##### Table of Contents



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 June 30, 2002
|   
|    | 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)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|State of Delaware                                              |  | 13-1679856                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|520 Broadway, Fifth Floor
Santa Monica, CA                     |  | 90401                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          

(310) 434-7000

---

(Registrants telephone number, including area code)


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  [   ]

The number of shares of Common Stock outstanding at
August 7, 2002 was
4,883,159 Class A Common Stock and 37,467,106
Class B Common Stock.





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TABLE OF CONTENTS



|                            |                                                                                               |                                                             |  |  |  |  |  | 
|--------------------------- | --------------------------------------------------------------------------------------------- | ----------------------------------------------------------- |  |  |  |  |  | 
|                            |                                                                                               | Condensed Consolidated Balance Sheets                      
|                            |                                                                                               | 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                  
|EXHIBIT 10.1               
|EXHIBIT 10.2               
|EXHIBIT 10.3               
|EXHIBIT 10.4               
|EXHIBIT 10.5               



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##### Table of Contents



LIBERTY LIVEWIRE CORPORATION

Report on Form 10-Q for the Three Months Ended June 30, 2002

|                  |   |                                                                                                                       |  |  |    | 
|----------------- | - | --------------------------------------------------------------------------------------------------------------------- |  |  | -- | 
|Table of Contents |   | Page                                                                                                                 
|                  |   |                                                                                                                      
|Part I            |  | FINANCIAL INFORMATION                                                                                                 |  |  |    | 
|                 
|Item 1.           |   | Financial Statements                                                                                                  |  |  |    | 
|                 
|                  |   | Condensed Consolidated Balance Sheets, June 30, 2002
(Unaudited) and December 31, 2001 (Audited)                      |  |  | 3  | 
|                 
|                  |   | Condensed Consolidated Statements of Operations for
the Three and Six Months Ended June 30, 2002 and 2001
(Unaudited) |  |  | 4  | 
|                 
|                  |   | Condensed Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 2002 and 2001
(Unaudited)           |  |  | 5  | 
|                 
|                  |   | Notes to Condensed Consolidated Financial Statements                                                                  |  |  | 6  | 
|                 
|Item 2.           |   | Managements Discussion and Analysis of Financial Condition and
Results of Operations                                 |  |  | 14 | 
|                 
|Item 3.           |   | Quantitative and Qualitative Disclosures About Market Risk                                                            |  |  | 21 | 
|                 
|Part II           |  | OTHER INFORMATION                                                                                                     |  |  |    | 
|                 
|Item 1.           |   | Legal Proceedings                                                                                                     |  |  | 21 | 
|Item 2.           |   | Changes in Securities and Use of Proceeds                                                                             |  |  | 22 | 
|Item 6.           |   | Exhibits and Reports on Form 8-K                                                                                      |  |  | 22 | 
|                 
|                  |   | Signature                                                                                                             |  |  | 23 | 

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

|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |        |         | 
|----------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------- | ----------- | ------- | ------------ | -------- | ------ | ------- | 
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          | June 30,    |         | December 31,
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          | 2002        |         | 2001        
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |             
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          | (Unaudited) |         | (Audited)   
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |             
|Current Assets:                                                                                                                           |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|                                                                                                                                          | Cash and cash equivalents                                                                                  |                                                                                                                                                                               | $        | 12,739      |         |              | $        | 23,433 |        
|                                                                                                                                          | Trade receivables, net of allowance for doubtful accounts of
$10.7 million and $12.0 million, respectively |                                                                                                                                                                               |          | 85,774      |         |              |          | 96,696 |        
|                                                                                                                                          | Inventories                                                                                                |                                                                                                                                                                               |          | 3,818       |         |              |          | 4,016  |        
|                                                                                                                                          | Deferred income taxes, net                                                                                 |                                                                                                                                                                               |          | 5,374       |         |              |          | 5,006  |        
|                                                                                                                                          | Prepaid deposits and other                                                                                 |                                                                                                                                                                               |          | 13,961      |         |              |          | 14,237 |        
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|                                                                                                                                          |                                                                                                            | Total current assets                                                                                                                                                          |          |             | 121,666 |              |          |        | 143,388 | 
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|Property, plant and equipment, at cost, net of accumulated
depreciation and amortization of $84.6 million and $60.6 million,
respectively |                                                                                                            |                                                                                                                                                                               | 314,690  |             |         |              | 316,077  |       
|Goodwill and identifiable intangible assets, net of accumulated
amortization of $44.8 million and $43.4 million, respectively             |                                                                                                            |                                                                                                                                                                               | 431,659  |             |         |              | 448,909  |       
|Other assets, net                                                                                                                         |                                                                                                            |                                                                                                                                                                               | 13,989   |             |         |              | 11,317   |       
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|                                                                                                                                          |                                                                                                            | Total assets                                                                                                                                                                  |          | $           | 882,004 |              |          | $      | 919,691 | 
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|Current Liabilities:                                                                                                                      |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|                                                                                                                                          | Current maturities of long-term debt and capital lease obligations                                         |                                                                                                                                                                               | $        | 21,827      |         |              | $        | 19,129 |        
|                                                                                                                                          | Accounts payable                                                                                           |                                                                                                                                                                               |          | 41,171      |         |              |          | 38,906 |        
|                                                                                                                                          | Accrued expenses and other liabilities                                                                     |                                                                                                                                                                               |          | 64,296      |         |              |          | 76,345 |        
|                                                                                                                                          | Due to parent company, net                                                                                 |                                                                                                                                                                               |          | 5,888       |         |              |          | 5,439  |        
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|                                                                                                                                          |                                                                                                            | Total current liabilities                                                                                                                                                     |          |             | 133,182 |              |          |        | 139,819 | 
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|Long-term debt and capital lease obligations                                                                                              |                                                                                                            |                                                                                                                                                                               | 407,316  |             |         |              | 424,556  |       
|Convertible subordinated notes, net                                                                                                       |                                                                                                            |                                                                                                                                                                               | 192,033  |             |         |              | 183,685  |       
|Deferred income taxes, net                                                                                                                |                                                                                                            |                                                                                                                                                                               | 5,746    |             |         |              | 5,006    |       
|Other liabilities                                                                                                                         |                                                                                                            |                                                                                                                                                                               | 11,715   |             |         |              | 13,177   |       
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|                                                                                                                                          |                                                                                                            | Total liabilities                                                                                                                                                             |          |             | 749,992 |              |          |        | 766,243 | 
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|Commitments and contingencies                                                                                                             |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|Stockholders Equity:                                                                                                                     |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|                                                                                                                                          | Common Stock:                                                                                              |                                                                                                                                                                               |          |             |         |              |          |        |        
|                                                                                                                                          |                                                                                                            | Class A; authorized 300,000,000 shares of $0.01 par value;
5,339,094 issued; 5,322,843 and 5,334,022 outstanding as of
June 30, 2002 and December 31, 2001, respectively      |          |             | 53      |              |          |        | 53      | 
|                                                                                                                                          |                                                                                                            | Class B; convertible, authorized 100,000,000 shares of $0.01
par value; 37,026,125 and 34,393,330 issued and outstanding at
June 30, 2002 and December 31, 2001, respectively |          |             | 370     |              |          |        | 344     | 
|Additional paid-in capital                                                                                                                |                                                                                                            |                                                                                                                                                                               | 629,892  |             |         |              | 617,933  |       
|Treasury stock; 16,251 and 1,508 shares at cost at June 30, 2002
and December 31, 2001, respectively                                      |                                                                                                            |                                                                                                                                                                               | (123     | )           |         |              | (28      | )     
|Accumulated deficit                                                                                                                       |                                                                                                            |                                                                                                                                                                               | (490,360 | )           |         |              | (446,082 | )     
|Other                                                                                                                                     |                                                                                                            |                                                                                                                                                                               | 46       |             |         |              | (1,356   | )     
|Accumulated other comprehensive loss                                                                                                      |                                                                                                            |                                                                                                                                                                               | (7,866   | )           |         |              | (17,416  | )     
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|                                                                                                                                          |                                                                                                            | Total stockholders equity                                                                                                                                                    |          |             | 132,012 |              |          |        | 153,448 | 
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       
|Total liabilities and stockholders equity                                                                                                |                                                                                                            | $                                                                                                                                                                             | 882,004  |             |         | $            | 919,691  |       
|                                                                                                                                          |                                                                                                            |                                                                                                                                                                               |          |             |         |              |          |       

See notes to condensed consolidated financial statements

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

|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |            |         | 
|--------------------------------------------------------------------------- | ------------------------------------------ | ------------------------ | ------- | ------------------ | ------ | ---------------- | ------- | ---------- | ------ | ---- | ------- | ---------- | ------- | - | ------- | ---------- | ------- | 
|                                                                            |                                            |                          |         | Three Months Ended |        | Six Months Ended
|                                                                            |                                            |                          |         | June 30,           |        | June 30,        
|                                                                            |                                            |                          |         |                    |        |                 
|                                                                            |                                            |                          |         | 2002               |        | 2001             |         | 2002       |        | 2001
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |     
|Net revenues                                                                |                                            | $                        | 128,649 |                    |        | $                | 147,702 |            |        | $    | 264,032 |            |         | $ | 302,005 |           
|Cost of services                                                            |                                            |                          | 78,612  |                    |        |                  | 92,319  |            |        |      | 160,299 |            |         |   | 183,959 |           
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|                                                                            |                                            | Gross profit             |         |                    | 50,037 |                  |         |            | 55,383 |      |         |            | 103,733 |   |         |            | 118,046 | 
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|Operating expenses:                                                         |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|                                                                            | Selling, general and administrative        |                          |         | 33,823             |        |                  |         | 34,632     |        |      |         | 65,450     |         |   |         | 65,626     |        
|                                                                            | Depreciation and amortization              |                          |         | 16,560             |        |                  |         | 29,132     |        |      |         | 33,875     |         |   |         | 59,878     |        
|                                                                            | Non-cash compensation (income) expense     |                          |         | (266               | )      |                  |         | 5,730      |        |      |         | (1,168     | )       |   |         | 10,859     |        
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|                                                                            |                                            | Total operating expenses |         |                    | 50,117 |                  |         |            | 69,494 |      |         |            | 98,157  |   |         |            | 136,363 | 
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|Income (loss) from operations                                               |                                            |                          | (80     | )                  |        |                  | (14,111 | )          |        |      | 5,576   |            |         |   | (18,317 | )         
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|                                                                            | Interest expense, net                      |                          |         | 16,009             |        |                  |         | 15,704     |        |      |         | 31,641     |         |   |         | 29,294     |        
|                                                                            | Other (income) expense, net                |                          |         | 562                |        |                  |         | 134        |        |      |         | (3,060     | )       |   |         | 260        |        
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|Loss before income taxes and change in
accounting principle                 |                                            |                          | (16,651 | )                  |        |                  | (29,949 | )          |        |      | (23,005 | )          |         |   | (47,871 | )         
|Income tax provision (benefit)                                              |                                            |                          | 1,261   |                    |        |                  | 1,102   |            |        |      | 1,046   |            |         |   | (3,326  | )         
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|Loss before change in accounting principle                                  |                                            |                          | (17,912 | )                  |        |                  | (31,051 | )          |        |      | (24,051 | )          |         |   | (44,545 | )         
|Change in accounting principle, net of
income tax benefit                   |                                            |                          |         |                    |        |                  |         |            |        |      | (20,227 | )          |         |   |         |           
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|Net loss                                                                    |                                            | $                        | (17,912 | )                  |        | $                | (31,051 | )          |        | $    | (44,278 | )          |         | $ | (44,545 | )         
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|Weighted average number of common and common
equivalent shares outstanding: |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|                                                                            | Basic and diluted                          |                          |         | 39,747,691         |        |                  |         | 38,332,792 |        |      |         | 39,744,993 |         |   |         | 37,668,054 |        
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|Net loss per common share  basic and diluted                               |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|                                                                            | Loss before change in accounting principle |                          | $       | (0.45              | )      |                  | $       | (0.81      | )      |      | $       | (0.61      | )       |   | $       | (1.18      | )      
|                                                                            | Change in accounting principle             |                          |         |                    |        |                  |         |            |        |      |         | (0.51      | )       |   |         |            |        
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           
|                                                                            | Net loss per common share                  |                          | $       | (0.45              | )      |                  | $       | (0.81      | )      |      |         | (1.12      | )       |   | $       | (1.18      | )      
|                                                                            |                                            |                          |         |                    |        |                  |         |            |        |      |         |            |         |   |         |           

See notes to condensed consolidated financial statements

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

|                                                          |                                                              |   |                  |         |      |   |          |          |  
|--------------------------------------------------------- | ------------------------------------------------------------ | - | ---------------- | ------- | ---- | - | -------- | -------- | -
|                                                          |                                                              |   | Six Months Ended
|                                                          |                                                              |   | June 30,        
|                                                          |                                                              |   |                 
|                                                          |                                                              |   | 2002             |         | 2001
|                                                          |                                                              |   |                  |         |     
|Net cash flows provided by operating activities           |                                                              | $ | 28,016           |         |      | $ | 21,188   |         
|                                                          |                                                              |   |                  |         |      |   |          |         
|Cash flows from investing activities:                     |                                                              |   |                  |         |      |   |          |         
|                                                          | Proceeds from sales of marketable securities and
investments |   |                  |        |      |   |          | 8,975    |  
|                                                          | Capital expenditures                                         |   |                  | (30,046 | )    |   |          | (33,965  | )
|                                                          | Acquisitions, net                                            |   |                  |        |      |   |          | (108,202 | )
|                                                          |                                                              |   |                  |         |      |   |          |         
|Net cash flows used in investing activities               |                                                              |   | (30,046          | )       |      |   | (133,192 | )       
|                                                          |                                                              |   |                  |         |      |   |          |         
|Cash flows from financing activities:                     |                                                              |   |                  |         |      |   |          |         
|                                                          | Borrowings of long-term debt                                 |   |                  | 3,955   |      |   |          | 37,859   |  
|                                                          | Payments of long-term debt and capital lease obligations     |   |                  | (19,079 | )    |   |          | (13,958  | )
|                                                          | Payments of non-convertible subordinated debt                |   |                  |        |      |   |          | (13,801  | )
|                                                          | Borrowings under convertible subordinated notes, net         |   |                  | 6,500   |      |   |          | 95,801   |  
|                                                          | Other, net                                                   |   |                  | (95     | )    |   |          | (85      | )
|                                                          |                                                              |   |                  |         |      |   |          |         
|Net cash flows provided by (used in) financing activities |                                                              |   | (8,719           | )       |      |   | 105,816  |         
|                                                          |                                                              |   |                  |         |      |   |          |         
|Effect of exchange rate changes on cash                   |                                                              |   | 55               |         |      |   | (301     | )       
|                                                          |                                                              |   |                  |         |      |   |          |         
|Net decrease in cash and cash equivalents                 |                                                              |   | (10,694          | )       |      |   | (6,489   | )       
|Cash and cash equivalents at beginning of period          |                                                              |   | 23,433           |         |      |   | 19,466   |         
|                                                          |                                                              |   |                  |         |      |   |          |         
|Cash and cash equivalents at end of period                |                                                              | $ | 12,739           |         |      | $ | 12,977   |         
|                                                          |                                                              |   |                  |         |      |   |          |         

See notes to condensed consolidated financial statements

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LIBERTY LIVEWIRE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

1. Description of Business

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

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

2. Basis of Presentation

The accompanying unaudited condensed consolidated financial data as of
June 30, 2002 and December 31, 2001 and for the three and six months ended June
30, 2002 and 2001 have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions to
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. However, the
Company believes that the disclosures are adequate to make the information
presented not misleading. Certain reclassifications have been made to prior
period balances in order to conform to the current period presentation.
Operating results for the quarter are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002. These consolidated
financial statements should be read in conjunction with the Consolidated
Financial Statements and the notes thereto included in the Companys Annual
Report on Form 10-K for the year ended December 31, 2001.

The condensed consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of all significant
intercompany transactions and accounts.

3. Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other
Intangible Assets. SFAS No.
141 requires that all business combinations initiated after June 30, 2001 be
accounted for under the purchase method. SFAS No. 142 addresses the financial
accounting and reporting for acquired goodwill and other intangible assets.
Under the new rules, the Company is no longer required to amortize goodwill and
other intangible assets with indefinite lives, but is required to test such
assets periodically for impairment. SFAS No. 142 also requires that intangible
assets with estimable useful lives be amortized over their respective estimated
useful lives to their estimated residual values, and be reviewed for
impairment.

Effective January 1, 2002, the Company adopted SFAS No. 142 and in
accordance with its provisions, the Company recorded a transitional impairment
charge of $20.2 million against goodwill held at the Entertainment Television
reporting unit, which is part of the Pictures Group. The charge has been reflected as a
cumulative effect of a change in accounting principle in the six months ended
June 30, 2002. Fair value of each reporting unit was determined through the use
of an outside independent valuation consultant (KPMG Consulting, Inc.). The consultant used both the income
approach and market approach in determining fair value.

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LIBERTY LIVEWIRE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

In accordance with SFAS No. 142, the Company has ceased amortizing
goodwill totaling $420.7 million as of the beginning of fiscal year 2002,
including $17.5 million of acquired assembled workforce and $1.7 million of
tradename related intangible assets previously classified as identifiable
intangible assets. As a result, for the three and six months ended June 30,
2002, the Company did not recognize $6.9 million and $13.9 million of
amortization expense, respectively, that would have been recognized had the
previous standards been in effect. The following table presents identifiable
intangible assets subject to amortization and estimated future amortization
under the provisions of SFAS No. 142 as of June 30, 2002 (in thousands):

|                               |                                                           |   |        |        |  
|------------------------------ | --------------------------------------------------------- | - | ------ | ------ | -
|Identifiable intangible assets |                                                           |   |        |       
|                               | Employment agreements                                     |   | $      | 8,188  |  
|                               | Non-compete agreements                                    |   |        | 3,414  |  
|                               |                                                           |   |        |       
|                               |                                                           |   | 11,602 |       
|                               | Accumulated amortization                                  |   |        | (4,722 | )
|                               |                                                           |   |        |       
|                               |                                                           | $ | 6,880  |       
|                               |                                                           |   |        |       
|Estimated amortization expense |                                                           |   |        |       
|                               | 2002                                                      |   | $      | 2,309  |  
|                               | 2003                                                      |   |        | 2,309  |  
|                               | 2004                                                      |   |        | 2,309  |  
|                               | 2005                                                      |   |        | 1,109  |  
|                               |                                                           |   |        |       
|                               |                                                           |   | 8,036  |       
|                               | Less: Amortization for the six months ended June 30, 2002 |   |        | (1,156 | )
|                               |                                                           |   |        |       
|                               |                                                           | $ | 6,880  |       
|                               |                                                           |   |        |       

The following table presents the impact of SFAS No. 142 on net loss and
net loss per share had the standard been in effect for the three and six months
ended June 30, 2001 (amounts in thousands, except per share data):

|                                                |                                                                |                 |         |                    |   |                  |         |       |       |      |         |   |   |   |         |        |        | 
|----------------------------------------------- | -------------------------------------------------------------- | --------------- | ------- | ------------------ | - | ---------------- | ------- | ----- | ----- | ---- | ------- | - | - | - | ------- | ------ | ------ | 
|                                                |                                                                |                 |         | Three Months Ended |   | Six Months Ended
|                                                |                                                                |                 |         | June 30,           |   | June 30,        
|                                                |                                                                |                 |         |                    |   |                 
|                                                |                                                                |                 |         | 2002               |   | 2001             |         | 2002  |       | 2001
|                                                |                                                                |                 |         |                    |   |                  |         |       |       |     
|Reported net loss                               |                                                                | $               | (17,912 | )                  |   | $                | (31,051 | )     |       | $    | (44,278 | ) |   | $ | (44,545 | )     
|                                                | Amortization of goodwill                                       |                 |         |                   |   |                  |         | 7,889 |       |      |         |  |   |   |         | 15,791 |       
|                                                | Amortization of acquired assembled workforce
intangible assets |                 |         |                   |   |                  |         | 1,512 |       |      |         |  |   |   |         | 3,023  |       
|                                                | Income tax effect                                              |                 |         |                   |   |                  |         |      |       |      |         |  |   |   |         | (1,331 | )     
|                                                |                                                                |                 |         |                    |   |                  |         |       |       |      |         |   |   |   |         |       
|                                                |                                                                | Net adjustments |         |                    |  |                  |         |       | 9,401 |      |         |   |  |   |         |        | 17,483 | 
|                                                |                                                                |                 |         |                    |   |                  |         |       |       |      |         |   |   |   |         |       
|Adjusted net loss                               |                                                                | $               | (17,912 | )                  |   | $                | (21,650 | )     |       | $    | (44,278 | ) |   | $ | (27,062 | )     
|                                                |                                                                |                 |         |                    |   |                  |         |       |       |      |         |   |   |   |         |       
|Reported net loss per share  basic and diluted |                                                                | $               | (0.45   | )                  |   | $                | (0.81   | )     |       | $    | (1.12   | ) |   | $ | (1.18   | )     
|                                                |                                                                |                 |         |                    |   |                  |         |       |       |      |         |   |   |   |         |       
|Adjusted net loss per share  basic and diluted |                                                                | $               | (0.45   | )                  |   | $                | (0.56   | )     |       | $    | (1.12   | ) |   | $ | (0.72   | )     
|                                                |                                                                |                 |         |                    |   |                  |         |       |       |      |         |   |   |   |         |       

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets,which establishes a single
accounting model for the impairment or disposal of long-term assets, including
discontinued operations. SFAS No. 144 superseded SFAS No. 121 and APB Opinion
No. 30, Reporting the Results of Operations  Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions.The provisions of SFAS No. 144 are effective
in fiscal years beginning after December 15, 2001, with early adoption
permitted, and in general are to be applied prospectively. The Companys
adoption of SFAS No. 144 effective January 1, 2002 did not have a material
impact on its results of operations and financial position.

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##### Table of Contents



LIBERTY LIVEWIRE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

4. Acquisitions

On February 1, 2001 the Company acquired Group W Network Services (GWNS)
from Viacom, Inc. and certain of its subsidiaries. On August 23, 2001 the
Company acquired from Cinram U.S. Holdings, Inc. the 51% interest in Cinram-POP
DVD Center LLC (Cinram-POP) that it did not already own. On September 6,
2001, the Company acquired the remaining 99% interest in Livewire Network
Services (LNS) that it did not already own, thereby acquiring the operations
of Ascent Network Services.

In accordance with the requirements of SFAS No. 141, Business
Combinations, the following unaudited pro forma consolidated financial
information is presented as if each acquisition was consummated on January 1,
2001. The unaudited pro forma information includes the results of operations
for the period prior to the acquisitions, adjusted for amortization of
goodwill, depreciation, interest expense on borrowings incurred to fund the
acquisitions, and income taxes. The unaudited pro forma information is not
necessarily indicative of the results of operations had these events actually
occurred on January 1, 2001, nor is it necessarily indicative of future results
(in thousands, except per share data):

|                                                                                |  |                  |         |      |  |   |         |  
|------------------------------------------------------------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | -
|                                                                                |  | Six Months Ended
|                                                                                |  | June 30,        
|                                                                                |  |                 
|                                                                                |  | 2002             |         | 2001
|                                                                                |  |                  |         |     
|Revenues                                                                        |  | $                | 264,032 |      |  | $ | 314,674 |  
|                                                                                |  |                  |         |      |  |   |         |  
|Loss before change in accounting principle                                      |  | $                | (24,051 | )    |  | $ | (46,805 | )
|                                                                                |  |                  |         |      |  |   |         |  
|Net loss                                                                        |  | $                | (44,278 | )    |  | $ | (46,805 | )
|                                                                                |  |                  |         |      |  |   |         |  
|Loss per common share before change in accounting
principle  basic and diluted |  | $                | (0.61   | )    |  | $ | (1.17   | )
|                                                                                |  |                  |         |      |  |   |         |  
|Net loss per common share  basic and diluted                                   |  | $                | (1.12   | )    |  | $ | (1.17   | )
|                                                                                |  |                  |         |      |  |   |         |  

5. Joint Venture

On May 6, 2002, the Company entered into both an Amended and Restated
Operating Agreement and a Contribution and Assignment and Assumption Agreement
among the Company, Broadcast Video, Inc. (Broadcast Video) and BVI-Miami, LLC
(BVI-Miami). Pursuant to the agreements, the Company contributed assets and
obligations of its former subsidiary, The Post Edge, Inc., doing business as
Manhattan Transfer-Miami, into a newly formed Miami, Florida-based limited
liability company that it formed with Broadcast Video (the Joint Venture).
The new entity, BVI-Miami, consists of the operations of The Post Edge, Inc.
and the operations of Broadcast Video and certain of its affiliated businesses.
The Company owns a 40% membership interest in BVI-Miami. Broadcast Video owns
the remaining 60% membership interest and manages BVI-Miamis operations. The
net book value of the assets and liabilities were reclassified as an investment
on the balance sheet, which will be accounted for using the equity method of
accounting. The Company does not have any current or contingent material
obligations to the joint venture.

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LIBERTY LIVEWIRE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

6. Comprehensive Loss

Comprehensive income is defined as all changes in shareholders equity,
except those resulting from investments by or distributions to shareholders.
The Companys comprehensive loss is as follows (amounts in thousands):

|                                                                        |  |                  |         |      |  |   |         |  
|----------------------------------------------------------------------- |  | ---------------- | ------- | ---- |  | - | ------- | -
|                                                                        |  | Six Months Ended
|                                                                        |  | June 30,        
|                                                                        |  |                 
|                                                                        |  | 2002             |         | 2001
|                                                                        |  |                  |         |     
|Net loss                                                                |  | $                | (44,278 | )    |  | $ | (44,545 | )
|Unrealized gain on available for sale securities                        |  |                  |        |      |  |   | 2,237   |  
|Unrealized loss on cash flow hedge                                      |  |                  |        |      |  |   | (3,775  | )
|Gain/(loss) on foreign currency translation                             |  |                  | 5,789   |      |  |   | (1,151  | )
|Reclassification adjustment for amortization of loss
on cash flow hedge |  |                  | 3,760   |      |  |   |        |  
|                                                                        |  |                  |         |      |  |   |         |  
|Net gain/(loss) recognized in other comprehensive loss                  |  |                  | 9,549   |      |  |   | (2,689  | )
|                                                                        |  |                  |         |      |  |   |         |  
|Total comprehensive loss                                                |  | $                | (34,729 | )    |  | $ | (47,234 | )
|                                                                        |  |                  |         |      |  |   |         |  

7. Long-Term Debt

As previously reported, the Company entered into a credit agreement, dated
as of December 22, 2000, as amended by Amendment No. 1, dated as of November 1,
2001, and as further amended by Amendment No. 2, dated as of March 26, 2002,
with several lenders from time to time parties to the Credit Agreement, BANC OF
AMERICA SECURITIES LLC, as Lead Arranger and Book Manager, BANK OF AMERICA,
N.A., as administrative agent for the Lenders, SALOMON SMITH BARNEY INC., as
Syndication Agent, and THE BANK OF NEW YORK COMPANY, INC., as Documentation
Agent (the Senior Credit Agreement) and the First Amended and Restated
Liberty Subordinated Credit Agreement, dated December 22, 2000 (the Liberty
Subordinated Credit Agreement) with Liberty Media Corporation. The Company
also borrowed $10.0 million from Heller Financial Leasing, Inc. (the Heller
Credit Agreement).

On March 26, 2002, the Company amended its Senior Credit Agreement under
which new lenders may be added to the agreement, with the consent of current
lenders, and the Company may potentially increase the available borrowings
thereunder by an additional $60.0 million. As of June 30, 2002, the Company
could borrow a maximum of $414.1 million under the Senior Credit Agreement and
had borrowed $382.5 million (including letters of credit) thereunder and, at
such date, $31.6 million was available for future borrowings under the terms of
the Senior Credit Agreement.

Under the Liberty Subordinated Credit Agreement, the Company is able to
borrow up to $213.6 million from Liberty Media for purposes of funding
acquisitions in exchange for convertible notes in the amount borrowed, which
would be convertible into the Companys Class B Common Stock at $10.00 per
share. The Company is also able to borrow up to an additional $100.0 million
from Liberty Media with the consent of, and on terms determined by, Liberty
Media.

On June 28, 2002, the parties to the Senior Credit Agreement in a letter
dated June 28, 2002 (the Senior Credit Agreement Consent Letter) and the
parties to the Heller Credit Agreement agreed in a separate letter dated June
28, 2002 (the Heller Consent Letter), that, with respect to $25.0 million of
such $100.0 million, (1) the conversion rights could be modified so that a
convertible note could be convertible into the Companys Class B Common Stock
at a price per share determined by the Company, rather than at $10.00 per
share, and (2) to the extent these funds were borrowed to purchase capital
assets and fund the Dujardin Arbitration award (as described in Note 14 below),
such borrowed funds could be repaid to Liberty Media before the Company pays
amounts owed under the Senior Credit Agreement provided that, among other
conditions, such repayment would be funded solely with proceeds of additional
equity contributions from Liberty Media or any of its affiliates other than the
Company or any of its subsidiaries. The Companys ability to modify the
conversion rights under the Liberty Subordinated Credit

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LIBERTY LIVEWIRE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Agreement does not affect the conversion rights for amounts previously
borrowed under the Liberty Subordinated Credit Agreement and may be modified on
a case by case basis only on amounts borrowed with respect to the $25.0 million
to which the Senior Credit Agreement Consent Letter and the Heller Consent
Letter apply.

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

On July 24, 2002, the Company and Liberty Media entered into Supplement
No. 2 to the First Amended and Restated Credit Agreement (Supplement No. 2),
under which the Company borrowed an additional $2.3 million to fund part of the
Dujardin Arbitration decision (as described in Note 14 below), and issued a
promissory note in the same amount that is convertible into the Companys Class
B Common Stock at $3.50 per share which represents a $1.55 per share premium
over the $1.95 per share closing price of the Companys Class A Common Stock on
that day.

8. Stock Appreciation Rights

The accrued expense attributed to stock appreciation rights as of June 30,
2002 and December 31, 2001 was $54,000 and $3.2 million, respectively. The
Companys statements of operations for the six months ended June 30, 2002 and
2001 include non-cash income of $3.2 million and non-cash expense of $10.9
million, respectively, due to changes in the stock price underlying the stock
appreciation rights during each period presented.

9. Earnings Per Share

As a result of losses, convertible subordinated notes, warrants and stock
options that could potentially dilute basic earnings per share in the future
were not included in the computation of diluted earnings per share because to
do so would have been antidilutive.

10. Financial Instruments

The Companys statement of operations for the six months ending June 30,
2002 includes $5.0 million of non-cash income related to mark-to-market
adjustments on interest rate swap agreements which had a combined fair market
value of $9.8 million and $14.7 million as of June 30, 2002 and December 31,
2001, respectively, in favor of our counterparties. Additionally, during the
six months ended June 30, 2002, the Company realized non-cash interest expense
of $3.9 million, respectively, related to the $6.4 million of unrealized losses
included in accumulated other comprehensive income as of December 31, 2001. The
remaining $2.5 million of unrealized losses will be recorded as interest
expense during the remainder of fiscal 2002.

11. Business Segment Information

The Companys business units have been aggregated into three reportable
segments: the Pictures Group, the Media Group, and the Networks Group. The
Pictures Group is comprised of the Companys Entertainment Television,
Commercial Television and Audio divisions, which earn revenues by providing
services necessary to complete the creation of original content including
feature films, television shows, television commercials, music videos,
promotional and identity campaigns and corporate communications programming.
The Media Group provides services necessary to facilitate the global
maintenance, management and distribution of existing content libraries; access
to physical and virtual content, restoration and preservation of damaged
content and creation of high

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LIBERTY LIVEWIRE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

resolution professional masters from original camera negative for global
home, broadcast, pay-per-view and emerging new media channels. The Media
Groups results also include our Digital Media Management initiative, a
developing business. The Networks Group provides services necessary to assemble
and distribute programming for cable and broadcast networks via fiber,
satellite and the Internet to viewers in North America, Europe and Asia.
Additionally, the Networks Group includes the results of the Companys
Bandwidth Management initiative, a new and developing business. Corporate
related items and unallocated income and expenses are reflected in the
Corporate and Other column listed below. Corporate and Other includes the
results of the Companys Interactive Media business, a new and developing
business initiative.

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

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

|                                 |                     |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |         |  
|-------------------------------- | ------------------- | - | ------------------ | ------- | ---------------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                 |                     |   | Three Months Ended |         | Six Months Ended
|                                 |                     |   | June 30,           |         | June 30,        
|                                 |                     |   |                    |         |                 
|                                 |                     |   | 2002               |         | 2001             |   | 2002    |         | 2001
|                                 |                     |   |                    |         |                  |   |         |         |     
|Revenues from external customers |                     |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 | Pictures Group      |   | $                  | 63,850  |                  |   | $       | 81,542  |      |   | $       | 137,280 |   |   | $       | 173,438 |  
|                                 | Media Group         |   |                    | 25,703  |                  |   |         | 27,258  |      |   |         | 50,407  |   |   |         | 53,231  |  
|                                 | Networks Group      |   |                    | 39,096  |                  |   |         | 38,902  |      |   |         | 76,345  |   |   |         | 75,336  |  
|                                 |                     |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 |                     | $ | 128,649            |         |                  | $ | 147,702 |         |      | $ | 264,032 |         |   | $ | 302,005 |        
|                                 |                     |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|EBITDA                           |                     |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 | Pictures Group      |   | $                  | 10,018  |                  |   | $       | 12,799  |      |   | $       | 24,571  |   |   | $       | 33,186  |  
|                                 | Media Group         |   |                    | 7,228   |                  |   |         | 7,502   |      |   |         | 14,084  |   |   |         | 15,479  |  
|                                 | Networks Group      |   |                    | 12,537  |                  |   |         | 11,575  |      |   |         | 23,365  |   |   |         | 23,112  |  
|                                 | Corporate and Other |   |                    | (13,569 | )                |   |         | (11,125 | )    |   |         | (23,737 | ) |   |         | (19,357 | )
|                                 |                     |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        
|                                 |                     | $ | 16,214             |         |                  | $ | 20,751  |         |      | $ | 38,283  |         |   | $ | 52,420  |        
|                                 |                     |   |                    |         |                  |   |         |         |      |   |         |         |   |   |         |        

11



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LIBERTY LIVEWIRE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

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

|         |                                                           |   |                    |        |                  |   |         |        |      |   |         |        |   |   |         |        |  
|-------- | --------------------------------------------------------- | - | ------------------ | ------ | ---------------- | - | ------- | ------ | ---- | - | ------- | ------ | - | - | ------- | ------ | -
|         |                                                           |   | Three Months Ended |        | Six Months Ended
|         |                                                           |   | June 30,           |        | June 30,        
|         |                                                           |   |                    |        |                 
|         |                                                           |   | 2002               |        | 2001             |   | 2002    |        | 2001
|         |                                                           |   |                    |        |                  |   |         |        |     
|Net loss |                                                           | $ | (17,912            | )      |                  | $ | (31,051 | )      |      | $ | (44,278 | )      |   | $ | (44,545 | )     
|Add:     |                                                           |   |                    |        |                  |   |         |        |      |   |         |        |   |   |         |       
|         | Change in accounting principle, net
of income tax benefit |   |                    |       |                  |   |         |       |      |   |         | 20,227 |   |   |         |       |  
|         | Depreciation and amortization                             |   |                    | 16,560 |                  |   |         | 29,132 |      |   |         | 33,875 |   |   |         | 59,878 |  
|         | Non-cash compensation (income) expense                    |   |                    | (266   | )                |   |         | 5,730  |      |   |         | (1,168 | ) |   |         | 10,859 |  
|         | Interest expense, net                                     |   |                    | 16,009 |                  |   |         | 15,704 |      |   |         | 31,641 |   |   |         | 29,294 |  
|         | Other (income) expense, net                               |   |                    | 562    |                  |   |         | 134    |      |   |         | (3,060 | ) |   |         | 260    |  
|         | Income tax benefit                                        |   |                    | 1,261  |                  |   |         | 1,102  |      |   |         | 1,046  |   |   |         | (3,326 | )
|         |                                                           |   |                    |        |                  |   |         |        |      |   |         |        |   |   |         |       
|EBITDA   |                                                           | $ | 16,214             |        |                  | $ | 20,751  |        |      | $ | 38,283  |        |   | $ | 52,420  |       
|         |                                                           |   |                    |        |                  |   |         |        |      |   |         |        |   |   |         |       

12. Related Party Transactions

For the three and six months ended June 30, 2002, the Company issued
1,753,476 and 2,632,795 shares, respectively, of its Class B Common Stock to
Liberty Media and its affiliates in payment of $5.1 million and $10.1 million,
respectively, in interest under the Liberty Subordinated Credit Agreement.
Shares of Class B Common Stock are convertible into shares of the Companys
Class A Common Stock, on a one-for-one basis, at any time at the option of the
holder.

Liberty Media allocates salaries, benefits and certain other general and
administrative expenses to the Company. In addition, the Company reimburses
Liberty Media for certain expenses, such as employee medical costs, paid by
Liberty Media on behalf of the Company. The Company has determined the
allocated and reimbursed amounts to be reasonable and equal to the fair value
of the expenses charged. Amounts allocated from Liberty Media to the Company
totaled $3.2 million and $67,000 during the three months ended June 30, 2002
and 2001, respectively, and $3.4 million and $0.7 million during the six months
ended June 30, 2002 and 2001, respectively. During the three and six months
ended June 30, 2002, the Company repaid $1.4 million and $3.0 million,
respectively, of its balance due to Liberty Media. The remaining
balance will be paid to Liberty Media in periodic payments.

On June 28, 2002 and July 24, 2002, the Company borrowed $6.5 million and
$2.3 million, respectively, under the Liberty Subordinated Credit Agreement and
issued convertible notes in the same amount that are convertible into the
Companys Class B Common Stock at $3.50 per share (as further described in Note
7). The closing price of the Companys Class A Common Stock on June 28, 2002
and July 24, 2002 was $2.94 per share and $1.95 per share, respectively.

On July 24, 2002, the Company sold 440,981 unregistered and restricted
shares of its Class B Common Stock to Liberty Media for $1.3 million, or $3.05
per share (as further described in Note 15). The closing price of the
Companys Class A Common Stock on July 24, 2002 was $1.95 per share. The
proceeds of the stock sale were used to fund part of the Dujardin Arbitration
award (as described in Note 14 below).

On August 13,
2002, the Company entered into an agreement with Liberty Media under
which it may draw $25.0 million as needed through, at Liberty
Medias option: (a) loans under the Liberty Subordinated Credit
Agreement of subordinated convertible loans with a conversion price
per share equal to 115% of the average market price of the
Companys Class A Common Stock for the five most recent
trading days ending on and including the date which is two business
days prior to the date of the borrowing, (b) sales of the
Companys Class B Common Stock to Liberty Media at a
purchase price per share equal to the average market price of the
Companys Class A Common Stock for the five most recent
trading days ending on and including the date which is two business
days prior to the date of the stock sale, or (c) any combination
of (a) or (b) (Supplement No. 3). Any draws under
Supplement No. 3 are subject to the Companys obtaining any
necessary consents and approvals and issuing any required notices,
including, to the extent applicable, stockholder approval of shares
of Class B Common Stock to Liberty Media, whether as a sale of
stock or upon conversion of a loan (Stockholder Consent).
Liberty Media, which holds over 87% of the outstanding stock and over
99% of the voting power of the outstanding common stock, agreed in
Supplement No. 3 to vote in favor of any Stockholder Consent.
Proceeds of the loans or stock sales under Supplement No. 3 must
be used for capital expenditures, payment of the principal amount of
loans made under the Senior Credit Agreement or working capital.

13. Severance Terms

On May 17, 2002, the employment of the Companys former Chief Executive
Officer ended. Under existing agreements that govern such former officers
termination of employment with the Company, the Company will pay an annual base salary of
$0.7 million until December 31, 2003, the end of the term of his employment
agreement; any unvested portion of such former officers option to purchase
1,612,900 shares of Liberty Media Series A Common Stock became exercisable upon
the termination of his employment and the entirety of such option will remain
exercisable for 180 days following the date of termination; the outstanding
balance of $2.0 million on a note, plus

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LIBERTY LIVEWIRE CORPORATION
Notes to Condensed Consolidated Financial Statements
(Unaudited)

accrued interest, in the amount of $0.3 million, was automatically forgiven.
The Company recorded a total of $3.3 million to general and administrative
expenses representing the estimated costs associated with his termination.

14. Arbitration with Paul Dujardin

The previously reported arbitration proceeding arising from (i) the
termination of Paul Dujardins employment with the Company, and (ii) the
disposition of 440,981 shares of the Companys Class A Common Stock (the
Hold-Back Shares) owned by Paul Dujardin and held by the Company has
concluded. Pursuant to the arbitrators decision, the Company was ordered to
pay Mr. Dujardin $3.4 million plus interest at 9% from August 29, 2001 to July
25, 2002, the date the Company paid the award for a total amount of $3.7
million. In determining the award, the arbitrator concluded that at August 29,
2001, the value of the Hold-Back Shares was $3.4 million, or $7.67 per share.
In accordance with GAAP, the Company was deemed to have paid $3.20 per share
for the Hold-Back Shares with the difference of $4.47 per share, or $2.2
million, recorded to other expense. The Hold-Back Shares were originally
issued to Paul Dujardin in partial consideration for the sale of Triumph on
July 25, 2000, when the closing price for the Companys Class A Common Stock
was $66.50 per share. As a consequence of the award, the Company took title to
the Hold-Back Shares and thereafter cancelled and returned them to the
Companys authorized but unissued share capital.

15. Subsequent Event

On July 24, 2002, the Company sold 440,981 unregistered and restricted
shares of its Class B Common Stock to Liberty Media for $1.3 million, or $3.05
per share (the Liberty Stock Sale). The closing price of the Companys Class
A Common Stock on July 24, 2002 was $1.95 per share. The proceeds of the stock
sale were used to fund part of the Dujardin Arbitration award (as described in
Note 14 below).

Each share of the Companys Class B Common Stock has the voting power of 10
shares of the Companys Class A Common Stock, and can be converted into one
share of the Companys Class A Common Stock. Immediately prior to the Liberty
Stock Sale, Liberty Media and its affiliates collectively held 45,600 shares of
the Companys Class A Common Stock and 37,026,125 shares of the Companys Class
B Common Stock, which in the aggregate represented approximately 87% of the
Companys outstanding stock and over 99% of the Companys voting power.
Immediately following the Liberty Stock Sale, Liberty Media and its affiliates
held the same percentages of the Companys outstanding stock and voting power. In
addition, Liberty Media holds convertible notes in the amounts of $206.2
million (convertible into Class B Common Stock at $10.00 per share), $6.5
million (convertible into Class B Common Stock at $3.50 per share) and $2.3
million (convertible into Class B Common Stock at $3.50 per share) based on the
terms described in the Liberty Subordinated Credit Agreement.

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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, 2001. 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 forwarding looking statements.

Overview

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

Pictures Group.Our Pictures Group provides services necessary to
complete the creation of original content including feature films, television
shows, television commercials, music videos, promotional and identity campaigns
and corporate communications programming. Our services begin once raw images
are captured and are completed when a final product is delivered to the last
mile distributor such as broadcast network, cable channel or an IP
distributor. The Pictures Group has three divisions: Entertainment Television,
Commercial Television and Audio.

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

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

Acquisitions in 2001

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

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Earnings Before Interest Taxes Depreciation and Amortization

We believe that Earnings Before Interest Taxes Depreciation and
Amortization, or EBITDA, is an important measure of our financial performance.
We define EBITDA as earnings before interest, taxes, depreciation and
amortization, excluding gains and losses on asset sales and unusual charges
such as restructuring, integration and impairment. Our investments in new
infrastructure, machine capacity, technology and goodwill arising from our
significant acquisition activity have produced a relatively high depreciation
and amortization expense and have historically been a significant annual
non-cash charge to earnings. EBITDA is calculated before depreciation and
amortization charges and, in businesses with significant non-cash expenses, is
widely used as a measure of cash flow available to pay interest and repay debt,
and, to the extent available after debt service and other required uses, to
make acquisitions or invest in capital equipment and new technologies. As a
result, we view EBITDA as an important measure of our financial performance and
valuation and intend to report EBITDA as a measure of financial performance.
EBITDA does not represent cash generated from operating activities in
accordance with generally accepted accounting principles (GAAP) and should
not be considered in isolation or as a substitute for other measures of
performance prepared in accordance with GAAP. EBITDA does not reflect that
portion of our capital expenditures that may be required to maintain our market
share, revenues and leadership position in our industry. Moreover, not all
EBITDA will be available to pay interest or repay debt. Additionally, our
presentation of EBITDA may not be comparable to similarly titled measures
reported by other companies.

Critical Accounting Policies

Valuation of Goodwill, Other Intangible Assets and Long-lived Assets. We
perform goodwill impairment tests on an annual basis and on an interim basis if
an event or circumstance indicates that it is more likely than not that
impairment has been incurred. In response to changes in industry and market
conditions, we may strategically realign our resources and consider
restructuring, disposing of, or otherwise exiting businesses. Such activities
could result in impairment of goodwill, other intangible assets and long-lived
assets. We are subject to the possibility of impairment of long-lived assets
arising in the ordinary course of business. We regularly consider the
likelihood of impairment and recognize impairment if the carrying amount of a
long-lived asset is not recoverable from its undiscounted cash flows.
Impairment of long-lived assets is measured as the difference between the
carrying amount and fair value of the asset.

Valuation of Trade Receivables. We must make estimates of the
collectability of our trade receivables. Our management analyzes the
collectability based on historical bad debts, customer concentrations, customer
credit-worthiness, current economic trends and changes in our customer payment
terms. We record an allowance for doubtful accounts based upon specifically
identified receivables that we believe are uncollectible. In addition, we also
record an amount based upon a percentage of each aged category of our trade
receivables. These percentages are estimated based upon our historical
experience of bad debts. Our trade receivables balance was $85.8 million and
$96.7 million, net of allowance for doubtful accounts of $10.7 million and
$12.0 million, as of June 30, 2002 and December 31, 2001, respectively.

Amortization of goodwill

Effective January 1, 2002, we adopted SFAS No. 142 and in accordance with
its provisions, we recorded a transitional impairment charge of $20.2 million
against goodwill held at the Entertainment Television reporting unit, which is part of
the Pictures Group. The charge has been reflected as a cumulative effect of a
change in accounting principle in the six months ended June 30, 2002. Fair
value of each reporting unit was obtained through an outside
independent valuation
consultant (KPMG Consulting, Inc.). The consultant used both the income approach and market approach in
determining fair value.

In accordance with SFAS No. 142, we ceased amortizing goodwill totaling
$420.7 million as of the beginning of fiscal year 2002, including $17.5 million
of acquired assembled workforce and $1.7 million of tradename related
intangible assets previously classified as identifiable intangible assets. As a
result, for the three and six months ended June 30, 2002, we did not recognize
$6.9 million and $13.9 million of amortization expense, respectively, that
would have been recognized had the previous standards been in effect. There can
be no assurances that future goodwill impairment tests will not result in a
charge to earnings. For additional information regarding SFAS No. 142, see Note
3 to the Notes to Condensed Consolidated Financial Statements.

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Results of Operations

The Pictures Groups revenues are primarily generated from fees for audio
and video post production, audio and video special effects and editorial
services for the television, film and advertising industries. The Media Group
provides owners of film libraries a broad range of restoration, preservation,
archiving, professional mastering and duplication services. The Media Groups
results also include our Digital Media Management initiative, a developing
business. The Networks Groups revenues consist of fees relating to facilities
and services necessary to assemble and distribute programming for cable and
broadcast networks across the world via fiber, satellite and the Internet. The
Network Groups results also include our Bandwidth Management initiative, a new
and developing business. Corporate related items and unallocated revenues and
expenses are reflected in Corporate and Other, below. Additionally, Corporate
and Other includes the results of our Interactive Media business, a new and
developing business initiative and our Enterprise Solutions Group, which
provides a blended portfolio of consulting and other professional services to
the entertainment and media industry. Cost and expenses include costs of
services which consist primarily of production wages, facility costs and other
direct costs; selling, general and administrative expenses; depreciation and
amortization; interest expense and income taxes.

Our consolidated results of operations for the three and six months ended
June 30, 2002, include the results of GWNS, Cinram-POP and LNS. Our
consolidated results of operations for the three and six months ended June 30,
2001 include the results of GWNS from its February 1, 2001 acquisition date but
do not include consolidated results for Cinram-POP or LNS as those acquisitions
occurred in August and September 2001, respectively. As a result, reported
operating results are not comparable between the periods presented.

Comparison of Reported Results for the Six Months Ended June 30, 2002 and 2001
(unaudited).

|                          |                     |      |         |         |   |   |         |         |  
|------------------------- | ------------------- | ---- | ------- | ------- | - | - | ------- | ------- | -
|Six Months Ended June 30, |                     | 2002 |         | 2001   
|                          |                     |      |         |        
|Segment Revenues          |                     |      |         |         |   |   |         |        
|                          | Pictures Group      |      | $       | 137,280 |   |   | $       | 173,438 |  
|                          | Media Group         |      |         | 50,407  |   |   |         | 53,231  |  
|                          | Networks Group      |      |         | 76,345  |   |   |         | 75,336  |  
|                          |                     |      |         |         |   |   |         |        
|                          |                     | $    | 264,032 |         |   | $ | 302,005 |        
|                          |                     |      |         |         |   |   |         |        
|Segment EBITDA            |                     |      |         |         |   |   |         |        
|                          | Pictures Group      |      | $       | 24,571  |   |   | $       | 33,186  |  
|                          | Media Group         |      |         | 14,084  |   |   |         | 15,479  |  
|                          | Networks Group      |      |         | 23,365  |   |   |         | 23,112  |  
|                          | Corporate and Other |      |         | (23,737 | ) |   |         | (19,357 | )
|                          |                     |      |         |         |   |   |         |        
|                          |                     | $    | 38,283  |         |   | $ | 52,420  |        
|                          |                     |      |         |         |   |   |         |        
|                          | Net loss            |      | $       | (44,278 | ) |   | $       | (44,545 | )
|                          |                     |      |         |         |   |   |         |        

Revenues decreased $38.0 million, or 12.6%, to $264.0 million for the six
months ended June 30, 2002 from $302.0 million for the six months ended June
30, 2001. Pictures Group revenues decreased by $36.2 million resulting from
unfavorable comparisons to 2001, which benefited from increased television and
feature film production as a result of the threatened actors and writers
strikes. Additionally, Pictures Group revenues suffered from reduced
television advertising spending continuing into the first and second quarter of
2002. Media Group revenues decreased by $2.8 million as a result of lower
demand from larger studio clients for services. Networks Group revenues
increased by $1.0 million primarily driven by an increase of $7.7 million from
the acquisitions of GWNS and LNS and an increase of $2.0 million from our
Bandwidth Management initiative. These revenues were offset by a decrease of
$8.7 million attributed to the cancellation and timing of
various contracts, large network
construction and installation projects.

Costs of services decreased $23.7 million, or 12.9%, to $160.3 million for
the six months ended June 30, 2002 from $184.0 million for the six months ended
June 30, 2001. This is attributed to decreases across all of our Groups
primarily in material, personnel and equipment expenses, as a result of the
decreased revenues noted above.

Selling, general and administrative expenses decreased $0.1 million, or
0.2%, to $65.5 million for the six months ended June 30, 2002 from $65.6
million for the six months ended June 30, 2001. The decrease is attributed

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to personnel reductions and decreased professional fees partially offset
by increased expenses associated with corporate centralization activities.

As a result of the above, EBITDA, as defined, decreased $14.1 million, or
26.9%, to $38.3 million for the six months ended June 30, 2002, from $52.4
million for the six months ended June 30, 2001. Pictures Group EBITDA decreased
$8.6 million due to the lower revenues described above offset by lower costs,
primarily personnel, material, and selling, general and administrative
expenses. Media Group EBITDA decreased $1.4 million due to lower revenues
described above and increased spending of $0.7 million on our Digital Asset
Management initiative. Networks Group EBITDA increased $0.3 million driven by
higher margins associated with additional revenues described above as well as
cost savings offset by additional investments of $4.9 million in our Bandwidth
Management initiative. Corporate and Other EBITDA decreased $4.4 million due to
$3.3 million recorded relating to the severance terms for our
former chief executive officer, increases
in expenses, primarily associated with corporate centralization activities and
increased professional and legal fees of $2.7 million, increased
spending of $0.4 million in our Enterprise Solutions Group
initiative offset by reduced labor costs of $2.0 million.

Depreciation and amortization decreased $26.0 million, or 43.4%, to $33.9
million for the six months ended June 30, 2002, from $59.9 million for the six
months ended June 30, 2001. Approximately $18.8 million of the decrease is
attributed to the Companys adoption of SFAS No. 142 pursuant to which goodwill
and other identifiable intangible assets with indefinite lives are no longer
amortized. The additional decrease is attributed to reduced depreciation
expense associated with the asset impairment charge recorded in the fourth
quarter of 2001.

Non-cash compensation
expense decreased $12.1 million, or 111.0%, to $1.2 million in
income for the six months ended June 30, 2002, from $10.9 million in expense
reported for the six months ended June 30, 2001. Results for the six months
ended June 30, 2002 included income of $2.2 million relating to a decline in
the value of the underlying financial instruments used to value employee stock
appreciation rights or SARs, and compensation expense of $1.0 million relating
to the issuance of in-the-money stock options pursuant to our 2001 incentive
compensation plan. The expense recorded in the six months ended June 30, 2001
related primarily to the increase in value of the underlying financial
instruments used to value employee SARs.

Interest expense increased $2.3 million, or 7.8%, to $31.6 million for the
six months ended June 30, 2002, from $29.3 million for the six months ended
June 30, 2001. The increase is attributable to additional interest on
borrowings under the Liberty Subordinated Credit Agreement related to the
funding of acquisitions. Interest expense for the six months ended June 30,
2002 included $10.2 million of non-cash expense related to interest under the
Liberty Subordinated Credit Agreement, $9.1 million related to interest under
our Senior Credit Facility, $8.1 million related to interest rate swaps (of
which $3.9 million is non-cash), $2.4 million of amortization of debt discounts
and debt issuance costs, and $1.8 million of interest related to capital
leases, notes, and mortgages.

Other income
increased $3.4 million, or 113.3%, to $3.1 million for the six months
ended June 30, 2002 from $0.3 million of expense for the six months ended June
30, 2001. The increase was primarily due to $5.0 million related to the
increase in the market value of certain freestanding interest rate swap
instruments offset by $2.2 million related to the payment of an
award in the arbitration matter with Paul Dujardin (as further
described in Part II, Item 1 below).

As a result of the above, the loss before income taxes and change in
accounting principle decreased $24.9 million, or 52.0%, to $23.0 million for the six
months ended June 30, 2002 from $47.9 million for the six months ended June 30,
2001.

The provision for income taxes increased $4.4 million, or 131.5%, to $1.1
million for the six months ended June 30, 2002, from a benefit of $3.3 million
for the six months ended June 30, 2001. The change is a result of an increase
in the valuation allowance. Our effective income tax rate for the six months
ended June 30, 2002 was approximately (2.4)% primarily due to disallowed
deductions for goodwill and interest expense of $20.2 million and $12.0
million, respectively and valuation allowances of $19.9 million.

Effective January 1, 2002, we adopted SFAS No. 142 and in accordance with
its provisions, we recorded a transitional impairment charge of $20.2 million,
net of tax benefit, which has been reflected as a cumulative effect of a change
in accounting principle in the six months ended June 30, 2002.

As a result of the
above, our net loss decreased $0.3 million, or 0.7%, to
$44.2 million for the six months ended June 30, 2002 from $44.5 million for the six
months ended June 30, 2001.

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Comparison of Reported Results for the Three Months Ended June 30, 2002 and
2001 (unaudited).

|                            |                     |      |         |         |   |   |         |         |  
|--------------------------- | ------------------- | ---- | ------- | ------- | - | - | ------- | ------- | -
|Three Months Ended June 30, |                     | 2002 |         | 2001   
|                            |                     |      |         |        
|Segment Revenues            |                     |      |         |         |   |   |         |        
|                            | Pictures Group      |      | $       | 63,850  |   |   | $       | 81,542  |  
|                            | Media Group         |      |         | 25,703  |   |   |         | 27,258  |  
|                            | Networks Group      |      |         | 39,096  |   |   |         | 38,902  |  
|                            |                     |      |         |         |   |   |         |        
|                            |                     | $    | 128,649 |         |   | $ | 147,702 |        
|                            |                     |      |         |         |   |   |         |        
|Segment EBITDA              |                     |      |         |         |   |   |         |        
|                            | Pictures Group      |      | $       | 10,018  |   |   | $       | 12,799  |  
|                            | Media Group         |      |         | 7,228   |   |   |         | 7,502   |  
|                            | Networks Group      |      |         | 12,537  |   |   |         | 11,575  |  
|                            | Corporate and Other |      |         | (13,569 | ) |   |         | (11,125 | )
|                            |                     |      |         |         |   |   |         |        
|                            |                     | $    | 16,214  |         |   | $ | 20,751  |        
|                            |                     |      |         |         |   |   |         |        
|                            | Net loss            |      | $       | (17,912 | ) |   | $       | (31,051 | )
|                            |                     |      |         |         |   |   |         |        

Revenues decreased $19.1 million, or 12.9%, to $128.6 million for the
three months ended June 30, 2002 from $147.7 million for the three months ended
June 30, 2001. Pictures Group revenues decreased by $17.7 million resulting
from unfavorable comparisons to 2001, primarily as a result of continuing
challenging economic conditions and reduced television advertising spending
continuing into the second quarter of 2002. Media Group revenues decreased by
$1.6 million as a result of lower demand from larger studio clients for services.
Networks Group revenues increased by $0.2 million due to additional projects
secured during the quarter.

Costs of services decreased $13.7 million, or 14.8%, to $78.6 million for
the three months ended June 30, 2002 from $92.3 million for the three months
ended June 30, 2001. This is attributed to decreases across all of our Groups
primarily in personnel, facility, outside services, and equipment expenses, to
offset decreased revenues noted above.

Selling, general and administrative expenses decreased $0.8 million, or
2.3%, to $33.8 million for the three months ended June 30, 2002 from $34.6
million for the three months ended June 30, 2001. The decrease is attributed to
personnel reductions and decreased professional fees partially offset by
increased expenses associated with corporate centralization activities and
increased spending in our new business initiatives, including Digital Media
Management and Enterprise Solutions Group.

As a result of the above, EBITDA, as defined, decreased $4.6 million, or
21.9%, to $16.2 million for the three months ended June 30,2002, from $20.8
million for the three months ended June 30, 2001. Pictures Group EBITDA
decreased $2.8 million due to the lower revenues described above offset by cost
savings. Media Group EBITDA decreased $0.3 million due to reductions in direct
costs resulting from lower revenues described above and offset increased
spending of $0.4 million on our Digital Asset Management initiative. Networks
Group EBITDA increased $1.0 million due to the higher margins associated with
the additional revenues noted above as well as cost savings offset by
additional investment of $2.0 million in our Bandwidth Management initiative.
Corporate and Other EBITDA decreased $2.4 million due to
$3.3 million recorded relating to the severance terms for our
former chief executive officer, increases in expenses, primarily
associated with corporate centralization activities and increased
professional and legal fees of $1.0 million, increased spending
of $0.4 million in our Enterprise Solutions Group initiative
offset by reduced labor costs of $2.3 million.

Depreciation and amortization decreased $12.5 million, or 43.2%, to $16.6
million for the three months ended June 30, 2002, from $29.1 million for the
three months ended June 30, 2001. Approximately $9.4 million of the decrease is
attributed to the Companys adoption of SFAS No. 142 pursuant to which goodwill
and other identifiable intangible assets with indefinite lives are no longer
amortized. The additional decrease is attributed to reduced depreciation
expense associated with the asset impairment charge recorded in the fourth
quarter of 2001.

Non-cash compensation
expense decreased $6.0 million, or 105.3%, to $0.3 million in
income for the three months ended June 30, 2002, from $5.7 million in expense
reported for the three months ended June 30, 2001. Results for the three months
ended June 30, 2002 included income of $0.3 million relating to a decline in
the value of the underlying financial instruments used to value employee stock
appreciation rights or SARs.

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Interest expense increased $0.3 million, or 1.9%, to $16.0 million for the
three months ended June 30, 2002, from $15.7 million for the three months ended
June 30, 2001. The increase is attributable to additional interest on
borrowings under the Liberty Subordinated Credit Agreement related to the
funding of acquisitions. Interest expense for the three months ended June 30,
2002 included $5.1 million of non-cash expense related to interest under the
Liberty Subordinated Credit Agreement, $4.8 million related to interest under
our Senior Credit Facility, $3.9 million related to interest rate swaps (of
which $1.9 million is non-cash), $1.3 million of amortization of debt discounts
and debt issuance costs, and $0.9 million related to capital leases, notes and
mortgages.

Other expense
increased $428,000, or 319.4%, to $562,000 for the three months ended
June 30, 2002 from $134,000 of expense for the three months ended June 30,
2001. The increase was primarily attributed to $2.2 million related to the
Dujardin Arbitration award. These expenses were partially offset by $1.8
million related to the increase in the market value of certain freestanding
interest rate swap instruments.

As a result of the above, the loss before income taxes and change in
accounting principle decreased $13.2 million, or 44.1%, to $16.7 million for the three
months ended June 30, 2002 from $29.9 million for the three months ended June
30, 2001.

The provision for income taxes increased $0.1 million, or 9.1%, to $1.2
million for the three months ended June 30, 2002, from $1.1 million for the
three months ended June 30, 2001. The change is a result of increased state
income taxes.

As a result of the
above, our net loss decreased $13.2 million, or 42.4%, to $17.9
million for the three months ended June 30, 2002 from $31.1 million for the
three months ended June 30, 2001.

Liquidity and Capital Resources

Cash provided by operating activities for the six months ended June 30,
2002, was $28.0 million as compared to $21.2 million for the six months ended
June 30, 2001. Cash and cash equivalents were $12.7 million at June 30, 2002, a
decrease of $0.2 million from June 30, 2001. This decrease relates primarily to
cash used for capital expenditures and payments on long-term debt and capital
lease obligations offset by cash provided by operating activities.

Net cash used in investing activities was $30.0 million for the six months
ended June 30, 2002 compared to $133.2 million for the six months ended June
30, 2001. During the six months ended June 30, 2002, we invested $30.0 million
in property, plant and equipment, as compared to $34.0 million for the six
months ended June 30, 2001. In addition, during the six months ended June 30,
2001 we acquired GWNS for $108.2 million, invested $300,000 to acquire 1% of
LNS and realized proceeds of $8.7 million from sales of marketable securities.

During the six months ended June 30, 2002, net cash used in financing
activities was $8.7 million compared to net cash provided by financing
activities of $105.8 million for the six months ended June 30, 2001. During the
six months ended June 30, 2002, $6.5 million was borrowed under our Liberty
Subordinated Credit Agreement and $3.9 million was borrowed relating to
property mortgages. These borrowings were used to fund capital expenditures.
During the six months ended June 30, 2002 we repaid $7.6 million of debt that
matured during the quarter related to capital leases, mortgage notes and other
borrowings and repaid $11.5 million under our Senior Credit
Agreement. These
repayments were funded by cash generated from operations.

At June 30, 2002, $382.5 million was outstanding under the Senior Credit
Agreement and $31.6 million, subject to the terms of the Senior Credit
Agreement, was available for future borrowings. At June 30, 2002, $212.7
million was outstanding under the Liberty Subordinated Credit Agreement and
$93.5 million was available for future borrowings under the terms of the
Liberty Subordinated Credit Agreement with the consent of, and on terms
determined by, Liberty Media.

In accordance with terms of the Senior Credit Agreement as amended March
26, 2002, new lenders may be added to the agreement, with the consent of the
current lenders, and the Company may potentially increase the available
borrowings thereunder by an additional $60.0 million for a total commitment of
$475.0 million. In addition, the amendment provides us with greater financial
flexibility by modifying various financial covenants including adjustments to
our combined leverage ratio, interest coverage ratio, fixed charge ratio and
indebtedness limitations.

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Under the Liberty
Subordinated Credit Agreement, we may borrow up to $213.6 million from Liberty Media for purposes of funding
acquisitions in exchange for convertible notes in the amount borrowed, which
would be convertible into the Companys Class B Common Stock at $10.00 per
share. We may also borrow up to an additional $100.0 million
from Liberty Media with the consent of, and on terms determined by, Liberty
Media. On June 28, 2002, the parties to the Senior Credit Agreement in a
letter dated June 28, 2002 (the Senior Credit Agreement Consent Letter) and
the parties to the Heller Credit Agreement agreed in a separate letter dated
June 28, 2002 (the Heller Consent Letter), that, with respect to $25.0
million of such $100.0 million, (1) the conversion rights could be modified so
that a convertible note could be convertible into the Companys Class B Common
Stock at a price per share determined by us, rather than at $10.00 per
share, and (2) to the extent these funds were borrowed to purchase capital
assets and fund the award in the arbitration matter with Paul
Dujardin (as described below in Part II, Item 1 of this report),
such borrowed funds could be repaid to Liberty Media before we pay any
amounts owed under the Senior Credit Agreement provided that, among other
conditions, such repayment would be funded solely with proceeds of additional
equity contributions from Liberty Media or any of its affiliates
other than from us or any of our subsidiaries. The discussion of the Senior Credit Agreement Consent Letter
and the Heller Consent Letter are qualified by the complete text of
each respective document, which is attached to this report as Exhibits 10.1 and
10.2, respectively and hereby incorporated by reference to this
report.

The Senior Credit
Agreement requires us to maintain specified ratios, including a
leverage ratio of debt to EBITDA (as such terms are defined in the
Senior Credit Agreement) that declines each quarter through the third
quarter of fiscal year 2003 until such leverage ratio reaches 3.50 to
1.00. As of June 30, 2002, our leverage ratio was 4.44 to 1.00
and we were in compliance with our financial covenants in the Senior
Credit Agreement. On August 13, 2002, we entered into an
agreement with Liberty Media under which we may draw
$25.0 million as needed through, at Liberty Medias option:
(a) loans under the Liberty Subordinated Credit Agreement of
subordinated convertible loans with a conversion price per share
equal to 115% of the average market price of our Class A Common
Stock for the five most recent trading days ending on and including
the date which is two business days prior to the date of the
borrowing, (b) sales of our Class B Common Stock to Liberty
Media at a purchase price per share equal to the average market price
of our Class A Common Stock for the five most recent trading
days ending on and including the date which is two business days
prior to the date of the stock sale, or (c) any combination of
(a) and (b) (Supplement No. 3). Any draws under
Supplement No. 3 are subject to our obtaining any necessary
consents and approvals and issuing any required notices, including,
to the extent applicable, stockholder approval of the issuance of
Class B Common Stock to Liberty Media, whether as a sale of
stock or upon conversion of a loan (Stockholder Consent).
Liberty Media, which holds over 87% of our outstanding common stock
and over 99% of our voting power of the outstanding common stock,
agreed in Supplement No. 3 to vote in favor of any Stockholder
Consent. Amounts advanced to us pursuant to Supplement No. 3
would not constitute debt under the Senior Credit Agreement. Proceeds
of the loans or stock sales under Supplement No. 3 must be used
for capital expenditures, payment of the principal amount of loans
made under the Senior Credit Agreement or working capital. In the
absence of other funding sources, we anticipate that we will continue
to be reliant on funding from Liberty Media to meet our financial
covenants. We believe that our cash flow from operations, together
with cash on hand and the funding available pursuant to Supplement
No. 3, will provide adequate resources to fund ongoing
operations. The discussion of Supplement No. 3 is qualified by
the complete text of Supplement No. 3, which is attached to this
report as Exhibit 10.5 and is hereby incorporated by reference to
this report.

As of June 30, 2002, borrowings related to real property mortgages totaled
$23.7 million, capital lease obligations totaled $17.5 million, and other notes
payable totaled $8.4 million. As of June 30, 2002, $1.7 million was available
for future borrowings under two real property mortgage notes. Proceeds from
these notes are restricted in use to funding capital expenditure initiatives
for our United Kingdom operations.

We continue to monitor the credit markets in the event we are unable to
generate sufficient cash flow from operations to service our indebtedness or to
make capital expenditures and other discretionary investments. If we are
required to raise capital in the future, there can be no assurance that we will
be able do so on favorable terms. If we are unable to generate sufficient cash
flow from operations in the future to service our debt and working capital
needs, we may be required to reduce capital expenditures, sell assets or
refinance all or a portion of our existing debt or obtain additional financing.
Our ability to make scheduled principal debt payments, to pay interest or to
refinance our indebtedness depends on our future financial position and results
of operations, which, to a certain extent, are subject to general conditions in
or affecting our industry and our customers and to general economic, political,
financial, competitive, legislative and regulatory factors beyond our control,
including the duration and severity of the post September 11, 2001 economic
environment.

Factors That May Affect Future Results of Operations

Factors that may affect future results of operations include, but are not
limited to, industry-wide market factors such as the timing of, and spending
on, feature film and television programming production, foreign and domestic
television advertising, and foreign and domestic spending by broadcasters,
cable companies and syndicators on first run and existing content libraries,
and the possibility of an industry-wide strike or other job action by or
affecting the Writers Guild, Screen Actors Guild or other major entertainment
industry union. In addition, our failure to maintain relationships with key
customers and certain key personnel, more rapid than expected technological
obsolescence, and failure to integrate acquired operations in expected time
frames could also cause actual results to differ materially from those
described in forward-looking statements.

In connection with several acquisitions that occurred during fiscal years
2000 and 2001, we incurred significant indebtedness to fund the transactions.
This indebtedness may result in a significant percentage of our cash

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flow being applied to the payment of interest, and there can be no
assurance that our operations will generate sufficient cash flow to service the
indebtedness. This indebtedness, as well as any indebtedness we may incur in
the future, may adversely affect our ability to finance operations, as
financial covenant limitations reach their maximum which could limit our
ability to pursue business opportunities that may be in our best interests and
that of our stockholders.

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.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Interest Rate Risks

We seek to reduce cash flow volatility associated with changes in interest
rates by entering into financial arrangements intended to provide a hedge
against a portion of the risks associated with such volatility. We continue to
have exposure to such risks to the extent they are not hedged. We assess
interest rate cash flow risk by continually identifying and monitoring changes
in interest rate exposures that may adversely impact expected future cash flows
and by evaluating hedging opportunities. Interest rate swap agreements are the
primary instruments used to manage interest rate fluctuation affecting our
$382.5 million of variable rate debt primarily associated with our Senior
Credit Agreement. At June 30, 2002, we had three interest rate swap agreements
with a combined fair market value of $9.8 million in favor of our
counterparties. In one swap agreement, we receive variable interest rate
payments and make fixed interest rate payments on a notional amount of $365.0
million. The two remaining swap agreements have a combined notional amount of
$365.0 million, in which we receive fixed and pay variable interest rate
payments. All three swap agreements mature on June 30, 2003. In addition, we
had two interest rate swap agreements with a mark to market value of $100,000
in favor of our banks. These swap agreements mature on March 10, 2016.

Foreign Currency Risk

We continually monitor our economic exposure to changes in foreign
exchange rates and may enter into foreign exchange agreements where and when
appropriate. Whenever possible, we utilize local currency borrowings to fund
foreign acquisitions. At June 30, 2002, we did not have any foreign exchange
agreements. Substantially all of our foreign transactions are denominated in
foreign currencies, including the liabilities of our foreign subsidiaries.
Although our foreign transactions are not generally subject to significant
foreign exchange transaction gains or losses, the financial statements of our
foreign subsidiaries are translated into United States dollars as part of our
consolidated financial reporting. As a result, fluctuations in exchange rates
affect our financial position and results of operations.




PART II  OTHER INFORMATION




Item 1. Legal Proceedings

Arbitration Matter with Paul Dujardin

The previously reported arbitration proceeding arising from (i) the
termination of Paul Dujardins employment with the Company, and (ii) the
disposition of 440,981 shares of the Companys Class A Common Stock (the
Hold-Back Shares) owned by Paul Dujardin and held by the Company has
concluded. Pursuant to the arbitrators decision, we were ordered to
pay Mr. Dujardin $3.4 million plus interest at 9% from August 29, 2001 to July
25, 2002, the date we paid the award for a total amount of $3.7
million. In determining the award, the arbitrator concluded that we
did not have grounds to terminate Mr. Dujardin for failure to perform his job
duties and engaging in willful misconduct injurious to the Company and
Triumph, and that, at August 29, 2001, the value of the Hold-Back Shares was
$3.4 million, or $7.67 per share. In accordance with generally
accepted accounting principles, we were
deemed to have paid $3.20 per share for the Hold-Back Shares with the
difference of $4.47 per share, or $2.2 million, recorded to other expense. The
Hold-Back Shares were originally issued to Paul Dujardin in partial
consideration for the sale of Triumph on July 25, 2000, when the closing price
for our

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Class A Common Stock was $66.50 per share. As
a consequence of the award, we took title to the Hold-Back Shares and thereafter cancelled and
returned them to our authorized but unissued share capital.

Other Legal Proceedings

There has been no other material development that has not been previously
reported in our legal proceedings disclosure in Part I, Item 3 of our Annual
Report on Form 10-K for the year ended December 31, 2001, filed April 1, 2002,
with the Securities and Exchange Commission. In addition, there have been no
new reportable events during the three months ended June 30, 2002.




Item 2. Changes in Securities and Use of Proceeds

For the three and six months ended June 30, 2002, the Company issued
1,753,476 and 2,632,795 shares of its convertible Class B Common Stock,
respectively, to Liberty Media and its affiliates in payment of $5.1 million
and $10.1 million, respectively, 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 the Companys 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) |  | Exhibits
| | --- |  | --------

| |  |  |      |  |  |                                                                                                                                                                                                                                                                                        
| |  |  | ---- |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | 10.1 |  |  | Senior Credit Agreement Consent Letter, dated
June 28, 2002.                                                                                                                                                                                                                           
|
| |  |  | 10.2 |  |  | Heller Consent Letter, dated June 28, 2002.                                                                                                                                                                                                                                            
|
| |  |  | 10.3 |  |  | Supplement No. 1 to the First Amended and
Restated Credit Agreement, dated June 28, 2002, by and between
Liberty Livewire Corporation and Liberty Media Corporation,
and Promissory Note, dated June 28, 2002, from Liberty
Livewire Corporation in favor of Liberty Media Corporation.
|
| |  |  | 10.4 |  |  | Supplement No. 2 to the First Amended and
Restated Credit Agreement, dated July 24, 2002, by and between
Liberty Livewire Corporation and Liberty Media Corporation,
and Promissory Note, dated July 24, 2002, from Liberty
Livewire Corporation in favor of Liberty Media Corporation.
|
| |  |  | 10.5 |  |  | Supplement
No. 3 to the First Amended and Restated Credit Agreement, dated
August 13, 2002, by and between Liberty Livewire Corporation and
Liberty Media Corporation.                                                                                                                 



| | (b) |  | Reports on Form 8-K.
| | --- |  | --------------------

| |                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------
| | No Current Reports on Form 8-K were filed for the quarter
ended June 30, 2002. A Current Report on Form 8-K was filed on
August 14, 2002.

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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                                          
|               
|               
|August 14, 2002 |  | /s/ George C. Platisa                                                 
|                |  |                                                                       
|Date            |  | George C. Platisa
Executive Vice President and Chief Financial Officer

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