
|                               | Total assets                     |                | $        | 128,263        |                  |                | $       | 31,185    |           |       | $ |  |  |  | $ |  |  |  | $ | 159,448 | 

The following table
reconciles the Companys consolidated net loss to segment EBITDA (in thousands):

|         |                                                           |   |              |         |              |   |              |         |              |   |        |         |      |   |        |       |  
|-------- | --------------------------------------------------------- | - | ------------ | ------- | ------------ | - | ------------ | ------- | ------------ | - | ------ | ------- | ---- | - | ------ | ----- | -
|         |                                                           |   | Ascent Media |         | Todd- AO    
|         |                                                           |   |              |         |             
|         |                                                           |   |              |         |              |   |              |         |              |   | Seven  |         | Five
|         |                                                           |   | Year Ended   |         | Year Ended   |   | Months Ended |         | Months Ended
|         |                                                           |   | December 31, |         | December 31, |   | December 31, |         | May 31,     
|         |                                                           |   | 2002         |         | 2001         |   | 2000         |         | 2000        
|         |                                                           |   |              |         |              |   |              |         |             
|Net loss |                                                           | $ | (135,186     | )       |              | $ | (436,289     | )       |              | $ | (9,793 | )       |      | $ | (1,675 | )    
|Add:     |                                                           |   |              |         |              |   |              |         |              |   |        |         |      |   |        |      
|         | Change in accounting principle, net
of income tax benefit |   |              | 20,227  |              |   |              |        |              |   |        |        |      |   |        |      |  
|         | Depreciation and amortization                             |   |              | 67,272  |              |   |              | 128,603 |              |   |        | 51,545  |      |   |        | 6,925 |  
|         | Non-cash compensation (income) expense                    |   |              | (48     | )            |   |              | 4,293   |              |   |        | (29,577 | )    |   |        |      |  
|         | Impairment of long-lived assets                           |   |              | 83,718  |              |   |              | 307,932 |              |   |        |        |      |   |        |      |  
|         | Restructuring and other charges                           |   |              | (435    | )            |   |              | 5,558   |              |   |        |        |      |   |        |      |  
|         | Interest expense, net                                     |   |              | 64,820  |              |   |              | 63,119  |              |   |        | 19,132  |      |   |        | 1,641 |  
|         | Other (income) expense, net                               |   |              | (14,515 | )            |   |              | 10,974  |              |   |        | (872    | )    |   |        | 1,070 |  
|         | Non-recurring costs                                       |   |              |        |              |   |              | 9,985   |              |   |        | 648     |      |   |        |      |  
|         | Provision (benefit) for income taxes                      |   |              | 1,436   |              |   |              | 11,568  |              |   |        | 3,679   |      |   |        | (441  | )
|         |                                                           |   |              |         |              |   |              |         |              |   |        |         |      |   |        |      
|EBITDA   |                                                           | $ | 87,289       |         |              | $ | 105,743      |         |              | $ | 34,762 |         |      | $ | 7,520  |      
|         |                                                           |   |              |         |              |   |              |         |              |   |        |         |      |   |        |      

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Information as to the Companys operations in different geographic areas is as
follows (in thousands):

|                  |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |         |  
|----------------- | -------------- | - | ------------ | -------- | ------------ | - | ------------ | -------- | ------------ | - | --------- | --------- | ---- | - | ------- | ------- | -
|                  |                |   | Ascent Media |          | Todd  AO   
|                  |                |   |              |          |             
|                  |                |   |              |          |              |   |              |          |              |   | Seven     |           | Five
|                  |                |   | Year Ended   |          | Year Ended   |   | Months Ended |          | Months Ended
|                  |                |   | December 31, |          | December 31, |   | December 31, |          | May 31,     
|                  |                |   | 2002         |          | 2001         |   | 2000         |          | 2000        
|                  |                |   |              |          |              |   |              |          |             
|Revenues          |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        
|                  | United States  |   | $            | 420,827  |              |   | $            | 469,045  |              |   | $         | 185,520   |      |   | $       | 38,865  |  
|                  | United Kingdom |   |              | 93,797   |              |   |              | 100,651  |              |   |           | 59,332    |      |   |         | 14,378  |  
|                  | Mexico         |   |              | 3,670    |              |   |              | 3,812    |              |   |           | 2,649     |      |   |         |        |  
|                  | Asia           |   |              | 21,039   |              |   |              | 19,224   |              |   |           | 5,598     |      |   |         |        |  
|                  |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        
|                  |                | $ | 539,333      |          |              | $ | 592,732      |          |              | $ | 253,099   |           |      | $ | 53,243  |        
|                  |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        
|Net income (loss) |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        
|                  | United States  |   | $            | (145,540 | )            |   | $            | (435,261 | )            |   | $         | (14,383   | )    |   | $       | (1,823  | )
|                  | United Kingdom |   |              | 1,813    |              |   |              | (7,638   | )            |   |           | 3,720     |      |   |         | 148     |  
|                  | Mexico         |   |              | 787      |              |   |              | 523      |              |   |           | 442       |      |   |         |        |  
|                  | Asia           |   |              | 7,754    |              |   |              | 6,087    |              |   |           | 428       |      |   |         |        |  
|                  |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        
|                  |                | $ | (135,186     | )        |              | $ | (436,289     | )        |              | $ | (9,793    | )         |      | $ | (1,675  | )      
|                  |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        
|Assets            |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        
|                  | United States  |   | $            | 584,874  |              |   | $            | 709,790  |              |   | $         | 1,001,816 |      |   | $       | 111,430 |  
|                  | United Kingdom |   |              | 142,144  |              |   |              | 122,081  |              |   |           | 152,892   |      |   |         | 48,018  |  
|                  | Mexico         |   |              | 7,691    |              |   |              | 9,435    |              |   |           | 5,232     |      |   |         |        |  
|                  | Asia           |   |              | 58,617   |              |   |              | 78,385   |              |   |           | 15,905    |      |   |         |        |  
|                  |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        
|                  |                | $ | 793,326      |          |              | $ | 919,691      |          |              | $ | 1,175,845 |           |      | $ | 159,448 |        
|                  |                |   |              |          |              |   |              |          |              |   |           |           |      |   |         |        

17. RELATED PARTY TRANSACTIONS

Liberty Subordinated Client
Agreement

For a discussion of
the Liberty Subordinated Credit Agreement see Note 8.

Stock Sales to Liberty Media

On July 24,
2002, the Company sold 440,981 unregistered
shares of its Class B common stock to Liberty Media for $3.05 per share for
proceeds of approximately $1.4 million. The proceeds of the stock sale were
used to fund part of an arbitration award.

On August 13, 2002, as part of Supplement No. 3 to the Liberty
Subordinated Credit Agreement, the Company sold 7,070,000 shares of
its unregistered share of Class B common stock at a price of $1.69 per share for a total purchase price of
$11.9 million. The closing price of the Companys Class A common stock on
September 30, 2002 was $1.57 per share.

Other Stock Issuances to Liberty
Media

During the year ended December 31, 2002, the Company issued 10,436,853
shares of its Class B common stock to Liberty Media and its affiliates in
payment of $21.3 million in interest under the Liberty Subordinated Credit
Agreement. Shares of the Companys Class B common stock are convertible into
shares of the Companys Class A common stock, on a one-for-one basis, at any
time at the option of the holder.

Tax Sharing Agreement between Liberty Media and Ascent Media Group, Inc.

In November 2000, the Company and Liberty Media became parties to a tax
sharing agreement, whereby the Company is obligated to make a cash payment to
Liberty Media in each year that it (taken together with all of the Companys
domestic subsidiaries) has positive taxable income measured on a
separate return
basis. The amount of the payment would be equal to the amount of that positive
taxable income multiplied by the highest corporate tax rate. In the event that
(1) the Company and its subsidiaries, when treated as a separate group, have a
net operating loss or are entitled to a net tax credit for a particular year,
and (2) Liberty Media is able to use such loss or credit to reduce its tax
liability for any year, the Company would become entitled to a credit against
future payments to Liberty Media under the agreement. If the Company becomes
disaffiliated from Liberty Media and the group of companies that file tax
returns jointly with Liberty Media (i.e., if the value or voting power of
Liberty Medias stock ownership of the Company were to drop below 80%) prior to
the time that the Company is able to use such credit, the Company would be
entitled to a payment from Liberty Media at the earlier of the time that (1)
the Company shows it could have used the net operating loss carry forward or
net tax credit to reduce the Companys own separately computed tax liability or
(2) the value or voting power of Liberty Medias stock ownership of the Company
drops below 20%. In addition, under the tax sharing agreement, the Company has
the right to participate in the defense of claims of the Internal Revenue
Service that might affect its liability under the agreement, and to participate
in tax refunds paid to Liberty Media where such refunds are due in part to its
operations.

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##### Table of Contents



Services Received From Liberty Media

Liberty Media allocates salaries, benefits, business insurance and certain
other general and administrative expenses (including a portion of the salary of
William R. Fitzgerald, the Companys President and Chief Executive Officer) to
the Company. In addition, the Company reimburses Liberty Media for certain
expenses, such as employee medical costs, and business property and casualty
insurance paid by Liberty Media on behalf of the Company. The Company has
determined the allocated and reimbursed amounts to be reasonable and equal to
the fair value of the expenses charged. Amounts allocated from Liberty Media to
the Company totaled $14.1 million and $5.4 million for the years ended December
31, 2002 and 2001, respectively. The increase in such amounts is primarily
attributed to medical insurance being purchased through Liberty Media starting
fiscal 2002.

Executive Officer Loan

On April 8, 1999, Mr. Walston was granted a loan from Four Media Company
in the principal amount of $2.0 million in conjunction with the execution of
his agreement with Four Media Company, dated January 1, 1999, for employment as
its President and Chief Executive Officer. Four Media Company became a
subsidiary of the Company in June 2000 and Mr. Walston became the Companys
acting President and Chief Executive Officer in April 2001 and was the
Companys President and Chief Executive Officer from August 2001 to May 2002.

The loan was unsecured and bore interest at an annual rate of 4.59%,
compounded semiannually. Mr. Walston was required to repay the outstanding
balance of the loan, if any, and any accrued interest thereon, no later than
May 8, 2004. Notwithstanding the foregoing terms of the loan, Mr. Walstons
employment agreement provided that the outstanding balance of the loan, if any,
and any accrued interest thereon would be automatically forgiven, upon the
occurrence of any of the following events: (1) a change of control of Four
Media Company during the five-year term of the loan; or (2) termination of Mr.
Walstons employment without cause or for good reason; or (3) the Company (as
successor to Four Media Company) achieving $327.0 million or more in
consolidated gross operating revenues (as defined in the note governing the
loan) during the 365 day period beginning April 8, 2003 (referred to in this
report as the Measurement Period); or (4) the Company (as successor to Four
Media Company) achieving $87.0 million or more in consolidated earnings before
interest, taxes, depreciation and amortization during the Measurement Period;
or (5) the board of directors, in its sole and absolute discretion, determining
that the payments under the loan should be forgiven following the expiration
of the Measurement Period. In April 2000, Mr. Walston agreed to waive the
forgiveness of the loan that would otherwise have resulted from the acquisition
of Four Media Company by Liberty Media.

On January 25, 2002, the Companys Compensation Committee approved,
subject to stockholder approval, an amendment and restatement of the loan
agreement (i) to modify the performance benchmarks, which, if satisfied, would
result in a cancellation of the loan, (ii) to provide for the Companys payment
of all tax liability incurred by Mr. Walston associated with any forgiveness of
the loan, and (iii) to extend the term of the loan from May 8, 2004 to February
15, 2005.

On May 17, 2002, Mr. Walstons employment with the Company terminated and,
pursuant to his employment agreement, the outstanding balance under the loan of
$2.0 million plus accrued interest of $300,000 was automatically
forgiven. The Company is currently negotiating severance arrangements
with Mr. Walston, the terms of which have not been agreed upon.

Consulting Agreement with Named Executive Officer

The Company has entered into a three-year consulting agreement with
Lawrence Chernoff, dated November 20, 2002, pursuant to which Mr. Chernoffs
employment with the Company terminated effective December 31, 2002 and he
became a consultant to the Company effective January 1, 2003. Under the
consulting agreement, Mr. Chernoff will provide advice, guidance and
consultation to the Company with respect to (a) the operation, management, and
strategic vision of the Companys Creative Services Group, (b) marketing,
client retention and development, and new business development for the Creative
Services Group, and (c) new technologies and their deployment. For these
services, Mr. Chernoff will be paid a minimum of $350,000 per year and will
have the opportunity to earn additional compensation up to a maximum of
$130,000 per year. Mr. Chernoff received no severance payment in connection
with the termination of his employment, but 68,750 of the shares covered by Mr.
Chernoffs option to purchase 275,000 of the Companys Class A common stock
vested on December 31, 2002, and will remain exercisable in accordance with the
terms of the Companys 2001 Incentive Plan for so long as Mr. Chernoff remains
a consultant to the Company. The option terminated as to the remaining 206,250
shares on January 1, 2003. Mr. Chernoffs option to purchase a total of 59,139
shares of Liberty Media Series A common stock or receive cash (47,311 shares of
which have already vested) will continue to vest in accordance with its current
vesting schedule and will remain exercisable,

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##### Table of Contents



in accordance with the terms of the Four Media Company 1997 Stock Plan for
so long as Mr. Chernoff remains a consultant to the Company. The term of the
consulting agreement will automatically extend for two additional one-year
periods unless Mr. Chernoff gives prior notice of his intention to terminate
the consulting agreement.

18. QUARTERLY FINANCIAL DATA

The following table presents our quarterly financial data for the year
ended December 31, 2002 (in thousands):

|                                       |  |          |         |         |  |              |         |             |  |   |         |   |  |   |         |  
|-------------------------------------- |  | -------- | ------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | - |  | - | ------- | -
|                                       |  | March 31 |         | June 30 |  | September 30 |         | December 31
|                                       |  |          |         |         |  |              |         |            
|Net revenues                           |  | $        | 135,383 |         |  | $            | 128,649 |             |  | $ | 130,274 |   |  | $ | 145,027 |  
|Gross profit                           |  |          | 53,696  |         |  |              | 50,037  |             |  |   | 51,063  |   |  |   | 62,530  |  
|Impairment charges                     |  |          |        |         |  |              |        |             |  |   |        |   |  |   | 83,718  |  
|Restructuring charges                  |  |          |        |         |  |              |        |             |  |   |        |   |  |   | (435    | )
|Change in accounting principle         |  |          | (20,227 | )       |  |              |        |             |  |   |        |   |  |   |        |  
|Net loss                               |  |          | (26,366 | )       |  |              | (17,912 | )           |  |   | (8,746  | ) |  |   | (82,162 | )
|Net loss per share  basic
and diluted |  | $        | (0.66   | )       |  | $            | (0.45   | )           |  | $ | (0.20   | ) |  | $ | (1.56   | )

The following table presents our quarterly financial data for the year
ended December 31, 2001 (in thousands):

|                                       |  |          |         |         |  |              |         |             |  |   |         |   |  |   |          |  
|-------------------------------------- |  | -------- | ------- | ------- |  | ------------ | ------- | ----------- |  | - | ------- | - |  | - | -------- | -
|                                       |  | March 31 |         | June 30 |  | September 30 |         | December 31
|                                       |  |          |         |         |  |              |         |            
|Net revenues                           |  | $        | 154,303 |         |  | $            | 147,702 |             |  | $ | 142,648 |   |  | $ | 148,079  |  
|Gross profit                           |  |          | 62,663  |         |  |              | 55,383  |             |  |   | 52,723  |   |  |   | 51,772   |  
|Impairment charges                     |  |          |        |         |  |              |        |             |  |   |        |   |  |   | 307,932  |  
|Restructuring charges                  |  |          |        |         |  |              |        |             |  |   |        |   |  |   | 5,558    |  
|Net loss                               |  |          | (13,494 | )       |  |              | (31,051 | )           |  |   | (18,376 | ) |  |   | (373,368 | )
|Net loss per share 
basic and diluted |  | $        | (0.36   | )       |  | $            | (0.81   | )           |  | $ | (0.48   | ) |  | $ | (9.58    | )

Aggregate per share amounts for each quarter may differ from the annual
totals as each quarter is independently calculated.

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##### Table of Contents



Ascent Media Group, Inc.
Schedule II  Valuation and Qualifying Accounts
Years Ended December 31, 2002 and 2001,
the Seven Months Ended December 31, 2000,
and the Five Months Ended May 31, 2000

|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |         | 
|--------------------------------------- | ------------------------------------ |  | ---------- | ------ | ------------- |  | ---------- | ------ | ----------- |  | ------ | ------ | ---------- |  | - | ------ | ---- |  | - | ------- | 
|                                        |                                      |  |            |        |               |  | Charged    |        | Acquired or |  |        |        |            |  |   |        |     
|                                        |                                      |  | Balance at |        | (Credited) to |  | Charged to |        |             |  |        |        | Balance at
|                                        |                                      |  | Beginning  |        | Costs and     |  | Other      |        | Deductions  |  | End of
|                                        |                                      |  | of Period  |        | Expenses      |  | Accounts   |        | and Other   |  | Period
|                                        |                                      |  |            |        |               |  |            |        |             |  |       
|Allowance for doubtful accounts:        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|                                        | Year ended December 31, 2002         |  | $          | 11,951 |               |  | $          | (963   | )           |  | $      | (1,858 | )          |  | $ | (117   | )(d) |  | $ | 9,013   | 
|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|                                        | Year ended December 31, 2001         |  | $          | 5,567  |               |  | $          | 5,763  |             |  | $      | 684    | (b)        |  | $ | (63    | )    |  | $ | 11,951  | 
|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|                                        | Seven months ended December 31, 2000 |  | $          | 1,239  |               |  | $          | 493    |             |  | $      | 3,835  | (a)        |  | $ |       |      |  | $ | 5,567   | 
|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|                                        | Five months ended May 31, 2000       |  | $          | 1,388  |               |  | $          | (149   | )           |  | $      |       |            |  | $ |       |      |  | $ | 1,239   | 
|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|Deferred Tax Asset Valuation Allowance: |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|                                        | Year ended December 31, 2002         |  | $          | 96,556 |               |  | $          | 24,681 |             |  | $      | 712    |            |  | $ | (7,912 | )(d) |  | $ | 114,037 | 
|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|                                        | Year ended December 31, 2001         |  | $          | 2,726  |               |  | $          | 93,830 |             |  | $      |       |            |  | $ |       |      |  | $ | 96,556  | 
|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|                                        | Seven months ended December 31, 2000 |  | $          |       |               |  | $          |       |             |  | $      | 2,726  | (c)        |  | $ |       |      |  | $ | 2,726   | 
|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        
|                                        | Five months ended May 31, 2000       |  | $          |       |               |  | $          |       |             |  | $      |       |            |  | $ |       |      |  | $ |        | 
|                                        |                                      |  |            |        |               |  |            |        |             |  |        |        |            |  |   |        |      |  |   |        



|(a) |  | Balance acquired in acquisitions of 4MC  $2,907,000, Soundelux  $240,000 and Soho -$688,000.
|--- |  | ----------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Balance acquired in acquisitions of GWNS  $654,000 and LNS  $30,000.                        
|   
|   
|   
|   
|(c) |  | Balance acquired in acquisitions of VSC  $1,831,000 and Virgin  $895,000.                   
|   
|   
|   
|   
|(d) |  | Sale of Triumph.                                                                              

F-37