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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)

| |     |                                                                                        
| | --- | ---------------------------------------------------------------------------------------
| | [X] | QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2001

OR

| |        |                                                                                         
| | ------ | ----------------------------------------------------------------------------------------
| | [    ] | 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: 0-1461

LIBERTY LIVEWIRE CORPORATION

(Exact name of registrant as specified in its charter)


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

520 Broadway, Santa Monica, CA 90401
(Address of principal executive offices) (Zip Code)

Registrants telephone number, including area code: (310) 434-7000

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been
subject to such filing requirements for the past 90 days. Yes [X]   No [   ]

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date:

|                                        |  |                                  |            | 
|--------------------------------------- |  | -------------------------------- | ---------- | 
|Title of each class                     |  | Outstanding at
November 13, 2001
|                                        |  |                                 
|Common Stock, $0.01 par value  Class A |  |                                  | 5,335,424  | 
|Common Stock, $0.01 par value  Class B |  |                                  | 33,624,496 | 





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TABLE OF CONTENTS



|                               |                                                                                               |                                                             |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------- |  |  |  |  |  | 
|                               |                                                                                               | Condensed Consolidated Balance Sheets                      
|PART I  FINANCIAL INFORMATION
|                               | Item 1. Financial Statements                                                                 
|                               |                                                                                               | Condensed Consolidated Statements of Operations (Unaudited)
|                               |                                                                                               | Condensed Consolidated Statements of Cash Flows (Unaudited)
|                               |                                                                                               | Notes to Condensed Consolidated Financial Statements       
|                               | ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                               | Item 3.  Quantitative and Qualitative Disclosures About Market Risk                         
|PART II  OTHER INFORMATION   
|                               | Item 1. Legal Proceedings                                                                    
|                               | Item 2. Changes in Securities and Use of Proceeds                                            
|                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURE                     



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##### Table of Contents



Liberty Livewire Corporation
Quarterly Report on Form 10-Q for the Quarter Ended September 30, 2001
Table of Contents

|                                                                                                                                                                                                     |  |      |    | 
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                                                                                     |  | Page
|                                                                                                                                                                                                     |  |     
|PART I. FINANCIAL INFORMATION                                                                                                                                                                        |  |      |    | 
|ITEM 1.  Financial Statements                                                                                                                                                                       |  |      |    | 
|Condensed Consolidated Balance Sheets as of September 30, 2001
and December 31, 2000                                                                                                                 |  |      | 3  | 
|Condensed Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 2001 and for the Three and Four Months Ended September 30, 2000 and Five Months Ended May 31,
2000 |  |      | 5  | 
|Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2001 and Four Months Ended September 30, 2000 and Five Months
Ended May 31, 2000                             |  |      | 6  | 
|Notes to Condensed Consolidated Financial Statements                                                                                                                                                 |  |      | 7  | 
|ITEM 2.  Managements Discussion and Analysis of
Financial Condition and Results of Operations                                                                                                      |  |      | 15 | 
|ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk                                                                                                                                 |  |      | 20 | 
|PART II. OTHER INFORMATION                                                                                                                                                                           |  |      |    | 
|ITEM 1.  Legal Proceedings                                                                                                                                                                          |  |      | 20 | 
|ITEM 2.  Changes in Securities and Use of Proceeds                                                                                                                                                  |  |      | 20 | 
|ITEM 6.  Exhibits and Reports on Form 8-K                                                                                                                                                           |  |      | 20 | 
|SIGNATURE                                                                                                                                                                                            |  |      | 21 | 





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##### Table of Contents






LIBERTY LIVEWIRE CORPORATION

Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share amounts)




PART I  FINANCIAL
INFORMATION




Item 1. Financial Statements

Assets

|                |                                                                                                                                                      |   |               |         |              |   |           |         | 
|--------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------- | ------- | ------------ | - | --------- | ------- | 
|                |                                                                                                                                                      |   | September 30, |         | December 31,
|                |                                                                                                                                                      |   | 2001          |         | 2000        
|                |                                                                                                                                                      |   |               |         |             
|                |                                                                                                                                                      |   | (Unaudited)   |         | (Audited)   
|Current Assets: |                                                                                                                                                      |   |               |         |              |   |           |        
|                | Cash and cash equivalents                                                                                                                            |   | $             | 19,625  |              |   | $         | 19,466  | 
|                | Marketable securities                                                                                                                                |   |               |        |              |   |           | 5,414   | 
|                | Trade receivables (net of allowance for doubtful accounts of
$8,477 at September 30, 2001 and $5,567 at December 31, 2000)                           |   |               | 109,457 |              |   |           | 106,158 | 
|                | Inventories                                                                                                                                          |   |               | 5,137   |              |   |           | 4,932   | 
|                | Deferred income taxes, net                                                                                                                           |   |               | 6,553   |              |   |           | 4,742   | 
|                | Prepaid
expenses and other                                                                                                                           |   |               | 17,217  |              |   |           | 16,430  | 
|                |                                                                                                                                                      |   |               |         |              |   |           |        
|                | Total current assets                                                                                                                                 |   |               | 157,989 |              |   |           | 157,142 | 
|                |                                                                                                                                                      |   |               |         |              |   |           |        
|                | Property, plant, and equipment (net of accumulated
depreciation and amortization of $178,668 at September 30, 2001
and $35,076 at December 31, 2000) |   |               | 409,371 |              |   |           | 366,944 | 
|                | Due from parent company                                                                                                                              |   |               |        |              |   |           | 7,245   | 
|                | Goodwill and identifiable intangible assets
(net of accumulated amortization of $54,690 at
September 30, 2001 and $21,356 at December 31, 2000)      |   |               | 692,178 |              |   |           | 631,196 | 
|                | Deferred
income taxes, net                                                                                                                           |   |               | 2,496   |              |   |           |        | 
|                | Other Assets (net of accumulated amortization of $2,700
at September 30, 2001 and $555 at December 31, 2000)                                         |   |               | 12,271  |              |   |           | 13,318  | 
|                |                                                                                                                                                      |   |               |         |              |   |           |        
|Total Assets    |                                                                                                                                                      | $ | 1,274,305     |         |              | $ | 1,175,845 |        
|                |                                                                                                                                                      |   |               |         |              |   |           |        

See notes to condensed consolidated financial statements

3



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LIBERTY LIVEWIRE CORPORATION

Condensed Consolidated Balance Sheets (Continued)
(Amounts in thousands, except per share amounts)

Liabilities and Stockholders Equity

|                                           |                                                                                                                                                        |   |               |         |              |   |           |         |  
|------------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------ | - | ------------- | ------- | ------------ | - | --------- | ------- | -
|                                           |                                                                                                                                                        |   | September 30, |         | December 31,
|                                           |                                                                                                                                                        |   | 2001          |         | 2000        
|                                           |                                                                                                                                                        |   |               |         |             
|                                           |                                                                                                                                                        |   | (Unaudited)   |         | (Audited)   
|Current Liabilities:                       |                                                                                                                                                        |   |               |         |              |   |           |        
|                                           | Accounts payable and accrued liabilities                                                                                                               |   | $             | 101,422 |              |   | $         | 108,780 |  
|                                           | Interest rate swaps and accrued interest                                                                                                               |   |               | 17,930  |              |   |           | 1,120   |  
|                                           | SARs compensation payable                                                                                                                              |   |               | 379     |              |   |           | 979     |  
|                                           | Current maturities of long-term debt and capital lease obligations                                                                                     |   |               | 8,125   |              |   |           | 8,545   |  
|                                           |                                                                                                                                                        |   |               |         |              |   |           |        
|                                           | Total current liabilities                                                                                                                              |   |               | 127,856 |              |   |           | 119,424 |  
|                                           |                                                                                                                                                        |   |               |         |              |   |           |        
|                                           | Long-term debt and capital lease obligations                                                                                                           |   | $             | 435,127 |              |   | $         | 399,891 |  
|                                           | Convertible subordinated debt                                                                                                                          |   |               | 182,903 |              |   |           | 92,682  |  
|                                           | Due
to parent company                                                                                                                                  |   |               | 3,273   |              |   |           |        |  
|                                           | Other liabilities                                                                                                                                      |   |               | 4,366   |              |   |           | 3,764   |  
|                                           | Deferred income taxes, net                                                                                                                             |   |               |        |              |   |           | 6,957   |  
|                                           |                                                                                                                                                        |   |               |         |              |   |           |        
|                                           | Total liabilities                                                                                                                                      |   |               | 753,525 |              |   |           | 622,718 |  
|                                           |                                                                                                                                                        |   |               |         |              |   |           |        
|Commitments and contingencies              |                                                                                                                                                        |   |               |         |              |   |           |        
|Stockholders equity:                      |                                                                                                                                                        |   |               |         |              |   |           |        
|Common stock:                              |                                                                                                                                                        |   |               |         |              |   |           |        
|                                           | Class A; authorized 300,000,000 shares of $0.01 par value; issued 5,362,418 at
September 30, 2001 and 5,384,506 at December 31, 2000                   |   |               | 54      |              |   |           | 54      |  
|                                           | Class B; authorized 100,000,000 shares of $0.01 par value; issued and outstanding
33,624,496 at September 30, 2001 and 31,612,716 at December 31, 2000 |   |               | 336     |              |   |           | 316     |  
|                                           | Additional paid-in capital                                                                                                                             |   |               | 612,160 |              |   |           | 570,185 |  
|                                           | Retained deficit                                                                                                                                       |   |               | (72,714 | )            |   |           | (9,793  | )
|                                           | Deferred tax asset to be utilized by parent                                                                                                            |   |               | (150    | )            |   |           | (409    | )
|                                           | Accumulated other comprehensive loss                                                                                                                   |   |               | (18,735 | )            |   |           | (6,934  | )
|                                           | Other stockholders equity                                                                                                                             |   |               | (171    | )            |   |           | (292    | )
|                                           |                                                                                                                                                        |   |               |         |              |   |           |        
|                                           | Total stockholders equity                                                                                                                             |   |               | 520,780 |              |   |           | 553,127 |  
|                                           |                                                                                                                                                        |   |               |         |              |   |           |        
|Total liabilities and stockholders equity |                                                                                                                                                        | $ | 1,274,305     |         |              | $ | 1,175,845 |        
|                                           |                                                                                                                                                        |   |               |         |              |   |           |        

See notes to condensed consolidated financial statements

4



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LIBERTY LIVEWIRE CORPORATION

Condensed Consolidated Statements of Operations (Unaudited)
(Amounts in thousands, except per share amounts)

|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |        | 
|------------------------------------------------------ | ---------------------------------- | - | ---------------- | ------- | --------------- | - | ------------- | ------- | ------------- | - | ----------- | ------- |  | - | ---------- | ------- | - | - | ---------- | ------ | 
|                                                       |                                    |   | Post Todd Merger |         | Pre Todd Merger
|                                                       |                                    |   |                  |         |                
|                                                       |                                    |   | Livewire         |         | Todd-AO        
|                                                       |                                    |   |                  |         |                
|                                                       |                                    |   | Three Months     |         | Three Months    |   | Nine Months   |         | Four Months   |   | Five Months
|                                                       |                                    |   | Ended            |         | Ended           |   | Ended         |         | Ended         |   | Ended      
|                                                       |                                    |   | September 30,    |         | September 30,   |   | September 30, |         | September 30, |   | May 31,    
|                                                       |                                    |   | 2001             |         | 2000            |   | 2001          |         | 2000          |   | 2000       
|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |            
|Revenues                                               |                                    | $ | 142,648          |         |                 | $ | 100,441       |         |               | $ | 444,653     |         |  | $ | 127,307    |         |   | $ | 53,243     |       
|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |       
|Costs and Expenses:                                    |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |       
|                                                       | Operating costs and other expenses |   |                  | 120,296 |                 |   |               | 90,348  |               |   |             | 369,881 |  |   |            | 114,324 |   |   |            | 45,332 | 
|                                                       | Non-cash compensation expense      |   |                  | (10,051 | )               |   |               | (18,439 | )             |   |             | 808     |  |   |            | (11,089 | ) |   |            |       | 
|                                                       | Depreciation and amortization      |   |                  | 33,277  |                 |   |               | 19,571  |               |   |             | 93,155  |  |   |            | 25,433  |   |   |            | 6,244  | 
|                                                       | Interest                           |   |                  | 14,808  |                 |   |               | 7,243   |               |   |             | 44,102  |  |   |            | 9,543   |   |   |            | 2,032  | 
|                                                       | Other income (expense), net        |   |                  | 2,436   |                 |   |               | (997    | )             |   |             | 2,696   |  |   |            | (911    | ) |   |            | 1,070  | 
|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |       
|                                                       | Total costs and expenses           |   |                  | 160,766 |                 |   |               | 97,726  |               |   |             | 510,642 |  |   |            | 137,300 |   |   |            | 54,678 | 
|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |       
|Income (loss) before income taxes                      |                                    |   | (18,118          | )       |                 |   | 2,715         |         |               |   | (65,989     | )       |  |   | (9,993     | )       |   |   | (1,435     | )     
|Provision (benefit) for income taxes                   |                                    |   | 258              |         |                 |   | 3,473         |         |               |   | (3,068      | )       |  |   | (1,215     | )       |   |   | (441       | )     
|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |       
|Net loss                                               |                                    | $ | (18,376          | )       |                 | $ | (758          | )       |               | $ | (62,921     | )       |  | $ | (8,778     | )       |   | $ | (994       | )     
|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |       
|Weighted average shares outstanding-
basic and diluted |                                    |   | 37,981,528       |         |                 |   | 35,074,709    |         |               |   | 37,677,408  |         |  |   | 31,991,406 |         |   |   | 10,768,773 |       
|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |       
|Net loss per common share-basic and
diluted            |                                    | $ | (0.48            | )       |                 | $ | (0.02         | )       |               | $ | (1.67       | )       |  | $ | (0.27      | )       |   | $ | (0.09      | )     
|                                                       |                                    |   |                  |         |                 |   |               |         |               |   |             |         |  |   |            |         |   |   |            |       

See notes to condensed consolidated financial statements

5



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LIBERTY LIVEWIRE CORPORATION

Condensed Consolidated Statements of Cash Flows (Unaudited)
(Amounts in thousands)

|                                                          |                                                          |   |                  |          |                 |   |             |         |   |   |        |        |  
|--------------------------------------------------------- | -------------------------------------------------------- | - | ---------------- | -------- | --------------- | - | ----------- | ------- | - | - | ------ | ------ | -
|                                                          |                                                          |   | Post Todd Merger |          | Pre Todd Merger
|                                                          |                                                          |   |                  |          |                
|                                                          |                                                          |   | Livewire         |          | Todd-AO        
|                                                          |                                                          |   |                  |          |                
|                                                          |                                                          |   | Nine Months      |          | Four Months     |   | Five Months
|                                                          |                                                          |   | Ended            |          | Ended           |   | Ended      
|                                                          |                                                          |   | September 30,    |          | September 30,   |   | May 31,    
|                                                          |                                                          |   | 2001             |          | 2000            |   | 2000       
|                                                          |                                                          |   |                  |          |                 |   |            
|Net cash flows provided by operating activities           |                                                          | $ | 36,102           |          |                 | $ | 12,079      |         |   | $ | 4,453  |       
|                                                          |                                                          |   |                  |          |                 |   |             |         |   |   |        |       
|Cash flows from investing activities:                     |                                                          |   |                  |          |                 |   |             |         |   |   |        |       
|                                                          | Purchase of marketable securities and investments        |   |                  |         |                 |   |             | (2,017  | ) |   |        | 1,951  |  
|                                                          | Proceeds from sales of equipment, marketable securities, |   |                  |         |                 |   |             |        |   |   |        |       |  
|                                                          | and investments                                          |   |                  | 22,946   |                 |   |             | 43      |   |   |        |       |  
|                                                          | Acquisition of GWNS, net of cash acquired                |   |                  | (107,902 | )               |   |             |        |   |   |        |       |  
|                                                          | Acquisition of ANS and Cinram, net of cash acquired      |   |                  | (32,330  | )               |   |             |        |   |   |        |       |  
|                                                          | Net cash acquired in 4MC contribution                    |   |                  |         |                 |   |             | 14,066  |   |   |        |       |  
|                                                          | Acquisition of Triumph, net of cash acquired             |   |                  |         |                 |   |             | (8,488  | ) |   |        |       |  
|                                                          | Acquisition of Soho, net of cash acquired                |   |                  |         |                 |   |             | (26,969 | ) |   |        |       |  
|                                                          | Capital expenditures                                     |   |                  | (52,522  | )               |   |             | (23,233 | ) |   |        | (4,038 | )
|                                                          | Other Assets                                             |   |                  |         |                 |   |             | 2,338   |   |   |        | (1,669 | )
|                                                          |                                                          |   |                  |          |                 |   |             |         |   |   |        |       
|Net cash flows used in investing activities               |                                                          |   | (169,808         | )        |                 |   | (44,260     | )       |   |   | (3,756 | )     
|                                                          |                                                          |   |                  |          |                 |   |             |         |   |   |        |       
|Cash flows from financing activities:                     |                                                          |   |                  |          |                 |   |             |         |   |   |        |       
|                                                          | Borrowings of long-term debt                             |   |                  | 50,056   |                 |   |             | 65,144  |   |   |        | 400    |  
|                                                          | Borrowings under convertible subordinated debt           |   |                  | 127,539  |                 |   |             |        |   |   |        |       |  
|                                                          | Payments of long-term debt and capital lease obligations |   |                  | (29,643  | )               |   |             | (6,373  | ) |   |        | (2,669 | )
|                                                          | Payments of non-convertible subordinated debt            |   |                  | (13,801  | )               |   |             |        |   |   |        |       |  
|                                                          | Payments for SARs exercised                              |   |                  | (85      | )               |   |             | (215    | ) |   |        |       |  
|                                                          | Borrowings from parent company, net                      |   |                  |         |                 |   |             | (11,262 | ) |   |        |       |  
|                                                          | Proceeds from exercise of stock options                  |   |                  |         |                 |   |             | 3,425   |   |   |        | 776    |  
|                                                          |                                                          |   |                  |          |                 |   |             |         |   |   |        |       
|Net cash flows provided by (used in) financing activities |                                                          |   | 134,066          |          |                 |   | 50,719      |         |   |   | (1,493 | )     
|Effect of exchange rate changes on cash                   |                                                          |   | (201             | )        |                 |   | (385        | )       |   |   | (67    | )     
|                                                          |                                                          |   |                  |          |                 |   |             |         |   |   |        |       
|Net increase (decrease) in cash and cash equivalents      |                                                          |   | 159              |          |                 |   | 18,153      |         |   |   | (863   | )     
|Cash and cash equivalents at beginning of period          |                                                          |   | 19,466           |          |                 |   | 9,437       |         |   |   | 10,300 |       
|                                                          |                                                          |   |                  |          |                 |   |             |         |   |   |        |       
|Cash and cash equivalents at end of period                |                                                          | $ | 19,625           |          |                 | $ | 27,590      |         |   | $ | 9,437  |       
|                                                          |                                                          |   |                  |          |                 |   |             |         |   |   |        |       

See notes to condensed consolidated financial statements

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Liberty Livewire Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)



|1. |  | Change in Control and Basis of Presentation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Change in Control                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | On June 9, 2000, Liberty Media Corporation (Liberty Media) acquired a
controlling interest in Todd-AO Corporation (Todd-AO) from its
existing shareholders (Todd Merger). For financial statement purposes,
the acquisition by Liberty Media is deemed to have occurred on June 1,
2000. In connection with the Todd Merger, the shareholders of Todd-AO
approved the change of the Companys name to Liberty Livewire Corporation
(Livewire or the Company). Liberty Media owns 100% of Livewires
Class B Common Stock. Liberty Medias aggregate ownership interest in the
Companys equity, which consists of both Class A Common Stock and Class B
Common Stock, as of September 30, 2001, represents approximately 86% of the
Companys outstanding equity and 98% of its voting control.                                                                                 
|  
|   |  | Liberty Media was previously an indirect wholly owned subsidiary of AT&T.
Its former parent, Tele-Communications, Inc. (TCI), was acquired by AT&T
by merger in March 1999. On June 18, 2001, AT&T announced its plan to
split off Liberty Media Corporation as a separate publicly traded company.
On August 10, 2001, the split-off was consummated, as AT&T redeemed each
outstanding share of its LMGA and LMGB tracking stock for shares of Liberty
Media Corporation Series A and Series B common stock, on a one-for-one
basis, respectively. Subsequent to August 10, 2001, Liberty Media
Corporation, which directly and through its subsidiaries owns all of the
assets and operations formerly comprising the Liberty Media Group, is no
longer a subsidiary of AT&T. Liberty Media Corporation trades on the New
York Stock Exchange under the symbols LMC.A and LMC.B.
|  
|   |  | 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 the contribution of Four
Media Company (4MC) to Livewire, Liberty Media has applied push down
accounting and transferred to the Company the fair value adjustments
relating to the assets of Todd-AO at June 9, 2000. The assets and
liabilities of 4MC have been recorded at Liberty Medias historical value
including fair value adjustments resulting from the acquisition of 4MC by
Liberty Media.                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | The accompanying unaudited consolidated financial statements of 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 September 30, 2001; the
results of its operations for the three months ended September 30, 2001 and
2000, the nine months ended September 30, 2001, the four months ended
September 30, 2000 and the five months ended May 31, 2000;
and the cash flows
for the nine months ended September 30, 2001, the four months
ended September 30, 2000 and the five months ended May 31,
2000. The results of
operations for the interim periods presented are not necessarily indicative
of the operating results for the full year.                                                                                                       
|  
|   |  | The condensed consolidated financial statements for the five months ended
May 31, 2000 represent the consolidated financial condition and results of
operations of Todd-AO before the acquisition by Liberty Media. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Companys annual report on Form 10-K for the year
ended December 31, 2000 as amended by Amendment No. 1 on Form 10-K/A filed
on April 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                         
|  
|   |  | The condensed consolidated financial statements include the Company and its
wholly owned subsidiaries. All significant inter-company accounts and
transactions have been eliminated in consolidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|  
|2. |  | Acquisitions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | On January 5, 2001, Livewire entered into an Ownership Interest Purchase
Agreement (the Purchase Agreement) with ANS Acquisition Sub, Inc.
(ANS), a direct, wholly owned subsidiary of Livewire, and Ascent
Entertainment Group, Inc. (AEG). Liberty Media is the sole stockholder
of AEG. Pursuant to the Purchase Agreement, on January 5, 2001, (i) Ascent
Network Services, a division of AEG, contributed all of its assets to
Livewire Network Services, LLC (LNS), a direct, wholly owned subsidiary
of AEG, (ii) ANS purchased a 1% ownership interest in LNS from AEG in
exchange for $300,000 in cash, and (iii) ANS and AEG entered into the
Operating Agreement of LNS (the Operating Agreement). ANS provides
operational, installation, maintenance, and support services for satellite
communication systems and their users.                                    

7



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##### Table of Contents



Liberty Livewire Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)



|2. |  | Acquisitions, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Under the Operating Agreement, ANS was appointed as manager of LNS. The
Operating Agreement also contained a put-call provision, pursuant to which
ANS may elect to purchase from AEG, or AEG could elect to sell to ANS, at
certain times during the 2001 calendar year, the remaining 99% of the
ownership interests of LNS owned by AEG (the Put-Call). The purchase
price under the Put-Call was to be payable in cash and equaled $29.7 million
plus an additional amount accrued equal to a percentage of the
original $29.7 million calculated at a 10% annual rate from the date of the Purchase Agreement to the date of acquisition of the
99% interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|  
|   |  | Subsequently, on September 6,
2001, the Company elected to utilize the Put-Call and purchased, through
ANS, the 99% ownership
interest of LNS it did not already own. The purchase price was $31.7 million in cash. The assets and liabilities of ANS were recorded
based on ANS historical values. Livewire is now the sole owner of
LNS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | On February 1, 2001, the
Company acquired from Viacom, Inc. substantially all of the U.S.
assets of the business unit known as Group W Network Services and 100% of
the outstanding capital stock of Asia Broadcast Centre Pte., Ltd. and Group
W Yarra Broadcast Pte., Ltd. (collectively, GWNS) for $107.9 million in
cash, subject to certain post-closing purchase price adjustments. The consideration was allocated based on the preliminary fair
values of the assets and liabilities acquired with the excess consideration
of $63.0 million recorded as goodwill. Livewire financed the acquisition
with debt from the First Amended and Restated Credit Agreement, dated
as of December 22, 2000, by and between Liberty Media and
Livewire (the Liberty Subordinated Credit Agreement) in the amount of
$82 million, borrowings from Liberty Media evidenced by additional
non-convertible subordinated notes in the aggregate amount of $13.8 million
and an additional $13.4 million from the Companys revolving credit
facility. GWNS, with operations in Stamford, Connecticut,
Minneapolis, Minnesota and
Singapore, is a leading technical service provider in the broadcast
industry, providing a wide array of program channel origination, studio
production, post production, graphics and satellite transmission services
to both domestic and international broadcasters.
|  
|   |  | The acquisition of GWNS was accounted for under the purchase method of
accounting. The Company completed the valuation and recording of a
significant portion of assets and liabilities during the quarter ended
September 30, 2001 while a portion of asset valuations remain to be
completed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | On August 23, 2001, the
Company, through Visualize, Inc., a California corporation doing
business as Pacific Ocean Post (POP) and a wholly owned
subsidiary of the Company that held a 49% membership interest in
Cinram-POP DVD Center LLC (Cinram-POP), acquired from
Cinram U.S. Holdings, Inc., a Delaware corporation
(Cinram) the remaining 51% membership interest in
Cinram-POP.
Cinram-POP, previously an equity method joint venture between Cinram
and POP, primarily provides digital versatile (video) disc
(DVD) licensing and authoring services, in
addition to digital audio post production services to the entertainment
industry. The transaction, which was financed with cash from operations,
is valued at approximately $831,000, subject to certain post closing
adjustments. The acquisition was accounted for under the purchase method
of accounting. Cash of $831,000 was used to purchase net assets with a
fair market value of approximately $450,000, resulting in goodwill totaling
approximately $381,000. Goodwill will not be amortized for this
transaction pursuant to Statement of Financial Accounting Standards No.
142.                                                                                                                                                                                                                           
|  
|   |  | In accordance with the requirements
of Accounting Principles Board Opinion No. 16, Business
Combinations and Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations, the following
unaudited pro forma consolidated financial information for the three and
nine months ended September 30, 2001 and 2000 is presented as if the
acquisitions made by the Company subsequent to December 31, 2000 had
occurred on January 1, 2000. The pro forma financial 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 acquisition, and income taxes. The pro
forma financial information is presented for informational purposes only
and may not be indicative of future results of operations. 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.                                                                                                                                                                                                                                                 

8



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##### Table of Contents



Liberty Livewire Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)



|2. |  | Acquisitions, Continued
|-- |  | -----------------------

|                                              |  |                                 |         |                                 |  |      |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------- |  | ------------------------------- | ------- | ------------------------------- |  | ---- | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|(In thousands, except per share data)         |  | Three Months EndedSeptember 30, |         | Nine Months Ended September 30,
|                                              |  |                                 |         |                                
|                                              |  | 2001                            |         | 2000                            |  | 2001 |         | 2000
|                                              |  |                                 |         |                                 |  |      |         |     
|Revenues                                      |  | $                               | 144,747 |                                 |  | $    | 117,194 |      |  | $ | 459,421 |   |  | $ | 443,343 |  
|                                              |  |                                 |         |                                 |  |      |         |      |  |   |         |   |  |   |         |  
|Net loss                                      |  | $                               | (19,003 | )                               |  | $    | (12,083 | )    |  | $ | (65,274 | ) |  | $ | (41,477 | )
|                                              |  |                                 |         |                                 |  |      |         |      |  |   |         |   |  |   |         |  
|Net loss per common share  Basic and Diluted |  | $                               | (0.49   | )                               |  | $    | (0.33   | )    |  | $ | (1.67   | ) |  | $ | (1.12   | )
|                                              |  |                                 |         |                                 |  |      |         |      |  |   |         |   |  |   |         |  



|3. |  | Comprehensive Income                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Comprehensive income is defined as all changes in stockholders equity,
except those resulting from investments by or distributions to
shareholders. The Companys comprehensive income is as follows:
|  
|   |  | (Amounts in thousands)                                                                                                                                                                                

|                                                |  |               |         |               |  |             |         |   |  |   |       |  
|----------------------------------------------- |  | ------------- | ------- | ------------- |  | ----------- | ------- | - |  | - | ----- | -
|                                                |  | Nine Months   |         | Four Months   |  | Five Months
|                                                |  | Ended         |         | Ended         |  | Ended      
|                                                |  | September 30, |         | September 30, |  | May 31,    
|                                                |  | 2001          |         | 2000          |  | 2000       
|                                                |  |               |         |               |  |            
|Net loss                                        |  | $             | (62,921 | )             |  | $           | (8,778  | ) |  | $ | (994  | )
|Other comprehensive income, net of tax:         |  |               |         |               |  |             |         |   |  |   |       |  
|Unrealized gain on marketable securities        |  |               | 2,278   |               |  |             | 2,367   |   |  |   | 6,082 |  
|Mark-to-market loss for derivative transactions |  |               | (9,993  | )             |  |             |        |   |  |   |      |  
|Foreign currency translation adjustments        |  |               | (4,085  | )             |  |             | (5,483  | ) |  |   | (211  | )
|                                                |  |               |         |               |  |             |         |   |  |   |       |  
|Comprehensive (loss) income                     |  | $             | (74,721 | )             |  | $           | (11,894 | ) |  | $ | 4,877 |  
|                                                |  |               |         |               |  |             |         |   |  |   |       |  



|4. |  | Segment Reporting                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | The operating segments reported below are the segments of the Company for
which separate financial information is available and for which operating
income amounts are evaluated regularly by executive management in deciding
how to allocate resources and in assessing performance. The Company
evaluates segment operating performance based upon several factors,
including EBITDA. EBITDA is defined by the Company as earnings before
interest, taxes, depreciation, amortization, and excludes gains and losses
on asset sales, non-cash compensation, and non-recurring charges.
|  
|   |  | Summarized financial information concerning the Companys reportable
segments is shown in the following tables:                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | (Amounts in thousands)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | Post Todd Merger                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

|                                      |          |             |         |            |         |              |         |        |  |       |   |        |  |  |   |        |   |  |   |         | 
|------------------------------------- | -------- | ----------- | ------- | ---------- | ------- | ------------ | ------- | ------ |  | ----- | - | ------ |  |  | - | ------ | - |  | - | ------- | 
|                                      |          |             | Content |            | Content |              | Content |        |  |       |   |        |  |  |  
|Livewire                              |          | Preparation |         | Management |         | Distribution |         | Other  |  | Total
|                                      |          |             |         |            |         |              |         |        |  |      
|Three Months Ended
September 30, 2001 |          |             |         |            |         |              |         |        |  |       |   |        |  |  |   |        |   |  |   |        
|                                      | Revenues |             | $       | 80,561     |         |              | $       | 23,331 |  |       | $ | 39,229 |  |  | $ | (473   | ) |  | $ | 142,648 | 
|                                      | EBITDA   |             |         | 14,736     |         |              |         | 7,493  |  |       |   | 9,659  |  |  |   | (9,536 | ) |  |   | 22,352  | 

9



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##### Table of Contents



Liberty Livewire Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)



|4. |  | Segment Reporting, Continued
|-- |  | ----------------------------

|                                      |          |  |             |        |            |  |              |        |       |  |       |        |  |  |   |       |  |  |   |         | 
|------------------------------------- | -------- |  | ----------- | ------ | ---------- |  | ------------ | ------ | ----- |  | ----- | ------ |  |  | - | ----- |  |  | - | ------- | 
|                                      |          |  | Content     |        | Content    |  | Content      |        |       |  |       |        |  |  |  
|                                      |          |  | Preparation |        | Management |  | Distribution |        | Other |  | Total
|                                      |          |  |             |        |            |  |              |        |       |  |      
|Three Months Ended
September 30, 2000 |          |  |             |        |            |  |              |        |       |  |       |        |  |  |   |       |  |  |   |        
|                                      | Revenues |  | $           | 72,165 |            |  | $            | 16,194 |       |  | $     | 10,418 |  |  | $ | 1,664 |  |  | $ | 100,441 | 
|                                      | EBITDA   |  |             | 3,942  |            |  |              | 2,626  |       |  |       | 1,423  |  |  |   | 2,102 |  |  |   | 10,093  | 

|                                     |          |  |             |         |            |  |              |        |       |  |       |         |  |  |   |         |   |  |   |         | 
|------------------------------------ | -------- |  | ----------- | ------- | ---------- |  | ------------ | ------ | ----- |  | ----- | ------- |  |  | - | ------- | - |  | - | ------- | 
|                                     |          |  | Content     |         | Content    |  | Content      |        |       |  |       |         |  |  |  
|                                     |          |  | Preparation |         | Management |  | Distribution |        | Other |  | Total
|                                     |          |  |             |         |            |  |              |        |       |  |      
|Nine Months Ended
September 30, 2001 |          |  |             |         |            |  |              |        |       |  |       |         |  |  |   |         |   |  |   |        
|                                     | Revenues |  | $           | 258,394 |            |  | $            | 72,168 |       |  | $     | 114,886 |  |  | $ | (795    | ) |  | $ | 444,653 | 
|                                     | EBITDA   |  |             | 48,587  |            |  |              | 22,307 |       |  |       | 27,759  |  |  |   | (23,881 | ) |  |   | 74,772  | 

|                                     |          |  |             |        |            |  |              |        |       |  |       |        |  |  |   |       |  |  |   |         | 
|------------------------------------ | -------- |  | ----------- | ------ | ---------- |  | ------------ | ------ | ----- |  | ----- | ------ |  |  | - | ----- |  |  | - | ------- | 
|                                     |          |  | Content     |        | Content    |  | Content      |        |       |  |       |        |  |  |  
|                                     |          |  | Preparation |        | Management |  | Distribution |        | Other |  | Total
|                                     |          |  |             |        |            |  |              |        |       |  |      
|Four Months Ended
September 30, 2000 |          |  |             |        |            |  |              |        |       |  |       |        |  |  |   |       |  |  |   |        
|                                     | Revenues |  | $           | 90,922 |            |  | $            | 21,027 |       |  | $     | 12,944 |  |  | $ | 2,414 |  |  | $ | 127,307 | 
|                                     | EBITDA   |  |             | 4,589  |            |  |              | 3,009  |       |  |       | 2,358  |  |  |   | 3,027 |  |  |   | 12,983  | 



| |  | Pre Todd Merger
| |  | ---------------

|                               |          |             |         |            |         |              |         |       |  |       |   |       |  |  |   |     |  |  |   |        | 
|------------------------------ | -------- | ----------- | ------- | ---------- | ------- | ------------ | ------- | ----- |  | ----- | - | ----- |  |  | - | --- |  |  | - | ------ | 
|                               |          |             | Content |            | Content |              | Content |       |  |       |   |       |  |  |  
|Todd-AO                        |          | Preparation |         | Management |         | Distribution |         | Other |  | Total
|                               |          |             |         |            |         |              |         |       |  |      
|Five
Months Ended
May 31, 2000 |          |             |         |            |         |              |         |       |  |       |   |       |  |  |   |     |  |  |   |       
|                               | Revenues |             | $       | 40,503     |         |              | $       | 9,865 |  |       | $ | 2,875 |  |  | $ |    |  |  | $ | 53,243 | 
|                               | EBITDA   |             |         | 5,191      |         |              |         | 2,070 |  |       |   | 545   |  |  |   | 105 |  |  |   | 7,911  | 



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

|                                       |  |               |         |               |  |               |         |               |  |             |         |   |  |   |         |   |  |   |        |  
|-------------------------------------- |  | ------------- | ------- | ------------- |  | ------------- | ------- | ------------- |  | ----------- | ------- | - |  | - | ------- | - |  | - | ------ | -
|                                       |  | Three Months  |         | Three Months  |  | Nine Months   |         | Four Months   |  | Five Months
|                                       |  | Ended         |         | Ended         |  | Ended         |         | Ended         |  | Ended      
|                                       |  | September 30, |         | September 30, |  | September 30, |         | September 30, |  | May 31,    
|                                       |  | 2001          |         | 2000          |  | 2001          |         | 2000          |  | 2000       
|                                       |  |               |         |               |  |               |         |               |  |            
|EBITDA                                 |  | $             | 22,352  |               |  | $             | 10,093  |               |  | $           | 74,772  |   |  | $ | 12,983  |   |  | $ | 7,911  |  
|Depreciation and amortization          |  |               | (33,277 | )             |  |               | (19,571 | )             |  |             | (93,155 | ) |  |   | (25,433 | ) |  |   | (6,244 | )
|Interest                               |  |               | (14,808 | )             |  |               | (7,243  | )             |  |             | (44,102 | ) |  |   | (9,543  | ) |  |   | (2,032 | )
|Non-cash compensation income (expense) |  |               | 10,051  |               |  |               | 18,439  |               |  |             | (808    | ) |  |   | 11,089  |   |  |   |        |  
|Other income (expense), net            |  |               | (2,436  | )             |  |               | 997     |               |  |             | (2,696  | ) |  |   | 911     |   |  |   | (1,070 | )
|Income tax benefit (provision)         |  |               | (258    | )             |  |               | (3,473  | )             |  |             | 3,068   |   |  |   | 1,215   |   |  |   | 441    |  
|                                       |  |               |         |               |  |               |         |               |  |             |         |   |  |   |         |   |  |   |        |  
|Net loss                               |  | $             | (18,376 | )             |  | $             | (758    | )             |  | $           | (62,921 | ) |  | $ | (8,778  | ) |  | $ | (994   | )
|                                       |  |               |         |               |  |               |         |               |  |             |         |   |  |   |         |   |  |   |        |  

10



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##### Table of Contents



Liberty Livewire Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)



|5. |  | Hedging Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Effective January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, which establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. All
derivatives, whether designated in hedging relationships or not, are
required to be recorded on the balance sheet at fair value. If the
derivative is designated as a cash flow hedge, the effective portions of
changes in the fair value of the derivative are recorded in other
comprehensive income (OCI) and are recognized in the income statement when
the hedged item affects earnings. Ineffective portions of changes in the
fair value of cash flow hedges are recognized in earnings. If the
derivative is not designated as a hedge, changes in the fair value of the
derivative are recognized in earnings. Derivative gains and losses included
in OCI are reclassified into earnings at the time of sale or termination of
the respective financial instrument.
|  
|   |  | The adoption of SFAS No. 133 on January 1, 2001 did not have a material
effect on the Companys financial statements. The Company had only one
derivative instrument, an interest rate swap, outstanding at December 31,
2000. The fair market value of the interest rate swap was not significant at
December 31, 2000 as it was cashless when entered into on December 28, 2000.
The interest rate swap, as amended, has an 18-month term with Bank of
America, N.A. for a notional amount of $365 million. Under the amended
agreement, the Company is obligated to pay 5.38% in exchange for receiving
three-month LIBOR on the notional amount. Settlements are quarterly and the
agreement expires December 28, 2002.                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | The Company uses this interest rate swap to hedge certain LIBOR based
interest rate payments required under certain indebtedness. The Company
monitors interest rates and the credit quality of the counter-party.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|  
|   |  | For the nine months ended September 30, 2001, OCI included a loss of $10.0
million for changes in the fair value of the interest rate swap.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   |  | On November 1, 2001, the Company amended its current interest rate swap into
a longer maturity. The rate was previously 5.38% and under the amended
agreement the fixed rate was reduced to 4.86%. The amendment did not result
in any cash settlement. Additionally, the Company entered into a combination
of offset swaps with combined notional amounts of $365 million, whereby
Livewire pays a floating rate and receives a fixed rate of 3.15%
through June 2003. This transaction meets the Company objective to reduce
cash interest expense in the current year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|  
|6. |  | Supplemental Disclosures of Non Cash Investing and Financing Activities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|  
|   |  | The Company recorded a discount of
$25.4 million on certain convertible borrowings under the
Liberty Subordinated Credit Agreement as a result of the market price of the
Companys common stock exceeding the conversion price (applicable to the
borrowing) at the dates of the borrowings. As of September 30, 2001, $2.0
million of the discount has been amortized.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|  
|   |  | The Company recorded a liability in the amount of $10.0 million for changes
in the fair value of its interest rate swap for the nine months ended
September 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  
|   |  | Pursuant to the Liberty Subordinated Credit Agreement, the Company issued
Class B common stock valued at $12.7 million to Liberty Media as payment of
interest.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|  
|   |  | On February 1, 2001, the
Company acquired GWNS. In connection with the acquisition, the
Company paid cash as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

11



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##### Table of Contents



Liberty Livewire Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)



|6. |  | Supplemental Disclosures of Non Cash Investing and Financing Activities, Continued
|-- |  | ----------------------------------------------------------------------------------

|                                               |                                              |   |         |        |  
|---------------------------------------------- | -------------------------------------------- | - | ------- | ------ | -
|Assets acquired:                               |                                              |   |         |       
|                                               | Property, plant and equipment-net            |   | $       | 46,622 |  
|                                               | Trade and other receivables  net            |   |         | 7,203  |  
|                                               | Prepaid deposits and other                   |   |         | 3,681  |  
|                                               | Other assets                                 |   |         | 1,360  |  
|                                               | Goodwill                                     |   |         | 63,055 |  
|Liabilities assumed:                           |                                              |   |         |       
|                                               | Accounts payable and accrued expenses        |   |         | (7,032 | )
|                                               | Long-term debt and capital lease obligations |   |         | (6,987 | )
|                                               |                                              |   |         |       
|Cash paid in acquisition, net of cash received |                                              | $ | 107,902 |       
|                                               |                                              |   |         |       



| |  | In connection with the purchase, the Company paid cash as follows:
| |  | ------------------------------------------------------------------

|                                               |                                       |   |        |        |  
|---------------------------------------------- | ------------------------------------- | - | ------ | ------ | -
|Assets acquired:                               |                                       |   |        |       
|                                               | Property, plant and equipment-net     |   | $      | 6,660  |  
|                                               | Trade and other receivables  net     |   |        | 674    |  
|                                               | Prepaid deposits and other            |   |        | 142    |  
|                                               | Inventory                             |   |        | 923    |  
|                                               | Goodwill                              |   |        | 25,598 |  
|Liabilities assumed:                           |                                       |   |        |       
|                                               | Accounts payable and accrued expenses |   |        | (1,347 | )
|                                               | Deferred revenue                      |   |        | (1,299 | )
|                                               | Dividend
to Parent Company            |   |        | 300    |  
|                                               |                                       |   |        |       
|Cash paid in acquisition, net of cash received |                                       | $ | 31,651 |       
|                                               |                                       |   |        |       



|7. |  | Related Party Transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|   |  | Liberty Media and Livewire are
parties to a Liberty Subordinated
Credit Agreement, which provides for aggregate credit
commitments of up to $213.6 million depending on the availability of
additional commitments under the Senior Credit Agreement (described
below) with Livewires
institutional lenders and subject to the completion of proposed transactions
as defined in the agreement. Funds are available at Livewires option in
whole or in part at any time during the 4-year period from June 9, 2000 to June
9, 2004 and mature on June 30, 2008. The Liberty Subordinated Credit
Agreement provides that all Livewire obligations to Liberty Media be
subordinated to Livewires obligations to its institutional lenders, under a
long-term credit agreement, dated December 22, 2000 with several
banks and other financial institutions, including Banc of America
Securities LLC, as agent and a lender (the Senior Credit Agreement).
Liberty Media and Livewire are also parties to a Subordination
Agreement,
dated as of June 22, 2001, which provides for Livewires obligations under
the Liberty Subordinated Credit Agreement to be subordinated to Livewires
obligations under its secured loan from Heller Financial Leasing, Inc. The
notes issued under the Liberty Subordinated Credit Agreement (the
convertible notes) are general unsecured obligations of Livewire, which
have been subordinated as described above. The convertible notes bear
interest at 10% per annum, payable quarterly in arrears either in cash or
shares, at Livewires option, of Livewires Class B common stock or a
combination thereof, 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
Livewire on the interest payment date. Through September 30, 2001, the
Company issued to Liberty Media 2,011,780 shares of the Companys Class B
Common Stock in payment of $12.7 million in interest. The convertible notes
are convertible at the option of Liberty Media into shares of Livewires
Class B Common Stock at a conversion price of $10.00 per share. At
September 30, 2001, the Company had $206.2 million outstanding under the
Liberty Subordinated Credit Agreement exclusive of a $23.4 million
unamortized discount on convertible debt.

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##### Table of Contents



Liberty Livewire Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)



|7.  |  | Related Party Transactions, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The Company filed its own consolidated federal income tax return until May
31, 2000. Starting June 1, 2000, the Company is included in the
consolidated tax return of AT&T pursuant to the terms of a Tax Liability
Allocation and Indemnification Agreement entered into with the Companys
parent, Liberty Media (the Tax Sharing Agreement).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   
|    |  | The income tax provision for the Company is calculated based on a
hypothetical tax liability determined as if the Company filed a separate tax
return.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   
|    |  | Under the Tax Sharing Agreement, to
the extent the Company generates losses that are utilized by Liberty
Media, Liberty Media
will pay cash to the Company if the Company becomes disaffiliated for any
reason from the combined group that files the joint return and when one of
the following occurs: a tax refund is received by Liberty Media that is
determined to relate to amounts paid by Livewire, or the Company has a tax
liability under a separate return and had a net cumulative benefit for net
operating losses or credits that were utilized by Liberty Media to
the extent of the separate return liability and that would not have expired
at the time of the filing of the separate return. Additionally, if
Liberty Media does not own 20% of the voting power (loss of control)
of Livewire, Liberty Media will pay Livewire an amount equal to the
cumulative net tax benefit utilized by Liberty Media that would
not have expired at the time of loss of control.
|   
|8.  |  | Stock Options and 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). Upon
the election to exercise, holders of vested SARs have the option of
receiving any net cash appreciation of LMCA stock over the exercise price or
may exercise into shares of LMCA stock. Amounts paid or stock issued
pursuant to these arrangements are the obligations of Liberty Media and
therefore are non-cash to the Company. The accrued expense at December 31,
2000 was $1 million and the accrued expense at September 30, 2001 is $0.4
million. The condensed consolidated statement of operations for the nine
months ended September 30, 2001 reflects non-cash compensation expense of
$0.8 million due to the decrease in the stock price underlying the SARs as
of that date offset by compensation expense recognized on stock options
issued to senior management.                                                    
|   
|9.  |  | Taxes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | As of September 30, 2001, Livewires deferred income tax asset for federal
and state net operating loss carryovers has been reduced by a valuation
allowance of $16.3 million which includes $5.3 million recorded in the
quarter ended September 30, 2001. Realization of the net deferred tax
assets is dependent upon the generation of sufficient future taxable income
by the Company on a stand-alone basis. The $5.3 million increase to the
valuation allowance in the quarter ended September 30, 2001 was recorded
because management believes that it not that it is not more likely
than not that the deferred tax asset will not
be realized for these assets.                                                                                                                                                                                                                                                                                                                 
|   
|10. |  | New Pronouncements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|    |  | In June 2001, the Financial
Accounting Standards Board (FASB) issued SFAS No. 141,
Business Combinations, which requires that all business combinations be
accounted for by the purchase method of accounting only, and SFAS No. 142,
Goodwill and Other Intangible Assets, which changes the accounting for
goodwill and other intangible assets. Under SFAS No. 142, goodwill and other
intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with
the Statement. Other intangible assets will continue to be amortized over
their useful lives.                                                                                                                                                                                                                                                                                                                                               

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Liberty Livewire Corporation
Notes to Condensed Consolidated Financial Statements
(Unaudited)



|10. |  | New Pronouncements, Continued                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|    |  | The provisions of SFAS No. 141 apply to all business combinations completed
after June 30, 2001 and SFAS No. 142 is effective for fiscal years beginning
after December 15, 2001. The Company will apply the new rules on accounting
for goodwill and other intangible assets beginning January 1, 2002 for
assets acquired prior to June 30, 2001 and immediately for assets acquired
subsequent to June 30, 2001, in accordance with SFAS
No. 141 and SFAS No. 142. During 2002,
the Company will perform the required impairment tests of goodwill and
indefinite lived intangible assets as of January 1, 2002. Because of the
extensive effort needed to comply with adopting SFAS No. 141 and SFAS No.
142, it is not practicable at this time to reasonably estimate the impact of
adopting these statements on the Companys financial statements, including
whether transitional impairment losses will be required to be recognized as
a cumulative effect of a change in accounting principle.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|   
|    |  | In August 2001, FASB issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived
Assets, which supersedes both SFAS No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of and the accounting and reporting provisions of
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, ("APB
No. 30) for the
disposal of a segment of a business (as previously defined in APB
No. 30).
SFAS No. 144 retains the fundamental provisions in SFAS No. 121 for
recognizing and measuring impairment losses on long-lived assets held for
use and long-lived assets to be disposed of by sale, while also resolving
significant implementation issues associated with SFAS No. 121. For
example, SFAS No. 144 provides guidance on how a long-lived asset that is
used as part of a group should be evaluated for impairment, establishes
criteria for when a long-lived asset is held for sale, and prescribes the
accounting for a long-lived asset that will be disposed of other than by
sale. SFAS No. 144 retains the basic provisions of APB
No. 30 on how to
present discontinued operations in the income statement but broadens that
presentation to include a component of an entity (rather than a segment of a
business). Unlike SFAS No. 121, an impairment assessment under SFAS No. 144 will never result in a write-down of goodwill. Rather, goodwill is
evaluated for impairment under SFAS No. 142. The Company is required to adopt SFAS No. 144 no later
than the fiscal year beginning after December 15, 2001, and plans to adopt
its provisions for the quarter ending March 31, 2002. Management does not
expect the adoption of SFAS No. 144 for long-lived assets held for use to
have a material impact on the Companys financial statements because the
impairment assessment under SFAS No. 144 is largely unchanged from
SFAS No. 121. The provisions of the Statement for assets held for sale or
other disposal generally are required to be applied prospectively after the
adoption date to newly initiated disposal activities. Therefore, management
cannot determine the potential effects that adoption of SFAS No. 144 will
have on the Companys financial statements.
|   

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##### Table of Contents






ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provides information concerning our
results of operations and financial condition and should be read in
conjunction with the accompanying condensed consolidated financial
statements and notes thereto. Additionally, the following discussion and
analysis should be read in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations and financial
statements included in our Annual Report on Form 10-K for the year ended
December 31, 2000 as amended by Amendment No. 1 on Form 10-K/A. The
following discussion focuses on material trends, risks and uncertainties
affecting our results of operations and financial condition.

When used in this document, the words believes, expects, anticipates,
intends and similar expressions are intended to identify forward looking
statements. Such statements are subject to a number of known, as well as
unknown, risks and uncertainties. Actual results in the future could
differ materially from those described in the forward looking statements.
Such risks and uncertainties 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. 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.

Overview of Business

Liberty Livewire Corporation provides audio and video post-production,
transmission, library services, internet hosting, and audio/video
distribution services via satellite and fiber for the major television
producers, motion picture studios, cable and broadcast networks,
advertising agencies, and other entertainment content companies.
The Company also provides interactive television services. Our services
integrate and apply a variety of systems and processes to enhance the
creation and distribution of entertainment content.

We are the result of the combination of certain key companies with
long standing track records and respected brand names offering
cradle-to-grave services to our industry. Key companies acquired include
Todd-AO Corporation (Todd-AO), Four Media Company
(4MC), the sound post-production and certain related businesses of
SounDelux, VSC, Group W Network Services, ANS and
other smaller niche players. We are under the direction of a
management team with extensive experience running worldwide operations in
both traditional and new media Content Preparation (post-production sound
and visual effects), Content Management (film, tape, and digital
libraries), and Content Distribution (freight, fiber, satellite, and
Internet) services.

We believe that EBITDA is an important measure of its financial
performance. EBITDA is defined by us as earnings before
interest, taxes, depreciation, amortization, and excludes gains and losses
on asset sales, non-cash compensation, and non-recurring charges. 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 will remain a
significant non-cash charge to earnings. We calculate EBITDA before
depreciation and amortization charges and, in businesses with significant
non-cash expenses, widely use EBITDA 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 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 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. Our presentation of EBITDA may not
be comparable to similarly titled measures reported by other companies.

In the following analysis and discussion, our operations are
compared with reference to the reportable operating segments as described
in Note 4 to the accompanying Condensed Consolidated Financial Statements
as well as to the combination of key companies acquired through merger and
acquisitions.

Our operations prior to our acquisition by Liberty
Media Corporation in June 2000
(the Todd Merger) are referred to as the operations of Todd-AO (the former name of Livewire
prior to the acquisition) for the purpose of these analyses and discussions
and include only a portion of our Content Preparation, Content Management
and Content Distribution segments.

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##### Table of Contents



Overview of Business, Continued

The nine and three months ended September 30, 2001 as well as the four
months ended September 30, 2000 represent our combined operations, and the five months ended May 31, 2000 represent only the
operations of Todd-AO. The operating results for Todd-AO operations
are not comparable between the periods as the five months ended May 31,
2000 does not include the effects of purchase accounting adjustments
related to the Todd Merger and the nine and three months ended September
30, 2001 and the four months ended September 30, 2000 includes the effects
of purchase accounting adjustments related to the Todd Merger.

Comparison of Results for the Three Months
Ended September 30, 2001 compared to the Three Months
Ended September 30, 2000

The following table depicts revenue by business segment:

|                     |  |                             |         |      |  |   |         | 
|-------------------- |  | --------------------------- | ------- | ---- |  | - | ------- | 
|(in thousands)       |  | Quarter Ended September 30,
|                     |  | 2001                        |         | 2000
|                     |  |                             |         |     
|Content Preparation  |  | $                           | 80,561  |      |  | $ | 72,165  | 
|Content Management   |  |                             | 23,331  |      |  |   | 16,194  | 
|Content Distribution |  |                             | 39,229  |      |  |   | 10,418  | 
|Other                |  |                             | (473    | )    |  |   | 1,664   | 
|                     |  |                             |         |      |  |   |         | 
|Consolidated         |  | $                           | 142,648 |      |  | $ | 100,441 | 
|                     |  |                             |         |      |  |   |         | 



| |  | Revenues increased 42.0%, or $42.2 million, to $142.6 million for the
three months ended September 30, 2001 from $100.4 million
for the three months ended
September 30, 2000. The acquisitions of ANS, GWNS, Cinram, Visiontext
Limited (Visiontext), and VSC contributed $37.5 million, or 88.9%, of the
overall revenue increase. Excluding acquisitions, revenue would have
increased $4.7 million for the quarter ended September 30, 2001. The
increase was primarily due to an increase in Content Distribution revenues
offset by a decline in Content Preparation and Content Management revenues.                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Operating costs and other expenses increased 33.1%, or $29.9 million, to
$120.3 million for the three months ended September 30, 2001 from $90.4 million
for the three months ended September 30, 2000. The acquisitions of ANS, GWNS,
Cinram, Visiontext, and VSC contributed $28.9 million, or 96.7%, of the
overall increase.                                                                                                                                                                                                                                                                                                
|
| |  | As a result of the above, EBITDA,
as defined by us, increased
$12.3 million from $10.1 million to $22.4 million for the newly combined
Livewire.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Depreciation and amortization increased $13.7 million from $19.6 million to
$33.3 million. The increase is primarily due to equipment, goodwill and
identifiable intangibles acquired in acquisitions and to the increase in
goodwill and identifiable intangibles as a result of the purchase
accounting adjustments.                                                                                                                                                                                                                                                                                                          
|
| |  | Interest expense increased $7.6 million from $7.2 million to $14.8 million.
The increase is attributable to additional borrowings under a
long-term credit agreement, dated December 22, 2000, with
several banks and other financial institutions, including Banc of
America Securities LLC, as agent and a lender (the Senior
Credit Agreement), the First Amended and Restated Credit
Agreement, dated as of December 22, 2000, by and between Liberty
Media and us (the Liberty Subordinated Credit Agreement) and
non-convertible subordinated debt primarily for the funding of acquisitions
and capital expenditures.
|
| |  | The provision for income taxes of
$258,000 for the quarter ended September 30, 2001 as compared to
the provision of income taxes of $3.5 million for the quarter
ended September 30, 2000 reflects the change in the dynamics of
the results in operations. At September 30, 2000, goodwill and
other permanent items, not deductible for tax purposes, resulted in
an increase to the tax provision of $2.4 million. At
September 30, 2001, an increase to the valuation allowance of
$5.3 million reduced the tax benefit that otherwise would have
been provided on the quarterly results of operations.                     
|
| |  | Comparison of Results for the Nine Months Ended September 30, 2001 to the
Combined Four Months Ended September 30, 2000 and Five Months Ended May 31, 2000                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The following table depicts revenue by business segment:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

|                     |  |                                |         |                                |  |                              |         |  |  |   |        | 
|-------------------- |  | ------------------------------ | ------- | ------------------------------ |  | ---------------------------- | ------- |  |  | - | ------ | 
|(in thousands)       |  | Nine Months EndedSept. 30,2001 |         | Four Months EndedSept. 30,2000 |  | Five Months EndedMay 31,2000
|                     |  |                                |         |                                |  |                             
|Content Preparation  |  | $                              | 258,394 |                                |  | $                            | 90,922  |  |  | $ | 40,503 | 
|Content Management   |  |                                | 72,168  |                                |  |                              | 21,027  |  |  |   | 9,865  | 
|Content Distribution |  |                                | 114,886 |                                |  |                              | 12,944  |  |  |   | 2,875  | 
|Other                |  |                                | (795    | )                              |  |                              | 2,414   |  |  |   |       | 
|                     |  |                                |         |                                |  |                              |         |  |  |   |        | 
|Consolidated         |  | $                              | 444,653 |                                |  | $                            | 127,307 |  |  | $ | 53,243 | 
|                     |  |                                |         |                                |  |                              |         |  |  |   |        | 

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Comparison of Results for the
Nine Months Ended September 30, 2001 to the Combined Four Months Ended September 30,
2000 and Five Months Ended May 31, 2000, Continued

Revenues increased 146.3%, or $264.1 million, to $444.7 million for the
nine months ended September 30, 2001 from $180.6 million
for the combined four months ended September 30, 2000 and five months ended
May 31, 2000. The contribution of the 4MC, by Liberty Media, combined with the acquisitions of ANS, GWNS,
Cinram, Visiontext, VSC, Soundelux, Triumph Communications Group
(Triumph) and Soho Group Limited (Soho Group) contributed $253.6
million, or 96.0%, of the overall revenue increase.

Operating costs and other expenses increased 131.7%, or $210.2 million, to
$369.9 million for the nine months ended September 30, 2001 from $159.7
million for the combined four months ended September 30, 2000
and five months ended May 31, 2000. The contribution of
the 4MC, by Liberty Media, combined with the acquisitions of
ANS, GWNS, Cinram, Visiontext, VSC, Soundelux, Triumph and Soho Group
contributed $201.0 million, or 95.6%, of the overall increase.

As a result of the above, EBITDA, as defined by the Company, increased
$53.9 million from $20.9 million to $74.8 million for the newly combined
Livewire.

Depreciation and amortization increased $61.5 million from $31.7 million to
$93.2 million. The increase is primarily due to equipment, goodwill and
identifiable intangibles acquired in acquisitions and to the increase in
goodwill and identifiable intangibles as a result of the purchase
accounting adjustments made in connection with the Todd Merger.

Interest expense increased $32.5 million from $11.6 million to $44.1
million. The increase is attributable to additional borrowings under the
Senior Credit Agreement, the Liberty Media convertible subordinated debt,
and non-convertible subordinated debt primarily for the funding of
acquisitions and capital expenditures.

The tax benefit provided on the year to date result of operations at
September 30, 2001 has been reduced by an increase in the valuation
allowance of $13.5 million. This combined with the increase in tax expense
due to goodwill and other permanent items not deductible for tax purposes,
reduced the tax benefit to $3.8 million. At September 30, 2000 a tax
benefit of $1.6 million was provided on the result of operations with no
expense related to a valuation allowance.

Financial Condition

Our consolidated assets increased by $102.1 million, or 8.7%,
from $1,175.8 million as of December 31, 2000 to $1,277.9 million as of
September 30, 2001. The increase in total assets was primarily due to the
acquisitions of ANS and GWNS, which accounted for
$155.9 million, or 152.7%, of
the increase. Excluding acquisitions, total assets decreased $53.8
million, or 4.6%, primarily due to reductions in Goodwill and Property,
Plant, and Equipment.

As of September 30, 2001, our long-term indebtedness was $618.1
million, of which $182.9 million was related to the Liberty
Subordinated Credit Agreement.

Stockholders equity totaled $520.8 million as of September 30, 2001, a
decrease of $32.3 million from $553.1 million at December 31, 2001. The
decrease was primarily related to a net loss of $62.9 million for the nine
months ended September 30, 2001 in addition to a decrease in other
comprehensive income of $11.8 million, primarily related to an increase in
net unrealized losses on our interest rate swaps, sale of
marketable securities and foreign exchange translation. These decreases
net against increases of $25.5 million for the discount recorded on Liberty
Media Sub debt, $12.7 million of class B stock issued to Liberty
Media for interest
payments and other less significant increases.

Liquidity and Capital Resources

For the nine months ended September 30, 2001,
we generated $34.4
million from operating activities compared to a
combined $16.5 million for the four months ended September 30, 2000 and the
five months ended May 31, 2000. The increase in net cash provided by
operations for the nine months ended September 30, 2001 was primarily
attributable to increased EBITDA related to the aforementioned
acquisitions.

Net cash provided by financing activities was $134.1 million for the nine
months ended September 30, 2001 compared to a combined $49.2 million for
the four months ended September 30, 2000 and the five months ended May 31,
2000. The cash provided by financing activities was primarily used to
acquire GWNS and ANS.

Under the Senior Credit Agreement,
Livewire may borrow up to $414.7 million in term and revolving loans,
subject to compliance with certain financial covenants and other borrowing conditions.

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Liquidity and Capital Resources, Continued

The Senior Credit Agreement is available to refinance existing
debt and for general corporate purposes, capital expenditures and
acquisitions. The Company may add new lenders to the Senior Credit
Agreement (with the
consent of the current lenders) increasing the available borrowings by an
additional $135 million for a total commitment of $550 million.

At December 31, 2000, $377 million was outstanding under the Senior Credit
Agreement. During the nine months ended September 30, 2001, we
borrowed an additional $15.3 million under the revolving portion of the
Senior Credit Agreement to partially fund the GWNS acquisition, and for
general working capital requirements. As of September 30, 2001, $392.0
million was outstanding under the Senior Credit Agreement and $22.7 million
was available (exclusive of the potential $135 million increase in the
total commitment).

On February 1, 2001, we drew upon the Liberty Subordinated Credit
Agreement for the sum of $82 million to partially fund the acquisition of
GWNS. On the date of the draw, the fair value of Livewires Class A common
stock exceeded the conversion price by $2.81 per share. The beneficial
conversion of $23.0 million was recorded as a discount on convertible debt
and an increase of additional paid in capital. The discount on convertible
debt will be amortized as interest expense over the earlier of the
remaining term of the Liberty Subordinated Credit Agreement through June
30, 2008 or date of conversion by Liberty Media. Additionally, and in
accordance with provisions under the Senior Credit Agreement, we
borrowed $13.8 million from an affiliate of Liberty Media to fund the
acquisition of GWNS. The indebtedness was evidenced by two non-convertible notes; one in the principal amount of $9.4 million and the
second in the principal amount of $4.4 million. The non-convertible notes
were paid off during the quarter ended June 30, 2001.

On September 6, 2001 we drew upon the Liberty Subordinated Credit
Agreement for the sum of $31.7 million to fund the acquisition of ANS. On
the date of the draw, the fair value of Livewires Class A common stock
exceeded the conversion price by $0.76 per share. The beneficial
conversion of $2.4 million was recorded as a discount on convertible debt
and an increase of additional paid in capital. The discount on convertible
debt will be amortized as interest expense over the earlier of the
remaining term of the Liberty Subordinated Credit Agreement through June
30, 2008 or date of conversion by Liberty Media.

As of September 30, 2001, $206.2 million was due to Liberty Media under the
Liberty Subordinated Credit Agreement, exclusive of the $23.4 million
unamortized discount on convertible debt.

On June 22, 2001, we borrowed $10 million from Heller Financial
Leasing Inc. in order to pay down $9.7 million of the debt outstanding
under the revolving portion of the Senior Credit Agreement. Certain
equipment owned by us and used in the Content Preparation and
Content Management segments of its operations collateralizes the financing.

We believe that the cash flow from operations, combined with our
borrowing capabilities under the Senior Credit Agreement and other debt
instruments will be sufficient to meet our anticipated working capital and
capital expenditure requirements through the next twelve months.

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Factors That May Affect Future Results of Operations

Certain statements contained herein are forward looking statements (as such
term is defined in the Securities Exchange Act of 1934). Such statements
involve a number of risks and uncertainties that may cause actual results
to differ from those projected. Factors that can cause actual results to
differ materially include, but are not limited to, those discussed below
and those discussed from time to time in our various filings with
the Securities and Exchange Commission, including the Companys Annual
Report on Form 10-K.

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 its operations, as financial covenant
limitations reach their maximum which could limit the our ability to
pursue business opportunities that may be in our best interests and that
of our stockholders.

As part of our business strategy, we have acquired
substantial operations in several different geographic locations 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.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risks

We have only one derivative instrument, an interest rate swap,
which was outstanding at December 31, 2000. The fair value of the interest
rate swap was not significant at December 31, 2000 as it was cashless when
entered into on December 28, 2000. The interest rate swap, as amended, has
an 18-month term with Bank of America, N.A. for a notional amount of $365
million. Under the amended agreement, we are obligated to pay
5.38% in exchange for receiving three-month London Interbank Offered
Rate, or LIBOR, on the notional amount.
Settlements are quarterly and the agreement expires December 28, 2002.

We use this interest rate swap to manage LIBOR based interest
rate payments required under certain indebtedness. We monitor
interest rates and the credit quality of the counter-party, a major
financial institution, and does not anticipate nonperformance by the
counter-party.

The interest rate swap is designed as a cash flow hedge and is 100%
effective. For the nine months ended September 30, 2001, Other
Comprehensive Income included a loss of $10.0 million for changes in the
fair value of the interest rate swap.

Foreign Exchange Rate Risks

We do not, at present, have a policy for managing foreign
exchange rate risk beyond the utilization of local currency borrowings to
fund foreign acquisitions whenever possible.

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 transactions gains or losses, the financial statements of
our foreign subsidiaries are translated into United States dollars as part
of our consolidated financial reporting. Fluctuations in the exchange rate
therefore will affect our consolidated balance sheets and income
statements. Until recently, the British pound and the Singapore dollar
have been stable relative to the United States dollar. However, during the
year ended December 31, 2000, the British pound and the Singapore dollar
lost approximately 7.7% and 4% of their value, respectively, relative to
the United States dollar and during the nine months ended September 30, 2001, the
British pound and the Singapore dollar lost approximately 1.2% and 1.9% of
their value, respectively, relative to the United States dollar.




PART II  OTHER INFORMATION




Item 1. Legal Proceedings

We are involved in litigation and similar claims incidental to the
conduct of our business. None of the pending actions is likely to have a
material adverse impact on our financial position or results of operations.




Item 2. Changes in Securities and Use of Proceeds

Through September 30, 2001, we issued to Liberty Media 2,011,780 shares
of our Class B Common Stock in payment of $12.7 million in
interest under the Liberty Subordinated Credit Agreement. Such issuance
was not registered under the Securities Act of 1933, as amended, pursuant
to the exemption from registration afforded by Section 4(2) of that Act.
Shares of Class B Common Stock are convertible into shares of our
Class A Common Stock, on a one-for-one basis, at any time at the option of
the holder.




Item 6. Exhibits and Reports on Form 8-K

(a)  There have been no reports on Form 8-K filed during the quarter.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

|                  |  |  |  |                                                                       
|----------------- |  |  |  | ----------------------------------------------------------------------
|                  |  |  |  | LIBERTY LIVEWIRE CORPORATION                                          
|                 
|                 
|November 14, 2001 |  |  |  | /s/      George C. Platisa                                            
|                  |  |  |  |                                                                       
|Date              |  |  |  | George C. Platisa
Executive Vice President and
Chief Financial Officer

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