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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




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FORM 10-K

(Mark One)
                                              Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2001

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



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LIBERTY LIVEWIRE CORPORATION

(Exact Name of Registrant as Specified in Its Charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 13-1679856                          
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (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:

NONE

Securities 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  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.

The aggregate market value of voting stock held by non-affiliates at March 25,
2002 was approximately $296,180. The number
of shares of common stock issued and
outstanding at March 25, 2002 was:
5,319,280 Class A Common Stock and 34,393,330
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.                                      
|PART IV      
|              | ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K                     
|SIGNATURES   
|EXHIBIT INDEX
|Exhibit 10.9 
|Exhibit 10.14
|Exhibit 10.16
|Exhibit 10.17
|Exhibit 10.20
|Exhibit 10.21
|Exhibit 10.22
|Exhibit 10.23
|Exhibit 10.24



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DRAFT

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

|         |                                                                                                                       |  |  |    | 
|-------- | --------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|PART I   |                                                                                                                       |  |  |   
|         | ITEM 1.       BUSINESS                                                                                                |  |  | 3  | 
|         | ITEM 2.       PROPERTIES                                                                                              |  |  | 26 | 
|         | ITEM 3.       LEGAL PROCEEDINGS                                                                                       |  |  | 26 | 
|         | ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                     |  |  | 27 | 
|PART II  |                                                                                                                       |  |  |   
|         | ITEM
5.       MARKET FOR THE
REGISTRANTS COMMON STOCK AND RELATED
STOCKHOLDER                   MATTERS              |  |  | 29 | 
|         | ITEM 6.       SELECTED FINANCIAL DATA                                                                                 |  |  | 31 | 
|         | ITEM
7.       MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF                   OPERATIONS |  |  | 32 | 
|         | ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                |  |  | 41 | 
|         | ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                             |  |  | 41 | 
|         | ITEM
9.       CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND                   FINANCIAL DISCLOSURE  |  |  | 41 | 
|PART III |                                                                                                                       |  |  |   
|         | ITEM 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                       |  |  | 42 | 
|         | ITEM 11.     EXECUTIVE COMPENSATION                                                                                   |  |  | 45 | 
|         | ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT                                           |  |  | 50 | 
|         | ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                           |  |  | 54 | 
|PART IV  |                                                                                                                       |  |  |   
|         | ITEM 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K                                         |  |  | 59 | 

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This report contains 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, but are not limited to, our ability to compete successfully in our
industry, to continue to develop new services on a timely basis, including the
timely development and market acceptance of new technologies, successful
integration of acquisitions, the ability to secure additional sources of
financing, the ability to reduce operating expenses, cancellation of customer
orders and other 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, Risk Factors and in Item 7, Managements Discussion and Analysis of Financial Condition
and Results of Operations, 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 report to reflect any future
events or developments.




PART I




ITEM 1. BUSINESS.

OVERVIEW

Liberty Livewire Corporation, incorporated in Delaware in 1952, 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, news, sports and advertising
content. Our assets and operations are primarily composed of the assets and
operations of nine companies acquired during 2001 and 2000. The unique
combination and integration of these acquired entities allow us to offer our
clients a complete range of services, from image capture to
distribution of the final product, unmatched by most other competitors in the industry. We offer outsourcing solutions for the technical and creative requirements of
our clients that lower operating costs, reduce cycle times and increase
reliability and quality.

We have organized our facilities and operations into three business
segments that we call Groups. Each Group 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 Group to focus on its
particular client base, while our
centralized corporate functions facilitate implementation of financial and operational controls across the organization. Our
Groups are described below. For financial information about each
Group, see Part II, Item 8, Financial Statements and
Supplementary Data. For information about the services that
each Group provides, see Services in this Item 1
below.

Pictures Group

Our Pictures Group 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. Among other things, we create visual
effects, sound effects and animation sequences and integrate them
into filmed entertainment after principal photography. Our services begin once raw images are captured
and are completed when a final product is delivered to the last mile
distributor such as a broadcast network, cable channel or Internet
protocol, or
IP, distributor. The Pictures Group has three divisions: Entertainment
Television, Commercial Television and Audio.

Media Group

Our Media Group provides services necessary to facilitate global
maintenance, management and distribution of existing content libraries.
Through our facilities, we provide immediate access to physical and virtual
content, we restore and preserve damaged content, and we create high resolution
professional masters from original camera negative for global home video,
broadcast, pay-per-view and emerging new media distribution channels.

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Networks Group

Our Networks 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 Networks
Group primarily provides dedicated facilities and resources designed for
specific client requirements on the basis of contractual agreements.

FORMATION

Change in Control and Subsequent Acquisitions

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, also
referred to as Liberty Media, entered into a merger agreement, as amended on
March 6, 2000, 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, a tracking stock of AT&T. As a result, Liberty Media acquired
60% of the 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.

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, grants of stock appreciation rights to purchase 1,936,778 Liberty
Media Group Class A Common Stock valued at $52.9 million, and a warrant to an
investor representing the right to purchase 354,838 shares of Liberty Media
Group Class A Common Stock valued at $7.8 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. Its international facilities are located in Mexico
City, Mexico; London, England; and the Republic of Singapore.

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 us and Liberty Media.

Certain Assets of SounDelux Entertainment Group of Delaware.On July 19,
2000, a wholly-owned subsidiary of Liberty Media (Liberty Sub) acquired
Soundelux, which consisted of certain of the assets and operations of SounDelux
Entertainment Group of Delaware, Inc. (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 Triumph
Communications Group, also known 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. 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 systems, encoding and
encryption, and IRD sales and authorization.

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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, pursuant to a
contribution agreement, Liberty Media contributed to us 100% of the
outstanding capital stock of Video Services Corporation, also
referred to as 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 us and Liberty Media (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 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.

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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 DVD design, authoring and encoding services to
the home video market. Cinram-POP is located in Santa Monica, California.

Liberty Media Corporation

Today, as a result of these acquisitions and certain other transactions,
Liberty Media owns approximately 87% of our outstanding common stock, which
represents approximately 99% of our voting power. For information on Liberty
Medias interest in our company, see Part II, Item 5, Market for the
Registrants Common Stock and Related Stockholder MattersRecent Sales of
Unregistered Securities.

Until August 10, 2001, Liberty Media was an indirect wholly-owned
subsidiary of AT&T Corp. Its former parent, Tele-Communications,
Inc., or TCI,
was acquired by AT&T in March 1999. Liberty Media and its subsidiaries
comprised substantially all of the businesses and assets of the Liberty Media
Group. Liberty Media Group Class A Common Stock, which traded on the New York
Stock Exchange under the ticker symbol, LMG.A, and Liberty Media Group Class B
Common Stock, which traded on the New York Stock Exchange under the ticker
symbol, LMG.B, 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 split off from AT&T and began trading as an independent publicly held
company. In the split-off, each share of LMG.A and LMG.B tracking stock was
redeemed for one share of Liberty Medias Series A Common Stock, LMC.A, and
Series B Common Stock, LMC.B, respectively. On January 2, 2002, LMC.A began
trading under the ticker symbol L. Both L and LMC.B shares trade on the New
York Stock Exchange.

INDUSTRY

Entertainment Services

The entertainment services industry supports the filmed entertainment
industry 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 entertainment 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 are a
company in the entertainment services industry providing fully-integrated
service solutions within and across our three Groups.

Our Groups 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 filmed
entertainment industry are expected to have a positive impact on our Groups.



| |  |  | 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. We expect growth opportunities to result from the
ability to provide uniform, high quality services in an increasingly
complex mix of content formats, broadcast standards, geographic
locations, languages 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.

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| |  |  | 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 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.
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 revenue streams from the same
programming.                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  |  | Increased outsourcing of technical and creative services.Film and
television studios 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 end-to-end
technology outsourcing 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 we are uniquely positioned to enable our clients to raise the bar
with respect to increasing image resolutions, such as high definition
television, or HDTV, and audio quality, such as 5.1 surround formats.
We also provide technology, infrastructure and creative talent to
enhance the creative process of producing original programming and
modernizing aging library material.

Motion Picture Production and Distribution

Various facilities throughout our company provide services to the motion
picture industry. The Pictures Group creates visual effects, sound effects
and animation sequences and integrates them into newly-released feature films,
while the Media and Networks Groups 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 role in the production of motion pictures for domestic and
international feature film markets.

According to the Motion Picture Association of America, 2001 was a record
box office year in the U.S., with total box office receipts of $8.4 billion, an
increase of 9.8% over 2000. Box office admissions of 1.5 billion tickets in
2001 represented growth of 5% from the previous year and 30% from 1991. In
2001, there were 482 feature films released, up from 478 in 2000. 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, there is
growing demand for digital video product. As the installed base of DVD players
in the U.S. grows from 25 million in 2001 to an estimated 50 million by the end
of 2004, most library catalogs 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 Pictures Group
provides a full array of services to facilitate the creation of television
programs and commercials, the Media Group provides a full array of services
necessary to manage the exploitation of existing content libraries, and the
Networks Group provides a full array of services necessary to deliver
television programming to last mile distributors.

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The United States
television production and distribution industry serves a
broadcast audience of approximately 285 million households and a
cable audience of approximately 105 million households, the largest of such
audiences in the world. In North
America, programming is delivered to television households via conventional
broadcast networks, cable channels, individual television stations and
satellite delivery systems. Broadcast television networks in the United States
penetrate over 97.5% of domestic households and provide access to a large
audience for television advertisers. Spending for television advertising
drives the production of new television programming and the sale of existing
content libraries for domestic syndication. While the broadcast networks have
seen an erosion of their audiences, the cable networks have attracted an
increasing share of television audiences. In addition, basic cables
penetration reached a record high of 69.4% of United States television households in
2001. At the same time, United States television households served by direct broadcast
satellite systems, or DBS, reached 12.9 million television households, up 34.4%
from 2000.

The significant increase in international demand for entertainment content
has further driven the need for new and re-purposed 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. Recent growth in international revenue
for filmed entertainment produced in the United States has far exceeded growth
in North American revenues, with international revenues now accounting for more
than 50% of total revenue. Western European television is the most visible
example of the growth in distribution platforms for television programming and
new distribution platforms are beginning to emerge in Asia and Eastern Europe.

New Media Production and Distribution

We are positioned to provide a wide range of services to facilitate the
involvement of our clients in emerging new media platforms. By matching the
needs and requirements of our clients in the areas of preparation, management
and distribution of new media with the needs and requirements of the last
mile distributors, we expect to play an important role in bridging the gap
between these two important sectors.

The television production and distribution industry is in a state of
transformation. Both multiple system cable operators, also called MSOs, and
DBS operators have introduced new products and services into the marketplace.
These last mile distributors compete aggressively for new subscribers and are
using new media services as an inducement to attract and retain consumers.
Additionally, companies such as TiVo®are 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 much 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. Currently, there are
over 15 million digital cable boxes and over 18 million digital satellite boxes
in subscribers homes in the U.S. Worldwide, the digital video platform
exceeds 50 million homes. Interactive television middleware developers such as
Wink®, OpenTV®, and Liberate Technologies®are 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 interactive television, or 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. Projections
indicate that PVRs, currently in over 500,000 U.S. homes, will achieve
penetration of 5 million homes by 2005. VOD and SVOD services
are currently available in over 800,000 U.S. households, a number that
is expected to reach 6 million digital subscribers by the end of 2002. ITV services are projected to be available in
over 29 million U.S. households by
2004.

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STRATEGY

The entertainment services industry has been historically fragmented with
numerous providers offering 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, long-haul terrestrial 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 Liberty Livewire enterprise; and
integration of financial and administrative functions.

Our objective is to become a leading provider of technical and creative
services to producers, owners and distributors of content, from image capture
to delivery of the final product for traditional and new digital media applications. We
intend to continue building a leading position in our targeted business
segments by pursuing the following strategies:

Establish centralized, scalable, financial and operating infrastructure.We are establishing a world class management team and, with appropriate
compensation structures, have incentivized management to create stockholder
value. 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 extend our value-added
proposition further into the organizational structure of our client base by
leveraging scale opportunities, our breadth of services and our global coverage
of key markets. We intend to acquire strategic assets and entities with the
goal of attaining market leadership in each of our business segments and
geographic markets. We intend to further integrate our facilities and
operations establishing best practices and increase scale and capacity to
drive growth. We expect to deploy proven, leading technologies in a consistent
manner across all of our operations.

Leverage our core businesses in the new digital media value chain.We
expect to leverage our existing client relationships, technological expertise
and digital infrastructure by building new revenue streams in emerging new
media markets. We intend to develop new business opportunities in areas such
as digital imaging, digital media management, bandwidth management and
interactive media.

Drive the convergence of traditional and new media.We expect 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 scale economies to our existing client base.
Second, we expect to pursue acquisition opportunities and 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, bandwidth 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.

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SERVICES

Pictures Group

The Pictures Group has three divisions: Entertainment Television,
Commercial Television and Audio. Generally, the Pictures Group provides the
technical and creative services necessary to conform original film or video
principal photography into a final product suitable for viewing audiences. We
utilize state-of-the-art facilities and equipment to digitally create or
manipulate sounds and images in high-resolution formats for integration into
feature films, television programs and television commercials. In fiscal year
2001, the Pictures Group contributed $332.9 million, or 56.2% of our total
revenues, as compared to $221.0 million, or 72.1%, in fiscal year 2000 and
$94.4 million, or 79.6% in fiscal year 1999.

Entertainment Television Division

Our recent acquisitions 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. Our competitive
advantages include the breadth and scalability of our services, the high level
and accessibility of our creative talent and our long-standing 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,
Hollywood Digital, Level 3, Digital Symphony and Soho Images. 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); Emmy Awards® for
X-Files(Best Visual Effects for a Series) and The Learning Channel,
Superstructures; Monitor Awards for Nash Bridges(Best Color
Correction), Cora, Unashamed(Best Color Correction, Movie of the Week), JAG
(Best Editing) and Lifetime, Any Day Now(Best Color Correction, Episodic
Long Form); 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), HBO Sports, Inside
the NFL, TNT, Saturday Night New Classic: Fargo(Silver,
Creative Editorial); and Broadcast Design Awards® for Turner Production
Effects, Turner Investor Sales Tapes(Gold), Turner Classic Movies, Trailers
(Gold), VH-1 Fashion Awards, Open Animation(Bronze), Sci Fi Channel,
Scinema Feature and Sci Fi Channel, Sci Fi On Air Re-Design". 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 accept 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
Digital Versatile Disc (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.

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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®, Ally McBeal®, 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. Our
competitive advantages include our long term contracts with leading
creative talent in the industry, the ability to provide scale and global reach
for national and international advertising campaigns and the ability to provide
the best available technologies and working environments to achieve 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
CO3, Riot, Method, Filmcore, POP, Rushes, SVC, Soho 601, XTV 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, Nike, Topseed,
Chevy, Brawl, 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
The Def Tones, White Pony(Best Color Correction, Short Form) and Coca Cola,
Concession Man(Best Audio Post Production, Promotional), Public Service
Announcement, Youth Violence(Best Visual Effects), Showtime, No Limits
(Best Color Correction in a National Commercial), FTD, Hero(Best Color
Correction in a National Commercial), Skittles, Trail(Best Color
Correction in a National Commercial), Bush, Greddy Fly(Best Color Correction
in a Music Video), Tom Petty, Walls(Best Color Correction in a Music
Video), Mercedes Benz, They Invented(Best Achievement in a National
Commercial) and 525 Studios(Best Achievement in a Commercial Demo Reel); Telly
Awards® for Fox Kids Network, Fox Kids X Speed Fall
Campaign,
WebMD, Feelings and Sony Music, Wynton
Marsalis, Swing and 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,
state-of-the-art equipment and proprietary 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.

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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
quality 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. Todd-AO Studios have contributed to the
artistry and success of many significant film and television projects. The
Soundelux brand name has been at the forefront of the motion picture sound
design and sound editing industry for over 20 years and has
expanded its brand in the marketplace with high end microphones for
the music industry. We leverage our assets into the consumer market
through The Hollywood Edge, which distributes sound tools through
worldwide distribution channels and the Internet.

Recent awards
garnered by the Audio Division include Academy Awards® for
Black Hawk Down (Best Sound), Gladiator(Best Sound), Braveheart(Best Sound Effects Editing), Last of the
Mohicans(Best Sound), Glory(Best Sound), Coal Miners Daughter(Best Sound);
British Academy Awards for 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 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
(Loves a Bitch)(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 design, music supervision, script breakdown and
budgeting, music pre-recording, music composition and clearance, music supervision, overseas music recording, score production and song
placement. Feature film and television producers utilize our state-of-the-art
studio facilities and highly skilled 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
stereo, Dolby®, SR®, Surroundsound®, THX® and other specialized sound
treatments and formats.

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Media Group

The Media Group provides owners of content libraries with an entire
complement of state-of-the-art facilities and services necessary to manage and
distribute film, videotape, and digital media via freight, satellite, fiber and
the Internet and facilitates the worldwide distribution of the content in
formats ranging from HDTV to streaming media. Our competitive advantages
include strong client loyalty due to our long standing reputation for high
levels of service, capacity to handle large scale projects and our ability to
offer complete end-to-end content management solutions on a global basis. Our
media facilities are located in Burbank, Hollywood, and Santa Monica,
California; Northvale, New Jersey; and London, England.

We foresee 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 anticipate that the industry will provide a sustainable
evergreen demand for our media services as new programming is produced and as
existing programming is continually reformatted for, and recycled into, new
markets. 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 2001, the
Media Group contributed $104.1 million, or 17.6% of our total revenues, as
compared to $56.8 million, or 18.5%, in fiscal year 2000 and $24.1 million, or
20.4%, in fiscal year 1999. A more detailed description of the key services
provided by our Media 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 an 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 value-added factor. We are an independent archive provider and
believe we are advanced with respect to security, environmental control and
access features.

Restoration and preservation of existing and of 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
produced from damaged film will generally not meet the minimum quality
standards required in domestic and foreign 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 quality
restoration and preservation services for existing film content.

Transferring film to digital media.Substantially all 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 even though the ultimate market is
a theatrical release on film. We have developed a process called Transform®
that converts videotape to film. Transform® uses advanced electronic systems
to transform video pictures from all current broadcast standards to 16mm or
35mm film. The Transform® process is used for theatrical advertising
commercials, studio promotions and trailers, as well as theatrical length
presentations including feature films, concerts and special events.

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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 foreign markets require the replacement of dialogue with voices speaking
local languages. 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 and have unique characteristics that significantly
increase equipment capacity utilization while reducing error rates and labor
cost.

Networks Group

The recent acquisitions of the assets and operations that comprise our
Networks 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, satellite and the Internet
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.

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. Our competitive advantages include global end-to-end solutions, bundled
product and service pricing advantages, cost effective diverse and redundant
distribution paths and a proven track record on multiple technological
platforms. Our broadcast facilities are located in California, New York, New
Jersey, Connecticut, the United Kingdom and Singapore. Our Internet hosting
facilities are located in New York and California, and our point-of-presence
facilities are located in each of the top 40 U.S. markets. In fiscal year 2001,
the Networks Group contributed $155.6 million, or 26.2%, of our total revenues,
as compared to $28.6 million, or 9.3%, in fiscal year 2000, which was the year
in which this Group was created. A more detailed description of the key
services provided by our Networks 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 state-of-the-art television production studios
in Stamford, Connecticut and Singapore with 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, live-to-satellite interview 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.

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Assembly.We provide programming to most United States broadcast
television stations through daily satellite feeds and tape shipments. 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 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, which include systems and software.
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; Los Angeles and Burbank, California; New York, New
York; Northvale, New Jersey; and Stamford, Connecticut.

Fiber and satellite transport.We operate satellite earth station
facilities in Singapore; Los Angeles and Burbank, California; New York, New
York; Northvale, New Jersey; and Stamford, Connecticut. Our facilities are
generally staffed 24 hours a day and may be used for both downlink and
turnaround 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 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 domestic feeds in both C-Band and Ku-Band frequencies. Certain
facilities also have international transmission capabilities. We own and
operate video switching facilities in New York City with connectivity to and
from Washington, D.C. and London, England. These facilities are connected via
over 450 fiber lines to all major news organizations and all New York area
teleports. We also provide transportable services, including point-to-point
microwave transmission, transportable up-link and downlink transmission, and
broadcast quality teleconference services. In addition, our fiber network
operations provide DirecTVs local station backhaul service and numerous
customers with MPEG-2 compressed satellite channels and fiber connectivity
ranging from 1.5 megabits per second (T1) to full 45 megabits per second (DS3)
circuits.

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 technical and engineering
expertise. AFA also serves as the in house engineering department for the
Networks Group, enabling us to quickly respond to customer needs and new
services. AFAs clients include the four major broadcast networks; numerous
cable channels, including Turner Entertainment, CNN, CNBC, Fox News Channel,
Lifetime Television, USA Networksand Home and Garden Television; satellite
broadcasters, including DirecTVand SKY Latin America; corporate television
networks, including Merrill Lynch & Co., Pfizer, AT&Tand Toys R Us; 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. As the exclusive field shop for Fox Sports, we are responsible for
storing, shipping and maintaining equipment owned by the network and used for their coverage of
major sporting events, including the National Football Leagueand Major League
Baseball.

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DEVELOPING BUSINESSES

Digital Media Management

We are pursuing a
digital media management strategy that we anticipate will provide a
gateway to create, manage, process, catalog, transport and deliver all forms of
digital media. The creation of this digital media management platform provides
for asset integration, scalability and extension across all of our business
segments and divisions. It will also extend into the operating processes and
the media assets of our clients. Our digital media management strategy will
also provide a framework for implementation of new value-added services such as
metadata creation, ingestion and processing, digital content cataloging as well
as media versioning. This business applies to multiple traditional distribution
platforms as well as new media distribution businesses such as VOD. These
services, however, cannot be effectively implemented until scalable digital media
management infrastructure is deployed.

Our digital media
management initiative will require design and development of
a comprehensive suite of next generation services designed to complement the
companys 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 propel us ahead of our
competitors by providing migration paths from the management of existing
conventional (physical) media to automated real time management, which is
faster than real time management, of digital and virtual assets. 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 project dailies. Clients
will need
only a password and a broadband modem to receive Tier One service, which
will stream three days worth of dailies in Windows Media and MPEG-4. 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 tape-free
private network delivery of dailies directly to offline editors.

Virtual Sessions.The Virtual Session® enables producers around the world
to work with preferred editors, effects specialists and telecine artists
remotely, thereby eliminating long-distance travel. Real-time sessions can be
conducted live, enabling shoulder-to-shoulder collaboration around the globe,
with full-resolution images delivered via a private network. 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 storage, video and audio duplication, and distribution.
Clients may order copies, compilation reels and customized playlists in a
variety of formats, including recordable DVD, 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.

Bandwidth Management

We are developing cost effective, seamless and integrated global transport
solutions for our customers that will allow us to transport any and all forms
of content across multiple distribution paths with the highest degree of
integrity and reliability. We expect to use a variety of transport
technologies to create highly efficient and cost-effective solutions that
optimize emerging platforms that have not previously serviced the broadcast
industry. For example, existing telecommunications infrastructure has
substantial potential value to our clients, but has not been a viable
alternative because of user interface and reliability issues. Our bandwidth
management solution will address these concerns by driving traditional broadcast
quality and reliability standards into the telecommunications environment.
Costs associated with delivering content to end users can be substantially
reduced. We expect to add value by providing monitoring, procedural, and
support mechanisms to ensure delivery of services at a level that meets or
exceeds broadcast television standards.

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We use the latest
asynchronous transfer mode, or ATM, sonet ring protected technology in a global
switched terrestrial fiber network. This allows us to transmit a high volume
of content in a cost-effective manner for our clients. For example, our
services for DirecTV® include the aggregation and delivery of approximately 500
broadcast television signals from over 50 local markets to DirecTVs broadcast
centers in Denver and Los Angeles. These signals are then retransmitted by
DirecTV to their customers fulfilling their requirements under federal
must-carry regulations. Ultimately, we expect to be able to establish a
network or hub structure in key media centers around the globe to facilitate
the cost-effective transport of resolution independent digital media signals to
any location at any time for playout on any device and/or platform. This will
give us a significant advantage over our competitors and will enable the
involvement of content owners and distributors in emerging digital media
revenue opportunities.

Interactive Media

At the heart of emerging interactive media platforms is VOD and its
companion, SVOD. Many cable operators see VOD as the key to providing a
competitive advantage vis-à-vis 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 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, such as file encoding, metadata creation, promotional material creation, file
delivery and service reporting. In addition, we expect to provide support for the other
interactive services expected to complement the VOD/SVOD environment.

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 Internet 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.

We expect to continue to support the development of HyperTV® with
Livewire, a joint venture with ACTV, Inc. that provides for the integration and
simulcast of television and Internet broadcasts. The HyperTV® technology
delivers interactive Web content, Web-based advertising, and
e-commerce opportunities synchronized to live or pre-recorded TV programming.
Building on our existing relationship with ACTV, Inc., we will be
positioned to provide interactive media services as and when the demand for
these services occurs. Similar to our core operations, we will be able to offer a complete outsourcing solution and be able to
respond to the needs of producers, programmers, studios, networks, and
advertising agencies in the interactive media arena.

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CUSTOMERS

For the year ended December 31, 2001, no single customer accounted for
more than 10% of consolidated revenues. The Pictures Group 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 three largest clients in
the Pictures Group accounted for 6.5%, 4.9% and 3.8% of its revenue. The Media Groups client base
includes the major domestic studios and their international divisions as well
as independent owners of television and film libraries. The three
largest clients in the Media Group accounted for 9.6%, 7.9% and 7.4%
of its Group revenue in fiscal year 2001. The Networks Groups
client base consists of broadcast and cable television networks, local
television channels, broadcast syndicators, satellite broadcasters and
corporate television networks. The three largest clients in the
Networks Group accounted for 11.8%, 11.0% and 9.8% of its Group
revenue in fiscal year 2001. The loss of a key customer of the Media
Group or the Networks Group could have a material adverse effect on that Group.

COMPETITION

Although the entertainment services industry is highly fragmented, it is
highly competitive in each of our business segments. Much of the competition
is 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
devote substantially greater resources to the development and marketing of
services that compete with ours. Conversely, we also actively compete with
certain industry participants that may be smaller but have a unique operating
niche or specialty business. In addition, many of our businesses are
located or provide services 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 believe that our breadth of services is unique
among most competitors in the entertainment services industry in terms of the
breadth of our business segments and the range of service offerings within each
business segment. Our recognized and well-respected brand names are
acknowledged and recognized for their contribution to creative quality. We are
also differentiated from most of our competitors by our ability to offer
end-to-end outsourcing solutions within and across our business segments.

EMPLOYEES

We have approximately 3,200 employees who work in five countries providing
services from approximately 100 facilities. Of our 3,200 employees,
approximately 200 are represented by the International Alliance of Theatrical
and Stage Employees. We consider our relationship with our employees to be
excellent.

REGULATION

Our subsidiary companies hold licenses from the Federal Communications
Commission, or FCC, authorizations and registrations required for the conduct
of their businesses, including various classes of wireless licenses and an
authorization to provide certain services pursuant to 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 ten 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 is typically subject to regulation under local zoning ordinances.

GEOGRAPHIC AREAS

Please see Part II, Item 8, for Consolidated Financial Statements included
in this report for financial information on each geographic area in which we
conduct business.

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RISK FACTORS

We may not be able to effectively integrate all of our operating companies.

The operations of Liberty Livewire Corporation comprise business units
that we have acquired through mergers with, and purchases of assets from, other
companies, as well as business units that we have developed internally. Our
growth and future financial performance may depend on our ability to continue
to integrate all of our operating companies. We may not achieve integration
unless we effectively combine the operations of all our operating companies. A
number of our operating companies offer different services, use different
capabilities and technologies and target different geographic markets and
client segments. These differences increase the risk in successfully
completing the integration of our operating companies. We need to centralize
certain functions to achieve cost savings and develop programs and processes
that will promote cooperation and the sharing of opportunities and resources.
This process of integration may take a significant period of time and will
require the dedication of management and other resources, which may distract
managements attention from our other operations. Any difficulties we
encounter in the integration process could adversely affect us and we cannot
assure you that our operating results will match or exceed the combined
individual operating results achieved by our operating companies prior to their
acquisition.

We may not be able to manage our
growth.

We cannot be sure that our management will be able to implement our
operating or growth strategies, and if we are able to implement our acquisition
strategy fully, our growth will place significant demands on management and on
our internal systems and controls. We cannot assure you that our management
will be able to direct our operations effectively through a continued period of
significant growth. In addition, we cannot assure you that our current systems
will be adequate for our future needs or that we will be successful in
implementing new systems.

Our failure to acquire companies successfully
could hinder our growth.

An element of our growth strategy is the acquisition of additional
companies that will complement our existing businesses. We cannot assure you
that we will be able to identify or reach mutually agreeable terms with
acquisition candidates and their owners, or that we will be able to profitably
manage additional businesses or successfully integrate such additional
businesses into us without substantial costs, delays or other problems.

Acquisitions or strategic investments may divert management attention and
consume resources.

We intend to continue pursuing selective acquisitions of businesses and
technologies as a key component of our growth strategy. Any future acquisition
or investment may result in the use of significant amounts of cash, potentially
dilutive issuances of equity securities, incurrence of debt and amortization
expenses related to goodwill and other intangible assets. In addition,
acquisitions may also involve a number of special risks, including:



| |  |  | adverse short-term effects on our reported operating results;         
| | - |  | ----------------------------------------------------------------------
|
| |  |  | diversion of managements attention from other business concerns;     
|
| |  |  | loss of potential key employees of any acquired business;             
|
| |  |  | dependence on retention, hiring and training of key personnel;        
|
| |  |  | risks associated with unanticipated problems or legal liabilities; and
|
| |  |  | amortization of acquired intangible assets.                           

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Some or all of these risks could have a material adverse effect on our
operations and financial performance. In addition, to the extent that
consolidation becomes more prevalent in the industry, the prices for attractive
acquisition candidates may be bid up to higher levels. In any event, we cannot
assure you that any businesses acquired in the future will achieve sales and
profitability that justify the investment therein.

The growth of our business depends on our
ability to finance acquisitions.

We currently intend to finance future acquisitions by using cash and our
Class A Common Stock for all or a portion of the consideration to be paid. If
our Class A Common Stock does not have sufficient value, or potential
acquisition candidates are unwilling to accept our Class A Common Stock as
consideration for the sale of their businesses or assets, we may be required to
use more cash, if available, in order to continue our acquisition program.
Without sufficient cash, our growth and long term success could be limited
unless we are able to obtain capital through additional debt or equity
financings. If, however, our revenues and cash flow do not meet the
expectations of our lenders, it may be difficult for us to borrow money or to
do so on terms we consider to be favorable. Conditions in the capital markets
also will affect our ability to borrow, as well as the terms of those
borrowings.

To the extent that we continue to acquire investments in exchange for our
Class A Common Stock, such transactions could be dilutive to existing
stockholders.

The price of our Class A
Common Stock may be volatile.

The price of our Class A Common Stock may be volatile. Our quarterly
results of operations may vary materially as a result of the timing and
structure of our acquisitions, the timing and magnitude of costs related to
acquisitions, the gain or loss of material client relationships and variations
in the prices charged by us for our services. In addition, since a significant
portion of our revenue is generated on a project-by-project basis, the timing
or completion of material projects could result in fluctuations in our results
of operations for particular quarterly periods. Fluctuations in operating
results may adversely affect the market price of our Class A Common Stock.

In addition, the market price for our Class A Common Stock may be subject
to fluctuations caused by, among other things:



| |  |  | material announcements by us or our significant clients or
competitors;                                                                               
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | changes in the economic or other conditions impacting our
significant clients individually or the motion picture and
television production industries;
|
| |  |  | changes in general economic conditions;                                                                                                               
|
| |  |  | investors perceptions; or                                                                                                                            
|
| |  |  | changes in our revenue or earnings estimates by industry analysts.                                                                                    

The securities markets have experienced significant price and volume
fluctuations from time to time that have often been unrelated or
disproportionate to the operating performance of particular companies. These
broad fluctuations may also adversely affect the market price of our Class A
Common Stock.

The limited float of our Class A Common Stock may contribute to the volatility
in its market price.

During the 12-month period ended December 31, 2001, the average weekly
trading volume of our Class A Common Stock on Nasdaq Stock
Market was 11,083 shares. We
believe that, as a result of its limited public float, our Class A Common Stock
has at times experienced price and relative volume fluctuations caused by
matters unrelated, as well as matters related, to our business and results of
operations.

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Growth of our business depends on
certain client industries.

We derive our revenue primarily from motion picture and television
production industries and the data transmission 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 data
transmission industry is currently saturated with companies providing services
similar to ours. Although we believe that we will be able to continue to offer
services based on the newest technologies, we cannot assure you that we will be
able to obtain 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 in the data
transmission industry have technology that enables them to provide services
that are more reliable, faster, less expensive, reach more customers or have
other advantages over the date transmission services we provide, then the
demand for our data transmission services may decrease.

Some of our revenues are subject to
seasonal fluctuations and scheduling changes.

The demand for our core motion picture services has historically been
seasonal, with higher demand in the spring (second fiscal quarter) and fall
(fourth fiscal quarter) preceding the summer theatrical releases and Christmas
holiday season, respectively. Demand has been lower in the winter and summer,
corresponding to our first and third fiscal quarters, respectively.
Accordingly, we have historically experienced, and expect to continue to
experience, quarterly fluctuations in revenue and net income.

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. Our post-production services normally provided for a major motion
picture may occur over a period of several weeks. The rescheduling or
cancellation of such a project may have a material effect on our quarterly
and/or annual operating results.

Certain major motion picture projects may result in significant
unanticipated additional revenues due to substantial overtime services provided
by us. These additional revenues may be material to our results of operations;
however, their occurrence or probability cannot be predicted. As a result, the
occurrence of these additional revenues in a particular fiscal period may
materially affect the comparability of operating results for equivalent
reporting periods.

As a result of the factors described above, there can be no assurance that
results of operations will not fluctuate significantly from period to period.
In addition, results of operations for any fiscal period are not necessarily
indicative of results of operations for any future fiscal period.

Our failure to successfully compete
may hinder our growth.

The businesses in which we compete are highly competitive and
service-oriented. We have few long-term or exclusive service agreements with
our customers. Business generation is based primarily on customer satisfaction
with reliability, timeliness, quality and price. Some of our competitors have
greater financial, technical and marketing resources. There is no assurance
that we will be able to compete effectively against these competitors. Our
primary competitors in our post-production business are the motion picture
studios, many of which perform these services in-house. The motion picture
studios with in-house post-production capabilities generally operate at or near
capacity, and therefore outsource some of their requirements, usually to
independent providers like us, but sometimes to other studios with in-house
capability. Some of our business is derived from the periodic
lack of capacity of the major studios or the ability of the film director or other key creative
personnel to select the post-production provider, even when the film is
produced or distributed by a studio with in-house capabilities. In addition,
many of the major studios without full in-house post-production capabilities
evaluate from time-to-time whether to perform in-house certain of the services
that we provide. If there were a significant decline in the number of motion
pictures or the amount of original television programming produced, or if the
studios or our other clients either established in-house post-production
facilities or significantly expanded their in-house capabilities, our
operations could be materially and adversely affected.

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Incurrence of substantial incremental costs and capital expenditures prior to
generation of revenues could have an adverse effect on our results of
operations.

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 at increased compensation levels and through 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 loss of any of our large
customers would reduce our revenues.

Although we serviced
over 5,000 customers during the year ended December 31,
2001, our ten largest customers accounted for approximately 33.4% percent of our
consolidated revenues and our single largest customer accounted for
approximately 6.5% percent 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.

If we lose our key personnel we may
not be able to grow.

Our future success depends in large part on the continued service of our
executive officers, our key creative artists and skilled technicians, and other
key personnel. A significant percentage of our revenues can be attributed to
services requiring highly compensated creative technicians. In some instances,
certain of our customers specify by name the personnel that are to work on
their projects. Competition for highly qualified employees is intense and the
process of locating key technical, creative and management personnel with the
combination of skills and attributes required to execute our strategy
is often lengthy. We have employment agreements with approximately 200 of our
key management, creative and technical personnel. We do not currently have key
person life insurance covering any of our executive officers or other members
of our senior management. Also, we will likely depend on the senior management
of the businesses acquired in the future. If any of these people are unable or
unwilling to continue in his or her present role, our business could be
adversely affected. There can be no assurance that we will continue to
attract, motivate and retain key personnel and our failure to do so could have
a material adverse effect on our business and results of operations.

A labor dispute with our employees
may disrupt our business.

The cost of producing and distributing entertainment programming has
increased substantially in recent years due to, among other things, the
increasing demands of creating talent and industry-wide collective bargaining
agreements. We employ approximately 3,200 employees, some on a
project-by-project basis. Some of our creative and technical personnel are
subject to a collective bargaining agreement with the International Alliance of
Theatrical Stage Employees and the Moving Picture Technicians, Artists and
Allied Crafts of the United States and Canada. It is possible that action by
our union employees in the form of a strike or work stoppage could
significantly disrupt production and have a material adverse effect on our
business.

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Risk of loss from earthquakes, fire or other catastrophic events could disrupt
our business.

We are subject to the risk of loss from earthquakes, fires and other
catastrophic events due to the dependence of our services on specially
equipped, acoustically designed facilities. Due to the extensive amount of
specialized equipment incorporated into the specially designed recording and
scoring stages, editorial suites and mixing rooms, our operations cannot be
temporarily relocated to mitigate the occurrence of a catastrophic event. We
carry insurance for property loss and business interruption resulting from such
events, other than earthquake, subject to deductibles. We do not carry
earthquake insurance due to the unavailability of comprehensive coverage and
the prohibitive cost of the coverage that is available. Although we believe we
have adequate insurance coverage relating to damage to our property and the
disruption of our business from casualties such as fire, there can be no
assurance that such insurance would be sufficient to cover all of our costs or
damages or our loss of income resulting from our inability to provide services
for an extended period of time.

Our business is subject to risks of
adverse government regulation.

Programming services, satellite carriers, television stations, Internet
and data transmission companies and cable television systems are subject to
varying degrees of regulation in the United States by
the FCC and other entities. Such regulation and
legislation are subject to the political process and have been in constant flux
over the past decade. In addition, substantially every foreign country in
which we have, or may in the future make, an investment regulates, in varying
degrees, the distribution and content of programming services and foreign
investment in programming companies, wired and wireless cable communications,
satellite, and Internet services. Regulation can take the form of price
controls, services requirements and programming and other content restrictions,
among others. Further material changes in the law and regulatory requirements
must be anticipated, and there can be no assurance that our business will not
be adversely affected by future legislation, new regulation, deregulation or
court decisions.

Failure to obtain renewal of our
FCC licenses could disrupt our business.

Our companies hold licenses, authorizations and registrations from the FCC
required for the conduct of our broadcast services business(es), including
various classes of wireless licenses and an authorization to provide certain
services. Most of the FCC licenses held by our companies are for
transmit/receive earth stations, which cannot be operated without individual
licenses. The licenses for these stations are granted for a period of ten
years and, while the FCC generally renews licenses for satellite earth stations
routinely, there can be no assurance that our 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. Our failure, and the failure of
third parties, to obtain renewals of such FCC licenses could disrupt the
broadcast services segment of our business and have a material adverse effect
on our company.

Further material changes in the law and regulatory requirements must be
anticipated, and there can be no assurance that our business will not be
adversely affected by future legislation, new regulation, deregulation or court
decisions.

Instability in foreign markets
could hinder our growth.

Our growth strategy provides for increased services to foreign customers
and to domestic customers distributing programming to the international market.
We currently have operations in the United Kingdom, Spain, the Republic of
Singapore and Mexico. Accordingly, we will be increasingly subject to the
risks generally associated with marketing products or services abroad, such as:



| |  |  | changes in regulatory requirements;
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| |  |  | potentially adverse tax consequences;                                                                        
| | - |  | -------------------------------------------------------------------------------------------------------------
|
| |  |  | difficulties and costs of staffing and managing foreign operations;                                          
|
| |  |  | political and economic instability;                                                                          
|
| |  |  | costs associated with complying with a variety of complex
foreign laws, tariffs and other trade barriers; and
|
| |  |  | fluctuation in currency exchange rates.                                                                      

We do not believe any of such risks has had a material impact on our business
operations or financial condition, but there can be no assurance as to whether
such risks will have a material impact in the future.

Loss of our tax exemption from the Singapore government could effect our
results of operations.

We provide certain of our broadcast services in Singapore through our
Singapore subsidiaries, 4MC Asia, WEAPH Limited, Group W
Broadcasting, which we refer to as GWB, and Asia Broadcast Centre,
which we refer to as ABC. In 1995, the government of the Republic of
Singapore granted 4MC Asia and GWB a seven-year tax exemption as pioneer
status companies. The tax exemption is conditioned upon 4MC Asia and GWB
meeting certain investment and expenditure requirements. Although we have met
these requirements, the Republic of Singapore retains the right to review
certain expenditures. 4MC Asias pioneer status expires April 14, 2002 and
GWBs pioneer status expires November 30, 2002. We are currently in the
process of restructuring our Singapore entities and re-submitting an
application to the Singapore authorities requesting a further exemption from
Singapore taxation. There is no guarantee that the Singapore authorities will
accept our application. The termination or expiration of the tax exemption
would have a material adverse effect on our results of operations. We are
subject to taxation in the United States to the extent that 4MC Asias income
(in excess of intercompany debt) is repatriated from Singapore. Any taxes paid
in Singapore on the repatriated earnings are available for use as a foreign tax
credit in the United States.

Our principal stockholder can act to substantially influence our business and
policies.

Liberty Media Corporation and its subsidiaries own, in the aggregate, 34.4
million shares of our Class B Common Stock, representing
approximately 87% of our
outstanding equity and 99% of our outstanding voting power. In
addition, Liberty Media and its subsidiaries own convertible debt instruments
convertible at the holders option into an aggregate of 20.6 million shares of
our Class B Common Stock, at an exercise price of $10.00 per share. If these
debt instruments were all converted in accordance with their terms, Liberty
Media and its subsidiaries would own, in the aggregate, approximately 55.0 million shares of
our Class B Common Stock, representing approximately 91.3% of our
outstanding equity. Shares of
Class B Common Stock are convertible into shares of Class A Common Stock at any
time at the option of the holder. Although, to the best of our knowledge,
Liberty Media has no current plans to sell any of its shares of common stock,
if a large number of such shares were sold in the market over a relatively
short period of time, the price of our Class A Common Stock would be
adversely affected.

In addition, if Liberty Medias ownership of our outstanding equity were
to exceed 90 percent, Liberty Media would be able to acquire 100% of our
company, through a short-form merger under Delaware law. A short-form
merger under Delaware law would allow Liberty Media (or a subsidiary of Liberty
Media) to acquire our remaining minority public interest upon a resolution of
its board of directors and the consent of its stockholders without the vote of
our stockholders or any action by our board of directors. Although, to the
best of our knowledge, Liberty Media has no current plans to effect a
short-form merger with us, there is no assurance that the prospects of
effecting such a merger may not become attractive to Liberty Media sometime in
the future due to market conditions or other economic circumstances.

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By virtue of its stock ownership, Liberty Media is able to determine the
outcome of substantially all matters required to be submitted to a vote of
stockholders, including (a) the election of the board of directors, (b) any
proposed amendments to our Restated Certificate of Incorporation and (c)
approval of any mergers or other significant corporate transactions. The
foregoing may have the effect of discouraging, delaying or preventing certain
types of transactions involving an actual or potential change of
control of our
company, including transactions in which the holders of our Class A Common
Stock might otherwise receive a premium for their shares over current market
prices.

We have a significant number of authorized, but unissued and unreserved shares
of capital stock, which if issued, could dilute your investment in our Class A
Common Stock.

Our authorized capital stock consists of 300,000,000 shares of Class A
Common Stock and 100,000,000 shares of Class B Common Stock, of
which 5,319,280
shares and 34,393,330 were outstanding, respectively, as of
March 25, 2002.
In our effort to attract additional capital to support our continuing
operations and future expansion plans, our board of directors may authorize our
officers to enter into financing transactions on our behalf, which may require
us to issue additional shares of our common stock, preferred stock, promissory
notes, warrants, options or other securities convertible into our common stock.
Although the issuance of new securities would not change the rights of holders
of our currently outstanding common stock, there would be effects incidental to
such issuances, such as dilution of the earning per share and voting rights of
such current holders.

In addition, our board of directors has the authority to issue up to
5,000,000 shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions thereof, including voting rights,
without any further vote or action by our stockholders. Although we have no
current plans to issue any shares of preferred stock, the rights of the holders
of our Class A Common Stock would be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in the
future. Issuance of preferred stock could have the effect of discouraging,
delaying or preventing a change in control of our company. Furthermore,
certain provisions of our Restated Certificate of Incorporation, our Bylaws and Delaware law also could have the effect of discouraging,
delaying or preventing a change in control of our company.

Our officers and directors may have
conflicts of interest.

Certain members of our management and board of directors are also members
of the management and board of directors of Liberty Media. Robert R. Bennett,
one of our directors, is a director, President and Chief Executive Officer of
Liberty Media. Gary S. Howard, one of our directors, is also a director,
Executive Vice President and Chief Operating Officer of Liberty Media. William
R. Fitzgerald, one of our directors and our Chairman of the Board is also a
Senior Vice President of Liberty Media. Our directors have fiduciary obligations
under Delaware law to us and all of our stockholders, when acting in their
capacities as our directors. Messrs. Bennett and Howard, as directors of
Liberty Media, also have fiduciary obligations to Liberty Media and its
stockholders, and Mr. Fitzgerald, as an officer of Liberty Media, also owes a
duty of loyalty and care to Liberty Media, when acting in such capacities.
Messrs. Bennett, Howard and Fitzgerald hold options to acquire shares or hold
restricted shares (or both) of Liberty Media common stock, and options to
acquire shares of our Class A Common Stock.

Terrorist attacks or responses thereto could adversely affect our business,
results of operations and financial condition.

On September 11, 2001, terrorists carried out attacks that destroyed the
World Trade Center in New York and badly damaged the Pentagon outside of
Washington, D.C. As a result of these attacks, the United States securities
markets were closed for several days. The impact that these terrorist attacks
or future events arising as a result of these terrorists attacks, including
military or police activities in the United States or foreign countries, future
terrorist activities or threats of such activities, political unrest and
instability, riots and protests, could have on the United States and the global
economy, the United States and global securities markets and our business
results of operations and financial condition cannot presently be determined
with any accuracy.

25



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ITEM 2. PROPERTIES.

Liberty Livewires operations are conducted in over 100 owned, leased or
licensed facilities, located throughout the world. Domestically, we operate
primarily in California and the Eastern seaboard, in New York, New Jersey and
Connecticut. We also operate facilities in Georgia, Minnesota and Florida.
Our international operations include London, England; the Republic of
Singapore; Barcelona, Spain; and Mexico City, Mexico.

Worldwide, we lease approximately 1.4 million square feet and own another
500,000 square feet. In the United States, our leased facilities,
approximately 1.1 million square feet, have terms expiring between June 2002
and December 2010. Several of these agreements have extension options. The
leased properties are used for certain of our technical operations, office
space and storage. Our international leases have terms that expire between
December 2002 and August 2019, and are also used for certain of our technical
operations, office space and storage. Over half of the international leases
have extension clauses. Approximately 350,000 square feet of our owned
facilities are located in Southern California, with another 100,000 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 needs.




ITEM 3. LEGAL PROCEEDINGS.

Paul Dujardin v. Liberty Media Corporation and Liberty Livewire
Corporation.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 us, 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 earn out provisions of an
acquisition agreement involving the sale of Mr. Dujardins company, Triumph
Communications (Triumph) to us (the Triumph Acquisition), and breach of
contract for failure to make Mr. Dujardin head of our Networks
Group. The securities claims in the Complaint allege that in a series of
transactions during 2000, Liberty Media agreed to secretly contribute assets to
us in exchange for our stock at prices that ultimately were below our NASDAQ
trading price on the date the transactions were consummated. The Complaint
alleges that we and Liberty Media fraudulently concealed these below-market
transactions, and thus that our 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. Mr. Dujardin
also claims that, pursuant to the acquisition agreement between Triumph and us,
he is entitled to an earnout opportunity entitling him to approximately
88,000 shares of our stock if Triumph were to meet certain revenue targets in
2000 and 2001. On February 13, 2002, we and Liberty Media filed a motion to
dismiss the Complaint in its entirety. We believe that the Complaint is
without merit and will vigorously defend our interests.

Arbitration Matter with Paul Dujardin.We are also involved in a separate
arbitration dispute with Mr. Dujardin arising out of approximately 441,000
shares of our Class A Common Stock (the Hold-Back Shares) that were held back
from Mr. Dujardin as agreed upon in the Triumph Acquisition agreement (the
Triumph Acquisition Agreement). Pursuant to the pledgeholder agreement (the
Pledgeholder Agreement) executed in connection with the Triumph Acquisition
Agreement, Mr. Dujardin would be entitled to the Hold-Back Shares on April 30,
2002, if he did not breach any of the representations and warranties contained
in the Triumph Acquisition Agreement. Pursuant to the Pledgeholder Agreement,
if Mr. Dujardin was terminated before April 30, 2002, he would be entitled to
the Hold-Back Shares unless his employment was terminated because of, among
other things, failure to perform job duties or willfully engaging in misconduct
that was injurious to us or our subsidiaries. We contend that Mr. Dujardin was
terminated in August 2001 for cause and because he failed to perform his job
duties and willfully engaged in misconduct injurious to us and Triumph. We
believe that Mr. Dujardins claim that he was not terminated in accordance with
the terms of the Pledgeholder Agreement is without merit. We have initiated a
separate arbitration proceeding alleging that Mr. Dujardin breached certain
representations and warranties made in the Triumph Acquisition Agreement.

Liberty Livewire Corporation, Triumph Communications, Inc. et. al v. Paul
J. Dujardin, Jeremy Dujardin, Elio Parente, and Genesis Networks, Inc.:On
December 26, 2001, we and Triumph commenced an action against
Mr. Dujardin
and several former employees of Triumph in the Supreme Court of the State of
New York, County

26



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##### Table of Contents



of New York (Index No. 606080/01), alleging breaches of these former
employees contractual and common law duties by, among other things,
misappropriating our trade secrets and confidential information and wrongfully
soliciting our customers and employees. Certain of the former Triumph
employees (Paul Dujardin, Jeremy Dujardin and Elio Parente) have asserted
counterclaims against Triumph alleging that Triumph has (i) breached its
vacation pay policy by failing to pay Paul Dujardin and Elio Parente their
accrued but unused vacation time, (ii) breached its credit card payment policy
by failing to reimburse Paul Dujardin for certain credit card charges and (iii)
converted the Dujardins personal property by failing to return a television
set, video cassette recorder and computer (collectively, the Counterclaims).
Paul Dujardin and the other former Triumph employees have alleged unspecified
damages on their Counterclaims. The parties exchanged document requests in
late January 2002. No trial date has been set.

ElectroPix, Inc. d/b/a Live Wire vs. Liberty Livewire Corporation and
Liberty Media Corporation.On May 23, 2001, ElectroPix, Inc., doing business
as Live Wire, filed in U.S. District Court, Central District of California, a
law suit against us and Liberty Media Corporation for, among other things,
trademark infringement, due to our use of the names Liberty Livewire and
Livewire. ElectroPixs motion for a preliminary injunction was denied with
respect to our use of Liberty Livewire but granted with respect to our use of
Livewire. On November 25, 2001, we settled the lawsuit with ElectroPix and
agreed to cease using in the United States the Livewire trademark including
Liberty Livewire by November 25, 2002, which period can be extended for an
additional six months for an additional fee. The law suit filed in U.S.
District Court was dismissed with prejudice by Joint Stipulation on December
27, 2001, and an appeal in the Ninth Circuit Court of Appeals was dismissed
with prejudice by Joint Stipulation on December 28, 2001.

Our management believes that it is not currently possible to estimate the
impact, if any, that the ultimate resolution of any of our litigation matters
will have on our results of operations, financial position or cash flows.




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



| | (a) |  | Liberty Livewire Corporation held an Annual Meeting of Stockholders
on December 19, 2001.                                                   
| | --- |  | --------------------------------------------------------------------------------------------------------------------------------------------
|
| | (b) |  | Stockholders of record as of October 29, 2001 elected the following
directors at the Annual Meeting of Stockholders (in alphabetical
order):
|
| |     |  | Salah M. Hassanein
Gary Howard
David P. Malm
Sydney Pollack
Bernard W. Schotters
Robert T. Walston                                          
|
| |     |  | In addition, the term of office for the following directors continued
after the Annual Meeting of Stockholders (in alphabetical order):     
|
| |     |  | Robert B. Bennett
Larry E. Romrell
William R. Fitzgerald                                                                                    
|
| | (c) |  | At the Annual Meeting of Stockholders, votes were cast on matters
submitted to the stockholders as follows:                                 



| | a. |  | Election of the nominees listed below for the board of
directors of Liberty Livewire Corporation. The nominees and
votes for each nominee were as follows:
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | i. |  | Salah M. Hassanein(1)
| | -- |  | ---------------------

|            |  |         |   |         |  |           |        |  |  |  |   | 
|----------- |  | ------- | - | ------- |  | --------- | ------ |  |  |  | - | 
|FOR         |  | AGAINST |   | ABSTAIN |  | NON VOTED
|            |  |         |   |         |  |          
|340,092,456 |  |         | 0 |         |  |           | 25,978 |  |  |  | 0 | 

27



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##### Table of Contents





| | ii. |  | Gary Howard
| | --- |  | -----------

|            |  |         |   |         |  |           |        |  |  |  |   | 
|----------- |  | ------- | - | ------- |  | --------- | ------ |  |  |  | - | 
|FOR         |  | AGAINST |   | ABSTAIN |  | NON VOTED
|            |  |         |   |         |  |          
|340,065,512 |  |         | 0 |         |  |           | 52,922 |  |  |  | 0 | 



| | iii. |  | David P. Malm
| | ---- |  | -------------

|            |  |         |   |         |  |           |        |  |  |  |   | 
|----------- |  | ------- | - | ------- |  | --------- | ------ |  |  |  | - | 
|FOR         |  | AGAINST |   | ABSTAIN |  | NON VOTED
|            |  |         |   |         |  |          
|340,092,670 |  |         | 0 |         |  |           | 25,764 |  |  |  | 0 | 



| | iv. |  | Sydney Pollack
| | --- |  | --------------

|            |  |         |   |         |  |           |        |  |  |  |   | 
|----------- |  | ------- | - | ------- |  | --------- | ------ |  |  |  | - | 
|FOR         |  | AGAINST |   | ABSTAIN |  | NON VOTED
|            |  |         |   |         |  |          
|340,062,171 |  |         | 0 |         |  |           | 56,263 |  |  |  | 0 | 



| | v. |  | Bernard W. Schotters
| | -- |  | --------------------

|            |  |         |   |         |  |           |        |  |  |  |   | 
|----------- |  | ------- | - | ------- |  | --------- | ------ |  |  |  | - | 
|FOR         |  | AGAINST |   | ABSTAIN |  | NON VOTED
|            |  |         |   |         |  |          
|340,092,650 |  |         | 0 |         |  |           | 25,784 |  |  |  | 0 | 



| | vi. |  | Robert T. Walston
| | --- |  | -----------------

|            |  |         |   |         |  |           |        |  |  |  |   | 
|----------- |  | ------- | - | ------- |  | --------- | ------ |  |  |  | - | 
|FOR         |  | AGAINST |   | ABSTAIN |  | NON VOTED
|            |  |         |   |         |  |          
|340,092,650 |  |         | 0 |         |  |           | 25,784 |  |  |  | 0 | 



| | b. |  | Approval of our 2001 Incentive Plan.
| | -- |  | ------------------------------------

|            |  |         |         |         |  |           |     |  |  |  |           | 
|----------- |  | ------- | ------- | ------- |  | --------- | --- |  |  |  | --------- | 
|FOR         |  | AGAINST |         | ABSTAIN |  | NON VOTED
|            |  |         |         |         |  |          
|337,800,315 |  |         | 214,991 |         |  |           | 468 |  |  |  | 2,102,660 | 



| | c. |  | Approval of our 2000 Nonemployee Director Stock Option
Plan.
| | -- |  | ------------------------------------------------------------

|            |  |         |        |         |  |           |       |  |  |  |           | 
|----------- |  | ------- | ------ | ------- |  | --------- | ----- |  |  |  | --------- | 
|FOR         |  | AGAINST |        | ABSTAIN |  | NON VOTED
|            |  |         |        |         |  |          
|337,899,055 |  |         | 77,244 |         |  |           | 9,475 |  |  |  | 2,102,660 | 



| | d. |  | Ratification of the appointment of KPMG LLP as our
independent auditors for the year ending December 31, 2001.
| | -- |  | --------------------------------------------------------------------------------------------------------------

|            |  |         |       |         |  |           |       |  |  |  |   | 
|----------- |  | ------- | ----- | ------- |  | --------- | ----- |  |  |  | - | 
|FOR         |  | AGAINST |       | ABSTAIN |  | NON VOTED
|            |  |         |       |         |  |          
|340,115,078 |  |         | 2,244 |         |  |           | 1,112 |  |  |  | 0 | 



| | e. |  | Approval of the First Amended and Restated Credit
Agreement, dated as of December 22, 2000, between Liberty
Livewire Corporation and Liberty Media Corporation, including the
potential issuance of shares of our Class B Common Stock under
this credit agreement.
| | -- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|            |  |         |        |         |  |           |       |  |  |  |           | 
|----------- |  | ------- | ------ | ------- |  | --------- | ----- |  |  |  | --------- | 
|FOR         |  | AGAINST |        | ABSTAIN |  | NON VOTED
|            |  |         |        |         |  |          
|337,989,940 |  |         | 24,116 |         |  |           | 1,718 |  |  |  | 2,102,660 | 



---

|(1) |  | Mr. Hassanein resigned from our Board of Directors on February 27, 2002.
|--- |  | ------------------------------------------------------------------------

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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
Nasdaq Stock Market under the symbol LWIRA. Prior to the Todd Merger, our
Class A Common Stock traded under the symbol TODDA. The Transfer Agent and
Registrar for the Class A Common Stock is Continental Stock Transfer and Trust
Company, 2 Broadway, New York, NY 10004. 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 March 25, 2002, there were 216 record
holders of 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 as
reported on the Nasdaq Stock Market.

|                                    |  |          |       |         |  |  |      | 
|----------------------------------- |  | -------- | ----- | ------- |  |  | ---- | 
|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 | 

|                                    |  |          |       |         |  |  |       | 
|----------------------------------- |  | -------- | ----- | ------- |  |  | ----- | 
|Fiscal Year Ended December 31, 2000 |  | High ($) |       | Low ($)
|                                    |  |          |       |        
|Fourth Quarter                      |  |          | 31.29 |         |  |  | 5.19  | 
|Third Quarter                       |  |          | 74.69 |         |  |  | 28.00 | 
|Second Quarter                      |  |          | 71.50 |         |  |  | 18.25 | 
|First Quarter                       |  |          | 41.69 |         |  |  | 28.38 | 

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. 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 is not publicly traded. We act as transfer agent for our Class B Common
Stock. As of March 25, 2002, 34,393,330 shares of our Class B Common Stock were
outstanding and beneficially owned or controlled by Liberty Media. For more
information on Liberty Medias beneficial ownership and control of our Class B
Common Stock, see Part III, Item 13, Certain Relationships and Related
Transactions-Liberty LWR, Inc. and Liberty Livewire Holdings, Inc. below.

Recent Sales of Unregistered Securities

Sale of Class B Common Stock to Liberty Media Corporation. As of December
31, 2001, Liberty Media owned 34,393,330 shares of our Class B Common Stock and
subordinated convertible notes in the aggregate principal amount of $206.2
million. 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. The notes are
convertible into shares of Class B Common Stock at any time at the option of
the holder, at a conversion price of $10.00 per share. If not earlier
converted, the notes will become due and payable in full on June 30, 2008.
Interest accrues on the notes at a rate of 10% per annum, payable quarterly
either in cash, shares of our Class B Common Stock, or a combination thereof,
at our discretion, subject to certain limits. To the extent interest is paid in
shares of our Class B Common Stock, such shares will be valued at 95% of the ten day trailing average closing price
per share of our Class A Common Stock on the interest payment date.

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##### Table of Contents



Liberty Media acquired these securities through the Todd Merger, including
an Amended and Restated Stock Option Fulfillment Agreement entered into in
connection therewith, and our acquisitions of 4MC, VSC, GWNS, LNS and Soundelux
in 2001 and 2000. The issuances of such securities were not registered under
the Securities Act of 1933, as amended, in reliance upon the exemption from
registration afforded by Section 4(2) of that Act. The following describes
the terms of the transactions in which the above securities were issued:



| |  |  | In the Todd Merger, on June 9, 2000, AT&T Corporation issued
5,501,256 shares of Class A Liberty Media Group Common Stock, par value
$1.00 per share (taking into account a two-for-one stock split effected
on the Liberty Media Group tracking stock on June 9, 2000), to acquire
6,519,907 shares of our Class B Common Stock. AT&T Corporation then
contributed such shares of our Class B Common Stock to Liberty Media
through a series of contribution agreements with affiliate entities.                                                                                                                                                                                                                                                                  
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Also on June 9, 2000, Liberty Media acquired an additional
16,614,952 shares of our Class B Common Stock in exchange for the
contribution by Liberty Media to us of 100% of the outstanding shares
of common stock of 4MC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|
| |  |  | On July 19, 2000, Liberty SEG Acquisition Sub, LLC, a limited
liability company of which Liberty Media was the sole member, acquired
Soundelux, the post-production, content and sound editorial businesses
of SEG, for $90.0 million in cash. Immediately following this closing,
Liberty Media contributed 100% of its ownership interests in Liberty
SEG Acquisition Sub, LLC to us in exchange for 8,181,818 shares of our
Class B Common Stock.                                                                                                                                                                                                                                                                                                               
|
| |  |  | On January 26, 2001, we executed and delivered to Liberty Media a
convertible promissory note, dated December 22, 2000, in the aggregate
original principal amount of $92.5 million. This note was issued in
connection with our acquisition of 100% of the capital stock of VSC
from Liberty Media, pursuant to both the Liberty Subordinated Credit
Agreement and the Contribution Agreement, dated as of December 22,
2000, between us and Liberty Media.                                                                                                                                                                                                                                                                                                       
|
| |  |  | On February 1, 2001, we executed and delivered to Liberty Media a
second convertible promissory note under the Liberty Subordinated
Credit Agreement, in the aggregate original principal amount of $82.0
million. The proceeds of such note were used by us as partial payment
of the purchase price for our acquisition of GWNS from Viacom,
described earlier in this report.                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  |  | On February 1, 2001, we entered into an Amended and Restated Stock
Option Fulfillment Agreement with Liberty Media dated as of June 10,
2000. Pursuant to that agreement, we issued an aggregate of 296,039
shares of our Class B Common Stock to Liberty Media, in consideration
of $5.1 million in cash paid by Liberty Media to us to help fund our
purchase, on the open market, of shares of Liberty Media Group Class A
Common Stock required by us to fulfill our obligations under certain of
our stock options, which became exercisable in part for shares of
Liberty Media Group Class A Common Stock in connection with the Todd
Merger.                                                                                                               
|
| |  |  | On September 6, 2001, we issued to Liberty Media a convertible
promissory note under the Liberty Subordinated Credit Agreement in the
aggregate principal amount of $31.7 million. The proceeds of the note
were used by us in connection with our acquisition of a 99% ownership
interest in LNS from Ascent Entertainment Group, Inc., also referred to
as AEG, a subsidiary of Liberty Media. For details on this
transaction, see Item 13, Certain Relationships and Related
Transactions-Ascent Network Services below.                                                                                                                                                                                                                                     
|
| |  |  | From December 29, 2000 through December 31, 2001, we have issued
817,135 shares of our Class B Common Stock to Liberty Media, 1,707,037
shares of our Class B Common Stock to Liberty LWR, Inc., and 256,442
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 Item 13, Certain Relationships and Related
TransactionsConvertible Subordinated Credit Facility with Liberty
Media below, and for details on Liberty LWR, Inc. and Liberty Livewire Holdings, Inc., see Item 13, Certain Relationships and Related
TransactionsLiberty LWR, Inc. and Liberty Livewire Holdings, Inc.
below.

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ITEM 6. SELECTED FINANCIAL DATA.

|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |            | 
|-------------------------------------------- | ------- | -------- | ---------------- | ---------- | ------- | ------- | --------- | ---------- | ------ | ---------- | ------- | ---------- | ----- | ---------- | ------- | ---------- | ---- | - | ------- | --------- |  | - | ------- | ---------- |  | - | ------- | ---------- | 
|                                             |         |          | Liberty Livewire |            | Todd-AO
|                                             |         |          |                  |            |        
|                                             |         |          |                  |            |         |         | Seven     |            | Five   |            | Four    |            |       |            |         |            |      |   |         |           |  |   |        
|                                             |         |          |                  |            |         |         | Months    |            | Months |            | Months  |            | Year  |            | Year    |            | Year
|                                             |         |          | Year Ended       |            | Ended   |         | Ended     |            | Ended  |            | Ended   |            | Ended |            | Ended  
|(in thousands,                               |         | December |                  | December   |         | May 31, |           | December   |        | August 31, |         | August 31, |       | August 31,
|except share data)                           |         | 31, 2001 |                  | 31, 2000   |         | 2000    |           | 31, 1999   |        | 1999       |         | 1998       |       | 1997      
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |           
|Net revenues                                 |         | $        | 592,732          |            |         | $       | 253,099   |            |        | $          | 53,243  |            |       | $          | 43,261  |            |      | $ | 118,517 |           |  | $ | 102,614 |            |  | $ | 78,971  |           
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|Net (loss) income                            |         | $        | (436,289         | )          |         | $       | (9,793    | )          |        | $          | (1,675  | )          |       | $          | 449     |            |      | $ | 1,313   |           |  | $ | 3,419   |            |  | $ | 6,005   |           
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|Income (loss) per share
of common stock:     |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|                                             | Basic   |          | $                | (11.52     | )       |         | $         | (0.28      | )      |            | $       | (0.16      | )     |            | $       | 0.05       |      |   | $       | 0.14      |  |   | $       | 0.34       |  |   | $       | 0.63       | 
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|                                             | Diluted |          | $                | (11.52     | )       |         | $         | (0.28      | )      |            | $       | (0.16      | )     |            | $       | 0.04       |      |   | $       | 0.13      |  |   | $       | 0.33       |  |   | $       | 0.59       | 
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|Total assets                                 |         | $        | 919,691          |            |         | $       | 1,175,845 |            |        | $          | 159,448 |            |       | $          | 162,004 |            |      | $ | 153,180 |           |  | $ | 135,366 |            |  | $ | 103,451 |           
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|Long-term debt and
capital lease
obligations |         | $        | 608,241          |            |         | $       | 492,573   |            |        | $          | 61,210  |            |       | $          | 65,866  |            |      | $ | 65,520  |           |  | $ | 44,654  |            |  | $ | 25,430  |           
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|Cash dividends per share:                    |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|                                             | Class A |          | $                |           |         |         | $         |           |        |            | $       |           |       |            | $       |           |      |   | $       | 0.05      |  |   | $       | 0.06       |  |   | $       | 0.06       | 
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|                                             | Class B |          | $                |           |         |         | $         |           |        |            | $       |           |       |            | $       |           |      |   | $       | 0.04      |  |   | $       | 0.05       |  |   | $       | 0.05       | 
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|Weighted average shares
outstanding:         |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|                                             | Basic   |          |                  | 37,858,128 |         |         |           | 34,463,373 |        |            |         | 10,768,773 |       |            |         | 9,927,077  |      |   |         | 9,570,187 |  |   |         | 9,987,429  |  |   |         | 9,539,312  | 
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           
|                                             | Diluted |          |                  | 37,858,128 |         |         |           | 34,463,373 |        |            |         | 10,768,773 |       |            |         | 10,656,340 |      |   |         | 9,832,614 |  |   |         | 11,218,051 |  |   |         | 10,207,503 | 
|                                             |         |          |                  |            |         |         |           |            |        |            |         |            |       |            |         |            |      |   |         |           |  |   |         |            |  |   |         |           

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

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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 and in Item I, Part 1, Business  Risk
Factors above. 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

Liberty Livewire Corporation 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 the assets and
operations of nine companies acquired during 2001 and 2000. The unique
combination and integration of these acquired entities allows us to offer our
clients a complete range of services, from image capture to
distribution of the final product, unmatched by most other competitors in the industry. We are able
to offer outsourcing solutions for the technical and creative requirements of
our clients that lower operating costs, reduce cycle times and increase
reliability and quality. We have organized our facilities and operations into
the three business segments, that we call Groups, as described below.

Pictures Group.Our Pictures Group 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. Among other things, we
create visual effects, sound effects and animation sequences and
integrate them into filmed entertainment after principal photography. Our services begin once raw images
are captured and are completed when a final product is delivered to the last
mile distributor such as broadcast network, cable channel or an IP
distributor. The Pictures Group has three divisions: Entertainment Television,
Commercial Television and Audio.

Media Group.Our Media Group provides the services necessary to
facilitate the global maintenance, management and distribution of existing
content libraries. Through our facilities, we provide immediate access to
physical and virtual content, we restore and preserve damaged content, and we
create high resolution professional masters from original camera negative for
global home video, broadcast, pay-per-view and emerging new media distribution
channels.

Networks Group.Our Networks 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
Networks 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. and certain of its
subsidiaries. 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 Livewire Network Services, also
referred to as LNS that we did not already own, thereby acquiring the
operations of Ascent Network Services.

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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.
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. Our investments in new
infrastructure, machine capacity, technology and goodwill arising from our
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, we view EBITDA as an important measure of our financial performance and
valuation and intend to report EBITDA as a measure of financial performance.
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.

Critical Accounting Policies

Valuation of Goodwill, Other Intangible Assets and Long-lived Assets. We
assess the impairment of goodwill, other intangible assets, and long-lived
assets 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 strategy or the
manner of use of our assets, and significant negative industry or economic
trends. When we determine that the carrying value of goodwill, other
intangible assets, and long-lived assets may not be recoverable based upon
undiscounted cash flows, we measure the impairment by obtaining market place
comparables or by calculating a projected discounted cash flow analysis using a
discount rate determined by our management to be commensurate with the risks
involved. See Note 3 to the Consolidated Financial Statements for additional
information regarding impairment. On January 1, 2002, Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,
became effective and as a result, we will cease to amortize our goodwill and
indefinite-lived intangible assets of $437.8 million. In lieu of amortization,
we are required to perform an initial impairment review of our goodwill in
fiscal year 2002 and an annual impairment review thereafter. We expect to
complete our initial review during the first quarter of fiscal year 2002. See
Note 2 to the Consolidated Financial Statements for additional information
regarding our assessment of adopting SFAS No. 142.

Valuation of Trade Receivables. We must make estimates of the
collectability of our trade receivables. Our management analyzes the
collectability 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 $96.7 million, net
of allowance for doubtful accounts of $12.0 million, as of December 31, 2001.

Results of Operations

The Pictures Groups revenues are primarily generated from fees for audio and
video post production, audio and video special effects and editorial services
for the television, film and advertising industries. The Media Group provides
owners of film libraries a broad range of restoration, preservation, archiving,
professional mastering and duplication services. The Networks 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 Groups results also include
our Bandwidth Management initiative, a new and developing business. Corporate
related items and unallocated revenues and expenses are reflected in Corporate
and Other, below. Additionally, Corporate and Other includes the results of
our Interactive Media business, a new and developing business initiative. Cost
and expenses include costs of services which consist primarily of production
wages, facility costs and other direct costs; selling, general and
administrative expenses; depreciation and amortization; interest expense and
income taxes.

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Our consolidated results of operations for the year ended December 31,
2001, include the results of GWNS from February 2001, Cinram-POP from August
2001 and LNS from September 2001, their respective dates of acquisition. Our
operations prior to the acquisition and merger in June 2000 are referred to as
the operations of Todd-AO. The year ended December 31, 2000 represents the
operations of Todd-AO prior to the Todd Merger for the five months ended May
31, 2000 and our consolidated operations for the seven months ended December
31, 2000. Our consolidated operations for the seven months ended December 31,
2000 include the results of Soundelux and Triumph from July 2000, Soho from
August 2000, Visiontext from October 2000 and VSC from December 2000. Periods
prior to calendar year 2000 represent only the operations of Todd-AO.

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), and the resulting annual operating
results are compared to the operating results of Todd-AO for the year ended
August 31, 1999. The operating results are not comparable between the annual
periods as the five months ended May 31, 2000 and the year ended August 31,
1999 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.

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

|                                |  |                    |         |                    |  |                    |         |                  |  |      |         |  |  |   |        | 
|------------------------------- |  | ------------------ | ------- | ------------------ |  | ------------------ | ------- | ---------------- |  | ---- | ------- |  |  | - | ------ | 
|                                |  | Liberty Livewire   |         | Todd-AO           
|                                |  |                    |         |                   
|                                |  |                    |         |                    |  | Combined           |         |                  |  |      |         |  |  |  
|                                |  | Year               |         | Year               |  |                    |         |                  |  | Five
|                                |  | Ended December 31, |         | Ended December 31, |  | Seven Months Ended |         | Months Ended May
|Segment Revenues (in thousands) |  | 2001               |         | 2000               |  | December 31, 2000  |         | 31, 2000        
|                                |  |                    |         |                    |  |                    |         |                 
|Pictures Group                  |  | $                  | 332,921 |                    |  | $                  | 220,971 |                  |  | $    | 177,808 |  |  | $ | 43,163 | 
|Media Group                     |  |                    | 104,063 |                    |  |                    | 56,756  |                  |  |      | 46,676  |  |  |   | 10,080 | 
|Networks Group                  |  |                    | 155,550 |                    |  |                    | 28,615  |                  |  |      | 28,615  |  |  |   |       | 
|Corporate and Other             |  |                    | 198     |                    |  |                    |        |                  |  |      |        |  |  |   |       | 
|                                |  |                    |         |                    |  |                    |         |                  |  |      |         |  |  |   |        | 
|                                |  | $                  | 592,732 |                    |  | $                  | 306,342 |                  |  | $    | 253,099 |  |  | $ | 53,243 | 
|                                |  |                    |         |                    |  |                    |         |                  |  |      |         |  |  |   |        | 

|                              |  |                    |          |                    |  |                    |         |                  |  |      |         |   |  |   |        |  
|----------------------------- |  | ------------------ | -------- | ------------------ |  | ------------------ | ------- | ---------------- |  | ---- | ------- | - |  | - | ------ | -
|                              |  | Liberty Livewire   |          | Todd-AO           
|                              |  |                    |          |                   
|                              |  |                    |          |                    |  | Combined           |         |                  |  |      |         |   |  |  
|                              |  | Year               |          | Year               |  |                    |         |                  |  | Five
|                              |  | Ended December 31, |          | Ended December 31, |  | Seven Months Ended |         | Months Ended May
|Segment EBITDA (in thousands) |  | 2001               |          | 2000               |  | December 31, 2000  |         | 31, 2000        
|                              |  |                    |          |                    |  |                    |         |                 
|Pictures Group                |  | $                  | 64,369   |                    |  | $                  | 43,627  |                  |  | $    | 38,178  |   |  | $ | 5,449  |  
|Media Group                   |  |                    | 30,967   |                    |  |                    | 15,775  |                  |  |      | 13,704  |   |  |   | 2,071  |  
|Networks 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 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 Pictures Group as a result of the impact of a recessionary market
environment and a reduction in television advertising spending.

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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. For a
description of our SARs and option plans, see Note 10 of the Notes to
Consolidated Financial Statements.

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. For a
discussion on interest rate swaps, see Note 13 of the Notes to Consolidated
Financial Statements.

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 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; see Note 13
of the Notes to Consolidated Financial Statements. 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.

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The provision for income taxes increased $8.4 million, or 262.5%, to $11.6
million for the year ended December 31, 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               |         | Year              
|                                |  | Ended December 31, |         | Ended December 31,
|Segment Revenues (in thousands) |  | 2001               |         | 2000              
|                                |  |                    |         |                   
|Pictures Group                  |  | $                  | 332,921 |                    |  | $ | 367,847 | 
|Media Group                     |  |                    | 105,204 |                    |  |   | 99,530  | 
|Networks Group                  |  |                    | 169,180 |                    |  |   | 173,488 | 
|Corporate and Other             |  |                    | 198     |                    |  |   |        | 
|                                |  |                    |         |                    |  |   |         | 
|                                |  | $                  | 607,503 |                    |  | $ | 640,865 | 
|                                |  |                    |         |                    |  |   |         | 

|                              |  |                    |          |                    |  |   |         |  
|----------------------------- |  | ------------------ | -------- | ------------------ |  | - | ------- | -
|                              |  | Year               |          | Year              
|                              |  | Ended December 31, |          | Ended December 31,
|Segment EBITDA (in thousands) |  | 2001               |          | 2000              
|                              |  |                    |          |                   
|Pictures Group                |  | $                  | 64,369   |                    |  | $ | 74,552  |  
|Media Group                   |  |                    | 31,313   |                    |  |   | 26,126  |  
|Networks 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 Pictures Group revenue as a result of reduced television advertising
spending. Additionally, the Networks 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 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 Pictures 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 Group EBITDA and a $10.4 million, or 24.9%,
increase in Networks 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

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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, flowed through
Corporate and Other.

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 and higher depreciation and amortization, interest, non-cash
compensation and other expenses.

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 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.

Comparison of Reported Results for the Combined Year Ended December 31, 2000 to
Reported Results for the Fiscal Year Ended August 31, 1999.

|                                |  |                   |         |              |  |        |         | 
|------------------------------- |  | ----------------- | ------- | ------------ |  | ------ | ------- | 
|                                |  |                   |         |              |  | Fiscal
|                                |  | Combined          |         | Year        
|                                |  | Year Ended        |         | Ended August
|Segment Revenues (in thousands) |  | December 31, 2000 |         | 31, 1999    
|                                |  |                   |         |             
|Pictures Group                  |  | $                 | 220,971 |              |  | $      | 94,384  | 
|Media Group                     |  |                   | 56,756  |              |  |        | 24,133  | 
|Networks Group                  |  |                   | 28,615  |              |  |        |        | 
|                                |  |                   |         |              |  |        |         | 
|                                |  | $                 | 306,342 |              |  | $      | 118,517 | 
|                                |  |                   |         |              |  |        |         | 

Revenues increased $187.8 million, or 158.5%, to $306.3 million for the
combined year ended December 31, 2000, from $118.5 million for the year ended
August 31, 1999. The contribution of 4MC combined with the acquisitions of
Visiontext, Soundelux, Triumph and Soho contributed $184.1 million, or 98.0%,
of the overall revenue increase. Additionally, $5.0 million of the increase
was driven by a full year of Sound One results, which was acquired by Todd-AO
in June 1999.

Costs of services increased $119.1 million, or 150.7%, to $198.2 million
for the combined year ended December 31, 2000, from $79.1 million for the year
ended August 31, 1999. The contribution of 4MC combined

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with the acquisitions of Visiontext, Soundelux, Triumph and Soho
contributed $114.4.million, or 96.1%, of the overall increase.

Selling, general and administrative expenses increased $47.2 million, or
244.6%, to $66.5 million for the combined year ended December 31, 2000, from
$19.3 million for the year ended August 31, 1999. The contribution of 4MC
combined with the acquisitions of Visiontext, Soundelux, Triumph and Soho
contributed $48.1 million, or 101.9%, of the overall increase.

As a result of the above, EBITDA, as defined, increased $22.2 million, or
110.4%, to $42.3 million for the combined year ended December 31, 2000, from
$20.1 million for the fiscal year ended August 31, 1999.

Depreciation and amortization increased $45.7 million, or 357.0%, to $58.5
million for the combined year ended December 31, 2000, from $12.8 million for
the year ended August 31, 1999. The increase was primarily due to the
equipment, goodwill and other intangibles acquired with respect to the Todd
Merger and the acquisitions of Visiontext, Soundelux, Triumph and Soho.

Non-cash compensation income of $29.6 million was recognized for the
combined year ended December 31, 2000 driven by a net decline in the underlying
stock price of certain SARs. Such SARs relate to the conversion of 4MC stock
options to shares of Liberty Media Group Class A Common Stock in connection with
Liberty Medias acquisition of 4MC on April 10, 2000.

Interest expense increased $17.2 million, or 477.8%, to $20.8 million for
the combined year ended December 31, 2000, from $3.6 million for the year ended
August 31, 1999. The increase was primarily due to increased borrowings
attributable to the acquisitions and indebtedness assumed and/or refinanced in
connection with the acquisitions of Visiontext, Soundelux, Triumph and Soho.

Other expense decreased $215,000, or 52.1%, to $198,000 for the combined
year ended December 31, 2000 from $413,000 for the year ended August 31, 1999.

As a result of the above, income before taxes and net change in accounting
principle decreased $10.7 million from $2.5 million in income for the year
ended August 31, 1999 to an $8.2 million loss before taxes and change in
accounting principle net for the combined year ended December 31, 2000.

The provision for income taxes increased $2.3 million to $3.2 million for
the combined year ended December 31, 2000 from $880,000 for the year ended
August 31, 1999. Our effective income tax rate for the period was approximately
60.2% primarily due to permanent differences of $5.0 million arising from
disallowed tax deductions for goodwill.

Income before change in accounting principle net decreased $13.1 million
from $1.6 million income for the year ended August 31, 1999 to an $11.5 million
loss before change in accounting principle net for the combined year ended
December 31, 2000.

In the fiscal year ended August 31, 1999 we elected early adoption of
Statements of Position No. 98-5, Reporting on the Costs of Start-Up Activities,
and reported the cumulative effect of a change in accounting principle net, as
described in APB Opinion No. 20, in the amount of $293,000, net of income tax
benefit in the amount of $150,000.

As a result of the election described above, net income after a net change
in accounting principle decreased $12.8 million from net income of $1.3 million
for the year ended August 31, 1999 to a net loss of $11.5 million for the
combined year ended December 31, 2000.

Liquidity and Capital Resources

Cash provided by operations for the year ended December 31, 2001 was $73.6
million, as compared to $16.2 million for the combined year ended December 31,
2000. The increase in net cash provided by operations for the year ended
December 31, 2001 was primarily attributable to increased EBITDA related to
acquisitions offset by increased cash paid for interest on additional
borrowings.

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During the year ended December 31, 2001, we invested $73.7 million in
property, plant and equipment, as compared to $80.7 million for the combined
year ended December 31, 2000. These expenditures reflected continued
investments in the Pictures, Media and Networks Groups as well as our shared
corporate infrastructure. The decrease from the prior combined year ended
December 31, 2000 was primarily due to lower spending in the Pictures Group,
partially offset by increases in the Media and Networks Groups and in corporate
investments. We anticipate that capital expenditures in fiscal year 2002 will
be funded from our operating cash flows.

We made investments during the year ended December 31, 2001 to acquire
GWNS for $108.2 million, LNS for $31.3 million and Cinram-POP for $536,000.
For a description of our acquisitions, see Part I, Item 1, Business-Change of
Control and Subsequent Acquisitions and Note 4 in the Notes to
Consolidated Financial Statements. While there are no definitive acquisition
agreements pending as of December 31, 2001, we continuously seek opportunities
to partner with or acquire companies that, when integrated with our current
operations, could enable us to provide new or enhanced services to our
customers.

During the year ended December 31, 2001, investing activities also
included the sale of certain marketable equity securities and property, plant
and equipment which generated proceeds of $22.3 million.

During the year ended December 31, 2001, net cash provided by financing
activities was $119.9 million compared to $102.4 million for the combined year
ended December 31, 2000. The cash provided by financing activities was
primarily used for acquisitions as well as for general working capital
requirements. For a description of our borrowings, see Note 6 in the Notes to
Consolidated Financial Statements.

During the year ended December 31, 2001, we borrowed an additional $53.4
million under various agreements with creditors including our Senior Credit
Agreement as well as various capital lease obligations and real property
mortgages. In addition, during fiscal year 2001 we borrowed $113.7 million
under our Liberty Subordinated Credit Agreement. Borrowings from Liberty Media
were used primarily to partially fund the acquisition of GWNS and to fully fund
the acquisition of LNS. During fiscal year 2001, we repaid $46.5 million of
debt that matured during the year mostly related to capital leases and mortgage
notes. These repayments were funded by cash generated from operations as well
as proceeds from the Senior Credit Agreement and the Liberty Subordinated
Credit Agreement.

At December 31, 2001, $391.7 million and $206.2 million were outstanding
under the Senior Credit Agreement and the Liberty Subordinated Credit Agreement
respectively, and $20.0 million was available for future borrowings. In
accordance with terms of the Senior Credit Agreement as amended
March 26, 2002,
new lenders may be added to the agreement, with the consent of the current
lenders, potentially increasing the available borrowings by an additional $60.0
million for a total commitment of $475.0 million. As of December 31, 2001,
borrowings related to real property mortgages totaled $21.3 million, capital
lease obligations totaled $21.6 million, and other notes payable totaled $9.0
million. As of December 31, 2001, $5.7 million was available for future
borrowings under two real property mortgage notes. Proceeds from these notes
are restricted in use to funding capital expenditure initiatives for our United
Kingdom operations.

As of December 31, 2001, borrowings under the Senior Credit Agreement have
an effective interest rate ranging from 4.41% to 5.41% and maturities in fiscal
years 2002 through 2007. Our mortgage notes, which are floating, have effective
interest rates of 4.12% to 8.02% as of December 31, 2001, and maturities in
fiscal years 2002 through 2017. Capital leases, which are fixed and floating,
have effective interest rates ranging from 3.9% to 19.4%, and maturities in
fiscal years 2002 through 2006. If not earlier converted, the Convertible
Subordinated Notes issued to Liberty Media under the Liberty Subordinated
Credit Agreement will become due and payable on June 30, 2008. Interest on the
Convertible Subordinated Notes accrues at a rate of 10% per annum, payable
quarterly either in cash, shares of our Class B Common Stock or a combination
thereof, at our discretion, subject to certain limits. To the extent interest
is paid in shares of our Class B Common Stock, such shares will be valued at
95% of the ten-day trailing average closing price of shares of our Class A
Common Stock on the interest payment date.

We believe that the cash flow from operations, combined with cash on hand,
other liquid assets and borrowing capacity, provide adequate resources to fund
ongoing operating requirements and future capital expenditures through the next
twelve months. However, our operating cash flow, capital expenditures and
access to future borrowings can be impacted by overall economic conditions
outside of our control. Should significant economic declines occur that impact
the business sectors we serve, our ability to expand our business would be

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impacted. In addition, our borrowing costs can be impacted by changes in
LIBOR and other variable based interest rates which were at historically low
levels as of December 31, 2001.

New Accounting Pronouncements

In June 2001, the FASB issued SFAS No. 141, Business Combinations, and
SFAS No. 142, Goodwill and Other Intangible Assets. The FASB also issued SFAS
No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, in
August 2001.

SFAS No. 141 requires that all business combinations initiated after June
30, 2001 be accounted for under the purchase method. SFAS No. 141 supersedes
APB Opinion No. 16, Business Combinations, and SFAS No. 38, Accounting for
Pre-acquisition Contingencies of Purchased Enterprises, and is effective for
all business combinations initiated after June 30, 2001.

SFAS No. 142 addresses the financial accounting and reporting for acquired
goodwill and other intangible assets. Under the new rules, we are no longer
required to amortize goodwill and other intangible assets with indefinite
lives, but will be subject to periodic testing 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 reviewed for impairment in accordance with SFAS No. 121 and
subsequently, SFAS No. 144 (see below) after its adoption. SFAS No. 142
supersedes APB Opinion No. 17, Intangible Assets. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of
a change in accounting principle in the first interim period. Effective January
1, 2002, we will adopt SFAS No. 142 and are evaluating the effect that such
adoption may have on our consolidated results of operations and financial
position. As of the date of adoption of SFAS No. 142, we expect to have
unamortized goodwill in the amount of approximately $421.7 million and
unamortized identifiable intangible assets in the amount of $27.2 million, all
of which will be subject to the transition provisions of SFAS No. 142.
Amortization expense related to goodwill was approximately $32.9 million for
the year ended December 31, 2001, and $16.2 million for the seven months ended
December 31, 2000. Any impairment loss will be measured as of the date of
adoption and recognized as the cumulative effect of a change in accounting
principle in the first interim period. Effective January 1, 2002, we estimate
that we will record $20.2 million in transitional impairment losses as a
cumulative effect of a change in accounting principle.

SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-term assets, including discontinued operations. SFAS No. 144
superseded SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of,and 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.The provisions of SFAS No. 144 are effective in fiscal years
beginning after December 15, 2001, with early adoption permitted, and in
general are to be applied prospectively. We plan to adopt SFAS No. 144
effective January 1, 2002 and do not expect that the adoption will have a
material impact on our consolidated results of operations or financial
position.

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, and spending
on, 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,
and the possibility of an industry-wide strike or other job action by or
affecting the Writers Guild, Screen Actors Guild or other major entertainment
industry union. In addition, our failure to maintain relationships with key
customers and certain key personnel, more rapid than expected technological
obsolescence, and failure to integrate acquired operations in expected time
frames could also cause actual results to differ materially from those
described in forward-looking statements.

In connection with several of our recent acquisitions, we have incurred
significant indebtedness to fund the transactions. 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 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.

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As part of our business strategy, we have acquired substantial operations
in several different geographic locations over the last 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. For additional risk factors, see Part I, Item 1 of this
Annual Report on Form 10-K.




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 a portion of the risks 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
$391.7 million of variable rate debt primarily associated with our Senior
Credit Agreement. At December 31, 2001, we had three outstanding interest rate
swap agreements with a combined fair market value of $14.7 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. The two remaining swap agreements have a combined notional amount of
$365.0 million, in which we receive fixed and pay variable interest rate
payments. As a result of the offsetting swap positions, the company
is no longer hedging its risks associated with variable rate debt. All three swap agreements mature on June 30, 2003. For further
information regarding our borrowings and financial instruments, see Notes 6 and
13 in the Notes to Consolidated Financial Statements.

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, 2001, 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. Until the current year, the British pound and the Singapore dollar
have been stable relative to the United States dollar. However, during the
year ended December 31, 2001, the British pound lost approximately 2.9%, and
the Singapore dollar lost approximately 6.3%, of their respective values
relative to the U.S. dollar.




ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

For all Financial Statements and Supplementary Data, see Part IV, Item 14
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.

As of March 15, 2002, our Directors and Executive Officers were:

|                             |  |     |    |                       |  |                                                        
|---------------------------- |  | --- | -- | --------------------- |  | -------------------------------------------------------
|Name                         |  | Age |    | Position with Company
|                             |  |     |    |                      
|William R.
Fitzgerald (1)(2) |  |     | 44 |                       |  | Chairman of the Board and Director                     
|Robert T. Walston (1)        |  |     | 43 |                       |  | President, Chief Executive Officer and Director        
|George C. Platisa            |  |     | 45 |                       |  | Executive Vice President and Chief Financial Officer   
|Gavin W. Schutz              |  |     | 48 |                       |  | Executive Vice President and Chief Technology Officer  
|William E. Niles             |  |     | 38 |                       |  | Executive Vice President, General Counsel and Secretary
|Richard C. Fickle            |  |     | 44 |                       |  | Executive Vice President, Strategic Development        
|Lawrence Chernoff            |  |     | 51 |                       |  | President, Pictures Group                              
|Scott Davis                  |  |     | 50 |                       |  | President, Networks Group                              
|John H. Donlon               |  |     | 57 |                       |  | President, Media Group                                 
|Robert R. Bennett (1)        |  |     | 43 |                       |  | Director                                               
|Gary S. Howard (2)(3)        |  |     | 51 |                       |  | Director                                               
|David P. Malm (2)(3)         |  |     | 37 |                       |  | Director                                               
|Sydney Pollack               |  |     | 67 |                       |  | Director                                               
|Larry E. Romrell             |  |     | 62 |                       |  | Director                                               
|Bernard W. Schotters
(2)(3)  |  |     | 57 |                       |  | Director                                               



---

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

William R.
Fitzgeraldwas elected a director and appointed Chairman of the
Board on July 26, 2000. He has served as a Senior Vice President of Liberty
Media Corporation 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 On
Command Corporation.

Robert T. Walstonwas appointed President and Chief Executive Officer in
August 2001, after serving as President and interim Chief Executive Officer
from April 2001. From June 2000 to April 2001, Mr. Walston served as our
President and Chief Operating Officer. Mr. Walston has also been a director
since June 2000. Mr. Walston was the founder of Four Media Company and served
as its Chairman and Chief Executive Officer from 1993 to 2000, when it was
acquired by Liberty Media and contributed to us.

George C. Platisawas appointed as our Chief Financial Officer and
Executive Vice President in May 2001. Mr. Platisa served as Chief Financial
Officer of Broadband Sports from 2000 to May 2001, and as Chief Financial
Officer of Pacificare of California 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 our successful deployment of digital infrastructure.

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William E. Nileswas appointed our Executive Vice President, General
Counsel and Secretary on January 21, 2002. Prior to this appointment, Mr.
Niles served as our Executive Vice President of Business and Legal Affairs from
October 1, 2001 to January 21, 2002, and as our Senior Vice President and
Assistant Secretary from November 28, 2000 to October 1, 2001. Mr. Niles was
General Counsel and Vice President of Business Affairs of Four Media Company
from February 1998 to April 2000. From 1997 to February 1998, Mr.
Niles served as General Counsel and Vice President of Business
Affairs for an affiliate of Cinram-POP called Visualize, doing
business as POP, which was acquired by Four Media Company in February
1998. Prior to his appointment at POP, Mr. Niles practiced law as a partner of
Stein & Kahan, a law corporation.

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.

Lawrence Chernoffwas appointed President of our Pictures Group in June
2000. From September 1998 to June 2000, Mr. Chernoff served as the President
of Four Media Companys Television Division. Mr. Chernoff is one of the
founders of Encore and has served as its Chief Executive Officer since starting
the company in 1985. Mr. Chernoff is an award-winning commercial editor and
was named, Entrepreneur of the Year by Ernst & Young in 1997.

Scott Davishas served as President of our Networks Group since September
2000. Prior to joining us, Mr. Davis served as the Senior Vice President,
Consumer Product Management for Cablevisions Systems Corporation from 1998 to
2000. From 1995 to 1998, Mr. Davis served as Executive Vice President at MTV
Networks.

John H. Donlonhas served as President of our Media Group since June 2000.
Mr. Donlon served as President of Four Media Companys Broadcast and
Syndication Division and Mastering and Distribution Division from September
1998 to June 2000, and as its President and a director from 1993 to January
1999.

Robert R. Bennettwas elected as a director in June 2000. Mr. Bennett has
served as President and Chief Executive Officer of Liberty Media Corporation
since April 1997, and as a member of the Board of Directors of Liberty Media
Corporation 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 Corporation
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 a
director of Liberty Satellite & Technology, Inc., USA Networks, Inc., LLC,
UnitedGlobalCom, Inc. and Telewest Communications plc and serves as Chairman of
the Board of Directors of Liberty Digital, 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
Corporation since July 1998. Mr. Howard has also served as Chairman of the
Board of Liberty Satellite & Technology, Inc., or LSAT, since August 2000, and
as LSATs Chief Executive Officer 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 a director of Liberty Media Corporation, Liberty Digital, Inc. and
Liberty Satellite & Technology, Inc., and a director and Chairman of the Board
of 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.

Sydney Pollackwas elected as a Director in 1998. A renowned filmdirector,
Mr. Pollacks 17 films have received 46 Academy Award® nominations, including
four for Best Picture. His film, Out of Africa, won seven Academy Awards®,
including Best Picture and Best Director. In addition to winning the New York
Film Critics Award for his 1982 film Tootsie, Mr. Pollack won two Golden
Globe Awards for Best Director, the National Society of Film Critics Award, and
the NATO Director of the Year Award. Mr. Pollack formed Mirage Enterprises in
1985, which produces motion picture feature films. He is a founding member of
The Sundance Institute, The Chairman Emeritus of The American Cinematheque, and
serves on the board of directors of the Film Preservation Board and The Motion
Picture and Television Fund Foundation.

Larry E. Romrellwas elected as a director in June 2000. He has also
served as a consultant to Liberty Media Corporation since March 1999. 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, prior to the TCI merger 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 prior to the TCI merger that invested in and developed
companies engaged in advancing telecommunications technology. Mr. Romrell is a
director of Liberty Media Corporation and General Communication, 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 a
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.

The executive officers named above will serve in such capacities until the
next annual meeting of our board of directors, or until their respective
successors have been duly elected and have been qualified, or until their
earlier death, resignation, disqualification or removal from office. There is
no family relationship between any of the directors and, during the past five
years, none of the above persons has had any involvement in such legal
proceedings as would be material to an evaluation of his or her ability or
integrity.

Board Composition

Our Restated Certificate of Incorporation provides for a classified board
of directors of not less than three members, with the exact number of directors
to be fixed by resolution of our board. Our Restated Certificate of
Incorporation further provides for the number of directors to consist, as
nearly as possible, of a number of directors equal to one-third (33 1/3%) of
the ten authorized number of members of the board. The number of directors on
our board, and as designated by resolution of our board, is currently nine.
Each member of our board is elected by the holders of our Class A and Class B
Common Stock, voting together as a single class.

The Class I Directors, whose terms expire at the annual meeting of
stockholders in 2003, are Robert T. Walston and David P. Malm. We currently
have one vacancy in Class I as a result of the resignation of Salah M.
Hassanein, effective February 27, 2002. The Class II Directors, whose terms
expire at the annual meeting of stockholders in 2004, are Gary Howard, Sydney
Pollack and Bernard W. Schotters. The Class III Directors, whose terms expire
at the annual meeting of stockholders in 2005, are William R. Fitzgerald,
Robert B. Bennett and Larry E. Romrell. At each annual meeting of our
stockholders, the successors of a class of directors whose term expires at that
meeting shall be elected to hold office for a term of three years expiring at
the annual meeting of stockholders held in the third year following the year of
such election. The directors of each class will hold office until their
respective death, resignation or removal and until their respective successors
are elected and qualified.

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Committees of the Board

Executive Committee. Our board of directors has established an Executive
Committee, whose members are William R. Fitzgerald, Robert T. Walston and
Robert R. Bennett. 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 our business and affairs to the
fullest extent permitted by the General Corporation Law of the State of
Delaware (DGCL), our Restated Certificate of Incorporation and our Bylaws, as each may be amended from time to time. The Executive
Committee does not have power or authority to (i) approve or adopt, or
recommend to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or
repeal any of our Bylaws.

Compensation Committee. Our board of directors has established a
Compensation Committee, whose members are William Fitzgerald, Gary Howard,
David Malm and Bernard Schotters. 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 our executive officers, including bonuses and incentive programs.

Audit Committee. Our board of directors has established an Audit
Committee, whose members are David Malm, Bernard W. Schotters and Gary Howard.
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 our 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.

Compensation of Directors

Members of our board
of directors who are also full-time employees or consultants of our
company or Liberty Media Corporation, or any of its respective subsidiaries, or
any other member of the Liberty Media Group, do not receive any additional
compensation for their services as a member of our board.

Members of our board of directors who are not full-time employees or
consultants of our company or Liberty Media Corporation or any of its
respective subsidiaries, collectively referred to as Independent
Directors, receive a directors fee of $16,000 per year. Members
of our Audit Committee who are Independent Directors also receive $750 for (i) each telephonic or in-person
meeting of the Audit Committee which 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 November 28, 2000, the board of directors adopted our 2000 Nonemployee
Director Stock Option Plan, which was approved at our 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 our 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 our 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 our 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 our Class A Common Stock on the
date of grant.




ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation

The following table shows certain compensation earned during fiscal year
ending December 31, 2001, 2000 and 1999, by our Chief Executive Officer, our
four most highly-compensated executive officers (based on their salary and all other compensation) at December 31, 2001 (the Named
Executive Officers) and two former executive officers who would have been
among the Named Executive Officers, but were no longer with our company at
December 31, 2001. The columns for Restricted Stock Awards and long-term
incentive plans have been omitted because there is no compensation required to
be reported in such column.

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##### Table of Contents



Summary Compensation Table

|                          |  |        |      |            |  |                     |         |              |  |                  |   |                    |  |           |         |     |  |  |           |     
|------------------------- |  | ------ | ---- | ---------- |  | ------------------- | ------- | ------------ |  | ---------------- | - | ------------------ |  | --------- | ------- | --- |  |  | --------- | ----
|                          |  |        |      |            |  |                     |         |              |  |                  |   |                    |  | Long-Term |         |     |  | 
|                          |  |        |      |            |  | Annual Compensation |         | Compensation |  |                  |   |                   
|                          |  |        |      |            |  |                     |         |              |  |                  |   |                   
|                          |  |        |      |            |  |                     |         | Securities   |  |                  |   |                   
|Name and Principal        |  | Fiscal |      |            |  |                     |         |              |  |                  |   | Underlying Options |  | All Other
|Position                  |  | Year   |      | Salary ($) |  | Bonus ($)           |         | (#)          |  | Compensation ($)
|                          |  |        |      |            |  |                     |         |              |  |                 
|Robert T. Walston         |  |        | 2001 |            |  |                     | 601,154 |              |  |                  |  |                    |  |           | 775,000 |     |  |  | 5,250     | (1) 
|Chief Executive Officer   |  |        | 2000 |            |  |                     | 288,462 | (2)          |  |                  |  |                    |  |           |        |     |  |  | 3,400     | (3) 
|                          |  |        | 1999 |            |  |                     |        |              |  |                  |  |                    |  |           |        |     |  |  |          |     
|                         
|Lawrence Chernoff         |  |        | 2001 |            |  |                     | 342,005 |              |  |                  |  |                    |  |           | 275,000 |     |  |  | 1,538     | (4) 
|President, Pictures Group |  |        | 2000 |            |  |                     | 145,041 | (2)          |  |                  |  |                    |  |           |        |     |  |  | 1,538     | (3) 
|                          |  |        | 1999 |            |  |                     |        |              |  |                  |  |                    |  |           |        |     |  |  |          |     
|                         
|Scott Davis               |  |        | 2001 |            |  |                     | 350,000 |              |  |                  |  |                    |  |           | 175,000 |     |  |  |          |     
|President, Networks Group |  |        | 2000 |            |  |                     | 84,808  | (5)          |  |                  |  |                    |  |           |        |     |  |  |          |     
|                          |  |        | 1999 |            |  |                     |        |              |  |                  |  |                    |  |           |        |     |  |  |          |     
|                         
|John H. Donlon            |  |        | 2001 |            |  |                     | 325,000 |              |  |                  |  |                    |  |           | 175,000 |     |  |  | 5,465     | (6) 
|President, Media Group    |  |        | 2000 |            |  |                     | 187,500 | (2)          |  |                  |  |                    |  |           |        |     |  |  | 1,237,687 | (7) 
|                          |  |        | 1999 |            |  |                     |        |              |  |                  |  |                    |  |           |        |     |  |  |          |     
|                         
|Marcus O. Evans(8)        |  |        | 2001 |            |  |                     | 350,000 |              |  |                  |  |                    |  |           | 250,000 | (9) |  |  |          |     
|Executive Vice            |  |        | 2000 |            |  |                     | 215,385 | (2)          |  |                  |  |                    |  |           |        |     |  |  | 179,202   | (10)
|President, Secretary and  |  |        | 1999 |            |  |                     |        |              |  |                  |  |                    |  |           |        |     |  |  |          |     
|General Counsel           |  |        |      |            |  |                     |         |              |  |                  |   |                    |  |           |         |     |  |  |           |     
|                         
|David P. Beddow(11)       |  |        | 2001 |            |  |                     | 203,054 | (12)         |  |                  |  |                    |  |           | 387,500 |     |  |  | 1,413,461 | (13)
|Former Chief Executive    |  |        | 2000 |            |  |                     | 302,885 |              |  |                  |  |                    |  |           |        |     |  |  | 341,910   | (14)
|Officer                   |  |        | 1999 |            |  |                     |        |              |  |                  |  |                    |  |           |        |     |  |  |          |     
|                         
|Jeffrey J. Marcketta      |  |        | 2001 |            |  |                     | 275,962 | (15)         |  |                  |  |                    |  |           |        |     |  |  | 107,692   | (12)
|Former Chief Financial    |  |        | 2000 |            |  |                     | 201,923 | (2)          |  |                  |  |                    |  |           |        |     |  |  | 3,029     | (3) 
|Officer and Executive     |  |        | 1999 |            |  |                     |        |              |  |                  |  |                    |  |           |        |     |  |  |          |     
|Vice President            |  |        |      |            |  |                     |         |              |  |                  |   |                    |  |           |         |     |  |  |           |     



|(1) |  | This amount represents contributions of $3,077 made by us to the Four
Media Company 401(k) Plan for the four months ended April 30, 2001, and
$2,173 made by us to the Liberty Media Corporation 401(k) Plan for the
eight months ended December 31, 2001 after the Four Media Company 401(k)
Plan merged into the Liberty Media Corporation 401(k) Plan.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | 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 us;  
| | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------
|
| | 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 us; 
|
| | c. |  | $125,055 of salary for the five months ended May 31,
2000 earned by Mr. Donlon at Four Media Company prior to its
acquisition by us;   
|
| | d. |  | $40,835 of salary for the period commencing March 15,
2000 through June 1, 2000 earned by Mr. Evans paid by Four Media
Company; and    
|
| | e. |  | $134,615 of salary for the five months ended May 31,
2000 earned by Mr. Marcketta at Four Media Company prior to its
acquisition by us.

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|(3)  |  | Amounts represent contributions made by us to the Four Media Company
401(k) Plan on the respective executives behalf, for the seven months
ended December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|---- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(4)  |  | This amount represents contributions made by us to the Four Media Company
401(k) Plan for the four months ended April 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(5)  |  | This amount represents salary for four months ended December 31, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    
|(6)  |  | This amount represents contributions of $1,693 made by us to the Four
Media Company 401(k) Plan on Mr. Donlons behalf for the four months ended April 30, 2001, and
$3,773 made by us to the Liberty Media Corporation 401(k) Plan on
Mr. Donlons behalf for the
eight months ended December 31, 2001 after the Four Media Company 401(k)
Plan merged into the Liberty Media Corporation 401(k) Plan.                                                                                                                                                                                                                                                                         
|    
|(7)  |  | This amount represents $3,400 in contributions made by us to the Four
Media Company 401(k) Plan on Mr. Donlons behalf, for the seven months
ended December 31, 2000, and $1,234,287 paid by Liberty Media to Mr.
Donlon upon exercise of his 4MC stock options prior to the acquisition of
4MC by Liberty Media in June 2000. For more information on the
acquisition, see Part I, Item 1, BusinessOverview and General Development of
Business above.                                                                                                                                                                                                                      
|    
|(8)  |  | Mr. Evans resigned as our Executive Vice President, Secretary and General
Counsel as of January 21, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    
|(9)  |  | Mr. Evans was granted a stock option for 250,000 shares of our Class A
Common Stock under an Option Agreement, dated November 15, 2001, between
Mr. Evans and us. Pursuant to Mr. Evans subsequent Severance Agreement
and General Release, dated January 21, 2002, between Mr. Evans, Liberty
Media and us, we accelerated the vesting of Mr. Evans existing
stock options with respect to 62,500 shares, representing 25% of the original
option grant, and the remaining
187,500 shares were terminated, on January 21, 2002. For more information
on Mr. Evans Severance Agreement and General Release, see Severance
AgreementsMarcus O. Evans in this Item 11 below.
|    
|(10) |  | Represents moving expenses paid by the company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    
|(11) |  | Mr. Beddow was our Chief Executive Officer from June 2000 to April 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|    
|(12) |  | Represents salary for the four months ended April 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    
|(13) |  | Represents amounts paid under a severance agreement between Mr. Beddow
and us, dated August 28, 2001. For more information about Mr. Beddows
severance agreement, see Severance AgreementsDavid Beddow in this Item
11 below.                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(14) |  | Reflects $268,785 in relocation expenses and $73,125 for a grant to Mr.
Beddow by Liberty Media Corporation of 73.125 shares of common stock of
Liberty LWR, Inc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|    
|(15) |  | Mr. Marcketta was our Executive Vice President and our Chief Financial
Officer from June 2000 to May 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

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##### Table of Contents



Options Grants in Last Fiscal Year

|                     |  |                    |         |                     |  |                  |      |                 |  |        |       |                            |  |                              |            |     |  |   |           |     |  |   |           |    
|-------------------- |  | ------------------ | ------- | ------------------- |  | ---------------- | ---- | --------------- |  | ------ | ----- | -------------------------- |  | ---------------------------- | ---------- | --- |  | - | --------- | --- |  | - | --------- | ---
|                     |  | Individual Grants  |         |                     |  |                  |      |                 |  |        |       | Potential Realizable Value
|                     |  | Number of          |         | Percent of Total    |  |                  |      |                 |  |        |       |                            |  | At Assumed Annual Rates of  
|                     |  | Securities         |         | Options Granted to  |  |                  |      |                 |  |        |       |                            |  | Stock Price Appreciation For
|                     |  | Underlying Options |         | Employees in Fiscal |  | Exercise of Base |      |                 |  |        |       | Option Term               
|Name                 |  | Granted (#)        |         | Year(%) (6)         |  | Price ($/share)  |      | Expiration Date |  | 5% ($) |       | 10% ($)                   
|                     |  |                    |         |                     |  |                  |      |                 |  |        |       |                           
|Robert T. Walston    |  |                    | 775,000 | (1)                 |  |                  | 12.6 |                 |  | $      | 7.00  |                            |  |                              | 11/15/2011 |     |  | $ | 2,973,283 | (4) |  | $ | 7,952,976 | (4)
|                    
|Lawrence Chernoff    |  |                    | 275,000 | (1)                 |  |                  | 4.5  |                 |  | $      | 7.00  |                            |  |                              | 11/15/2011 |     |  |   | 1,055,036 | (4) |  |   | 2,822,024 | (4)
|                    
|Scott Davis          |  |                    | 175,000 | (1)                 |  |                  | 2.9  |                 |  | $      | 7.00  |                            |  |                              | 11/15/2011 |     |  |   | 671,386   | (4) |  |   | 1,795,833 | (4)
|                    
|John H. Donlon       |  |                    | 175,000 | (1)                 |  |                  | 2.9  |                 |  | $      | 7.00  |                            |  |                              | 11/15/2011 |     |  |   | 671,386   | (4) |  |   | 1,795,833 | (4)
|                    
|Marcus O. Evans      |  |                    | 250,000 | (2)                 |  |                  | 4.1  |                 |  | $      | 7.00  |                            |  |                              | 11/15/2011 | (2) |  |   | 239,781   | (4) |  |   | 641,369   | (4)
|                    
|David Beddow         |  |                    | 387,500 | (3)                 |  |                  | 6.3  |                 |  | $      | 13.47 |                            |  |                              | 8/28/2006  |     |  |   | 632,574   | (5) |  |   | 2,167,011 | (5)
|                    
|Jeffrey J. Marcketta |  |                    | 0       |                     |  |                  |     |                 |  |        |      |                            |  |                              |           |     |  |   |          |     |  |   |          |    



---

|(1) |  | Vests 25% two years after grant date unless executives option
agreement is otherwise modified with Board approval (the Vesting
Commencement Date), and an additional 25% vests each year thereafter
so that the options are fully vested five years from the Vesting
Commencement Date. Options expire on tenth anniversary of the Vesting
Commencement Date.                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(2) |  | Mr. Evans was granted a stock option for 250,000 shares of our
Class A Common Stock under an Option Agreement, dated November 15,
2001, between Mr. Evans and us. Pursuant to Mr. Evans subsequent
Severance Agreement and General Release, dated January 21, 2002,
between Mr. Evans, Liberty Media and us, we accelerated the
vesting of Mr. Evans existing stock options with respect to 62,500 shares, representing
25% of the original option grant, and the remaining 187,500 shares were terminated, on January
21, 2002. The vested shares are exercisable through January 31, 2004,
subject to the terms of the 2001 Incentive Plan. For more information
on Mr. Evans Severance Agreement and General Release, see Severance
Agreements  Marcus O. Evans in this Item 11 below.
|   
|(3) |  | Granted on August 6, 2001 pursuant to the terms of a severance
agreement in which a stock option to purchase shares of our Class A
Common Stock became fully vested on September 4, 2001. For more
information on Mr. Beddows severance agreement, see
Severance AgreementsDavid Beddow in this
Item 11 below.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   
|(4) |  | Based on a market price of $6.65 on November 15, 2001, which was
the date of grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(5) |  | Based on a market price of $11.83 on August 28, 2001, which was the
date of the grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(6) |  | Based on 6,132,500 total
options granted under the 2001 Incentive Plan in fiscal year 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

Aggregated Options Exercised in Last Fiscal Year and Fiscal Year End Option Values

No Named Executive Officers exercised options in fiscal year 2001.

Employment Agreements

Robert T. Walston. Mr. Walston currently has an employment agreement with
Four Media Company, our subsidiary, which was executed on January 1, 1999 and
expires 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. It is
expected that the 4MC Agreement will be modified and amended to reflect Mr.
Walstons current duties as our President and Chief Executive Officer, payment
of an annual salary of $700,000, which became effective as of August 6, 2001,
and stock options permitting him to purchase 775,000 shares of our Class A
Common Stock at an exercise price of $7.00 per share, which will vest in
accordance with the terms of our 2001 Incentive Plan.

John H. Donlon. Mr. Donlon currently has an employment agreement with
Four Media Company, our subsidiary, which was executed on January 1, 1999 and
expires December 31, 2003. Under the terms of this agreement, Mr. Donlon is
paid an annual base salary of $325,000 and is eligible for a bonus payment
based on an incentive bonus plan to be established and administered by the
Compensation Committee of the board of directors. Mr. Donlon also received an option to purchase 200,000 shares of Four
Media Companys common stock at an exercise price of $8.00 under the terms of
Four Media Companys 1997 Stock Plan.

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##### Table of Contents



Severance Agreements

David Beddow. Mr. Beddow served as a director and our Chief Executive
Officer from June 2000 until April 18, 2001, at an annual base salary of
$525,000. On August 28, 2001, Mr. Beddow entered into a severance agreement
and general release with us and Liberty Media relating to the terms of the
termination of his position as our Chief Executive Officer, effective April 19,
2001. In lieu of any other severance pay to which he might otherwise be
entitled by law or any applicable severance policy of our company, Mr. Beddow
received a one-time severance payment of $1,413,461, which was an amount equal to
140 weeks salary at Mr. Beddows base salary rate of $10,096.15 per week at
the time his employment terminated. In addition, on August 28, 2001, we and Mr.
Beddow entered into a stock option agreement, whereby, pursuant to the terms of
the severance agreement, we granted Mr. Beddow options to purchase 387,500
shares of our Class A Common Stock exercisable until the fifth anniversary date
of execution of the stock option agreement, at an exercise price of $13.47 per
share, which options were fully vested as of August 28, 2001. In addition,
effective concurrently with the execution of the severance agreement, and as a
condition precedent to our obligations and Liberty Medias obligations under
that agreement, Mr. Beddow executed and delivered to Liberty Media and Liberty
LWR, Inc., a subsidiary of Liberty Media, an agreement providing for the sale
by Mr. Beddow of an aggregate of 73.125 shares of the common stock, par value
$.01 per share, of Liberty LWR, Inc., for a purchase price of $33,815, pursuant
to the provisions of that certain stockholders agreement executed by Mr.
Beddow at the time of receipt of these shares of common stock of Liberty LWR,
Inc. For more information regarding Liberty LWR, Inc., see Item 13, Certain
Relationship and Related Transactions-Liberty LWR, Inc. and Liberty Livewire
Holdings, Inc. below.

Jeffrey J. Marcketta.On May 18, 2001, Jeffrey J. Marcketta entered into
a severance agreement and general release with us, Liberty Media and Four Media
Company specifying the terms of the termination of his position as one of our
Executive Vice Presidents and our Chief Financial Officer. Pursuant to the
provisions of this severance agreement, effective on May 18, 2001 and
continuing until December 31, 2003, Mr. Marcketta will continue to receive an
amount equal to his then annual base salary of $350,000 per year as a severance
payment, plus continued participation in such health and/or medical benefit
plans as were in effect with respect to Mr. Marcketta on the execution date of
the severance agreement. In addition, the options held by Mr. Marcketta to
purchase 322,580 shares of Liberty Medias Series A Common Stock at an exercise
price of $12.40 per share became fully vested and exercisable as of the date of
the severance agreement, and will remain exercisable until May 18, 2003,
pursuant to the terms of the severance agreement.

Marcus O. Evans. On January 21, 2002, Marcus O. Evans entered into a
severance agreement and general release with us and Liberty Media specifying
the terms of the termination of his position as our 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 medical benefits through January 31, 2004.
Mr. Evans may also receive up to a total of $175,000 for moving and relocation
expenses incurred under certain circumstances. In addition, effective January
21, 2002, we accelerated the vesting of Mr. Evans existing
stock options with respect to 62,500 shares of our 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 our 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 Securities and Exchange Commission requires disclosure where an
executive officer of a company served or serves as a director or on the
compensation committee of another entity and an executive officer of such other
entity served or serves as a director or on our compensation committee. We do
not have any such interlocks. Decisions as to executive compensation are made
by the Compensation Committee. During fiscal year 2001, the Compensation
Committee was comprised entirely of non-employee directors.

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##### Table of Contents






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

Security Ownership of Certain Beneficial Owners

The following table lists stockholders believed by us to be the beneficial
owners of more than five percent of either class of our outstanding common stock as of
February 15, 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
includes any shares as to which the individual has sole or shared voting power
or investment power and also any shares which the individual has the right to
acquire within 60 days after February 15, 2002 through the exercise of any
stock option or other right. Inclusion in the table below of such shares,
however, does not constitute an admission that the named stockholder is a
director or indirect beneficial owner of such shares. Shares issuable upon
exercise of options 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. Voting power in the
table is computed with respect to a general election of directors. So far as is
known to us, 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 our Class A Common Stock are represented in the table as LWIRA
and shares of our Class B Common Stock are represented in the table as LWIRB.

|                                                                                                  |  |                |  |                    |            |                     |  |             |        |  |  |              |      |                 |  | 
|------------------------------------------------------------------------------------------------- |  | -------------- |  | ------------------ | ---------- | ------------------- |  | ----------- | ------ |  |  | ------------ | ---- | --------------- |  | 
|                                                                                                  |  |                |  |                    |            |                     |  |             |        |  |  |              |      | 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
12300 Liberty Boulevard                                                 |  | LWIRA          |  |                    | 45,600     |                     |  |             | *      |  |  |              |      |                
|Englewood, Colorado                                                                               |  | LWIRB          |  |                    | 34,393,330 | (2)                 |  |             | 100.00 |  |  |              | 99.9 | %              
|                                                                                                 
|Robert A. Naify
172 Golden Gate Avenue                                                            |  | LWIRA          |  |                    | 876,985    | (3)                 |  |             | 16.44  |  |  |              |      |                
|San Francisco, California                                                                         |  | LWIRB          |  |                    |           |                     |  |             |       |  |  |              | *    |                
|                                                                                                 
|David P. Beddow
c/o Liberty Livewire Corporation
520 Broadway, Fifth Floor
Santa Monica, CA 90401 |  | LWIRA
LWIRB    |  |                    | 387,500
  | (4)                 |  |             | 6.77
 |  |  |              |      |                
|                                                                                                  |  |                |  |                    |            |                     |  |             |        |  |  |              |      |                
|                                                                                                 
|Paul Dujardin                                                                                     |  | LWIRA          |  |                    | 660,471    | (5)                 |  |             | 12.38  |  |  |              |      |                
|43 Dobson AvenueMerrick, New York 11566                                                           |  | LWIRB          |  |                    |           |                     |  |             |       |  |  |              | *    |                
|                                                                                                 
|Royce & Associates
1414 Avenue of the Americas                                                    |  | LWIRA          |  |                    | 270,200    | (6)                 |  |             | 5.07   |  |  |              |      |                
|New York, New York 10019                                                                          |  | LWIRB          |  |                    |           |                     |  |             |       |  |  |              | *    |                
|                                                                                                 
|All directors and executive                                                                       |  | LWIRA          |  |                    | 6,600      |                     |  |             | *      |  |  |              |      |                
|officers as a group                                                                               |  | LWIRB          |  |                    |           |                     |  |             |       |  |  |              | *    |                
|(15 persons)                                                                                     



---

|*   |  | Less than one percent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Based on 5,333,714 shares of our Class A Common Stock and 34,393,330
shares of our Class B Common Stock issued and outstanding as of February
15, 2002.                                                                                                                                                                                                                                                                                                                                                                  
|   
|(2) |  | Represents 30,919,753 shares of our Class B Common Stock held by Liberty
LWR, Inc. and 2,656,442 shares of our Class B Common Stock held by Liberty
Livewire Holdings, Inc., both subsidiaries of Liberty Media, and
817,135 shares of our Class B Common Stock held by Liberty Media
Corporation. For more
information regarding the holdings of our Class B Common Stock held by
Liberty LWR, Inc. and Liberty Livewire Holdings, Inc., see
Part III, Item 13,
Certain Relationships and Related Transactions, below.

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##### Table of Contents



|(3) |  | Includes 876,985 shares of our Class A Common Stock held by trusts for
which Mr. Naify is both trustee and beneficiary.                                                                                                                                                                                                                                                                                                                             
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(4) |  | Represents stock options to
acquire 387,500 shares of our Class A Common Stock granted
pursuant to Mr. Beddows severance agreement with us and
Liberty Media, all
of which are currently exercisable. For more information regarding
Mr. Beddow's severance agreement, see Part III,
Item 12, Executive Compensation  Severance
Agreements  David Beddow, above.                                                                               
|   
|(5) |  | Based on a Schedule 13D/A
filed on March 28, 2002 with the Securities and Exchange
Commission. Includes 440,981 shares of our Class A Common Stock currently pledged to
us pursuant to agreements dated as of June 21, 2000, as to which Mr.
Dujardin retains the sole right to vote. Does not include 88,888 shares of
our Class A Common Stock pledged to us pursuant to agreements dated as of
June 21, 2000 and currently subject to forfeiture.
|   
|(6) |  | Based on a Schedule 13G
filed on February 11, 2002 with the Securities and
Exchange Commission.                                                                                                                                                                                                                                                                                                                                                     

Security Ownership of Management

The following table sets forth information with respect to the ownership
by each of our directors and each of our Named Executive Officers, and by all of
our directors and executive officers as a group, of shares of our Class A Common
Stock. In addition, the table sets forth information with respect to the
ownership of such individuals of shares of Liberty Media Series A Common
Stock and Liberty Media Series B Common Stock, which owns a controlling
interest in us. The Liberty Media charter provides that, except as otherwise
required by Delaware law, the holders of Liberty Medias Series A Common Stock
and Series B Common Stock vote together as a single class.

The following information is given as of February 15, 2002 and, in case of
percentage ownership information, is based on 5,333,714 shares of our Class A
Common Stock and 34,393,330 shares of our Class B Common Stock, 2,377,241,560
shares of Liberty Media Series A Common Stock and 212,045,288 shares of Liberty
Media Series B Common Stock issued and outstanding on that date. Shares
issuable upon exercise of options 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.

The number of shares beneficially owned by each of our directors and each
of our 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 includes any shares as to which the individual has sole or
shared voting power or investment power and also any shares which the
individual has the right to acquire within 60 days after February 15, 2002
through the exercise of any stock option or other right. 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 us, 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 our Class A Common Stock will be represented in the table as LWIRA.

|           |                       |                        |       |                    |         |                  |                  |              |   |   |  |  |   |   |  |  | 
|---------- | --------------------- | ---------------------- | ----- | ------------------ | ------- | ---------------- | ---------------- | ------------ | - | - |  |  | - | - |  |  | 
|           |                       |                        |       |                    |         |                  | Number of Shares |              |   |   |  |  |   |   | 
|Name       |                       | Title of Class         |       | Beneficially Owned |         | Percent of Class |                  | Voting Power
|           |                       |                        |       |                    |         |                  |                  |             
|Directors: |                       |                        |       |                    |         |                  |                  |              |   |   |  |  |   |   |  | 
|          
|           | William R. Fitzgerald |                        | LWIRA |                    |         |                 |                  |              |   |  |  |  |   |  | 
|           |                       | Liberty Media
Series A |       |                    | 380,784 | (1)              |                  |              | * |   |  |  | * |  
|           |                       | Liberty Media
Series B |       |                    |        |                  |                  |              |  |   |  |  |  |  
|          

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|                          |                      |                        |       |                    |           |                  |                  |              |   |      |   |  |   |   |  |  | 
|------------------------- | -------------------- | ---------------------- | ----- | ------------------ | --------- | ---------------- | ---------------- | ------------ | - | ---- | - |  | - | - |  |  | 
|                          |                      |                        |       |                    |           |                  | Number of Shares |              |   |      |   |  |   |   | 
|Name                      |                      | Title of Class         |       | Beneficially Owned |           | Percent of Class |                  | Voting Power
|                          |                      |                        |       |                    |           |                  |                  |             
|                          | Robert T. Walston    |                        | LWIRA |                    |           |                 |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 967,740   | (2)              |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | Robert R. Bennett    |                        | LWIRA |                    |           |                 |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 8,502,451 | (3)              |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    | 400       |                  |                  |              |  |      |   |  |  |  
|                         
|                          | Gary S. Howard       |                        | LWIRA |                    |           |                 |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 3,968,713 | (4)              |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | David P. Malm        |                        | LWIRA |                    |           |                  |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    |          |                  |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | Sydney Pollack       |                        | LWIRA |                    |           | 5,600            |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 9,625     |                  |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | Larry E. Romrell     |                        | LWIRA |                    |           |                 |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 352,440   | (5)              |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | Bernard W. Schotters |                        | LWIRA |                    |           |                 |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 1,517,025 | (6)              |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    | 3,656     | (6)              |                  |              |  |      |   |  |  |  
|                         
|Named Executive Officers: |                      |                        |       |                    |           |                  |                  |              |   |      |   |  |   |   |  | 
|                         
|                          | Lawrence Chernoff    |                        | LWIRA |                    |           |                 |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 34,598    | (7)              |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | Scott Davis          |                        | LWIRA |                    |           | 1,000            |                  |              |   | *    |   |  |   | * | 
|                          |                      | Liberty Media Series A |       |                    |          |                  |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | John H. Donlon       |                        | LWIRA |                    |           |                 |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 51,614    | (8)              |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | Marcus O. Evans      |                        | LWIRA |                    |           | 62,500           | (9)              |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | David P. Beddow      |                        | LWIRA |                    |           | 387,500          | (10)             |              |   | 6.77 | % |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 519,228   | (10)             |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  
|                         
|                          | Jeffrey J. Marcketta |                        | LWIRA |                    |           |                 |                  |              |   |     |   |  |   |  | 
|                          |                      | Liberty Media Series A |       |                    | 322,580   | (11)             |                  |              | * |      |   |  | * |  
|                          |                      | Liberty Media Series B |       |                    |          |                  |                  |              |  |      |   |  |  |  



---

|*   |  | Less than one percent.                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(1) |  | Includes stock options to acquire 346,016 shares of Liberty Media
Series A Common Stock, all of which are currently exercisable. Does not
include Mr. Fitzgeralds ownership of a 7.9488% equity interest in common stock of Liberty Livewire Holdings, Inc., an entity
controlled by Liberty Media, which holds certain of Liberty Medias
interests in our company. See Item 13, Certain Relationships and
Related TransactionsLiberty LWR, Inc. and Liberty Livewire Holdings,
Inc., below.

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|(2)  |  | Based on a vesting schedule of 20% per year, with the first vesting
date on December 31, 1999. Does not include any acceleration of
vesting as a result of Liberty Medias acquisition of 4MC. Assumes the
exercise in full of stock options to acquire 967,740 shares of Liberty
Media Class A Common Stock, all of which are currently exercisable.                                                                                                                                                                                
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    
|(3)  |  | Includes 20,099 of Liberty Media Series A Common Stock held by the
Liberty 401(k) Savings Plan. Mr. Bennetts beneficial ownership of
these shares is limited to his ability to direct the voting thereof
pursuant to the terms of this Savings Plan. Also includes (i) 902,767
restricted shares, none of which are vested; and (ii) options for
4,879,052 shares which may be exercised within 60 days of February 15,
2002.                                                                                                       
|    
|(4)  |  | Includes 38,337 shares held of Liberty Media Series A Common Stock
held by the Liberty 401(k) Savings Plan. Mr. Howards beneficial
ownership of these shares is limited to his ability to direct the
voting thereof pursuant to the terms of this Savings Plan. Also
includes (i) 582,177 restricted shares, none of which are vested; and
(ii) options for 2,560,431 shares which may be exercised within 60 days
of February 15, 2002.                                                                                            
|    
|(5)  |  | Does not include Mr. Romrells ownership of a 7.9488% equity
interest in common stock of Liberty Livewire Holdings, Inc. See Item
13, Certain Relationships and Related TransactionsLiberty LWR, Inc.
and Liberty Livewire Holdings, Inc., below.                                                                                                                                                                                                                                                                                 
|    
|(6)  |  | 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. Includes 328 shares of Liberty Media Series B
Common Stock held by Communications Capital Partners, LLC, an entity
controlled by Bernard and Nancy Schotters. Includes stock options to acquire
1,096,456 shares of Liberty Media Series A Common Stock, all of which
are currently exercisable.
|    
|(7)  |  | Assumes the exercise in full of stock options to acquire 34,598
shares of Liberty Media Series A Common Stock, all of which is
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                
|    
|(8)  |  | Assumes the exercise in full of stock options to acquire 51,614
shares of Liberty Media Series A Common Stock, all of which is
currently exercisable.                                                                                                                                                                                                                                                                                                                                                                                
|    
|(9)  |  | Assumes the exercise in full of stock options to acquire 62,500
shares of our Class A Common Stock, all of which is currently
exercisable, pursuant to Mr. Evans severance agreement with Liberty
Media and us. For a description of Mr. Evans severance agreement, see
Part III, Item 12, Executive CompensationSeverance AgreementsMarcus
O. Evans above.                                                                                                                                                                    
|    
|(10) |  | Includes stock options to acquire 387,500 shares of our Class A
Common Stock granted pursuant to Mr. Beddows severance agreement with
us, all of which are currently exercisable. For more information
regarding Mr. Beddows severance agreement, see Part III, Item 12,
Executive CompensationSeverance AgreementsDavid Beddow, above.
Includes stock options to acquire 496,200 shares of Liberty Media
Series A Common Stock, all of which are currently exercisable.                                                       
|    
|(11) |  | Assumes the exercise in full of stock options to acquire 322,580
shares of Liberty Medias Series A Common Stock granted pursuant to Mr.
Marckettas severance agreement with us, all of which are currently
exercisable. For a description of Mr. Marckettas severance agreement,
see Part III, Item 12, Executive CompensationSeverance
AgreementsJeffrey J. Marcketta above.                                                                                                                                                 

53



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##### Table of Contents






ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Executive Officer Loan

On April 8, 1999, Mr. Walston, our current President and Chief Executive
Officer, was granted a loan, from Four Media Company, which is now our
subsidiary, in the principal amount of $2.0 million in conjunction with the
execution of his employment agreement with Four Media Company dated January 1,
1999. The loan is unsecured and bears interest at an annual rate of 4.59%,
compounded semiannually. Mr. Walston is 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 provides that the outstanding balance of the loan, if any,
and any accrued interest thereon will be automatically forgiven, upon the
occurrence of any of the following events: (1) upon a change of control of Four
Media Company during the five-year term of the loan; or (2) Mr. Walston is
terminated without cause, or terminates his employment for good reason; or (3)
we (as successor to Four Media Company) achieve $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 (the Measurement
Period); or (4) we (as successor to Four Media Company) achieve $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, determines 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. As of March 25, 2002, the outstanding balance on the loan to Mr.
Walston, including accrued interest, was $2,284,861.

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. As the
amended and restated loan agreement is subject to stockholder approval, further
details and a copy of the agreement will be filed in our proxy statement in
connection with our 2002 Annual Meeting of Stockholders to be held later this
year.

Tax Sharing Agreement between Liberty Media and Liberty Livewire Corporation

In November 2000, we and Liberty Media became parties to a tax sharing
agreement, whereby we are obligated to make a cash payment to Liberty Media in
each year that we (taken together with all of our domestic subsidiaries) have
positive taxable income measured on a separate 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) we and our 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, we would become
entitled to a credit against future payments to Liberty Media under the
agreement. If we become 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 us were to drop below
80%) prior to the time that we are able to use such credit, we would be
entitled to a payment from Liberty Media at the earlier of the time that (1) we
show we could have used the net operating loss carryforward or net tax credit
to reduce our 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, we have 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 our operations.

Convertible Subordinated Credit Facility with Liberty Media

On June 10, 2000, we entered into a credit agreement with Liberty Media
whereby Liberty Media agreed to lend us up to $125.0 million, hereinafter
referred to as the Original Liberty Subordinated Credit Agreement, to finance
the acquisition of certain businesses and assets. On December 22, 2000, we
entered into the First Amended and Restated Credit Agreement with Liberty
Media, hereinafter referred to as the Liberty Subordinated Credit Agreement,
which increased the maximum amount available under the Original Liberty
Subordinated Credit Agreement from $125.0 million to $206.2 million.

54



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##### Table of Contents



Liberty Media has the right to convert loans made under the Liberty
Subordinated Credit Agreement, in whole or in part, including any accrued but
unpaid interest, into shares of our Class B Common Stock at a conversion price
of $10.00 per share, subject to any adjustments as specified under the Liberty
Subordinated Credit Agreement. Interest on such loans accrues at rate of 10%
per annum, payable in cash, shares of our Class B Common Stock, or a
combination thereof. As of February 11, 2002, we have borrowed approximately
$206.2 million from, and have issued 2,780,614 shares of our Class B Common
Stock as interest payments on such borrowings to, Liberty Media pursuant to the
terms of the Liberty Subordinated Credit Agreement.

Liberty LWR, Inc. and Liberty Livewire Holdings, Inc.

Liberty LWR, Inc.On November 2, 2000, Liberty LWR, Inc. was formed
as a wholly owned subsidiary of Liberty Media. Upon Liberty LWR, Inc.s
formation, and pursuant to a contribution agreement between Liberty
Media and Liberty LWR, Inc. dated as of November 2, 2000, Liberty Media
contributed to Liberty LWR, Inc.: (1) 31,635,682 shares of our Class B Common
Stock, (2) all of Liberty Medias rights and obligations
under the Original Liberty Subordinated
Credit Agreement (which rights and obligations subsequently were transferred
back to Liberty Media in exchange for the grant of a $125.0 million
participation interest in the Liberty Subordinated Credit Agreement
pursuant to a participation agreement dated as of December 22,
2000); and (3) an agreement to fund certain subordinated convertible loans to
be made under the Original Liberty Subordinated Credit Agreement. In exchange for its contributions
to Liberty LWR, Inc., Liberty Media received 81,502 shares of the preferred
stock of Liberty LWR, Inc., par value $.01 per share, and 10,000 shares of the
common stock of Liberty LWR, Inc., par value $.01 per share, at the time of
such contribution.

Liberty Media then transferred 4.0725% of its common stock interest in
Liberty LWR, Inc., having a value of $407,250, to William R. Fitzgerald, a
director and our Chairman of the board of directors, Larry E. Romrell, a
director, David P. Beddow, then a director and our Chief Executive Officer, and
another individual (who is neither a director nor an executive officer of our
company). The stock grants and deferred bonuses (as described below) to Messrs.
Fitzgerald, Beddow and Romrell described herein were not made as compensation
to such individuals for their services rendered as members of our board of
directors, but for their respective services to Liberty Media and its various
affiliates prior to 2001. The percentage interests granted to Messrs. Fitzgerald, Romrell and
Beddow, and the value of such interests, are as follows:

|                      |  |                   |         |                      |  |   |         | 
|--------------------- |  | ----------------- | ------- | -------------------- |  | - | ------- | 
|                      |  | Percentage Common |         |                      |  |  
|                      |  | Stock Interest in |         | Value of Interest in
|                      |  | Liberty LWR, Inc. |         | Liberty LWR, Inc.   
|                      |  |                   |         |                     
|William R. Fitzgerald |  |                   | 1.25250 | %                    |  | $ | 125,250 | 
|Larry E. Romrell      |  |                   | 1.46250 | %                    |  | $ | 146,250 | 
|David P. Beddow       |  |                   | 0.73125 | %                    |  | $ | 73,125  | 

In addition, Liberty LWR, Inc. awarded Mr. Romrell and Mr. Beddow deferred
bonuses in the initial amounts of $3,373,836 and $1,686,921, respectively,
which amounts were to decrease by an amount equal to any increase during the
relevant period in the value of 21 shares of Liberty LWR, Inc.s common stock
in the case of Mr. Romrell and 10.5 shares of Liberty LWR, Inc.s common stock
in the case of Mr. Beddow. The relevant period was the period beginning on the
date of grant, which was November 2, 2000, and ending on the earlier of (i) the
date on which the recipient ceased to be employed by Liberty Media or any of
its affiliates (such date hereinafter referred to as the Termination Date),
and (ii) November 2, 2005. Each adjusted bonus was payable in cash, shares of
Liberty Medias common stock, shares of our Class B Common Stock or any
combination of the foregoing (at the election of Liberty LWR, Inc.) within 100
days following the earlier to occur of the Termination Date or the date on
which the recipient ceased to be a covered employee within the meaning of
Section 162(m)(3) of the Internal Revenue Code with respect to Liberty Media or
any affiliate of Liberty Media.

Liberty Media, Liberty LWR, Inc. and all of the above individuals also
entered into a stockholders agreement pursuant to which the individuals could
require Liberty Media to exchange, after five years, all or part of their
common stock interest in Liberty LWR, Inc. for Liberty Media common stock at
its then fair market value. In addition, Liberty Media had the right to
exchange, for shares of Liberty Media common stock, the Liberty LWR, Inc.
common stock interests held by such individuals at fair market value at any
time. Liberty LWR, Inc. also had the right, upon termination of an individuals
employment with Liberty Media and its affiliates on or before November 2, 2005,
to purchase all or a portion (depending on the date of termination of
employment) of the individuals common stock interest in Liberty LWR, Inc.

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By agreement dated August 28, 2001 between Mr. Beddow and Liberty LWR,
Inc., in connection with the termination of Mr. Beddows positions as a
director and our Chief Executive Officer, Mr. Beddow sold to Liberty LWR, Inc.
his common stock interest in Liberty LWR, Inc., which amounted to 73.125 shares
of the common stock of Liberty LWR, Inc., for a price of $33,815, and waived
the right to receive his deferred bonus. For more information regarding the
sale of Mr. Beddows shares of common stock of Liberty LWR, Inc., see
Severance Agreements  David Beddow under Part III,
Item 11 above.

On October 25, 2001, Liberty LWR, Inc. entered into agreements with each
of the other individuals who held common stock interests in Liberty LWR, Inc.
to purchase such common stock interests for fair market value, which
was approximately $0.10 per share on that date. As part of his
agreement to sell his common stock interest in Liberty LWR, Inc., Mr. Romrell
waived the right to receive his deferred bonus.

Liberty Livewire Holdings, Inc.In July 2001, Liberty LWR, Inc. formed
Liberty Livewire Holdings, Inc, also referred to as Holdings, to which Liberty
LWR, Inc. contributed 2,400,000 shares of our Class B Common Stock and assigned
$41.0 million of Liberty LWR, Inc.s $125.0 million participation interest in the
Liberty Subordinated Credit Agreement pursuant to the terms of a contribution agreement dated July 26, 2001. For more information on
the Liberty Subordinated Credit Agreement, see Convertible Subordinated
Credit Facility with Liberty Media above in this Item 13 and Note 6 of the
Notes to Consolidated Financial Statements below. In exchange for its
contributions to Holdings, Liberty LWR, Inc. received 6,833.33 shares of
preferred stock of Holdings, par value $.01 per share, and 10,000 shares of
common stock of Holdings, par value $.01 per share. Liberty LWR, Inc. then sold
19.872% of its common stock interest in Holdings to William R. Fitzgerald,
Larry E. Romrell and another individual (who is neither one of our directors
nor one of our executive officers) for fair market value. The percentage
interest sold to, and the purchase price paid by, Messrs. Fitzgerald and
Romrell are as follows:

|                      |  |                   |        |                |  |   |        | 
|--------------------- |  | ----------------- | ------ | -------------- |  | - | ------ | 
|                      |  | Percentage Common |        |                |  |  
|                      |  | Stock Interest in |        |                |  |  
|                      |  | Holdings          |        | Purchase Price
|                      |  |                   |        |               
|William R. Fitzgerald |  |                   | 7.9488 | %              |  | $ | 397.44 | 
|Larry E. Romrell      |  |                   | 7.9488 | %              |  | $ | 397.44 | 

Liberty Media, Liberty LWR, Inc., Holdings and the three individuals also
entered into a stockholders agreement having terms that are similar to those
described above for the Liberty LWR, Inc. stockholders agreement. Pursuant to
the Holdings stockholders agreement, the individuals can require Liberty Media
to exchange, after four years, all or part of their common stock interest in
Holdings for Liberty Media common stock at its then fair market value. In
addition, Liberty Media has the right to exchange, for shares of Liberty Media
common stock, the Holdings common stock interests held by such individuals at
fair market value at any time. Holdings has the right, upon termination of an
individuals employment with Liberty Media and its affiliates on or prior to
July 26, 2005, to purchase all or a portion (depending upon the date of
termination of employment) of the individuals common stock interest in
Holdings.

Services Received From Liberty Media

We purchase corporate, general, property and hazard insurance with Liberty
Media and its other subsidiaries under combined policies and reimburse Liberty
Media for a pro rata allocation of the associated costs. The expenses allocated
from Liberty Media to us for such services, in the aggregate, totaled $ 4.2
million during 2001. We also paid a quarterly fee to Liberty Media for management of administrative services totaling $450,000 in fiscal year 2001.

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 are parties to 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, 50,000 of which were fully vested and exercisable as of June
10, 2001 and 50,000 of which will become fully vested and exercisable on June 10,
2002. 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 June 9, 2010 if not exercised prior to that date.

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Registration Rights Agreement with Salah M. Hassanein

We entered into a Registration Rights Agreement, dated as of June 1, 2001
with Mr. Hassanein in which we agreed to file a registration statement covering
outstanding shares of our Class A Common Stock and shares of our
Class A Common Stock underlying stock options that are currently held by Mr. Hassanein.

Contribution of Liberty Livewire, LLC by Liberty Media to the Company;
Agreement with HyperTV Networks, Inc.

We are parties to a contribution agreement with Liberty Media, dated
December 22, 2000, whereby Liberty Media contributed to us all of its interests
in Liberty Livewire, LLC, which constituted 100% of the outstanding limited
liability company interest of Liberty Livewire, LLC. As a result of that
contribution, we assumed all of Liberty Livewire, LLCs rights
under the Cooperative Venture Agreement, dated April 13, 2000, by and among
HyperTV Networks, Inc, Liberty Livewire, LLC and HyperTV with Livewire, LLC, in
which Liberty Livewire, LLC and HyperTV Networks, Inc. agreed to jointly market
HyperTV.

HyperTV Networks, Inc. is a subsidiary of ACTV, Inc. ACTV is a digital
media company that provides technical and creative services, tools and
proprietary applications for digital television and enhanced media. HyperTV is
a suite of patented processes that enhance a television program,
advertisement or other video programming of any kind, and from any
source, with related and synchronized
content delivered through the
Internet. Under
the agreement, and by virtue of the assumption of the rights under that
agreement, we received the non-exclusive right to use certain patented
technologies of ACTV in providing turnkey convergence services, including
application hosting, web authoring services, data management, e-commerce and
other value-added services for advertisers, television programmers, studios and
networks.

In consideration for
Liberty Medias contribution to us of its ownership
interest in Liberty Livewire, LLC, we assumed Liberty Medias obligation under
a stock purchase warrant issued by Liberty Livewire, LLC to ACTV pursuant to
the terms of the Cooperative Venture Agreement. This warrant gives ACTV the
right to acquire 2,500,000 shares of our Class A Common Stock, at an exercise
price of $30.00 per share, from Liberty Livewire, LLC. The warrant, which
expires in June 2015 and includes certain registration rights, vests ratably
over five years, beginning April 13, 2001.

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 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 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 also became parties to the LNS Operating Agreement with AEG. Under the
LNS Operating Agreement: (1) we became the manager of LNS as of January 5,
2001; (2) we received $800,000 per month from available cash of 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 capital account 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
entered into certain put-call arrangements with AEG. On
September 6, 2001,  we exercised our call option and acquired the remaining 99% interest in
LNS for a purchase price of $31.3 million (net of approximately
$425,000 of cash acquired), which was equal to AEGs capital
account including the preferred return on the closing date of such purchase.

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SECTION 16 BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors and executive officers, and persons who beneficially own more than
10% of a registered class of our equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of our Class A Common Stock and our other equity securities by the
tenth of the month 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 review of the copies of Forms 3, 4 and 5 and amendments thereto furnished to
us with respect to its most recent fiscal year, or written representations that
no Forms 5 were required, the Company believes that, during the year ended
December 31, 2001, its officers, directors and greater-than-ten-percent
beneficial owners complied with all Section 16(a) filing requirements, except
that Bernard W. Schotters, George C. Platisa, Lawrence Chernoff, Scott Davis
and John H. Donlon were each late in filing one Section 16(a) form. All such
Section 16 reporting requirements have been satisfied as of the date of this
report.

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PART IV




ITEM 14. 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                                                                       
| | --- |  | ------------------------------------------------------------------------------------------
|
| |     |  | None.                                                                                     
|
| | (c) |  | Exhibits                                                                                  
|
| |     |  | Exhibits are as listed in the
Exhibit Index on page 61 of this Annual
Report on Form 10-K.

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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.

| |  |                                                                                            
| |  | -------------------------------------------------------------------------------------------
| |  | LIBERTY LIVEWIRE CORPORATION                                                               
|
|
| |  | /s/ Robert T.
WalstonRobert T. Walston
President and Chief Executive Officer
March 29, 2002

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Robert T. Walston 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
(including post-effective 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 31, 2002   |  | /s/ William R.
Fitzgerald
William R. FitzgeraldChairman of the Board
and Director          |  | March 31, 2002 |  | /s/ Robert T.
WalstonRobert T. WalstonPresident, Chief Executive Officer
and Director
|                
|March 31, 2002   |  | /s/ George C.
Platisa
George C. PlatisaChief Financial
Officer andExecutive
Vice President |  | March 31, 2002 |  | /s/ Robert R.
BennettRobert R. BennettDirector                                       
|                
|March 31, 2002   |  | /s/ Gary S.
Howard
Gary S. HowardDirector                                                  |  | March 31, 2002 |  | /s/ David P.
MalmDavid P. MalmDirector                                               
|                
|March     , 2002 |  | Sydney PollackDirector                                                                     |  | March 31, 2002 |  | /s/ Larry E.
RomrellLarry E. RomrellDirector                                         
|                
|March 31, 2002   |  | /s/ Bernard W.
Schotters
Bernard W. SchottersDirector                                      |  |                |  |                                                                                      

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EXHIBIT INDEX

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.1     |  | Restated Certificate of Incorporation of the Company (Incorporated by
reference from Companys Current Report on Form 8-K dated June 12,
2000, filed with the Commission on June 13, 2000).                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|3.2     |  | Bylaws of the Company (Incorporated by
reference from the Companys Current Report on Form 8-K dated June
12, 2000, filed with the Commission on June 13, 2000).                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|4.1     |  | Specimen copy of Class A Common Stock certificate is incorporated by
reference from the Companys Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.1    |  | Amendment No. 1, dated as of March 6, 2000, to the Agreement and Plan
of Merger dated as of December 10, 1999, by and among AT&T Corp.,
B-Group Merger Corp., Liberty Media Corporation and the Company (then
known as The Todd-AO Corporation) (Incorporated by reference to AT&T
Corp.s Registration Statement on Form S-4 filed May 5, 2000,
Registration No. 333-36458).                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.2    |  | Agreement dated as of February 11, 2000, between Liberty Media
Corporation and the Company (then known as The Todd-AO Corporation)
(Incorporated by reference to AT&T Corp.s Registration Statement on
Form S-4 filed May 5, 2000, Registration
No. 333-36458).                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.3    |  | Contribution Agreement dated as of June 9, 2000, between Liberty
Media Corporation and the Company (regarding capital stock of Four
Media Corporation) (Incorporated by reference to the Companys
Current Report on Form 8-K filed August 3, 2000).                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.4    |  | Amendment No. 1, dated July 19, 2000, between Liberty Media
Corporation and the Company to the Contribution Agreement dated as of
February 11, 2000 (regarding certain assets of SounDelux
Entertainment Group of Delaware, Inc.) (Incorporated by reference to
Liberty Media Corporations Schedule 13D/A filed July 26, 2000,
Commission File No. 005-10246).                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.5    |  | Asset Purchase Agreement dated as of July 19, 2000, by and among, the
Company, Liberty SEG Acquisition Sub, LLC, SounDelux Entertainment
Group of Delaware, Inc., each of the other Sellers named therein, and
each of the shareholders of SounDelux Entertainment Group of
Delaware, Inc. named therein (Incorporated by reference from the
Companys Annual Report on Form 10-K for the fiscal year ended
December 31, 2000).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.6    |  | Registration Rights Agreement dated as of July 25, 2000, between the
Company and Paul J. Dujardin (Incorporated by reference to Mr.
Dujardins Schedule 13D filed August 4, 2000, Commission File no.
005-10246).                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.7    |  | Agreement and Plan of Merger dated as of July 25, 2000, by and among
AT&T Corp., E-Group Merger Corp., Liberty Media Corporation and Video
Services Corporation (Incorporated by reference to AT&T Corp.s
Registration Statement on Form S-4, Amendment No. 1, filed November
17, 2000, Registration No. 333-48606, Exhibit 2.01).                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.8    |  | Contribution Agreement dated as of December 22, 2000, between Liberty
Media Corporation and the Company (re: capital stock of VSC)
(Incorporated by reference to the Companys Current Report on Form
8-K filed January 8, 2001, Exhibit 2).                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.9    |  | Contribution Agreement dated as of December 22, 2000, between Liberty
Media Corporation and the Company (regarding Liberty Livewire LLC)
(filed herewith).                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                
|10.10   |  | First Amended and Restated Credit Agreement dated as of December 22,
2000, between Liberty Media Corporation and the Company (re: subordinated convertible loans) (Incorporated by reference to the
Companys Current Report on Form 8-K filed January 8, 2001, Exhibit
3).                                                                                                                                                    

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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|NUMBER  |  | DESCRIPTION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.11   |  | Purchase Agreement dated as of October 23, 2000, by and among Viacom,
Inc., Westinghouse Electric G.m.b.H., Westinghouse CBS Holding
Company, Inc., CBS Broadcasting, Inc., the Company and GWNS
Acquisition Sub, Inc. (Incorporated by reference to the Companys
Current Report on Form 8-K filed February 16, 2001,
Exhibit 1).                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.12   |  | Amendment to Purchase Agreement dated as of October 23, 2000, by and
among Viacom, Inc., Westinghouse Electric G.m.b.H., Westinghouse CBS
Holding Company, Inc., CBS Broadcasting, Inc., the Company and GWNS
Acquisition Sub, Inc. (Incorporated by reference to the Companys
Current Report on Form 8-K filed February 16, 2001,
Exhibit 2).                                                                                                                                                                                                                                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.13   |  | Credit Agreement, dated as of December 22, 2000, 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 (the Senior Credit Agreement). (Incorporated by
reference from the Companys Form 10-K for the year ended December
31, 2000).
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.14   |  | Subordination Agreement, dated as of December 22, 2000, between the
Company and Liberty Media Corporation (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.15   |  | Share Purchase Agreement for the issued and outstanding ordinary
shares of Visiontext, Limited by and between the shareholders of
Visiontext, Limited and Four Media Company (UK) Limited, a wholly
owned subsidiary of the Company (Incorporated by reference from the
Companys Form 10-K for the year ended December 31,
2000).                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.16   |  | 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 (filed herewith).                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.17   |  | Subordination Agreement dated as of June
, 2001, between the
Company and Liberty Media Corporation (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.18   |  | Liberty Livewire Corporation 2001 Incentive Plan (Incorporated by
reference to the Companys Proxy Statement filed on November 20,
2001, Annex B).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.19   |  | 2000 Nonemployee Director Stock Option Plan of Liberty Livewire
Corporation (Incorporated by reference to the Companys Proxy
Statement filed on November 20, 2001, Annex C).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.20   |  | Employment Agreement, dated January 1, 1999, by and between Robert T.
Walston and Four Media Company (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.21   |  | Employment Agreement, dated January 1, 1999, by and between John H.
Donlon and Four Media Company (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.22   |  | Registration Rights Agreement, dated as of June 1, 2001, between the
Company and Salah M. Hassanein (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.23   |  | Stock Option Agreement, dated as of June 1, 2001, between the Company
and Salah M. Hassanein (option for 50,000 shares) (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|10.24   |  | Stock Option Agreement, dated as of June 1, 2001, between the Company
and Salah M. Hassanein (option for 100,000 shares) (filed herewith).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

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|        |  |                                                                                                                                                                    
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT |  |                                                                                                                                                                    
|NUMBER  |  | DESCRIPTION                                                                                                                                                        
|        |  |                                                                                                                                                                    
|11.1    |  | Computation of Per Share Earnings.
See Notes 2 and 10 in the Notes to Consolidated Financial Statements.                                                           
|        |  |                                                                                                                                                                    
|12.1    |  | Computation of Earnings to Fixed Charges.
Not applicable.                                                                                                          
|        |  |                                                                                                                                                                    
|18.1    |  | Changes in Accounting Principles.
See Note 1 of Notes to Consolidated Financial Statements.                                                                        
|        |  |                                                                                                                                                                    
|21.1    |  | Subsidiaries of Liberty Livewire Corporation, a Delaware corporation
(dba Todd-AO Atlanta; Todd-AO Video group; Todd-AO Studios;
Visiontext; Blink Digital; Stream)

| |                                             
| | --------------------------------------------
| | a. Todd-AO Studios, a California corporation

| |                                                       
| | ------------------------------------------------------
| | i. Todd-AO Studios West, a California corporation     
|
| | ii. Todd-AO Studios East, Inc., a New York corporation

| |                                                 
| | ------------------------------------------------
| | 1. Sound One Corporation, a New York corporation

| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | b. Todd-AO Video Services, a California corporation                                                             
|
| | c. Todd-AO Hollywood Digital, a California corporation                                                          
|
| | d. Todd-AO DVD, Inc., a California corporation                                                                  
|
| | e. Todd-AO Amusement Productions Services, LLC, a California
limited liability company (dba Todd-AO Interactive)
|
| | f. Todd-AO Digital Images, a California corporation                                                             
|
| | g. Hollywood Supply Company, a California corporation                                                           
|
| | h. Angarola, Inc., a California corporation                                                                     
|
| | i. Todd-AO Preservation Services, a California corporation                                                      
|
| | j. Todd-AO Productions, Inc., a California corporation                                                          
|
| | k. Todd-AO Espana, a California corporation                                                                     

| |                                                                         
| | ------------------------------------------------------------------------
| | i. 103 Todd-AO Estudio S.L., a company organized under the
laws of Spain

| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | l. Todd-AO Germany GmbH, a German limited liability company                                                                    
|
| | m. Four Media Company, a Delaware corporation (dba Digital Image;
Image Laboratory; Method; Todd Studios Burbank; Todd Burbank)

| |                                                                                  
| | ---------------------------------------------------------------------------------
| | i. 4MC-Burbank, Inc., a Delaware corporation (dba Level 3
Post; Digital Transform

| |                                                            
| | -----------------------------------------------------------
| | 1. Meridian Sound LLC, a Delaware limited liability
company
|
| | 2. Catalina Transmission Corp., a Delaware
corporation     

| |                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------
| | ii. Four Media Company Asia PTE Ltd., a private company
limited by shares organized under the laws of Singapore
|
| | iii. Digital Magic Company, a Delaware corporation                                                             
|
| | iv. Anderson Video Company, a Delaware corporation                                                             
|
| | v. VSDD Acquisition Corp., a Delaware corporation                                                              

| |                                                                                    
| | -----------------------------------------------------------------------------------
| | 1. Symphonic Video LLC, a Delaware limited
liability company (dba Digital Symphony)
|
| | 2. Digital Doctors LLC, a Delaware limited
liability company                       

| |                                                                        
| | -----------------------------------------------------------------------
| | vi. 4MC Company 3, Inc., a Delaware corporation                        
|
| | vii. Visualize, a California corporation (dba POP; POP Sound;
POP Film)

| |                                                                     
| | --------------------------------------------------------------------
| | 1. 10 Moons at POP, Inc. a California corporation                   
|
| | 2. Santa Monica Financial, Inc., a California
corporation           
|
| | 3. Cinram-POP DVD Center LLC, a California limited
liability company
|
| | 4. POP Animation, a California corporation                          

63



---



##### Table of Contents



| |                                                                                 
| | --------------------------------------------------------------------------------
| | viii. MSCL, Inc., a California corporation (dba Encore Video;
Riot; E-Finish)   
|
| | ix. Filmcore Editorial San Francisco LLC, a California
limited liability company
|
| | x. Filmcore Editorial Los Angeles LLC, a California limited
liability company   
|
| | xi. Company 11 Productions, a California corporation                            
|
| | xii. Digital Sound & Picture, Inc., a Delaware corporation                      
|
| | xiii. 4MC Radiant, Inc., a Delaware corporation (dba Radiant
Software)          
|
| | xiv. 525 Holdings, Inc., a California corporation                               

| |                                                           
| | ----------------------------------------------------------
| | 1. 525 Studios LLC, a California limited liability
company

| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | xv. Four Media Company Canada Ltd., a company organized
under the laws of British Columbia
|
| | xvi. Liberty Livewire Limited, a company organized under the
laws of England and Wales    

| |                                                                        
| | -----------------------------------------------------------------------
| | 1. 4MC Limited, a company organized under the laws
of England and Wales

| |                                                                                             
| | --------------------------------------------------------------------------------------------
| | a. TVP Videodubbing Limited, a company
organized under the laws of England and
Wales        
|
| | b. Post Box Golden Square Limited, a
company organized under the laws of
England and Wales  
|
| | c. Television Presentations Limited, a
company organized under the laws of
England and Wales
|
| | d. TVP Broadcast Limited, a company
organized under the laws of England and
Wales           
|
| | e. The Edit Box Limited, a company
organized under the laws of England and
Wales            
|
| | f. TVP Group Limited, a company organized
under the laws of England and Wales               
|
| | g. TVP Doublevision Limited, a company
organized under the laws of England and
Wales        
|
| | h. TVI Limited, a company organized under
the laws of England and Wales                     

| |                                                                                     
| | ------------------------------------------------------------------------------------
| | i.
Video Time Limited, a company
organized under the laws of England
and Wales      
|
| | ii.
Video Time 1999 Limited, a company
organized under the laws of England
and Wales

| |                                                                                                           
| | ----------------------------------------------------------------------------------------------------------
| | 2. Rushes PostProduction Limited, a company
organized under the laws of England and Wales                 
|
| | 3. West One Television Limited, a company organized
under the laws of England and Wales                   
|
| | 4. Virgin Television de Mexico S.A. de C.V., a
company organized under the laws of Mexico                 
|
| | 5. Servicios Administrativos de Post Produccion
S.A. de C.V., a company organized under the laws
of Mexico
|
| | 6. Todd-AO Europe Holding Company Limited, a
company organized under the laws of England and
Wales        

| |                                                                                         
| | ----------------------------------------------------------------------------------------
| | a. Todd-AO Filmatic Limited, a company
organized under the laws of England and
Wales    
|
| | b. Todd-AO UK Limited, a company organized
under the laws of England and Wales          
|
| | c. Tele-Cine Cell Group Limited, a company
organized under the laws of England and
Wales

| |                                                                                     
| | ------------------------------------------------------------------------------------
| | i.
Tele-Cine Limited, a company
organized under the laws of England
and Wales       
|
| | ii.
XTV Limited, a company organized
under the laws of England and Wales            
|
| | iii.
Silver Digital Limited, a company
organized under the laws of England
and Wales
|
| | iv.
XTV Cell, Limited, a company
organized under the laws of England
and Wales      

64



---



##### Table of Contents



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | v.
File Exchange Limited, a company
organized under the laws of England
and Wales

| |                                                                                   
| | ----------------------------------------------------------------------------------
| | 7. SVC Television Limited, a company organized
under the laws of England and Wales

| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | a. Pilot Programme Investments Limited, a
company organized under the laws of
England and Wales              
|
| | b. Bainbridge & Partners Limited, a company
organized under the laws of England and
Wales                    
|
| | c. SVC Communications Limited, a company
organized under the laws of England and
Wales                       
|
| | d. Stevens Kellehar Limited, a company
organized under the laws of England and
Wales                         
|
| | e. Sanderson Vere Crane (Video Tape
Editors) Limited, a company organized
under the laws of England and Wales
|
| | f. Sanderson Vere Crane (Film Editors)
Limited, a company organized under the
laws of England and Wales      

| |                                                                               
| | ------------------------------------------------------------------------------
| | 8. Soho Group Limited, a company organized under
the laws of England and Wales

| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | a. Soho 601 Digital Productions Limited, a
company organized under the laws of
England and Wales

| |                                                                                 
| | --------------------------------------------------------------------------------
| | i.
Computamatch Limited, a company
organized under the laws of England
and Wales

| |                                                                                                   
| | --------------------------------------------------------------------------------------------------
| | b. Studio Film and Video Holdings Limited,
a company organized under the laws of
England and Wales

| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | i.
Soho Images Limited, a company
organized under the laws of England
and Wales                  
| |                                                                                                  
| | ii.
Soho 602 Digital Productions
Limited, a company organized under
the laws of England and Wales

| |                                                                                   
| | ----------------------------------------------------------------------------------
| | c. Genie Films Limited, a company organized
under the laws of England and Wales   
|
| | d. Future Reality Limited, a company
organized under the laws of England and
Wales

| |                                                                               
| | ------------------------------------------------------------------------------
| | 9. Visiontext Limited, a company organized under
the laws of England and Wales

| |                                                                                                                                                                                                                                                                                       
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | n. Liberty SEG Acquisition Sub, LLC, a Delaware limited
liability company (dba Soundelux DMG- Design Music
Group; Soundelux Hollywood; Modern Music; Soundelux
Microphones; The Hollywood Edge; Signet Soundelux
Studios; Vine Street Studios; Soundelux Audio
Publishing; Cyber-Buzz)

| |                                                                       
| | ----------------------------------------------------------------------
| | i. Modern Music Magic, LLC, a Delaware limited liability
company      
|
| | ii. Vine Street Magic, LLC, a Delaware limited liability
company      
|
| | iii. Soundelux Hollywood II, LLC, a Delaware limited
liability company
|
| | iv. Soundelux Hollywood III, LLC, a Delaware limited
liability company

| |                                                                                     
| | ------------------------------------------------------------------------------------
| | o. Triumph Communications Inc., a New York corporation                              
|
| | p. The Triumph Switch Company LLC, a New York limited liability
company             
|
| | q. Triumph Communications & Leasing Services Inc., a New York
corporation           
|
| | r. Triumph Communications & Fiber Services LLC, a New York limited
liability company
|
| | s. American Simulcast Corp., a New York corporation                                 
|
| | t. ANS Acquisition Sub, Inc., a California corporation                              

| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | i. Livewire Network Services LLC, a Delaware limited
liability company (dba Liberty Livewire Network Services
LLC)

| |                                                      
| | -----------------------------------------------------
| | u. Company 3 New York, Inc., a Delaware corporation  
|
| | v. GWNS Acquisition Sub, Inc., a Delaware corporation
|
| | w. Video Services Corporation, a Delaware corporation

| |                                                                  
| | -----------------------------------------------------------------
| | i. Audio Plus Video International, Inc., a New Jersey
corporation

| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | 1. International Post Leasing Limited, a Delaware
corporation (dba Audio Plus Video/West)

| |                                             
| | --------------------------------------------
| | ii.Cabana Corp., a Delaware corporation     
|
| | iii. IPL 235 CORP., a New Jersey corporation

65



---



##### Table of Contents



| |                                                                               
| | ------------------------------------------------------------------------------
| | iv. Manhattan Transfer/Edit, Inc., a Delaware corporation
(dba Riot Manhattan)
|
| | v. The Post Edge, Inc., a Florida corporation (dba
Manhattan Transfer-Miami)  
|
| | vi. VSC Corporation, a Delaware corporation                                   

| |                                                   
| | --------------------------------------------------
| | 1. A.F. Associates, Inc., a New Jersey corporation

|
|
|
|
|
|
|
|
|

| |                                                                    
| | -------------------------------------------------------------------
| | vii. VSC LIMA CORP., a Delaware corporation                        
|
| | viii. VSC MAL CORP., a Delaware corporation                        
|
| | ix. VSC Express Courier LLC, a New Jersey limited liability
company
|
| | x. International Post Finance Limited, a Delaware
corporation      

|
|
|

|
|
|
|
|

| |                                                              
| | -------------------------------------------------------------
| | y. Liberty Livewire LLC, a Delaware limited
liability company

| |                                                                    
| | -------------------------------------------------------------------
| | i. HyperTV with Livewire, LLC, a Delaware limited liability
company

| |                                                    
| | ---------------------------------------------------
| | z. CDP, LLC, a California limited liability
company

| |                                                                      
| | ---------------------------------------------------------------------
| | aa. Hyper TV Productions, LLC, a California limited liability
company
|
| | bb. Goosetray Investments Ltd., a Mauritius company                  

|   |  |                                                            
|-- |  | -----------------------------------------------------------
|24 |  | Power of Attorney (included with the signature page hereof)

66



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##### Table of Contents



LIBERTY LIVEWIRE CORPORATION
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE

|                                                                                                                                                                                                                                              |  |      |      | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ---- | 
|                                                                                                                                                                                                                                              |  | Page
|                                                                                                                                                                                                                                              |  |     
|Independent
Auditors Report  KPMG LLP                                                                                                                                                                                                       |  |      | F-2  | 
|Report of Independent Public Accountants  Arthur Andersen LLP                                                                                                                                                                                |  |      | F-3  | 
|Consolidated Balance Sheets                                                                                                                                                                                                                   |  |      | F-4  | 
|Consolidated Statements of Operations                                                                                                                                                                                                         |  |      | F-5  | 
|Consolidated
Statements of Stockholders Equity (Deficit) and Comprehensive Income (Loss)                                                                                                                                                     |  |      | F-6  | 
|Consolidated Statements of Cash Flows                                                                                                                                                                                                         |  |      | F-7  | 
|Notes to Consolidated Financial Statements                                                                                                                                                                                                    |  |      | F-8  | 
|Schedule II: Valuation and Qualifying Accounts for the Year Ended December 31,
2001, the Seven Months Ended December 31, 2000, the Five Months Ended May 31,
2000, the Four Months Ended December 31, 1999 and the Year Ended August 31,
1999 |  |      | F-35 | 

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



---



##### Table of Contents



REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS  KPMG LLP

Independent Auditors Report

The Shareholders and Board of Directors
Liberty Livewire Corporation

We have audited the accompanying consolidated
balance sheets of Liberty Livewire Corporation and subsidiaries as of
December 31, 2001 and 2000 and the related consolidated statements of
operations, stockholders equity and comprehensive income (loss), and cash flows
for the year ended December 31, 2001, the seven months ended December 31, 2000, the five months ended May 31, 2000, and the four
months ended December 31, 1999. These consolidated financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on these
consolidated financial statements 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 Liberty Livewire Corporation
and subsidiaries as of December 31, 2001 and 2000, and the
results of their operations and their cash flows for the year ended December 31, 2001,
the seven months ended December 31, 2000, the five months ended
May 31, 2000, and the four
months ended December 31, 1999, in conformity with accounting principles generally accepted in the
United States of America.

As discussed in note 1 to the consolidated financial statements, effective June 9, 2000,
Liberty Media Corporation obtained a controlling interest in 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.

Our audits were made for the purpose of forming an opinion on the basic financial statements taken as
a whole. The supplementary information included in Schedule II is presented for purposes of complying
with the Securities and Exchange Commissions rules and is not a required part of the basic
financial statements. Such information has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly stated
in all material respects in relation to the basic financial statements taken as
a whole for the year ended December 31, 2001, the seven months ended December 31, 2000, the five
months ended May 31, 2000 and the four months ended December 31, 1999.

/s/ KPMG LLP

February 15, 2002
Los Angeles, California

F-2



---



##### Table of Contents



REPORT OF INDEPENDENT PUBLIC
ACCOUNTANTS

To The Todd-AO Corporation:

We have audited the
accompanying consolidated balance sheets of The Todd-AO Corporation
(a Delaware corporation) and its subsidiaries as of August 31,
1998 and 1999, and the related consolidated statements of income,
stockholders equity and comprehensive income (loss), and cash
flows for the years then ended. These consolidated financial
statements and the schedule referred to below are the responsibility
of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based
on our audits.

We conducted our
audits in accordance with generally accepted auditing standards.
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
financial statements referred to above present fairly, in all
material respects, the financial position of The Todd-AO Corporation
and its subsidiaries as of August 31, 1998 and 1999, and the
results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.

As explained in
Note 1 to the consolidated financial statements, effective
September 1, 1998, the Company changed its method of accounting
for the cost of start-up activities in accordance with Statements of
Position No. 98-5.

Our audits were made
for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index of
financial statements is presented for purposes of complying with the
Securities and Exchange Commissions rules and is not part of
the basic financial statements. This schedule has been subjected to
the auditing procedures applied in our audits of the basic financial
statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole

/s/  ARTHUR ANDERSEN
LLP

Los Angeles, California
November 9, 1999

F-3



---



##### Table of Contents



LIBERTY LIVEWIRE CORPORATION
Consolidated Balance Sheets
(Amounts in thousands, except share data)

Assets

|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |         |     |           |  | 
|------------------------------------------- | ------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------- | -------- | --- | ------------ | --------- | ------- | --- | --------- |  | 
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     | December 31,
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |             
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     | 2001         |           | 2000   
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|Current Assets:                             |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            | Cash and cash equivalents                                                                  |                                                                                                                                                         | $                          | 23,433   |     |              | $         | 19,466  |    
|                                            | Marketable securities                                                                      |                                                                                                                                                         |                            |         |     |              |           | 5,414   |    
|                                            | Trade receivables, net                                                                     |                                                                                                                                                         |                            | 96,696   |     |              |           | 106,158 |    
|                                            | Inventories                                                                                |                                                                                                                                                         |                            | 4,016    |     |              |           | 4,932   |    
|                                            | Deferred income taxes, net                                                                 |                                                                                                                                                         |                            | 5,006    |     |              |           | 4,742   |    
|                                            | Prepaid expenses and other current assets                                                  |                                                                                                                                                         |                            | 14,237   |     |              |           | 16,430  |    
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            |                                                                                            |                                                                                                                                                         | Total current assets       |          |     | 143,388      |           |         |     | 157,142   | 
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            | Property, plant and equipment, net                                                         |                                                                                                                                                         |                            | 316,077  |     |              |           | 366,944 |    
|                                            | Due from parent company, net                                                               |                                                                                                                                                         |                            |         |     |              |           | 7,245   |    
|                                            | Goodwill and identifiable intangible assets, net                                           |                                                                                                                                                         |                            | 448,909  |     |              |           | 631,196 |    
|                                            | Other assets, net                                                                          |                                                                                                                                                         |                            | 11,317   |     |              |           | 13,318  |    
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            |                                                                                            |                                                                                                                                                         | Total assets               |          | $   | 919,691      |           |         | $   | 1,175,845 | 
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|Liabilities and Stockholders Equity       
|Current Liabilities:                        |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            | Current maturities of long-term debt and capital lease obligations                         |                                                                                                                                                         | $                          | 19,129   |     |              | $         | 8,545   |    
|                                            | Accounts payable                                                                           |                                                                                                                                                         |                            | 38,906   |     |              |           | 65,679  |    
|                                            | Accrued expenses and other current liabilities                                             |                                                                                                                                                         |                            | 76,345   |     |              |           | 45,200  |    
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            |                                                                                            |                                                                                                                                                         | Total current liabilities  |          |     | 134,380      |           |         |     | 119,424   | 
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            | Long-term debt and capital lease obligations                                               |                                                                                                                                                         |                            | 424,556  |     |              |           | 399,891 |    
|                                            | Convertible subordinated notes, net                                                        |                                                                                                                                                         |                            | 183,685  |     |              |           | 92,682  |    
|                                            | Due to parent company, net                                                                 |                                                                                                                                                         |                            | 5,439    |     |              |           |        |    
|                                            | Deferred income taxes, net                                                                 |                                                                                                                                                         |                            | 5,006    |     |              |           | 6,957   |    
|                                            | Other liabilities                                                                          |                                                                                                                                                         |                            | 13,177   |     |              |           | 3,764   |    
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            |                                                                                            |                                                                                                                                                         | Total liabilities          |          |     | 766,243      |           |         |     | 622,718   | 
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|Commitments and contingencies (See Note 12) |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |         |     |           |  | 
|Stockholders Equity:                       |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            | Common stock:                                                                              |                                                                                                                                                         |                            |          |     |              |           |         |    
|                                            |                                                                                            | Class A; authorized 300,000,000 shares of $0.01 par value;
5,334,022 and 5,306,743 issued and outstanding at December 31,
2001 and 2000, respectively   |                            |          | 53  |              |           |         | 53  |          
|                                            |                                                                                            | Class B; authorized 100,000,000 shares of $0.01 par value;
34,393,330 and 31,612,716 issued and outstanding at December
31, 2001 and 2000, respectively |                            |          | 344 |              |           |         | 316 |          
|                                            | Additional paid-in capital                                                                 |                                                                                                                                                         |                            | 617,933  |     |              |           | 570,186 |    
|                                            | Treasury stock; 1,508 and 2,400 shares at cost at December 31,
2001 and 2000, respectively |                                                                                                                                                         |                            | (28      | )   |              |           | (19     | )  
|                                            | Accumulated deficit                                                                        |                                                                                                                                                         |                            | (446,082 | )   |              |           | (9,793  | )  
|                                            | Other                                                                                      |                                                                                                                                                         |                            | (1,356   | )   |              |           | (682    | )  
|                                            | Accumulated other comprehensive loss                                                       |                                                                                                                                                         |                            | (17,416  | )   |              |           | (6,934  | )  
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|                                            |                                                                                            |                                                                                                                                                         | Total stockholders equity |          |     | 153,448      |           |         |     | 553,127   | 
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        
|Total liabilities and stockholders equity  |                                                                                            | $                                                                                                                                                       | 919,691                    |          |     | $            | 1,175,845 |        
|                                            |                                                                                            |                                                                                                                                                         |                            |          |     |              |           |        

See notes to consolidated financial statements

F-4



---



##### Table of Contents



LIBERTY LIVEWIRE CORPORATION
Consolidated Statements of Operations
(Amounts in thousands, except share data)

|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |           |        | 
|--------------------------------------------------------------------------- | -------------------------------------------------------- | ------------------------ | -------- | ---------------- | ------- | ------------------ | ------- | ------------ | ------ | ----------------- | ------ | ---------- | ------ | - | ------ | ---------- | ------ | - | ------- | --------- | ------ | 
|                                                                            |                                                          |                          |          | Liberty Livewire |         | Todd-AO           
|                                                                            |                                                          |                          |          |                  |         |                   
|                                                                            |                                                          |                          |          | Year Ended       |         | Seven Months Ended |         | Five Months  |        | Four Months       |        | Year Ended
|                                                                            |                                                          |                          |          | December 31,     |         | December 31,       |         | Ended        |        | Ended             |        | August 31,
|                                                                            |                                                          |                          |          | 2001             |         | 2000               |         | May 31, 2000 |        | December 31, 1999 |        | 1999      
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |           
|Net revenues                                                                |                                                          | $                        | 592,732  |                  |         | $                  | 253,099 |              |        | $                 | 53,243 |            |        | $ | 43,261 |            |        | $ | 118,517 |          
|Cost of services                                                            |                                                          |                          | 370,191  |                  |         |                    | 161,633 |              |        |                   | 36,563 |            |        |   | 28,422 |            |        |   | 79,052  |          
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            |                                                          | Gross profit             |          |                  | 222,541 |                    |         |              | 91,466 |                   |        |            | 16,680 |   |        |            | 14,839 |   |         |           | 39,465 | 
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|Operating expenses:                                                         |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            | Selling, general and administrative                      |                          |          | 126,783          |         |                    |         | 57,352       |        |                   |        | 9,160      |        |   |        | 7,925      |        |   |         | 19,332    |       
|                                                                            | Depreciation and amortization                            |                          |          | 128,603          |         |                    |         | 51,545       |        |                   |        | 6,925      |        |   |        | 4,816      |        |   |         | 12,829    |       
|                                                                            | Non-cash compensation expense (income)                   |                          |          | 4,293            |         |                    |         | (29,577      | )      |                   |        |           |        |   |        |           |        |   |         |          |       
|                                                                            | Impairment of goodwill, intangible and long-lived
assets |                          |          | 307,932          |         |                    |         |             |        |                   |        |           |        |   |        |           |        |   |         |          |       
|                                                                            | Restructuring and other charges                          |                          |          | 5,558            |         |                    |         |             |        |                   |        |           |        |   |        |           |        |   |         | 788       |       
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            |                                                          | Total operating expenses |          |                  | 573,169 |                    |         |              | 79,320 |                   |        |            | 16,085 |   |        |            | 12,741 |   |         |           | 32,949 | 
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|Income (loss) from operations                                               |                                                          |                          | (350,628 | )                |         |                    | 12,146  |              |        |                   | 595    |            |        |   | 2,098  |            |        |   | 6,516   |          
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            | Interest expense, net                                    |                          |          | 63,119           |         |                    |         | 19,132       |        |                   |        | 1,641      |        |   |        | 1,384      |        |   |         | 3,617     |       
|                                                                            | Other expense (income), net                              |                          |          | 10,974           |         |                    |         | (872         | )      |                   |        | 1,070      |        |   |        | 130        |        |   |         | 413       |       
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|Income (loss) before income taxes and change in
accounting principle        |                                                          |                          | (424,721 | )                |         |                    | (6,114  | )            |        |                   | (2,116 | )          |        |   | 584    |            |        |   | 2,486   |          
|Provision (benefit) for income taxes                                        |                                                          |                          | 11,568   |                  |         |                    | 3,679   |              |        |                   | (441   | )          |        |   | 135    |            |        |   | 880     |          
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|Income (loss) before change in accounting principle                         |                                                          |                          | (436,289 | )                |         |                    | (9,793  | )            |        |                   | (1,675 | )          |        |   | 449    |            |        |   | 1,606   |          
|Change in accounting principle, net of income tax
benefit                   |                                                          |                          |         |                  |         |                    |        |              |        |                   |       |            |        |   |       |            |        |   | (293    | )        
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|Net income (loss)                                                           |                                                          | $                        | (436,289 | )                |         | $                  | (9,793  | )            |        | $                 | (1,675 | )          |        | $ | 449    |            |        | $ | 1,313   |          
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|Weighted average number of common and common
equivalent shares outstanding: |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            | Basic                                                    |                          |          | 37,858,123       |         |                    |         | 34,463,373   |        |                   |        | 10,768,773 |        |   |        | 9,927,077  |        |   |         | 9,570,187 |       
|                                                                            | Effect of dilutive securities                            |                          |          |                 |         |                    |         |             |        |                   |        |           |        |   |        | 729,263    |        |   |         | 262,427   |       
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            | Diluted                                                  |                          |          | 37,858,123       |         |                    |         | 34,463,373   |        |                   |        | 10,768,773 |        |   |        | 10,656,340 |        |   |         | 9,832,614 |       
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|Net income (loss) per common share  basic:                                 |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            | Income (loss) before change in accounting principle      |                          | $        | (11.52           | )       |                    | $       | (0.28        | )      |                   | $      | (0.16      | )      |   | $      | 0.05       |        |   | $       | 0.17      |       
|                                                                            | Change in accounting principle                           |                          |          |                 |         |                    |         |             |        |                   |        |           |        |   |        |           |        |   |         | (0.03     | )     
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            | Net income (loss) per common share  basic               |                          | $        | (11.52           | )       |                    | $       | (0.28        | )      |                   | $      | (0.16      | )      |   | $      | 0.05       |        |   | $       | 0.14      |       
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|Net
income (loss) per common share  diluted:                               |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            | Income (loss) before change in accounting principle      |                          | $        | (11.52           | )       |                    | $       | (0.28        | )      |                   | $      | (0.16      | )      |   | $      | 0.04       |        |   | $       | 0.16      |       
|                                                                            | Change in accounting principle                           |                          |          |                 |         |                    |         |             |        |                   |        |           |        |   |        |           |        |   |         | (0.03     | )     
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          
|                                                                            | Net income (loss) per common share  diluted             |                          | $        | (11.52           | )       |                    | $       | (0.28        | )      |                   | $      | (0.16      | )      |   | $      | 0.04       |        |   | $       | 0.13      |       
|                                                                            |                                                          |                          |          |                  |         |                    |         |              |        |                   |        |            |        |   |        |            |        |   |         |          

See notes to consolidated financial statements

F-5



---



##### Table of Contents



LIBERTY LIVEWIRE CORPORATION
Consolidated Statements of Stockholders Equity (Deficit) 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 August 31, 1998   |                                                       |                             | 8,438,700 |            |   | $       | 84 |            |   |                   | 1,747,178  |            |   | $        | 17  |     |   | $ | 40,805  |         |   | $ | 20,538   |         
|                             | Exercise of stock options                             |                             |           | 274,080    |   |         |    | 3          |   |                   |            |           |   |          |     |    |   |   |         | 1,095   |   |   |          |         |     
|                             | Tax benefit from exercise of
stock options            |                             |           |           |   |         |    |           |   |                   |            |           |   |          |     |    |   |   |         | 123     |   |   |          |         |     
|                             | Purchase of treasury shares                           |                             |           |           |   |         |    |           |   |                   |            |           |   |          |     |    |   |   |         |        |   |   |          |         |     
|                             | Treasury shares cancelled                             |                             |           | (723,447   | ) |         |    | (7         | ) |                   |            |           |   |          |     |    |   |   |         | (5,316  | ) |   |          |         |     
|                             | Treasury shares transfer to 401(k)                    |                             |           |           |   |         |    |           |   |                   |            |           |   |          |     |    |   |   |         |        |   |   |          |         |     
|                             | Shares issued as compensation                         |                             |           | 135,000    |   |         |    | 2          |   |                   |            |           |   |          |     |    |   |   |         | 1,180   |   |   |          |         |     
|                             | Cash dividends:                                       |                             |           |            |   |         |    |            |   |                   |            |            |   |          |     |     |   |   |         |         |   |   |          |          |     
|                             |                                                       | Class A ($0.045 per share)  |           |            |  |         |    |            |  |                   |            |            |  |          |     |     |  |   |         |         |  |   |          |          | (349 | )
|                             |                                                       | Class B ($0.0405 per share) |           |            |  |         |    |            |  |                   |            |            |  |          |     |     |  |   |         |         |  |   |          |          | (70  | )
|                             | Other comprehensive loss                              |                             |           |           |   |         |    |           |   |                   |            |           |   |          |     |    |   |   |         |        |   |   |          |         |     
|                             | Net income                                            |                             |           |           |   |         |    |           |   |                   |            |           |   |          |     |    |   |   |         |        |   |   |          | 1,313    |     
|                             |                                                       |                             |           |            |   |         |    |            |   |                   |            |            |   |          |     |     |   |   |         |         |   |   |          |         
|Balance at August 31, 1999   |                                                       |                             | 8,124,333 |            |   |         | 82 |            |   |                   | 1,747,178  |            |   |          | 17  |     |   |   | 37,887  |         |   |   | 21,432   |         
|                             | Exercise of stock options                             |                             |           | 183,735    |   |         |    | 2          |   |                   |            |           |   |          |     |    |   |   |         | 1,610   |   |   |          |         |     
|                             | Conversion of subordinated notes                      |                             |           | 643,336    |   |         |    | 7          |   |                   |            |           |   |          |     |    |   |   |         | 7,592   |   |   |          |         |     
|                             | Other comprehensive income                            |                             |           |           |   |         |    |           |   |                   |            |           |   |          |     |    |   |   |         |        |   |   |          |         |     
|                             | Net income                                            |                             |           |           |   |         |    |           |   |                   |            |           |   |          |     |    |   |   |         |        |   |   |          | 449      |     
|                             |                                                       |                             |           |            |   |         |    |            |   |                   |            |            |   |          |     |     |   |   |         |         |   |   |          |         
|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 | )       
|                             |                                                       |                             |           |            |   |         |    |            |   |                   |            |            |   |          |     |     |   |   |         |         |   |   |          |         

[Additional columns below]

See Notes to Consolidated Financial
Statements

[Continued from above table, first column(s) repeated]

|                             |                                                       |                             |        |          |   |       |        |               |   |       |         |             |   |   |         |          |      |  
|---------------------------- | ----------------------------------------------------- | --------------------------- | ------ | -------- | - | ----- | ------ | ------------- | - | ----- | ------- | ----------- | - | - | ------- | -------- | ---- | -
|                             |                                                       |                             |        |          |   |       |        |               |   |       |         | Accumulated |   |   |         |         
|                             |                                                       |                             |        |          |   |       |        |               |   |       |         | Other       |   |   |         |         
|                             |                                                       |                             |        | Treasury |   |       |        | Comprehensive |   |       |         |            
|                             |                                                       |                             |        | Stock    |   | Other |        | Income (Loss) |   | Total
|                             |                                                       |                             |        |          |   |       |        |               |   |      
|Balance at August 31, 1998   |                                                       | $                           | (2,338 | )        |   | $     |       |               |   | $     | 1,214   |             |   | $ | 60,320  |         
|                             | Exercise of stock options                             |                             |        |         |   |       |        |              |   |       |         |            |   |   |         | 1,098    |     
|                             | Tax benefit from exercise of
stock options            |                             |        |         |   |       |        |              |   |       |         |            |   |   |         | 123      |     
|                             | Purchase of treasury shares                           |                             |        | (3,288   | ) |       |        |              |   |       |         |            |   |   |         | (3,288   | )   
|                             | Treasury shares cancelled                             |                             |        | 5,323    |   |       |        |              |   |       |         |            |   |   |         |         |     
|                             | Treasury shares transfer to 401(k)                    |                             |        | 256      |   |       |        |              |   |       |         |            |   |   |         | 256      |     
|                             | Shares issued as compensation                         |                             |        |         |   |       |        |              |   |       |         |            |   |   |         | 1,182    |     
|                             | Cash dividends:                                       |                             |        |          |   |       |        |               |   |       |         |             |   |   |         |          |     
|                             |                                                       | Class A ($0.045 per share)  |        |          |  |       |        |               |  |       |         |             |  |   |         |          | (349 | )
|                             |                                                       | Class B ($0.0405 per share) |        |          |  |       |        |               |  |       |         |             |  |   |         |          | (70  | )
|                             | Other comprehensive loss                              |                             |        |         |   |       |        |              |   |       |         | (1,750      | ) |   |         | (1,750   | )   
|                             | Net income                                            |                             |        |         |   |       |        |              |   |       |         |            |   |   |         | 1,313    |     
|                             |                                                       |                             |        |          |   |       |        |               |   |       |         |             |   |   |         |         
|Balance at August 31, 1999   |                                                       |                             | (47    | )        |   |       |       |               |   |       | (536    | )           |   |   | 58,835  |         
|                             | Exercise of stock options                             |                             |        |         |   |       |        |              |   |       |         |            |   |   |         | 1,612    |     
|                             | Conversion of subordinated notes                      |                             |        |         |   |       |        |              |   |       |         |            |   |   |         | 7,599    |     
|                             | Other comprehensive income                            |                             |        |         |   |       |        |              |   |       |         | 365         |   |   |         | 365      |     
|                             | Net income                                            |                             |        |         |   |       |        |              |   |       |         |            |   |   |         | 449      |     
|                             |                                                       |                             |        |          |   |       |        |               |   |       |         |             |   |   |         |         
|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 |         
|                             |                                                       |                             |        |          |   |       |        |               |   |       |         |             |   |   |         |         

See notes to consolidated financial statements

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LIBERTY LIVEWIRE CORPORATION
Consolidated Statements of Cash Flows
(Amounts in thousands)

|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |       |         |  
|--------------------------------------------------------- | -------------------------------------------------------- | ---------------------------------------------------------------------------------- | -------- | ---------------- | -------- | ------------ | -------- | ------------- | -------- | ------------ | ------ | ---------- | ------ | - | ------ | --- | ------ | - | ------- | ----- | ------- | -
|                                                          |                                                          |                                                                                    |          | Liberty Livewire |          | Todd-AO     
|                                                          |                                                          |                                                                                    |          |                  |          |             
|                                                          |                                                          |                                                                                    |          |                  |          | Seven Months |          |               |          | Four Months  |        |           
|                                                          |                                                          |                                                                                    |          | Year Ended       |          | Ended        |          | Five Months   |          | Ended        |        | Year Ended
|                                                          |                                                          |                                                                                    |          | December 31,     |          | December 31, |          | Ended May 31, |          | December 31, |        | August 31,
|                                                          |                                                          |                                                                                    |          | 2001             |          | 2000         |          | 2000          |          | 1999         |        | 1999      
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |           
|Cash flows from operating activities:                     |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|                                                          | Net (loss) income                                        |                                                                                    | $        | (436,289         | )        |              | $        | (9,793        | )        |              | $      | (1,675     | )      |   | $      | 449 |        |   | $       | 1,313 |        
|                                                          | Operating items not requiring cash:                      |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |       |        
|                                                          |                                                          | Depreciation and amortization                                                      |          |                  | 128,603  |              |          |               | 51,545   |              |        |            | 6,925  |   |        |     | 4,816  |   |         |       | 12,829  |  
|                                                          |                                                          | Non-cash interest expense                                                          |          |                  | 28,475   |              |          |               |         |              |        |            |       |   |        |     |       |   |         |       |        |  
|                                                          |                                                          | Non-cash compensation expense                                                      |          |                  | 4,293    |              |          |               | (29,577  | )            |        |            |       |   |        |     |       |   |         |       |        |  
|                                                          |                                                          | Impairment of long-lived assets                                                    |          |                  | 307,932  |              |          |               |         |              |        |            |       |   |        |     |       |   |         |       |        |  
|                                                          |                                                          | Restructuring and other charges                                                    |          |                  | 5,388    |              |          |               |         |              |        |            |       |   |        |     |       |   |         |       | 788     |  
|                                                          |                                                          | Deferred income taxes (benefit), net                                               |          |                  | 5,541    |              |          |               | 12,995   |              |        |            | 565    |   |        |     | 265    |   |         |       | (2,695  | )
|                                                          |                                                          | Realized loss (gain) on sale of marketable securities,
investments and derivatives |          |                  | 3,521    |              |          |               |         |              |        |            |       |   |        |     | (391   | ) |         |       | (115    | )
|                                                          |                                                          | Loss (gain) on disposal of fixed assets                                            |          |                  | 9,867    |              |          |               |         |              |        |            |       |   |        |     | (4     | ) |         |       | (254    | )
|                                                          |                                                          | Other, net                                                                         |          |                  | (1,323   | )            |          |               |         |              |        |            |       |   |        |     | (203   | ) |         |       | (3,020  | )
|                                                          | Changes in assets and liabilities (net of acquisitions): |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |       |        
|                                                          |                                                          | Trade receivables, net                                                             |          |                  | 17,867   |              |          |               | (7,442   | )            |        |            | 2,469  |   |        |     | (5,727 | ) |         |       | 1,053   |  
|                                                          |                                                          | Inventories, prepaid expenses and other assets                                     |          |                  | 9,398    |              |          |               | (2,000   | )            |        |            | (115   | ) |        |     | 150    |   |         |       | 645     |  
|                                                          |                                                          | Accounts payable, accrued expenses and other liabilities                           |          |                  | (22,918  | )            |          |               | 2,401    |              |        |            | (2,021 | ) |        |     | (698   | ) |         |       | 3,350   |  
|                                                          |                                                          | Due to parent company                                                              |          |                  | 3,917    |              |          |               | (7,246   | )            |        |            |       |   |        |     |       |   |         |       |        |  
|                                                          |                                                          | Other non-current liabilities                                                      |          |                  | 9,309    |              |          |               | 866      |              |        |            | (1,695 | ) |        |     | (66    | ) |         |       | (809    | )
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Net cash flows provided by (used in) operating activities |                                                          |                                                                                    | 73,581   |                  |          |              | 11,749   |               |          |              | 4,453  |            |        |   | (1,409 | )   |        |   | 13,085  |      
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Cash flows from investing activities:                     |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|                                                          |                                                          | Proceeds from sales of marketable securities and
investments                       |          |                  | 7,834    |              |          |               |         |              |        |            | 1,951  |   |        |     | 1,381  |   |         |       | 294     |  
|                                                          |                                                          | Purchases of marketable securities and investments                                 |          |                  | (300     | )            |          |               | (5,093   | )            |        |            |       |   |        |     | (2,623 | ) |         |       | (283    | )
|                                                          |                                                          | Proceeds from disposal of fixed assets                                             |          |                  | 14,475   |              |          |               |         |              |        |            |       |   |        |     | 23     |   |         |       | 426     |  
|                                                          |                                                          | Capital expenditures                                                               |          |                  | (73,705  | )            |          |               | (76,700  | )            |        |            | (4,038 | ) |        |     | (4,316 | ) |         |       | (23,176 | )
|                                                          |                                                          | Acquisitions,
net of cash acquired                                                 |          |                  | (140,014 | )            |          |               | (23,607  | )            |        |            |       |   |        |     |       |   |         |       | (12,315 | )
|                                                          |                                                          | Others assets                                                                      |          |                  |         |              |          |               |         |              |        |            | (1,669 | ) |        |     | 932    |   |         |       | 1,791   |  
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Net cash flows used in investing activities               |                                                          |                                                                                    | (191,710 | )                |          |              | (105,400 | )             |          |              | (3,756 | )          |        |   | (4,603 | )   |        |   | (33,263 | )    
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Cash flows from financing activities:                     |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|                                                          |                                                          | Borrowings of long-term debt                                                       |          |                  | 53,384   |              |          |               | 384,472  |              |        |            | 400    |   |        |     | 5,748  |   |         |       | 34,202  |  
|                                                          |                                                          | Payments of long-term debt and capital lease obligations                           |          |                  | (46,508  | )            |          |               | (385,485 | )            |        |            | (2,669 | ) |        |     | (787   | ) |         |       | (14,423 | )
|                                                          |                                                          | Borrowings under convertible subordinated notes, net                               |          |                  | 113,738  |              |          |               | 92,454   |              |        |            |       |   |        |     |       |   |         |       |        |  
|                                                          |                                                          | Proceeds from exercise of stock options                                            |          |                  |         |              |          |               | 5,366    |              |        |            | 776    |   |        |     |       |   |         |       |        |  
|                                                          |                                                          | Proceeds from issuance of common stock                                             |          |                  |         |              |          |               | 7,053    |              |        |            |       |   |        |     | 1,612  |   |         |       | 1,098   |  
|                                                          |                                                          | Other, net                                                                         |          |                  | (757     | )            |          |               | 23       |              |        |            |       |   |        |     |       |   |         |       | 5,102   |  
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Net cash flows provided by (used in) financing activities |                                                          |                                                                                    | 119,857  |                  |          |              | 103,883  |               |          |              | (1,493 | )          |        |   | 6,573  |     |        |   | 25,979  |      
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Effect of exchange rate changes on cash                   |                                                          |                                                                                    | 2,239    |                  |          |              | (203     | )             |          |              | (67    | )          |        |   |       |     |        |   | (59     | )    
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Net increase (decrease) in cash and cash equivalents      |                                                          |                                                                                    | 3,967    |                  |          |              | 10,029   |               |          |              | (863   | )          |        |   | 561    |     |        |   | 5,742   |      
|Cash and cash equivalents at beginning of period          |                                                          |                                                                                    | 19,466   |                  |          |              | 9,437    |               |          |              | 10,300 |            |        |   | 9,739  |     |        |   | 3,997   |      
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Cash and cash equivalents at end of period                |                                                          | $                                                                                  | 23,433   |                  |          | $            | 19,466   |               |          | $            | 9,437  |            |        | $ | 10,300 |     |        | $ | 9,739   |      
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|Supplemental disclosure of cash flow information:         |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|                                                          | Cash paid during the year for:                           |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |       |        
|                                                          |                                                          | Interest                                                                           |          | $                | 35,834   |              |          | $             | 18,583   |              |        | $          | 2,689  |   |        | $   | 1,264  |   |         | $     | 3,130   |  
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|                                                          |                                                          | Income taxes                                                                       |          | $                | 1,611    |              |          | $             | 2,406    |              |        | $          |       |   |        | $   |       |   |         | $     | 753     |  
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|                                                          | Non-cash investing and financing activities:             |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |       |        
|                                                          |                                                          | Capital lease obligations incurred on equipment                                    |          | $                | 14,354   |              |          | $             |         |              |        | $          |       |   |        | $   |       |   |         | $     |        |  
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      
|                                                          |                                                          | Stock issued for payment of interest on convertible
subordinated notes             |          | $                | 17,891   |              |          | $             |         |              |        | $          |       |   |        | $   |       |   |         | $     |        |  
|                                                          |                                                          |                                                                                    |          |                  |          |              |          |               |          |              |        |            |        |   |        |     |        |   |         |      

See notes to consolidated financial statements

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LIBERTY LIVEWIRE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION, CHANGE IN CONTROL AND BASIS OF PRESENTATION

Organization Liberty Livewire Corporation (Liberty Livewire 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 service
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 nine companies acquired during 2001 and 2000:
Four Media Company (4MC); Virgin Media Group Limited (Virgin); Soundelux,
the sound post-production and certain related businesses of SounDelux
Entertainment Group of Delaware, Inc.; 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 unique combination and
integration of the acquired entities allows the Company to offer its clients a
complete range of services, from image capture to last mile delivery,
unmatched by many competitors in the industry. The Company is able to offer
outsourcing solutions for the technical and creative requirements of its
clients that lower operating costs, reduce cycle times and increase reliability
and quality.

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.

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 Liberty Livewire
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, 2001 consists of
both the Companys Class A Common Stock and Class B Common Stock, representing
approximately 87% of the Companys outstanding equity. Liberty Media
beneficially holds and controls all of Liberty Livewire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 substantially all of the businesses and assets of the
Liberty Media Group. Liberty Media Group Class A Common Stock and Liberty
Media Group 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.

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 4, 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

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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 Liberty Livewire approved
the change of the Companys fiscal year end from August 31 to December 31.

The consolidated financial statements of Liberty Livewire, in the opinion
of management, reflect all material adjustments, which are of a normal
recurring nature, necessary for the fair presentation of its financial position
as of December 31, 2001 and 2000; the results of its operations and cash flows
for the twelve months ended December 31, 2001, the seven months ended December
31, 2000, the five months ended May 31, 2000, the four months ended December
31, 1999 and the year ended August 31, 1999.

The accompanying statements of operations, cash flows and stockholders
equity for the five months ended May 31, 2000, the four months ended December
31, 1999 and the year ended August 31, 1999 represent the results of operations
of Todd-AO before its acquisition by Liberty Media. The consolidated financial
statements for the year ended December 31, 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 the assessment of the carrying value
of goodwill, intangible assets and long-lived assets, the amount of the
allowance for doubtful accounts, and the value of accrued exit costs. While
management believes that the carrying value of such assets and liabilities is
adequate as of December 31, 2001 and 2000, 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 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.

Marketable Securities and Investments Marketable securities consist
primarily of corporate preferred stocks and bonds. Management has classified
all investment securities as available-for-sale. As a result, securities are
reported at fair value with net unrealized holding gains and losses excluded
from earnings and reported in stockholders equity. Fair value is based upon
quoted market prices using the specific identification method. Investments,
which are carried at cost, include stock and other investments which management
intends to hold for more than one year.

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, 2001 and 2000 was $12.0 million and $5.6
million, respectively.

Concentration of Credit Risk and Significant Customers For the year
ended December 31, 2001, the seven months ended December 31, 2000, the five
months ended May 31, 2000, and the four months ended December 31, 1999, no
single customer accounted for more than 10% of consolidated revenues. One
customer accounted for 16% of revenues, or $19.0 million, for the year ended
August 31, 1999.

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

Income Taxes The Company accounts for income taxes under Statement of
Financial Accounting Standards (SFAS) 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, 3-10 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.

Goodwill and Intangible Assets Goodwill and intangible assets are
amortized on a straight-line basis over their estimated useful lives of 3 to 20
years. Goodwill represents the excess purchase price paid over the value of
net assets acquired.

Long-Lived AssetsManagement reviews the realizabilty 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.

During the year ended December 31, 2001, the Company recorded an
impairment charge in the amount of $307.9 million as described in Note 3.

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.

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 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.

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 in accordance with contractual terms. Revenues on
other long-term contracts are recorded on the basis of the estimated percentage
of completion of individual contracts determined under the cost-to-cost method.
Estimated losses on long-term contracts are recognized in the period in which
a loss becomes evident.

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Stock-Based Compensation The Company accounts for its stock compensation
arrangements using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, including related interpretations, and follows the disclosure only
provision of SFAS No. 123, Accounting for Stock-Based Compensation.

Change in Accounting Principle During the fiscal year ended August 31,
1999, the Company adopted Statement of Position No. 98-5, Reporting on the
Costs of Start-Up Activities. The effect of the adoption was to record a
charge of $293,000, net of an income tax benefit of $150,000, for the fiscal
year ended August 31, 1999.

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

New Accounting Pronouncements In June 2001, the FASB issued SFAS No.
141, Business Combinations, and SFAS No. 142, Goodwill and Other Intangible
Assets. The FASB also issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, in August 2001.

SFAS No. 141 requires that all business combinations initiated after June
30, 2001 be accounted for under the purchase method. SFAS No. 141 supersedes
APB Opinion No. 16, Business Combinations, and SFAS No. 38, Accounting for
Pre-acquisition Contingencies of Purchased Enterprises, and is effective for
all business combinations initiated after June 30, 2001.

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 will be subject to periodic testing 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 in accordance with SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Ofand subsequently, SFAS No. 144 (see below) after its
adoption. SFAS No. 142 supersedes APB Opinion No. 17, Intangible Assets.
Effective January 1, 2002, the Company will adopt SFAS No. 142 and is
evaluating the effect that such adoption may have on its consolidated results
of operations and financial position. As of the date of adoption of SFAS No.
142, the Company expects to have unamortized goodwill in the amount of $421.7
million and unamortized identifiable intangible assets in the amount of $27.2
million, all of which will be subject to the transition provisions of SFAS No.
142. Amortization expense related to goodwill was $32.9 million and $16.2
million for the year ended December 31, 2001, and the seven months ended
December 31, 2000, respectively. Any impairment loss will be measured as of
the date of adoption and recognized as the cumulative effect of a change in
accounting principle in the first interim period. Effective January 1, 2002,
the Company estimates that it will record
$20.2 million in transitional
impairment losses as a cumulative effect of a change in accounting principle.

SFAS No. 144 establishes a single accounting model for the impairment or
disposal of long-term assets, including discontinued operations. SFAS No. 144
superseded SFAS No. 121 and 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.The
provisions of SFAS No. 144 are effective in fiscal years beginning after
December 15, 2001, with early adoption permitted, and in general are to be
applied prospectively. The Company plans to adopt SFAS No. 144 effective
January 1, 2002 and does not expect that the adoption will have a material
impact on its consolidation results of operations and financial position.

3. 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.

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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 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. The restructuring is estimated to be completed during the
first half of fiscal year 2002. Our continuing efforts to integrate acquired
businesses may require further charges for exit and separations plans.

The following table displays the activity and balances of the
restructuring reserve account for the quarter ended December 31, 2001 (in
thousands):

|                      |  |         |       |           |  |            |   |         |  |   |     |  |  |   |       | 
|--------------------- |  | ------- | ----- | --------- |  | ---------- | - | ------- |  | - | --- |  |  | - | ----- | 
|                      |  | Opening |       |           |  |            |   | Ending 
|                      |  | Balance |       | Additions |  | Deductions |   | Balance
|                      |  |         |       |           |  |            |   |        
|Excess facility costs |  | $       | 5,133 |           |  | $          |  |         |  | $ |    |  |  | $ | 5,133 | 
|Employee separations  |  |         | 425   |           |  |            |  |         |  |   | 170 |  |  |   | 255   | 
|                      |  |         |       |           |  |            |   |         |  |   |     |  |  |   |       | 
|                      |  | $       | 5,558 |           |  | $          |  |         |  | $ | 170 |  |  | $ | 5,388 | 
|                      |  |         |       |           |  |            |   |         |  |   |     |  |  |   |       | 

4. 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 Liberty Livewires Class B Common Stock, valued at $279.7 million
pursuant to a Contribution Agreement between Liberty Media and Liberty
Livewire. 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

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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 consist 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 Liberty Livewire in exchange for
8,181,818 shares of Liberty Livewires Class B Common Stock pursuant to a
previously negotiated contribution agreement between Liberty Media and Liberty
Livewire. 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 Triumph Communications Group
(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 Liberty Livewire 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. 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.

On August 11, 2000, a wholly owned subsidiary of Liberty Livewire 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), which includes real property in the Soho area of London. The
acquisition has been accounted for as a purchase and the acquisition cost 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 Liberty Livewire 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 cost 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 Liberty Livewire, Liberty Media contributed the equity of VSC to Liberty
Livewire on December 22, 2000. In consideration for the contribution of VSC,
Liberty Livewire 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 Liberty Livewire to pay down debt of VSC.
The total value of the consideration paid by Liberty Livewire in connection
with the contribution of VSC was $102.1 million.

As part of the contribution of VSC from Liberty Media to Liberty Livewire,
Liberty Livewire 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 Liberty Livewire has been accounted by Liberty
Livewire as a contribution to the capital of Liberty Livewire. 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.

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On January 5, 2001, Liberty Livewire 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, Liberty Livewire and Liberty Media entered into a formal
operating agreement (the Operating Agreement) under which Liberty Livewire
was appointed as manager of LNS. The Operating Agreement contained a put-call
provision, pursuant to which on September 6, 2001 Liberty Livewire 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 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 Networks
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. Liberty Livewire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 2. 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
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 | 
|             |  |      |         |      |  |   |         | 

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

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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 Liberty Livewire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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5. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS

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

|                                               |                                           |   |         |          |      |   |         |         |  
|---------------------------------------------- | ----------------------------------------- | - | ------- | -------- | ---- | - | ------- | ------- | -
|                                               |                                           |   | 2001    |          | 2000
|                                               |                                           |   |         |          |     
|Prepaid expenses and other current assets      |                                           |   |         |          |      |   |         |        
|                                               | Prepaid expenses                          |   | $       | 9,387    |      |   | $       | 13,750  |  
|                                               | Other current assets                      |   |         | 4,850    |      |   |         | 2,680   |  
|                                               |                                           |   |         |          |      |   |         |        
|                                               |                                           | $ | 14,237  |          |      | $ | 16,430  |        
|                                               |                                           |   |         |          |      |   |         |        
|Property, plant and equipment, net             |                                           |   |         |          |      |   |         |        
|                                               | Land                                      |   | $       | 63,079   |      |   | $       | 46,145  |  
|                                               | Buildings                                 |   |         | 125,354  |      |   |         | 71,903  |  
|                                               | Equipment                                 |   |         | 274,537  |      |   |         | 283,752 |  
|                                               | Construction in progress                  |   |         | 852      |      |   |         | 220     |  
|                                               | Accumulated depreciation and amortization |   |         | (147,745 | )    |   |         | (35,076 | )
|                                               |                                           |   |         |          |      |   |         |        
|                                               |                                           | $ | 316,077 |          |      | $ | 366,944 |        
|                                               |                                           |   |         |          |      |   |         |        
|Goodwill, net                                  |                                           |   |         |          |      |   |         |        
|                                               | Goodwill                                  |   | $       | 454,548  |      |   | $       | 598,582 |  
|                                               | Accumulated amortization                  |   |         | (32,878  | )    |   |         | (16,411 | )
|                                               |                                           |   |         |          |      |   |         |        
|                                               |                                           | $ | 421,670 |          |      | $ | 582,171 |        
|                                               |                                           |   |         |          |      |   |         |        
|Identifiable intangible assets, net            |                                           |   |         |          |      |   |         |        
|                                               | Assembled workforce                       |   | $       | 22,830   |      |   | $       | 29,580  |  
|                                               | Employment agreements                     |   |         | 6,923    |      |   |         | 10,850  |  
|                                               | Non-compete agreements                    |   |         | 6,083    |      |   |         | 10,930  |  
|                                               | Tradenames                                |   |         | 1,926    |      |   |         | 2,610   |  
|                                               | Accumulated amortization                  |   |         | (10,523  | )    |   |         | (4,945  | )
|                                               |                                           |   |         |          |      |   |         |        
|                                               |                                           | $ | 27,239  |          |      | $ | 49,025  |        
|                                               |                                           |   |         |          |      |   |         |        
|Accrued expenses and other current liabilities |                                           |   |         |          |      |   |         |        
|                                               | Payroll and related expenses              |   | $       | 16,267   |      |   | $       | 15,853  |  
|                                               | Interest and interest rate swap           |   |         | 14,638   |      |   |         | 1,120   |  
|                                               | Deferred revenues                         |   |         | 14,480   |      |   |         | 11,985  |  
|                                               | Restructuring and severance               |   |         | 5,388    |      |   |         | 648     |  
|                                               | Taxes and other                           |   |         | 25,572   |      |   |         | 15,594  |  
|                                               |                                           |   |         |          |      |   |         |        
|                                               |                                           | $ | 76,345  |          |      | $ | 45,200  |        
|                                               |                                           |   |         |          |      |   |         |        

Depreciation and amortization expense for property, plant and equipment
for the year ended December 31, 2001, seven months ended December 31, 2000,
five months ended May 31, 2000, four months ended December 31, 1999 and year
ended August 31, 1999 was $83.9 million, $30.4 million, $6.4 million, $4.3
million and $11.6 million, respectively.

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6. LONG-TERM DEBT

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

|                                           |  |      |         |      |  |   |         |  
|------------------------------------------ |  | ---- | ------- | ---- |  | - | ------- | -
|                                           |  | 2001 |         | 2000
|                                           |  |      |         |     
|Revolver                                   |  | $    | 208,800 |      |  | $ | 193,500 |  
|Term loan A                                |  |      | 125,000 |      |  |   | 125,000 |  
|Term loan B                                |  |      | 57,915  |      |  |   | 58,500  |  
|Convertible subordinated notes             |  |      | 206,192 |      |  |   | 92,682  |  
|Discount on convertible subordinated notes |  |      | (22,507 | )    |  |   |        |  
|Real property mortgage notes               |  |      | 21,328  |      |  |   | 16,535  |  
|Capital lease obligations                  |  |      | 21,610  |      |  |   | 13,775  |  
|Other                                      |  |      | 9,032   |      |  |   | 1,126   |  
|                                           |  |      |         |      |  |   |         |  
|                                           |  |      | 627,370 |      |  |   | 501,118 |  
|Less: current maturities                   |  |      | (19,129 | )    |  |   | (8,545  | )
|                                           |  |      |         |      |  |   |         |  
|                                           |  | $    | 608,241 |      |  | $ | 492,573 |  
|                                           |  |      |         |      |  |   |         |  

Borrowings have the following scheduled maturities (in thousands):

|           |  |   |         | 
|---------- |  | - | ------- | 
|2002       |  | $ | 19,129  | 
|2003       |  |   | 20,309  | 
|2004       |  |   | 27,530  | 
|2005       |  |   | 44,992  | 
|2006       |  |   | 266,016 | 
|Thereafter |  |   | 249,394 | 
|           |  |   |         | 
|           |  | $ | 627,370 | 
|           |  |   |         | 

On December 22, 2000, Liberty Livewire consummated a long-term syndicated
credit agreement through Bank of America Securities, as amended on November 1,
2001 and March 26, 2002 (the Senior Credit Agreement). Under the agreement,
as amended, we may borrow up to $475.0 million in term and revolving loans,
subject to new lenders being added to the facility through September 30, 2002
and compliance with certain financial covenants and other borrowing conditions.
As of December 31, 2001, the Senior Credit Agreement has a commitment of
$414.4 million, which is 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 $125.0 million. Term loan B, which
matures on June 30, 2007, has a commitment of $57.9 million. In general,
semi-annual principal payments on Term loan A begin 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 $231.5 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, 2001, the outstanding
letters of credit totaled $2.7 million. The Senior Credit Agreement loans are
collateralized by substantially all of the operating assets of the Company.

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, 2001, the effective
interest rate on Term loan A and the Revolver borrowings was 4.41% and on Term
loan B borrowings was 5.41%.

The Senior Credit Agreement requires the maintenance of certain financial
ratios and contains other restrictive covenants, including restrictions on the
occurrence of additional indebtedness and the maintenance of a minimum of $32.0
million in consolidated operating cash flow. The agreement however permits
borrowings of up

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to $310.0 million of convertible subordinated debt under the Liberty
Subordinated Credit Agreement. As of December 31, 2001, we were in compliance
with all covenants per the agreement.

On December 22, 2000, Liberty Livewire 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 Liberty Livewire of
$206.2 million, for the funding of several acquisitions as described in Note 4.
The Convertible Subordinated Notes are convertible at the option of Liberty
Media at any time prior to maturity, into shares of Liberty Livewire 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 Liberty Livewire Class B Common Stock or a combination thereof,
at Liberty Livewires discretion, subject to certain limits. Under the
agreement, shares of Liberty Livewire Class B Common Stock issued as payment
for interest are valued at 95% of the ten-day trailing average closing price of
shares of Liberty Livewire 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 4. 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 2001, approximately $3.0 million 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, we 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
repaid during the quarter ended June 30, 2001.

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%. As of December 31, 2001, the effective interest rate was
4.12%. The loan matures on April 23, 2002. In addition, the Company holds an
$7.8 million mortgage loan through UCB, collateralized by a deed of trust
covering the same property. The mortgage loan requires monthly interest
payments based on the relevant one, two, three or six-month LIBOR for the
period determined by the Company, plus 2.25%. As of December 31, 2001, the
effective interest rate was 4.12%. 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,

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plus 3.25%. The interest rate in effect as of December 31, 2001 was
5.25%. The loan is collateralized by certain equipment used in the Companys
Pictures and Media Groups.

In September 2001, two of Liberty Livewire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, we may borrow up to $9.2 million through September
3, 2002. As of December 31, 2001, $3.5 million was outstanding and $5.7
million was available for future borrowings. The Company anticipates that 60
equal quarterly principal repayments will begin during the second half of
fiscal year 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, 2001, the effective interest rate was 4.6%.

Liberty Livewire and its subsidiaries have 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: 2002, $9.8 million; 2003, $6.0 million; 2004,
$3.6 million; 2005, $3.5 million; and 2006, $3.5 million. Included in the
minimum rentals for capital leases is interest in the amount of $4.8 million.

7. COMPREHENSIVE INCOME (LOSS)

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

|                                                                                     |  |                  |          |              |  |             |         |              |  |            |        |   |  |   |     |  |  |   |        |  
|------------------------------------------------------------------------------------ |  | ---------------- | -------- | ------------ |  | ----------- | ------- | ------------ |  | ---------- | ------ | - |  | - | --- |  |  | - | ------ | -
|                                                                                     |  | Liberty Livewire |          | Todd-AO     
|                                                                                     |  |                  |          |             
|                                                                                     |  |                  |          | Seven Months |  | Five Months |         | Four Months  |  |           
|                                                                                     |  | Year Ended       |          | Ended        |  | Ended       |         | Ended        |  | Year Ended
|                                                                                     |  | December 31,     |          | December 31, |  | May 31,     |         | December 31, |  | August 31,
|                                                                                     |  | 2001             |          | 2000         |  | 2000        |         | 1999         |  | 1999      
|                                                                                     |  |                  |          |              |  |             |         |              |  |           
|Net (loss) income                                                                    |  | $                | (436,289 | )            |  | $           | (9,793  | )            |  | $          | (1,675 | ) |  | $ | 449 |  |  | $ | 1,313  |  
|Unrealized gain (loss) on
available for sale securities (1)                          |  |                  | 1,463    |              |  |             | (4,200  | )            |  |            | 6,078  |   |  |   | 242 |  |  |   | (148   | )
|Unrealized loss on cash flow hedge                                                   |  |                  | (12,624  | )            |  |             |        |              |  |            |       |   |  |   |    |  |  |   |       |  
|(Loss) gain on foreign currency
translation                                          |  |                  | (6,361   | )            |  |             | (2,043  | )            |  |            | (435   | ) |  |   | 123 |  |  |   | (1,602 | )
|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              |  |                  | 6,225    |              |  |             |        |              |  |            |       |   |  |   |    |  |  |   |       |  
|                                                                                     |  |                  |          |              |  |             |         |              |  |            |        |   |  |   |     |  |  |   |        |  
|Net (loss) gain recognized in
other comprehensive income                             |  |                  | (10,482  | )            |  |             | (12,406 | )            |  |            | 5,643  |   |  |   | 365 |  |  |   | (1,750 | )
|                                                                                     |  |                  |          |              |  |             |         |              |  |            |        |   |  |   |     |  |  |   |        |  
|Total comprehensive (loss) income                                                    |  | $                | (446,771 | )            |  | $           | (22,199 | )            |  | $          | 3,968  |   |  | $ | 814 |  |  | $ | (437   | )
|                                                                                     |  |                  |          |              |  |             |         |              |  |            |        |   |  |   |     |  |  |   |        |  



---

|(1) |  | Net of tax expense of $957, tax benefit of $2.7 million, tax
expenses of $4.5 million and $177, and tax benefit of $108,
respectively.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Net of tax benefit of $533.                                                                                                           

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8. INCOME TAXES

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

|                                                |  |                  |       |          |  |           |       |          |  |          |       |      |  |  |       |    |  |  |      |  
|----------------------------------------------- |  | ---------------- | ----- | -------- |  | --------- | ----- | -------- |  | -------- | ----- | ---- |  |  | ----- | -- |  |  | ---- | -
|                                                |  | Liberty Livewire |       | Todd-AO 
|                                                |  |                  |       |         
|                                                |  |                  |       |          |  | Seven     |       |          |  |          |       | Four |  |  |       |   
|                                                |  | Year             |       | Months   |  | Five      |       | Months   |  | Year    
|                                                |  | Ended            |       | Ended    |  | Months    |       | Ended    |  | Ended   
|                                                |  | December         |       | December |  | Ended May |       | December |  | August  
|                                                |  | 31, 2001         |       | 31, 2000 |  | 31, 2000  |       | 31, 1999 |  | 31, 1999
|                                                |  |                  |       |          |  |           |       |          |  |         
|                                                |  |                  | 35.0  | %        |  |           | 35.0  | %        |  |          | 35.0  | %    |  |  | 35.0  | %  |  |  | 35.0 | %
|Adjust to actual company rate                   |  |                  |      |          |  |           |      |          |  |          | (1.0  | )    |  |  | (1.0  | )  |  |  | (1.0 | )
|                                                |  |                  |       |          |  |           |       |          |  |          |       |      |  |  |       |    |  |  |      |  
|Adjusted federal statutory
income tax rate      |  |                  | 35.0  |          |  |           | 35.0  |          |  |          | 34.0  |      |  |  | 34.0  |    |  |  | 34.0 |  
|State and foreign taxes, net
of federal benefit |  |                  | 0.3   |          |  |           | (8.5  | )        |  |          | (10.2 | )    |  |  | (48.6 | )  |  |  |     |  
|Non-deductible goodwill
amortization            |  |                  | (16.8 | )        |  |           | (86.2 | )        |  |          | (1.8  | )    |  |  |      |    |  |  |     |  
|Valuation allowance                             |  |                  | (20.2 | )        |  |           |      |          |  |          |      |      |  |  |      |    |  |  |     |  
|Other, net                                      |  |                  | (1.0  | )        |  |           | (0.5  | )        |  |          | (4.0  | )    |  |  | (1.1  | )  |  |  | 1.7  |  
|                                                |  |                  |       |          |  |           |       |          |  |          |       |      |  |  |       |    |  |  |      |  
|                                                |  |                  | (2.7  | )%       |  |           | (60.2 | )%       |  |          | 18.0  | %    |  |  | (15.7 | )% |  |  | 35.7 | %
|                                                |  |                  |       |          |  |           |       |          |  |          |       |      |  |  |       |    |  |  |      |  

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):

|                    |          |   |                  |        |          |   |         |         |          |   |            |      |   |   |      |      |   |   |        |       |  
|------------------- | -------- | - | ---------------- | ------ | -------- | - | ------- | ------- | -------- | - | ---------- | ---- | - | - | ---- | ---- | - | - | ------ | ----- | -
|                    |          |   | Liberty Livewire |        | Todd-AO 
|                    |          |   |                  |        |         
|                    |          |   |                  |        |          |   | Seven   |         | Five     |   | Four       |      |   |   |     
|                    |          |   | Year             |        | Months   |   | Months  |         | Months   |   | Year      
|                    |          |   | Ended            |        | Ended    |   | Ended   |         | Ended    |   | Ended     
|                    |          |   | December         |        | December |   | May 31, |         | December |   | August 31,
|                    |          |   | 31, 2001         |        | 31, 2000 |   | 2000    |         | 31, 1999 |   | 1999      
|                    |          |   |                  |        |          |   |         |         |          |   |           
|Current  domestic  |          | $ | (1,492           | )      |          | $ | (11,487 | )       |          | $ |           |      |   | $ | (420 | )    |   | $ | 312    |      
|Deferred  domestic |          |   | 12,137           |        |          |   | (282    | )       |          |   | (633       | )    |   |   | 122  |      |   |   | (1,029 | )    
|                    |          |   |                  |        |          |   |         |         |          |   |            |      |   |   |      |      |   |   |        |      
|                    | Domestic |   |                  | 10,645 |          |   |         | (11,769 | )        |   |            | (633 | ) |   |      | (298 | ) |   |        | (717  | )
|Current  foreign   |          |   | 923              |        |          |   | 2,295   |         |          |   | 646        |      |   |   | 433  |      |   |   | 2,114  |      
|Deferred  foreign  |          |   |                 |        |          |   | 13,153  |         |          |   | (454       | )    |   |   |     |      |   |   | (667   | )    
|                    |          |   |                  |        |          |   |         |         |          |   |            |      |   |   |      |      |   |   |        |      
|                    | Foreign  |   |                  | 923    |          |   |         | 15,448  |          |   |            | 192  |   |   |      | 433  |   |   |        | 1,447 |  
|                    |          |   |                  |        |          |   |         |         |          |   |            |      |   |   |      |      |   |   |        |      
|                    |          | $ | 11,568           |        |          | $ | 3,679   |         |          | $ | (441       | )    |   | $ | 135  |      |   | $ | 730    |      
|                    |          |   |                  |        |          |   |         |         |          |   |            |      |   |   |      |      |   |   |        |      

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

|         |  |                  |          |          |  |         |         |          |  |            |        |   |  |   |       |   |  |   |        |  
|-------- |  | ---------------- | -------- | -------- |  | ------- | ------- | -------- |  | ---------- | ------ | - |  | - | ----- | - |  | - | ------ | -
|         |  | Liberty Livewire |          | Todd-AO 
|         |  |                  |          |         
|         |  |                  |          |          |  | Seven   |         | Five     |  | Four       |        |   |  |  
|         |  | Year             |          | Months   |  | Months  |         | Months   |  | Year      
|         |  | Ended            |          | Ended    |  | Ended   |         | Ended    |  | Ended     
|         |  | December         |          | December |  | May 31, |         | December |  | August 31,
|         |  | 31, 2001         |          | 31, 2000 |  | 2000    |         | 31, 1999 |  | 1999      
|         |  |                  |          |          |  |         |         |          |  |           
|Domestic |  | $                | (425,294 | )        |  | $       | (11,714 | )        |  | $          | (2,456 | ) |  | $ | (853  | ) |  | $ | (2,179 | )
|Foreign  |  |                  | 573      |          |  |         | 5,600   |          |  |            | 340    |   |  |   | 1,437 |   |  |   | 4,222  |  
|         |  |                  |          |          |  |         |         |          |  |            |        |   |  |   |       |   |  |   |        |  
|         |  | $                | (424,721 | )        |  | $       | (6,114  | )        |  | $          | (2,116 | ) |  | $ | 584   |   |  | $ | 2,043  |  
|         |  |                  |          |          |  |         |         |          |  |            |        |   |  |   |       |   |  |   |        |  

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
15. The income tax provision is calculated as if the Company was a separate
taxpayer.

Components of deferred tax assets and liabilities as of December 31, are
as follows (in thousands):

|                               |                                  |   |         |         |      |   |         |         |  
|------------------------------ | -------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | -
|                               |                                  |   | 2001    |         | 2000
|                               |                                  |   |         |         |     
|Current assets                 |                                  |   |         |         |      |   |         |        
|                               | Accounts receivable reserves     |   | $       | 3,147   |      |   | $       | 2,648   |  
|                               | Accrued liabilities              |   |         | 5,497   |      |   |         | 5,240   |  
|                               | Other                            |   |         | 497     |      |   |         | 304     |  
|                               |                                  |   |         |         |      |   |         |        
|                               |                                  |   | 9,141   |         |      |   | 8,192   |        
|Non current assets             |                                  |   |         |         |      |   |         |        
|                               | Net operating loss carryforwards |   |         | 56,504  |      |   |         | 17,937  |  
|                               | Impairment reserves              |   |         | 52,599  |      |   |         |        |  
|                               | Other                            |   |         | 3,569   |      |   |         | 9,920   |  
|                               |                                  |   |         |         |      |   |         |        
|                               |                                  |   | 112,672 |         |      |   | 27,857  |        
|                               | Total deferred tax assets, gross |   |         | 121,813 |      |   |         | 36,049  |  
|                               |                                  |   |         |         |      |   |         |        
|                               | Valuation allowance              |   |         | (96,556 | )    |   |         | (2,726  | )
|                               |                                  |   |         |         |      |   |         |        
|                               | Total deferred tax assets, net   |   |         | 25,257  |      |   |         | 33,323  |  
|                               |                                  |   |         |         |      |   |         |        
|Current liabilities            |                                  |   |         |         |      |   |         |        
|                               | Prepaid expenses                 |   |         | (690    | )    |   |         | (895    | )
|                               | Other                            |   |         | (3,445  | )    |   |         | (2,555  | )
|                               |                                  |   |         |         |      |   |         |        
|                               |                                  |   | (4,135  | )       |      |   | (3,450  | )      
|                               |                                  |   |         |         |      |   |         |        
|Non current liabilities        |                                  |   |         |         |      |   |         |        
|                               | Depreciation                     |   |         | (9,793  | )    |   |         | (8,603  | )
|                               | Identifiable intangibles         |   |         | (11,329 | )    |   |         | (21,121 | )
|                               | Other                            |   |         |        |      |   |         | (2,364  | )
|                               |                                  |   |         |         |      |   |         |        
|                               |                                  |   | (21,122 | )       |      |   | (32,088 | )      
|                               |                                  |   |         |         |      |   |         |        
|Total deferred tax liabilities |                                  |   | (25,257 | )       |      |   | (35,538 | )      
|                               |                                  |   |         |         |      |   |         |        
|Net deferred tax liability     |                                  | $ |        |         |      | $ | (2,215  | )      
|                               |                                  |   |         |         |      |   |         |        

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At December 31, 2001, the Company has $141.0 million and $113.7 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):

|            |  |               |         | 
|----------- |  | ------------- | ------- | 
|Years       |  | ExpiringNOL's
|            |  |              
|2005  2010 |  | $             | 17,101  | 
|2011  2015 |  |               | 9,990   | 
|2016  2020 |  |               | 63,446  | 
|2021        |  |               | 50,485  | 
|            |  |               |         | 
|            |  | $             | 141,022 | 
|            |  |               |         | 

The state NOLs begin expiring in 2002 and continue through 2020. In
addition, the Company has approximately $600,000 and $1.4 million of income tax
credits for federal and state purposes, respectively, with no expiration date.

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 its
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, 2001, was an increase of $93.8 million.

Subsequent recognition of any tax benefits relating to the December 31,
2001 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 |  | $ | 93,064 | 
|Goodwill                             |  |   | 3,492  | 
|                                     |  |   |        | 
|                                     |  | $ | 96,556 | 
|                                     |  |   |        | 

Undistributed earnings of certain foreign subsidiaries aggregated $16.6
million on December 31, 2001, 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.

9. STOCKHOLDERS EQUITY

On June 9, 2000, in connection with the Todd Merger, the Company amended
its Certificate of Incorporation (the Restated Certificate of Incorporation).
Under the prior certificate of incorporation, the Company was authorized to
issue 37,000,000 shares of capital stock, consisting of 30,000,000 shares of
Class A Common Stock (Old Class A Stock), 6,000,000 shares of Class B Common
Stock (Old Class B Stock) and 1,000,000 shares of preferred stock. Under the
Restated Certificate of Incorporation, the total number of shares of capital
stock authorized to be issued was increased to 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, 2001, 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

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##### Table of Contents



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. On June 9, 2000,
pursuant to the Restated Certificate of Incorporation, each outstanding share
of Old Class A Stock was converted into or reconstituted as 0.4 shares of Class
A Common Stock and each outstanding share of Old Class B Stock was converted
into or reconstituted as 0.6 shares of Class B Common Stock.

10. STOCK OPTIONS AND STOCK APPRECIATION RIGHTS

On December 19, 2001, our stockholders approved the 2001 Incentive Plan
(the 2001 Incentive Plan) and the 2000 Nonemployee Director Stock Option Plan
(the 2000 Nonemployee Director Plan), which had been previously adopted by
the Board of Directors (the Board) on August 6, 2001.

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 of 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. On August 6, 2001, the Company
granted 5,997,500 stock options to certain employees and members of the Board.
On November 8, 2001, the Company cancelled 2,185,000 stock options issued to
certain executives and granted 2,185,000 stock options. On
December 7, 2001, the Company cancelled 597,500 stock options issued to certain
employees and granted 702,500 stock options. There was no accounting impact
related to the cancellation of the stock options during the year, as the option
prices were not changed.

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 on 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. As of December 31, 2001, there were
45,000 options granted under the 2000 Nonemployee Director Plan.

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 a Liberty Livewire 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 Liberty Livewire as of June 10, 2000 to create a mechanism
for Liberty Livewire to fulfill its obligations under the rollover options as
they pertain to shares of Liberty Media. Pursuant to the Agreement, Liberty
Livewire 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 Liberty Livewire 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, Liberty Livewire issued shares of Liberty Livewires Class B
Common Stock in an amount equal to (i) the number of Liberty Media shares
deliverable upon exercise, times (ii) 1.2.

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During the seven months ended December 31, 2000, 830,871 Todd-AO converted
options were exercised for 332,348 shares of Liberty Livewire Class A Common
Stock. For the funding of the Liberty Media shares to the option holders,
296,039 shares of Liberty Livewire Class B Common Stock were issued to Liberty
Media valued at $5.1 million as consideration for payments made to Liberty
Livewire 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 Liberty Livewire on the
open market.

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

|                     |           |  |           |            |                              |   |      |      | 
|-------------------- | --------- |  | --------- | ---------- | ---------------------------- | - | ---- | ---- | 
|                     |           |  | Shares    |            | WeightedAverageExercisePrice
|                     |           |  |           |            |                             
|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 |     
|                     |           |  |           |            |                              |   |      |     

The following table summarizes information about stock options outstanding
as of December 31, 2001, under the 2001 Incentive Plan:

|                         |  |             |           |                  |  |           |     |           |  |          |       |  |  |          |         |  |  |   |       | 
|------------------------ |  | ----------- | --------- | ---------------- |  | --------- | --- | --------- |  | -------- | ----- |  |  | -------- | ------- |  |  | - | ----- | 
|                         |  | Outstanding |           | Exercisable     
|                         |  |             |           |                 
|                         |  |             |           |                  |  | 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                    |  |             | 5,615,000 |                  |  |           | 9.7 |           |  | $        | 7.00  |  |  |          | 112,500 |  |  | $ | 7.00  | 
|$10.27 to $10.63         |  |             | 130,000   |                  |  |           | 8.7 |           |  |          | 10.35 |  |  |          |        |  |  |   |      | 
|$13.47                   |  |             | 387,500   |                  |  |           | 9.6 |           |  |          | 13.47 |  |  |          | 387,500 |  |  |   | 13.47 | 
|                         |  |             |           |                  |  |           |     |           |  |          |       |  |  |          |         |  |  |   |       | 
|                         |  |             | 6,132,500 |                  |  |           | 9.7 |           |  | $        | 7.48  |  |  |          | 500,000 |  |  | $ | 12.01 | 
|                         |  |             |           |                  |  |           |     |           |  |          |       |  |  |          |         |  |  |   |       | 

The Company recognized $1.6 million in stock compensation expense during
the year ended December 31, 2001 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.

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

|                     |            |  |           |          |                  |  |               |          |                  |  |          |          |   |   |      |       | 
|-------------------- | ---------- |  | --------- | -------- | ---------------- |  | ------------- | -------- | ---------------- |  | -------- | -------- | - | - | ---- | ----- | 
|                     |            |  | Todd-AO   |          | Liberty Livewire |  |               |          |                  |  | Weighted
|                     |            |  | Stock     |          | Class A Stock    |  | Liberty Media |          | Average Exercise
|                     |            |  | Options   |          | Options          |  | Stock Options |          | Price           
|                     |            |  |           |          |                  |  |               |          |                 
|At August 31, 1999   |            |  | 1,199,350 |          |                  |  |              |          |                  |  |         |          |   | $ | 6.57 |      
|                     | Awarded    |  |           | 17,000   |                  |  |               |         |                  |  |          |         |   |   |      | 14.53 | 
|                     | Exercised  |  |           | (183,735 | )                |  |               |         |                  |  |          |         |   |   |      | 7.61  | 
|                     | Forfeited  |  |           | (3,970   | )                |  |               |         |                  |  |          |         |   |   |      | 8.18  | 
|                     |            |  |           |          |                  |  |               |          |                  |  |          |          |   |   |      |      
|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 year
ended December 31, 2001, the five months ended May 31, 2000, four months ended
December 31, 1999, and the year ended August 31, 1999, was approximately $48.2
million, $52,000, $77,000, and $490,000, 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%-0.75%,
volatility of 25-41%, a risk free interest rate of 5.00% for December 31, 2001,
5.65% for May 31, 2000, 5.12% for the four months ended December 31, 1999, and
4.95% for August 31, 1999 and expected option lives of 5 to 10 years.

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):

|                            |                     |  |                  |          |                   |  |              |        |                   |  |            |        |   |  |   |      |  |  |   |       | 
|--------------------------- | ------------------- |  | ---------------- | -------- | ----------------- |  | ------------ | ------ | ----------------- |  | ---------- | ------ | - |  | - | ---- |  |  | - | ----- | 
|                            |                     |  | Liberty Livewire |          | Todd-AO          
|                            |                     |  |                  |          |                  
|                            |                     |  | Year Ended       |          | Seven Months      |  | Five Months  |        | Four Months       |  | Year Ended
|                            |                     |  | December 31,     |          | Ended             |  | Ended        |        | Ended             |  | August 31,
|                            |                     |  | 2001             |          | December 31, 2000 |  | May 31, 2000 |        | December 31, 1999 |  | 1999      
|                            |                     |  |                  |          |                   |  |              |        |                   |  |           
|Net income (loss)           |                     |  |                  |          |                   |  |              |        |                   |  |            |        |   |  |   |      |  |  |   |      
|                            | As reported         |  | $                | (436,289 | )                 |  | $            | (9,793 | )                 |  | $          | (1,675 | ) |  | $ | $449 |  |  | $ | 1,313 | 
|                            | Pro forma           |  | $                | (440,522 | )                 |  | $            | (9,793 | )                 |  | $          | (1,727 | ) |  | $ | 408  |  |  | $ | 621   | 
|Net income (loss)
per share |                     |  |                  |          |                   |  |              |        |                   |  |            |        |   |  |   |      |  |  |   |      
|                            | As reported basic   |  | $                | (11.52   | )                 |  | $            | (0.28  | )                 |  | $          | (0.16  | ) |  | $ | 0.05 |  |  | $ | 0.14  | 
|                            | Pro forma basic     |  | $                | (11.64   | )                 |  | $            | (0.28  | )                 |  | $          | (0.16  | ) |  | $ | 0.04 |  |  | $ | 0.06  | 
|                            | As reported diluted |  | $                | (11.52   | )                 |  | $            | (0.28  | )                 |  | $          | (0.16  | ) |  | $ | 0.04 |  |  | $ | 0.13  | 
|                            | Pro forma diluted   |  | $                | (11.64   | )                 |  | $            | (0.28  | )                 |  | $          | (0.16  | ) |  | $ | 0.04 |  |  | $ | 0.06  | 

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 2001 was $6.40 per share.

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##### Table of Contents



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. The following table presents the number
and weighted average exercise price of SARs to purchase Liberty Media stock for
the year ended December 31, 2001 and the seven months ended December 31, 2000.

|                          |           |  |               |          |                              |   |       |       | 
|------------------------- | --------- |  | ------------- | -------- | ---------------------------- | - | ----- | ----- | 
|                          |           |  | Number ofSARs |          | WeightedAverageExercisePrice
|                          |           |  |               |          |                             
|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 |      
|                          |           |  |               |          |                              |   |       |      

Summarized information about the outstanding SARs at December 31, 2001 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           
|                  |  |             |           |                  |  |                   |     |           |  |                 
|$0.53             |  |             | 5,998     |                  |  |                   | 4.8 |           |  | $                | 0.53  |  |  |          | 5,998     |  |  | $ | 0.53  | 
|$10.08 to $12.98  |  |             | 2,733,692 |                  |  |                   | 6.8 |           |  |                  | 12.33 |  |  |          | 2,487,079 |  |  |   | 12.32 | 
|$13.37 to 15.50   |  |             | 471,275   |                  |  |                   | 6.5 |           |  |                  | 14.77 |  |  |          | 348,224   |  |  |   | 14.79 | 
|                  |  |             |           |                  |  |                   |     |           |  |                  |       |  |  |          |           |  |  |   |       | 
|                  |  |             | 3,210,965 |                  |  |                   | 6.7 |           |  | $                | 12.66 |  |  |          | 2,841,301 |  |  | $ | 12.60 | 
|                  |  |             |           |                  |  |                   |     |           |  |                  |       |  |  |          |           |  |  |   |       | 

The accrued expense for SARs recorded by Liberty Media at the acquisition
of 4MC was $52.9 million. The accrued expense at June 9, 2000, assumed under
the Contribution Agreement between Liberty Media and the Company was $30.8
million. The accrued expense was $3.2 million and $1.0 million as of December
31, 2001 and December 31, 2000, respectively. The consolidated statement of
operations for the year ended December 31, 2001 includes a non-cash charge of
$2.3 million and the seven months ended December 31, 2000 reflects non-cash
income of $29.6 million due to the changes in the stock price underlying the
SARs.

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.

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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, 2001 and the seven months ended
December 31, 2000, the Company recorded $216,000 and $127,000 of stock
compensation expense, respectively, based on the fluctuation in the stock price
underlying the options. The unearned stock compensation balance was adjusted
to approximately $94,000 and $273,000 as of December 31, 2001 and December 31,
2000, respectively.

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: 29,251,674 for the year ended December 31, 2001,
11,745,357 for the seven months ended December 31, 2000, 849,391 for the five
months ended May 31, 2000 and 1,008,341 for the year ended August 31, 1999.

11. EMPLOYEE BENEFIT PLANS

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 Plans for eligible employees of its Foreign Subsidiaries.
Employer contributions are determined by the Companys Board. The Plans are
funded by employee and employer contributions. Total pension plan expenses for
the periods presented were as follows (in thousands):

|              |  |                  |       |          |  |              |       |          |  |            |     |      |  |   |     |  |  |   |       | 
|------------- |  | ---------------- | ----- | -------- |  | ------------ | ----- | -------- |  | ---------- | --- | ---- |  | - | --- |  |  | - | ----- | 
|              |  | Liberty Livewire |       | Todd-AO 
|              |  |                  |       |         
|              |  |                  |       |          |  | Seven        |       |          |  |            |     | Four |  |   |     | 
|              |  | Year             |       | Months   |  | Five         |       | Months   |  | Year      
|              |  | Ended            |       | Ended    |  | Months       |       | Ended    |  | Ended     
|              |  | December         |       | December |  | Ended        |       | December |  | August 31,
|              |  | 31, 2001         |       | 31, 2000 |  | May 31, 2000 |       | 31, 1999 |  | 1999      
|              |  |                  |       |          |  |              |       |          |  |           
|MPIPH         |  | $                | 2,700 |          |  | $            | 297   |          |  | $          | 212 |      |  | $ | 229 |  |  | $ | 687   | 
|U.S. 401(k)   |  |                  | 1,717 |          |  |              | 260   |          |  |            | 185 |      |  |   | 162 |  |  |   | 485   | 
|Foreign Plans |  |                  | 1,175 |          |  |              | 532   |          |  |            | 380 |      |  |   | 91  |  |  |   | 273   | 
|              |  |                  |       |          |  |              |       |          |  |            |     |      |  |   |     |  |  |   |       | 
|              |  | $                | 5,592 |          |  | $            | 1,089 |          |  | $          | 777 |      |  | $ | 482 |  |  | $ | 1,445 | 
|              |  |                  |       |          |  |              |       |          |  |            |     |      |  |   |     |  |  |   |       | 

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12. COMMITMENTS AND 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, |  |   |         | 
|                        |  |   |         | 
|2002                    |  | $ | 27,700  | 
|2003                    |  |   | 24,900  | 
|2004                    |  |   | 19,800  | 
|2005                    |  |   | 18,800  | 
|2006                    |  |   | 16,800  | 
|Thereafter              |  |   | 47,700  | 
|                        |  |   |         | 
|                        |  | $ | 155,700 | 
|                        |  |   |         | 

Rent expense for noncancellable operating leases for real property and
equipment was $28.4 million, $13.9 million, $2.7 million and $8.2 million for
the year ended December 31, 2001, the combined year ended December 31, 2000,
the four months ended December 31, 1999 and the year ended August 31, 1999,
respectively. Various lease arrangements contain options to extend terms and
are subject to escalation clauses.

At December 31, 2001, the Company is committed to compensation under
long-term employment agreements with its named executive officers as follows:
2002, $825,000 and 2003, $825,000.

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.

13. 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.
These counterparties expose the Company to credit loss in the event of
nonperformance. However, the Company does not anticipate nonperformance by its
counterparties.

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

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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 the
year and each amended Variable to Fixed Swap has been accounted for as a
separate cash flow hedge. Each of the Variable to Fixed Swaps were formally
designated as cash flow hedge instruments until the Company de-designated the
contracts as hedge instruments on November 1, 2001. 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 will be
reclassified into interest expense as a yield adjustment of the hedged debt
obligation in the same period in which the related interest affects earnings.

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, 2001, $6.2 million of losses on the Variable to
Fixed Swaps included in AOCI was charged to interest expense with another $6.4
million to be recorded during fiscal 2002. The losses will be reclassified to
interest expense as interest payments are made throughout the original terms of
the Variable to Fixed Swaps. Additionally, the Company has recognized $2.1
million as other expense for changes in the fair value of the swaps since
November 1, 2001, date of de-designation and execution of the Fixed to Variable
Swaps.

14. BUSINESS SEGMENT INFORMATION

During the quarter ended June 30, 2001, the Company changed the manner in
which it reports operating segments. The Companys business units have been
aggregated into three reportable segments: the Pictures Group, the Media
Group, and the Networks Group, which were formally referred to as Content
Preparation, Content Management and Content Distribution, respectively.
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 the Companys Interactive Media business  a new and
developing business initiative. The European operations, for which the Company
previously maintained a separate segment and management structure, have been
grouped according to function within the Companys three reportable segments.

The Pictures 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, television commercials, music videos,
promotional and identity campaigns and corporate communications programming.
The Media Group provides services necessary to facilitate the global
maintenance, management and distribution of existing content libraries; access
to physical and virtual content, restoration and preservation of damaged
content and creation of high resolution professional masters from original
camera negative for global home, broadcast, pay-per-view and emerging new media
channels. The Networks Group provides services necessary to assemble and
distribute programming for cable and broadcast networks via fiber,

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satellite and the Internet to viewers in North America, Europe and Asia.
Additionally, the Networks Group includes the results of the Companys
Bandwidth Management initiative, a new and developing business.

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

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

|                             |                                  |                |   |             |  |                |   |         |  |       |   |         |  |  |             |         |   |  |   |         | 
|---------------------------- | -------------------------------- | -------------- | - | ----------- |  | -------------- | - | ------- |  | ----- | - | ------- |  |  | ----------- | ------- | - |  | - | ------- | 
|                             |                                  |                |   |             |  |                |   |         |  |       |   |         |  |  | Corporate & |         |   |  |  
|Liberty Livewire             |                                  | Pictures Group |   | Media Group |  | Networks Group |   | Other   |  | Total
|                             |                                  |                |   |             |  |                |   |         |  |      
|Year Ended December 31, 2001 |                                  |                |   |             |  |                |   |         |  |       |   |         |  |  |             |         |   |  |   |        
|                             | Revenues from external
customers |                | $ | 332,921     |  |                | $ | 104,063 |  |       | $ | 155,550 |  |  | $           | 198     |   |  | $ | 592,732 | 
|                             | EBITDA                           |                |   | 64,369      |  |                |   | 30,967  |  |       |   | 48,969  |  |  |             | (38,562 | ) |  |   | 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 | 

|                                     |                                  |                |   |             |  |                |   |         |  |       |   |         |  |  |             |         |   |  |   |           | 
|------------------------------------ | -------------------------------- | -------------- | - | ----------- |  | -------------- | - | ------- |  | ----- | - | ------- |  |  | ----------- | ------- | - |  | - | --------- | 
|                                     |                                  |                |   |             |  |                |   |         |  |       |   |         |  |  | Corporate & |         |   |  |  
|Liberty Livewire                     |                                  | Pictures Group |   | Media Group |  | Networks Group |   | 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 | 

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|                               |                                  |                |   |             |  |                |   |        |  |       |   |   |  |  |             |   |  |  |   |         | 
|------------------------------ | -------------------------------- | -------------- | - | ----------- |  | -------------- | - | ------ |  | ----- | - | - |  |  | ----------- | - |  |  | - | ------- | 
|                               |                                  |                |   |             |  |                |   |        |  |       |   |   |  |  | Corporate & |   |  |  |  
|Todd-AO                        |                                  | Pictures Group |   | Media Group |  | Networks Group |   | 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 | 

|                                    |                                  |                |   |             |  |                |   |        |  |       |   |   |  |  |             |      |   |  |   |         | 
|----------------------------------- | -------------------------------- | -------------- | - | ----------- |  | -------------- | - | ------ |  | ----- | - | - |  |  | ----------- | ---- | - |  | - | ------- | 
|                                    |                                  |                |   |             |  |                |   |        |  |       |   |   |  |  | Corporate & |      |   |  |  
|Todd-AO                             |                                  | Pictures Group |   | Media Group |  | Networks Group |   | Other  |  | Total
|                                    |                                  |                |   |             |  |                |   |        |  |      
|Four Months Ended December 31, 1999 |                                  |                |   |             |  |                |   |        |  |       |   |   |  |  |             |      |   |  |   |        
|                                    | Revenues from external customers |                | $ | 34,834      |  |                | $ | 8,427  |  |       | $ |  |  |  | $           |     |   |  | $ | 43,261  | 
|                                    | EBITDA                           |                |   | 4,899       |  |                |   | 2,344  |  |       |   |  |  |  |             | (329 | ) |  |   | 6,914   | 
|                                    | Capital expenditures             |                |   | 3,615       |  |                |   | 701    |  |       |   |  |  |  |             |     |   |  |   | 4,316   | 
|                                    | Depreciation and amortization    |                |   | 3,895       |  |                |   | 921    |  |       |   |  |  |  |             |     |   |  |   | 4,816   | 
|                                    | Total assets                     |                | $ | 128,793     |  |                | $ | 33,211 |  |       | $ |  |  |  | $           |     |   |  | $ | 162,004 | 

|                           |                                  |                |   |             |  |                |   |        |  |       |   |   |  |  |             |   |  |  |   |         | 
|-------------------------- | -------------------------------- | -------------- | - | ----------- |  | -------------- | - | ------ |  | ----- | - | - |  |  | ----------- | - |  |  | - | ------- | 
|                           |                                  |                |   |             |  |                |   |        |  |       |   |   |  |  | Corporate & |   |  |  |  
|Todd-AO                    |                                  | Pictures Group |   | Media Group |  | Networks Group |   | Other  |  | Total
|                           |                                  |                |   |             |  |                |   |        |  |      
|Year Ended August 31, 1999 |                                  |                |   |             |  |                |   |        |  |       |   |   |  |  |             |   |  |  |   |        
|                           | Revenues from external customers |                | $ | 94,384      |  |                | $ | 24,133 |  |       | $ |  |  |  | $           |  |  |  | $ | 118,517 | 
|                           | EBITDA                           |                |   | 14,059      |  |                |   | 6,074  |  |       |   |  |  |  |             |   |  |  |   | 20,133  | 
|                           | Capital expenditures             |                |   | 16,671      |  |                |   | 6,505  |  |       |   |  |  |  |             |  |  |  |   | 23,176  | 
|                           | Depreciation and amortization    |                |   | 10,193      |  |                |   | 2,636  |  |       |   |  |  |  |             |  |  |  |   | 12,829  | 
|                           | Total assets                     |                | $ | 120,218     |  |                | $ | 32,962 |  |       | $ |  |  |  | $           |  |  |  | $ | 153,180 | 

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

|                  |                                                           |   |                    |         |                    |   |                  |         |                   |   |                  |       |      |   |       |       |  |   |        |        | 
|----------------- | --------------------------------------------------------- | - | ------------------ | ------- | ------------------ | - | ---------------- | ------- | ----------------- | - | ---------------- | ----- | ---- | - | ----- | ----- |  | - | ------ | ------ | 
|                  |                                                           |   | Liberty Livewire   |         | Todd-AO           
|                  |                                                           |   |                    |         |                   
|                  |                                                           |   | Year               |         |                    |   |                  |         | Five              |   | Four             |       | Year
|                  |                                                           |   | Ended December 31, |         | Seven Months Ended |   | Months Ended May |         | Months Ended      |   | Ended August 31,
|                  |                                                           |   | 2001               |         | December 31, 2000  |   | 31, 2000         |         | December 31, 1999 |   | 1999            
|                  |                                                           |   |                    |         |                    |   |                  |         |                   |   |                 
|Net income (loss) |                                                           | $ | (436,289           | )       |                    | $ | (9,793           | )       |                   | $ | (1,675           | )     |      | $ | 449   |       |  | $ | 1,313  |       
|Add:              |                                                           |   |                    |         |                    |   |                  |         |                   |   |                  |       |      |   |       |       |  |   |        |       
|                  | Change in accounting
principle, net of income tax
benefit |   |                    |        |                    |   |                  |        |                   |   |                  |      |      |   |       |      |  |   |        | 293    | 
|                  | Depreciation and amortization                             |   |                    | 128,603 |                    |   |                  | 51,545  |                   |   |                  | 6,925 |      |   |       | 4,816 |  |   |        | 12,829 | 
|                  | Non-cash compensation expense
(income)                    |   |                    | 4,293   |                    |   |                  | (29,577 | )                 |   |                  |      |      |   |       |      |  |   |        |       | 
|                  | Impairment of long-lived assets                           |   |                    | 307,932 |                    |   |                  |        |                   |   |                  |      |      |   |       |      |  |   |        |       | 
|                  | Restructuring and other charges                           |   |                    | 5,558   |                    |   |                  |        |                   |   |                  |      |      |   |       |      |  |   |        | 788    | 
|                  | Interest expense, net                                     |   |                    | 63,119  |                    |   |                  | 19,132  |                   |   |                  | 1,641 |      |   |       | 1,384 |  |   |        | 3,617  | 
|                  | Other expense (income), net                               |   |                    | 10,974  |                    |   |                  | (872    | )                 |   |                  | 1,070 |      |   |       | 130   |  |   |        | 413    | 
|                  | Non-recurring costs                                       |   |                    | 9,985   |                    |   |                  | 648     |                   |   |                  |      |      |   |       |      |  |   |        |       | 
|                  | Provision (benefit) for income
taxes                      |   |                    | 11,568  |                    |   |                  | 3,679   |                   |   |                  | (441  | )    |   |       | 135   |  |   |        | 880    | 
|                  |                                                           |   |                    |         |                    |   |                  |         |                   |   |                  |       |      |   |       |       |  |   |        |       
|EBITDA            |                                                           | $ | 105,743            |         |                    | $ | 34,762           |         |                   | $ | 7,520            |       |      | $ | 6,914 |       |  | $ | 20,133 |       
|                  |                                                           |   |                    |         |                    |   |                  |         |                   |   |                  |       |      |   |       |       |  |   |        |       

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

|                  |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |         |  
|----------------- | -------------- | - | ------------------ | -------- | ------------------ | - | ---------------- | --------- | ----------------- | - | ---------------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                  |                |   | Liberty Livewire   |          | Todd-AO           
|                  |                |   |                    |          |                   
|                  |                |   | Year               |          |                    |   |                  |           | Five              |   | Four             |         | Year
|                  |                |   | Ended December 31, |          | Seven Months Ended |   | Months Ended May |           | Months Ended      |   | Ended August 31,
|                  |                |   | 2001               |          | December 31, 2000  |   | 31, 2000         |           | December 31, 1999 |   | 1999            
|                  |                |   |                    |          |                    |   |                  |           |                   |   |                 
|Revenues          |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        
|                  | United States  |   | $                  | 469,045  |                    |   | $                | 185,520   |                   |   | $                | 38,865  |      |   | $       | 30,456  |   |   | $       | 79,330  |  
|                  | United Kingdom |   |                    | 100,651  |                    |   |                  | 59,332    |                   |   |                  | 14,378  |      |   |         | 12,805  |   |   |         | 39,187  |  
|                  | Mexico         |   |                    | 3,812    |                    |   |                  | 2,649     |                   |   |                  |        |      |   |         |        |   |   |         |        |  
|                  | Asia           |   |                    | 19,224   |                    |   |                  | 5,598     |                   |   |                  |        |      |   |         |        |   |   |         |        |  
|                  |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        
|                  |                | $ | 592,732            |          |                    | $ | 253,099          |           |                   | $ | 53,243           |         |      | $ | 43,261  |         |   | $ | 118,517 |        
|                  |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        
|Net income (loss) |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        
|                  | United States  |   | $                  | (435,261 | )                  |   | $                | (14,383   | )                 |   | $                | (1,823  | )    |   | $       | (555    | ) |   | $       | (1,462  | )
|                  | United Kingdom |   |                    | (7,638   | )                  |   |                  | 3,720     |                   |   |                  | 148     |      |   |         | 1,004   |   |   |         | 2,775   |  
|                  | Mexico         |   |                    | 523      |                    |   |                  | 442       |                   |   |                  |        |      |   |         |        |   |   |         |        |  
|                  | Asia           |   |                    | 6,087    |                    |   |                  | 428       |                   |   |                  |        |      |   |         |        |   |   |         |        |  
|                  |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        
|                  |                | $ | (436,289           | )        |                    | $ | (9,793           | )         |                   | $ | (1,675           | )       |      | $ | 449     |         |   | $ | 1,313   |        
|                  |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        
|Assets            |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        
|                  | United States  |   | $                  | 709,790  |                    |   | $                | 1,001,816 |                   |   | $                | 111,430 |      |   | $       | 111,116 |   |   | $       | 106,258 |  
|                  | United Kingdom |   |                    | 122,081  |                    |   |                  | 152,892   |                   |   |                  | 48,018  |      |   |         | 50,888  |   |   |         | 46,922  |  
|                  | Mexico         |   |                    | 9,435    |                    |   |                  | 5,232     |                   |   |                  |        |      |   |         |        |   |   |         |        |  
|                  | Asia           |   |                    | 78,385   |                    |   |                  | 15,905    |                   |   |                  |        |      |   |         |        |   |   |         |        |  
|                  |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        
|                  |                | $ | 919,691            |          |                    | $ | 1,175,845        |           |                   | $ | 159,448          |         |      | $ | 162,004 |         |   | $ | 153,180 |        
|                  |                |   |                    |          |                    |   |                  |           |                   |   |                  |         |      |   |         |         |   |   |         |        

15. RELATED PARTY TRANSACTIONS

In connection with the Todd Merger, as described in Note 1, Liberty
Livewire and Liberty Media entered into the Liberty Subordinated Credit
Agreement, which was amended and restated on December 22, 2000. Pursuant to
the agreement Liberty Media agreed to make subordinated convertible loans to
Liberty Livewire of $206.2 million, for the funding of several acquisitions.
The Convertible Subordinated Notes are convertible at the option of Liberty
Media, at any time prior to maturity, into shares of Liberty Livewires Class B
Common Stock at a conversion price of $10.00 per share. The Convertible
Subordinated Notes are unsecured senior subordinated obligations, ranking
junior to Liberty Livewires Senior Credit Agreement with its institutional
lenders. The notes bear interest at 10% per annum, payable quarterly in
arrears either in cash, shares of Liberty Livewires Class B Common Stock or a
combination thereof, at Liberty Livewires discretion, subject to certain
limits. To the extent interest is paid in shares of Class B Common Stock, such
shares will be valued at 95% of the trailing ten-day average closing price of
the Class A Common Stock of Liberty Livewire on the interest payment date.

Liberty Livewire is party to an agreement dated April 13, 2000 with
HyperTV Networks, Inc., a subsidiary of ACTV. ACTV is a digital media company that
provides technical and creative services, tools and proprietary applications
for digital television and enhanced media. HyperTV is a suite of patented
processes that enhance a television program or advertisement with related and
synchronized content delivered through the Internet. Under the joint marketing
agreement, and by virtue of the assumption of the rights under that agreement,
we received the non-exclusive right to use certain patented technologies of
ACTV in providing turnkey convergence services, including application hosting,
web authorizing services, data management, e-commerce and other value-added
services for advertisers, television programmers, studios and networks. In
accordance with certain provisions of the agreement, ACTV was granted a warrant
to acquire 2,500,000 shares of our Class A Common Stock, at an exercise price
of $30.00 per share. The warrant, which expires June 2015 and includes
registration rights, vests ratably over a five year period beginning April 13,
2001.

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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 beginning November 2000 is party to a Tax Liability Allocation and Indemnification Agreement
entered into with its parent, Liberty Media (the Tax Sharing Agreement).

Under the Tax Sharing Agreement, we are obligated to make a cash payment
to Liberty Media in each year that we (taken together with all of our domestic
subsidiaries) generate positive taxable income measured on a separate 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 effect. If, when
treated as a separate group, we generate a net operating loss or are entitled
to a net tax credit for a particular year, and Liberty Media is able to utilize
such losses or credits to reduce its tax liability for any year, we would
become entitled to a benefit against future payments to Liberty Media under the
agreement. If we become disaffiliated from Liberty Media (i.e., if the value
or voting power of Liberty Medias stock ownership of us were to drop below
80%) prior to the time that we are able to utilize such benefits, we would be
entitled to a payment from Liberty Media at the earlier of the time that we
show we could have utilized the net operating loss carryforward or net tax
credit to reduce our own separately computed tax liability or the value or
voting power of Liberty Medias stock ownership of us drops below 20%.

The Company purchases corporate, general, property and hazard insurance
with Liberty Media and its other subsidiaries under combined policies and
reimburses Liberty Media for a pro rata allocation of the associated costs.
The expenses allocated from Liberty Media to us for such services, in the
aggregate, totaled approximately $4.2 million during fiscal year 2001. In
addition, our fiscal year 2001 statement of operations includes a $450,000
management fee charged to us by Liberty Media.

16. QUARTERLY FINANCIAL DATA

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    | )

The following table presents financial data for five months ended May 31,
2000, the four months ended September 30, 2000 and the quarter ended December
31, 2000 (in thousands):

|                                       |  |         |        |                  |  |             |         |   |  |   |         |  
|-------------------------------------- |  | ------- | ------ | ---------------- |  | ----------- | ------- | - |  | - | ------- | -
|                                       |  | Todd-AO |        | Liberty Livewire
|                                       |  |         |        |                 
|                                       |  | May 31  |        | September 30     |  | December 31
|                                       |  |         |        |                  |  |            
|Net revenues                           |  | $       | 53,243 |                  |  | $           | 127,307 |   |  | $ | 125,792 |  
|Gross profit                           |  |         | 16,680 |                  |  |             | 44,186  |   |  |   | 47,280  |  
|Net loss                               |  |         | (1,675 | )                |  |             | (8,778  | ) |  |   | (1,015  | )
|Net loss per share  basic and diluted |  | $       | (0.16  | )                |  | $           | (0.27   | ) |  | $ | (0.03   | )

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

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SCHEDULE II

LIBERTY LIVEWIRE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)

|                                 |                                      |           |            |           |               |          |             |            |        |        |         |       |     |  |        |     |   |  |   |        | 
|-------------------------------- | ------------------------------------ | --------- | ---------- | --------- | ------------- | -------- | ----------- | ---------- | ------ | ------ | ------- | ----- | --- |  | ------ | --- | - |  | - | ------ | 
|                                 |                                      |           |            |           |               |          | Column      |            | Column |        |         |       |     |  |        |     |  
|                                 |                                      |           |            |           |               |          | C           |            | D      |        |         |       |     |  | Column
|                                 |                                      |           | Column     |           | Additions     |          | Additions   |            |        |        |         |       | F  
|                                 |                                      |           | B          |           | Charged       |          | Acquired or |            | Column |        | Balance
|                                 |                                      |           | Balance at |           | (Credited) to |          | Charged to  |            | E      |        | at     
|Column                           |                                      | Beginning |            | Costs and |               | Other    |             | Deductions |        | End of
|A                                |                                      | of Period |            | Expenses  |               | Accounts |             | and Other  |        | Period
|                                 |                                      |           |            |           |               |          |             |            |        |       
|Allowance for doubtful accounts: |                                      |           |            |           |               |          |             |            |        |        |         |       |     |  |        |     |   |  |   |       
|                                 | Year ended August 31, 1999           |           | $          | 1,768     |               |          | $           | (650       | )      |        | $       | 94    | (a) |  | $      | 3   |   |  | $ | 1,215  | 
|                                 |                                      |           |            |           |               |          |             |            |        |        |         |       |     |  |        |     |   |  |   |       
|                                 | Four months ended December
31, 1999  |           | $          | 1,215     |               |          | $           | 96         |        |        | $       |      |     |  | $      | 77  |   |  | $ | 1,388  | 
|                                 |                                      |           |            |           |               |          |             |            |        |        |         |       |     |  |        |     |   |  |   |       
|                                 | Five months ended May 31, 2000       |           | $          | 1,388     |               |          | $           | (149       | )      |        | $       |      |     |  | $      |    |   |  | $ | 1,239  | 
|                                 |                                      |           |            |           |               |          |             |            |        |        |         |       |     |  |        |     |   |  |   |       
|                                 | Seven months ended December
31, 2000 |           | $          | 1,239     |               |          | $           | 493        |        |        | $       | 3,835 | (b) |  | $      |    |   |  | $ | 5,567  | 
|                                 |                                      |           |            |           |               |          |             |            |        |        |         |       |     |  |        |     |   |  |   |       
|                                 | Year ended December 31, 2001         |           | $          | 5,567     |               |          | $           | 5,763      |        |        | $       | 684   | (c) |  | $      | (63 | ) |  | $ | 11,951 | 
|                                 |                                      |           |            |           |               |          |             |            |        |        |         |       |     |  |        |     |   |  |   |       



---

|(a) |  | Balance acquired in acquisition of Sound One.                                                
|--- |  | ---------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(b) |  | Balance acquired in acquisition of 4MC  $2,907,000,
Soundelux  $240,000 and Soho -$688,000.
|   
|   
|   
|   
|(c) |  | Balance acquired in acquisition of GWNS  $654,000 and LNS -
$30,000.                        

F-35