<PAGE>   1


                                  UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D. C. 20549

                                   FORM 10-K/A
                                (Amendment No. 1)

[X]      ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934
         For the fiscal year ended December 31, 2000

                                       OR

[ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
         EXCHANGE ACT OF 1934 [No Fee Required]
         For the transition period from ____ to ____

Commission File Number 0-20421


                            LIBERTY MEDIA CORPORATION
        -----------------------------------------------------------------
             (Exact name of Registrant as specified in its charter)


         State of Delaware                                    84-1288730
----------------------------------------                ----------------------
    (State or other jurisdiction of                       (I.R.S. Employer
     incorporation or organization)                       Identification No.)


        9197 So. Peoria Street
          Englewood, Colorado                                    80112
----------------------------------------                ----------------------
(Address of principal executive offices)                      (Zip Code)


         Registrant's telephone number, including area code:  (720) 875-5400

         Securities registered pursuant to Section 12(b) of the Act:  None

         Securities registered pursuant to Section 12(g) of the Act:  None


         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 and (2) has been subject to such filing
requirements for the past 90 days. Yes   X     No
                                       -----      -----

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

         As of March 1, 2001, there were 1,000 shares of Class A Common Stock,
1,000 shares of Class B Common Stock and 1,000 shares of Class C Common Stock of
Liberty Media Corporation outstanding, all of which were held indirectly by AT&T
Corp. We paid no dividends on our common stock during the year ended December
31, 2000, and we have no intention of paying dividends on our common stock for
the foreseeable future.



<PAGE>   2


                                   SIGNATURES


         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 MEDIA CORPORATION



Date:       June 12, 2001                 By: /s/ Charles Y. Tanabe
                                              ----------------------------------
                                              Charles Y. Tanabe
                                               Senior Vice President and
                                               General Counsel

Date:       June 12, 2001                 By: /s/ Christopher W. Shean
                                              ----------------------------------
                                              Christopher W. Shean
                                               Vice President and Controller



<PAGE>   3

                                    PART II.

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.

         (a) There is no market for our common equity. See "Certain
Relationships and Related Transactions" in Part III of this report.

         (b) Recent Sales of Unregistered Securities. On March 8, 1999, in
connection with the merger of AT&T and TCI, we reclassified each share of our
existing and outstanding common stock, $1.00 par value per share, held by TCI
into one share of Class A Common Stock, $.0001 par value per share, one share of
Class B Common Stock, $.0001 par value per share, and one share of Class C
Common Stock, $.0001 par value per share. We believe this transaction was exempt
from registration under the Securities Act either because it did not involve a
"sale" of securities as defined in Section 2(3) of the Securities Act or, if it
did involve a "sale", the transaction was exempt from the registration
requirements of the Securities Act by virtue of Section 4(2) of the Securities
Act since it did not involve a public offering.

         We believe that the sales of the following securities were exempt from
the registration requirements of the Securities Act by virtue of Section 4(2) of
the Securities Act because none of these transactions involved a public
offering. We used the proceeds from the following issuances for working capital
purposes.

         On June 30, 1999, we sold to Lehman Brothers, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Banc of America Securities LLC, BNY Capital
Markets, Inc., Credit Lyonnais Securities, Donaldson, Lufkin & Jenrette, Morgan
Stanley Dean Witter, Salomon Smith Barney, Schroder & Co. Inc. and TD Securities
our 7-7/8% Senior Notes due 2009 at an aggregate offering price of $750 million
(less a discount to these initial purchasers of approximately $4.9 million) and
our 8-1/2% Senior Debentures due 2029 at an aggregate offering price of $500
million (less a discount to these initial purchasers of approximately $4.4
million).

         On November 16, 1999, we sold our 4% Senior Exchangeable Debentures due
2029 to Donaldson, Lufkin & Jenrette, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Goldman, Sachs & Co. and Salomon Smith Barney at an aggregate
offering price of approximately $868.8 million (less a discount to these initial
purchasers of $15 million). Each $1,000 principal amount debenture is
exchangeable, at the option of the holder, for the value of 22.9486 shares of
Sprint PCS Group stock. We may pay this value in cash, with a number of shares
of Sprint PCS Group stock or a combination of cash and stock, as determined in
the debentures.

         On February 2, 2000, we sold to Lehman Brothers and Salomon Smith
Barney Inc. our 8-1/4% Senior Debentures due 2030, at an aggregate offering
price of $1 billion (less a discount to the initial purchasers of $8.8 million).

         On February 10, 2000, we sold to Salomon Smith Barney Inc. our 3-3/4%
Senior Exchangeable Debentures due 2030 at an aggregate offering price of $750
million (less a discount to the initial purchaser of $15 million). On March 8,
2000, we sold to Salomon Smith Barney Inc. an additional $60 million principal
amount of our 3-3/4% Senior Exchangeable Debentures due 2030 (less a discount to
the initial purchaser of $1 million). Each $1,000 principal amount debenture is
exchangeable, at the option of the holder, for the value of 16.7764 shares of
Sprint PCS Group stock. We may pay this value in cash, with a number of shares
of Sprint PCS Group stock or a combination of cash and stock, as determined in
the debentures.

         On January 11, 2001, we sold to Lehman Brothers Inc. our 3-1/2% senior
exchangeable debentures due 2031 at an aggregate offering price of $550 million
(less a discount to the initial purchaser of $11 million). On January 17, 2001,
we sold to Lehman Brothers Inc. an additional $50 million principal amount of
our 3-1/2% senior exchangeable debentures due 2031 (less a discount to the
initial purchaser of $1 million). Each $1,000 principal amount debenture is
exchangeable, at the option of the holder, for the value of 36.8189 shares of
Motorola common stock. We may pay this value in cash, with a number of shares of
Motorola stock or a combination of cash and stock, as determined in the
debentures.

         On March 8, 2001, we sold to Salomon Smith Barney Inc. our 3-1/4%
senior exchangeable


                                      II-1
<PAGE>   4


debentures due 2031 at an aggregate offering price of approximately $817.7
million (less a discount to the initial purchaser of approximately $16.7
million). Each $1,000 principal amount debenture is exchangeable, at the option
of the holder, for the value of 18.5666 shares of Viacom, Inc. common stock. We
may pay this value in cash, with a number of shares of Viacom stock or a
combination of cash and stock, as determined in the debentures.

Item 6. Selected Financial Data.

         The following tables present selected historical information relating
to the financial condition and results of operations of Liberty for the past
five years. The following data should be read in conjunction with Liberty's
consolidated financial statements. Liberty was a wholly owned subsidiary of
Tele-Communications, Inc. ("TCI") since August 1994. On March 9, 1999, AT&T
Corp. acquired TCI in a merger transaction. For financial reporting purposes,
the merger of AT&T and TCI is deemed to have occurred on March 1, 1999. In
connection with the merger, the assets and liabilities of Liberty were adjusted
to their respective fair values pursuant to the purchase method of accounting.
For periods prior to March 1, 1999, the assets and liabilities of Liberty and
the related consolidated results of operations are referred to below as "Old
Liberty," and for periods subsequent to February 28, 1999, the assets and
liabilities of Liberty and the related consolidated results of operations are
referred to as "New Liberty." In connection with the merger, TCI effected an
internal restructuring as a result of which certain assets and approximately
$5.5 billion in cash were contributed to Liberty.

<TABLE>
<CAPTION>
                                               New Liberty                    Old Liberty
                                           -------------------       ----------------------------
                                               December 31,                   December 31,
                                           -------------------       ----------------------------
                                            2000         1999         1998        1997      1996
                                           ------       ------       ------      ------    ------
                                                           amounts in millions
<S>                                        <C>          <C>          <C>         <C>       <C>
Summary Balance Sheet Data:
Investment in affiliates                   $20,379      15,922        3,079       2,359     1,519
Investments in available-for-sale
  securities and others                    $19,035      28,593       10,539       3,971     2,257
Total assets                               $54,176      58,650       15,783       7,735     6,722
Debt, including current portion            $ 6,363       3,277        2,096         785       555
Stockholder's equity                       $34,224      38,408        9,230       4,721     4,519
</TABLE>



<TABLE>
<CAPTION>
                                                      New Liberty                                  Old Liberty
                                            ----------------------------       -----------------------------------------------------
                                                Year         Ten months        Two months
                                               Ended           ended              ended               Years ended
                                            December 31,    December 31,       February 28,           December 31,
                                            ------------    ------------       ------------   --------------------------------------
                                                2000            1999               1999         1998           1997           1996
                                            ------------    ------------       ------------   --------       --------       --------
                                                                              amounts in millions
<S>                                          <C>              <C>             <C>             <C>             <C>             <C>
Summary Statement of Operations Data:
Revenue                                      $ 1,526             729             235           1,359           1,225         2,208
Operating income (loss)                      $   437          (2,214)           (158)           (431)           (260)          (66)
Interest expense                             $  (399)           (134)            (25)           (104)            (40)          (53)
Share of losses of affiliates, net           $(1,731)           (904)            (66)         (1,002)           (785)         (332)
Gains on dispositions, net                   $ 7,339               4              14           2,449             406         1,558
Net earnings (loss)                          $ 2,569          (1,975)            (70)            622            (470)          741

</TABLE>

                                      II-2
<PAGE>   5

Item 7. 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. This discussion should be
read in conjunction with our accompanying consolidated financial statements and
the notes thereto.

         AT&T's Liberty Media Group common stock is a tracking stock designed to
reflect the economic performance of the businesses and assets of AT&T attributed
to the "Liberty Media Group." We are included in the Liberty Media Group, and
the businesses and assets of Liberty and its subsidiaries constitute
substantially all of the businesses and assets of the Liberty Media Group.

         Liberty's domestic subsidiaries generally operate or hold interests in
businesses which provide programming services including production, acquisition
and distribution through all available formats and media of branded
entertainment, educational and informational programming and software. In
addition, certain of Liberty's subsidiaries hold interests in technology and
Internet businesses, as well as interests in businesses engaged in wireless
telephony, electronic retailing, direct marketing and advertising sales relating
to programming services, infomercials and transaction processing. Liberty also
has significant interests in foreign affiliates, which operate in cable
television, programming and satellite distribution.

         Liberty's most significant consolidated subsidiaries at December 31,
2000, were Starz Encore Group LLC, Liberty Livewire Corporation and On Command
Corporation. These businesses are either wholly or majority owned and,
accordingly, the results of operations of these businesses are included in the
consolidated results of Liberty for the periods in which they were wholly or
majority owned.

         A significant portion of Liberty's operations are conducted through
entities in which Liberty holds a 20%-50% ownership interest. These businesses
are accounted for using the equity method of accounting and, accordingly, are
not included in the consolidated results of Liberty except as they affect
Liberty's interest in earnings or losses of affiliates for the period in which
they were accounted for using the equity method. Included in Liberty's
investments in affiliates at December 31, 2000 were USA Networks, Inc.,
Discovery Communications, Inc., Gemstar-TV Guide International, Inc. (successor
to TV Guide, Inc.), QVC, Inc., UnitedGlobalCom, Inc. and Telewest Communications
plc.

         Liberty also holds interests in companies that are neither consolidated
subsidiaries nor affiliates accounted for using the equity method. The most
significant of these include AOL Time Warner Inc. (successor to Time Warner
Inc.), Sprint Corporation, The News Corporation Limited and Motorola, Inc. The
investments in AOL Time Warner, Sprint Corporation, News Corporation and
Motorola that Liberty holds are classified as available-for-sale securities and
are carried at fair value. Unrealized holding gains and losses on these
securities are carried net of taxes as a component of accumulated other
comprehensive earnings in stockholder's equity. Realized gains and losses are
determined on a specific-identification basis.

         AT&T's acquisition of Tele-Communications, Inc. ("TCI") by merger on
March 9, 1999, has been accounted for using the purchase method. Accordingly,
Liberty's assets and liabilities have been recorded at their respective fair
values resulting in a new cost basis. For financial reporting purposes the AT&T
merger is deemed to have occurred on March 1, 1999. Accordingly, for periods
prior to March 1, 1999, the assets and liabilities of Liberty and the related
consolidated financial statements are sometimes referred to herein as "Old
Liberty," and for periods subsequent to February 28, 1999, the assets and
liabilities of Liberty and the related consolidated financial statements are
sometimes referred to herein as "New Liberty." "Liberty" refers to both New
Liberty and Old Liberty.

SUMMARY OF OPERATIONS

         Starz Encore Group provides premium programming distributed by cable,
direct-to-home satellite and other distribution media throughout the United
States. Liberty Livewire provides sound, video and ancillary post production and
distribution services to the motion picture and television industries in the
United States and Europe. On Command provides in-room on-demand video
entertainment and information services to the domestic lodging industry. To
enhance the reader's understanding, separate financial data has been provided
below for the periods in which they were consolidated for Starz Encore


                                      II-3
<PAGE>   6

Group, Liberty Livewire and On Command due to the significance of those
operations. The table sets forth, for the periods indicated, certain financial
information and the percentage relationship that certain items bear to revenue.
Included in the other category are Liberty's other consolidated subsidiaries and
corporate expenses. Some of Liberty's significant other consolidated
subsidiaries include Liberty Digital, Inc., Pramer S.C.A. and Liberty
Cablevision of Puerto Rico. Liberty Digital is principally engaged in
programming, distributing and marketing digital and analog music services to
homes and businesses. Pramer is an owner and distributor of cable programming
services in Argentina. Liberty Cablevision of Puerto Rico is a provider of cable
television services in Puerto Rico. The results of TV Guide are included for the
two months ended February 28, 1999, after which time Liberty began accounting
for this investment under the equity method of accounting. Liberty holds
significant equity investments, the results of which are not a component of
operating income, but are discussed below under "Investments in Affiliates
Accounted for Under the Equity Method." Other items of significance are
discussed separately below.

         General Information

         Liberty's consolidated statements of operations include information
reflecting the year ended December 31, 2000 and the ten month period ended
December 31, 1999 which represent the operations of New Liberty for periods
subsequent to the AT&T Merger. The two month period ended February 28, 1999 and
the year ended December 31, 1998 represent the operations of Old Liberty for
periods prior to the AT&T Merger.



                                      II-4
<PAGE>   7


<TABLE>
<CAPTION>
                                                                  New Liberty
                                          ----------------------------------------------------------
                                              Year                         Ten months
                                             ended           % of            ended            % of
                                          December 31,       total        December 31,        total
                                             2000           revenue          1999            revenue
                                          ------------      -------       ------------       -------
                                                           dollar amounts in millions
<S>                                       <C>               <C>           <C>                <C>
Starz Encore Group
   Revenue                                $   733             100%         $   539             100%
   Operating, selling, general and
      administrative                          498              68              415              77
   Stock compensation                         163              22              283              53
   Depreciation and amortization              157              21              148              27
                                          -------         -------          -------         -------
      Operating (loss) income             $   (85)            (11)%        $  (307)            (57)%
                                          =======         =======          =======         =======

Liberty Livewire
   Revenue                                $   295             100%         $    --              --
   Operating, selling, general and
      administrative                          251              85               --              --
   Stock compensation                         (42)            (14)              --              --
   Depreciation and amortization               55              19               --              --
                                          -------         -------          -------         -------
      Operating income                    $    31              10%         $    --              --
                                          =======         =======          =======         =======

On Command
   Revenue                                $   200             100          $    --              --
   Operating, selling, general and
      administrative                          151              76               --              --
   Depreciation and amortization               65              32               --              --
                                          -------         -------          -------         -------
      Operating loss                      $   (16)             (8)         $    --              --
                                          =======         =======          =======         =======
Other
   Revenue                                $   298                (a)       $   190                (a)
   Operating, selling, general and
      administrative                          286                              181
   Stock compensation                      (1,071)                           1,502
   Depreciation and amortization              576                              414
                                          -------                          -------
      Operating income (loss)             $   507                          $(1,907)
                                          =======                          =======
</TABLE>


<TABLE>
<CAPTION>
                                                                   Old Liberty
                                          --------------------------------------------------------
                                           Two months                        Year
                                             ended            % of           ended          % of
                                          February 28,       total        December 31,      total
                                             1999           revenue           1998         revenue
                                          ------------      -------       ------------     -------
                                                           dollar amounts in millions
<S>                                       <C>               <C>           <C>              <C>
Revenue                                   $   101              100%            $   541        100%
   Operating, selling, general and
      administrative                           60               59                 445         82
   Stock compensation                           3                3                  58         11
   Depreciation and amortization                1                1                   8          1
                                          -------          -------             -------    -------
      Operating (loss) income             $    37               37%            $    30          6%
                                          =======          =======             =======    =======
Liberty Livewire
   Revenue                                $    --               --             $    --         --
   Operating, selling, general and
      administrative                           --               --                  --         --
   Stock compensation                          --               --                  --         --
   Depreciation and amortization               --               --                  --         --
                                          -------          -------             -------    -------
      Operating income                    $    --               --             $    --         --
                                          =======          =======             =======    =======
On Command
   Revenue                                $    --               --             $    --         --
   Operating, selling, general and
      administrative                           --               --                  --         --
   Depreciation and amortization               --               --                  --         --
                                          -------          -------             -------    -------
      Operating loss                      $    --               --             $    --         --
                                          =======          =======             =======    =======
Other
   Revenue                                $   134                 (a)          $   818           (a)
   Operating, selling, general and
      administrative                          128                                  698
   Stock compensation                         180                                  460
   Depreciation and amortization               21                                  121
      Operating income (loss)             $  (195)                             $  (461)
                                          =======                              =======
</TABLE>
----------
(a) Not meaningful.



                                      II-5
<PAGE>   8

         In order to provide a meaningful basis for comparing the years ended
December 31, 2000, 1999 and 1998, the operating results of New Liberty for the
ten months ended December 31, 1999 have been combined with the operating results
of Old Liberty for the two months ended February 28, 1999, for purposes of the
following table and discussion. Depreciation, amortization and certain other
line items included in the operating results presented below are not comparable
between periods as a result of the effects of purchase accounting adjustments
related to the AT&T merger. The combining of predecessor and successor
accounting periods is not permitted by generally accepted accounting principles.

<TABLE>
<CAPTION>
                                                                      Combined Liberty
                                   ----------------------------------------------------------------------------------
                                       Year                         Year                        Year
                                       ended          % of          ended         % of          ended          % of
                                   December 31,       total     December 31,      total     December 31,       total
                                       2000          revenue        1999         revenue        1998          revenue
                                   ------------      -------    ------------     -------    ------------      -------
                                                                dollar amounts in millions
<S>                                <C>               <C>        <C>              <C>        <C>               <C>
Starz Encore Group
  Revenue                             $   733          100%      $   640          100%        $   541          100%
  Operating, selling, general
     and administrative                   498           68           475           74             445           82
  Stock compensation                      163           22           286           45              58           11
  Depreciation and
     amortization                         157           21           149           23               8            1
                                      -------          ---       -------          ---         -------          ---
       Operating (loss)
           income                     $   (85)         (11)%     $  (270)         (42)%       $    30            6%
                                      =======          ===       =======          ===         =======          ===
Liberty Livewire
  Revenue                             $   295          100%      $    --           --         $    --           --
  Operating, selling, general
     and administrative                   251           85            --           --              --
  Stock compensation                      (42)         (14)           --           --              --           --
  Depreciation and
     amortization                          55           19            --           --              --           --
                                      -------          ---       -------          ---         -------          ---
       Operating income               $    31           10%      $    --           --         $    --           --
                                      =======          ===       =======          ===         =======          ===
On Command
  Revenue                             $   200          100%      $    --           --         $    --           --
  Operating, selling, general
     and administrative                   151           76            --           --              --           --
  Depreciation and
     amortization                          65           32            --           --              --           --
                                      -------          ---       -------          ---         -------          ---
       Operating loss                 $   (16)          (8)%     $    --           --         $    --           --
                                      =======          ===       =======          ===         =======          ===
Other
  Revenue                             $   298             (a)    $   324             (a)      $   818             (a)
  Operating, selling, general
     and administrative                   286                        309                          698
  Stock compensation                   (1,071)                     1,682                          460
  Depreciation and
     amortization                         576                        435                          121
                                      -------                    -------                      -------
       Operating income (loss)        $   507                    $(2,102)                     $  (461)
                                      =======                    =======                      =======
</TABLE>

----------
(a) Not meaningful.


                                      II-6
<PAGE>   9


         Certain of the Company's consolidated subsidiaries and equity
affiliates (the "Programming Affiliates") are dependent on the entertainment
industry for entertainment, educational and informational programming. A
prolonged downturn in the economy could have a negative impact on the revenue
and operating income of the Programming Affiliates. Such an event could reduce
the development of new television and motion picture programming, thereby
adversely impacting the Programming Affiliates' supply of service offerings. In
addition, a soft economy could reduce consumer disposable income and consumer
demand for the products and services of the Programming Affiliates.

         YEAR ENDED DECEMBER 31, 2000, COMPARED TO DECEMBER 31, 1999

         CONSOLIDATED SUBSIDIARIES

         Starz Encore Group. The majority of Starz Encore Group's revenue is
derived from the delivery of movies to subscribers under affiliation agreements
between Starz Encore Group and cable operators and satellite direct-to-home
distributors. Starz Encore Group entered into a 25-year affiliation agreement in
1997 with TCI. TCI cable systems subsequently acquired by AT&T in the AT&T
merger operate under the name AT&T Broadband. Under this affiliation agreement
with AT&T Broadband, Starz Encore Group receives fixed monthly payments in
exchange for unlimited access to all of the existing Encore and STARZ! services.
The payment from AT&T Broadband can be adjusted, in certain instances, if AT&T
acquires or disposes of cable systems or if Starz Encore Group's programming
costs increase above certain specified levels. As a result of AT&T's acquisition
of MediaOne Group, Inc. on June 15, 2000, the contracted payment amount
increased by approximately 20%. After adjusting for the elimination of the
former MediaOne contract, the net payment amount from the combined AT&T
companies increased by approximately 10%. Starz Encore Group's other affiliation
agreements generally provide for payments based on the number of subscribers
that receive Starz Encore Group's services.

         Revenue increased to $733 million in 2000 from $640 million in 1999.
Revenue from AT&T Broadband increased 11% during 2000 compared to the same
period of 1999, pursuant to the terms of the AT&T/Starz Encore Group affiliation
agreement. As AT&T's acquisition of MediaOne did not close until June 2000, the
increase in revenue from AT&T Broadband only reflects the 20% increase in the
contracted payment required under the AT&T/Starz Encore Group affiliation
agreement for six and one-half months of 2000. Under this agreement, the amount
paid by AT&T Broadband does not vary with the number of subscription units from
AT&T Broadband unless such variations in subscription units are due to
acquisitions or dispositions of cable systems, as discussed above. This category
also includes revenue from cable systems that have been contributed by AT&T to
joint ventures and are subject to the AT&T/Starz Encore Group affiliation
agreement. Revenue from cable affiliates other than AT&T Broadband increased 33%
during 2000, compared to 1999 due to increases in subscription units for Encore
and STARZ! services. MOVIEplex and Thematic Multiplex subscribers from cable
affiliates other than AT&T Broadband increased by 15% and 239%, respectively,
during 2000 compared to 1999, contributing to the increase in revenue. Revenue
from satellite providers and other distribution technologies increased 7% during
2000, due to 17%, 26% and 51% increases in STARZ!, Encore and Thematic Multiplex
subscription units, respectively. Revenue from satellite providers and other
distribution technologies grew at a slower rate than subscription units due to
contractual incentives.

         Operating, selling, general and administrative expenses increased by 5%
during 2000 as compared to 1999, primarily due to an increase in programming
expenses. Programming expenses increased due to an increase in programming
license fees resulting from increased use of higher quality first-run films from
certain movie studios. The increase in programming expense was partially offset
by reduced spending on affiliate marketing and national branding efforts.

         Depreciation and amortization increased from $149 million during 1999
to $157 million during 2000. The increase was primarily the result of purchase
accounting adjustments being in effect for the full year 2000 compared to only
the last ten months of 1999.

         Starz Encore Group has granted phantom stock appreciation rights to
certain of its officers. Compensation relating to the phantom stock appreciation
rights has been recorded based upon the fair value of the Starz Encore Group as
determined by a third-party appraisal. The amount of expense associated with the
phantom stock appreciation rights is generally based on the vesting of such
rights and the change in the fair value of the Starz Encore Group.



                                      II-7
<PAGE>   10

         Liberty expects Starz Encore Group to generate an operating loss during
2001 due to continued stock compensation and depreciation and amortization
expenses. It is expected that this operating loss will decrease compared to 2000
due to improved earnings before interest, taxes, depreciation and amortization
(Operating Cash Flow).

         Liberty Livewire. On April 10, 2000, Liberty acquired all of the
outstanding common stock of Four Media Company in exchange for AT&T Class A
Liberty Media Group common stock and cash. On June 9, 2000 Liberty acquired a
controlling interest in The Todd-AO Corporation in exchange for AT&T Class A
Liberty Media Group common stock. Immediately following the closing of such
transaction, Liberty contributed 100% of the capital stock of Four Media Company
to Todd-AO in exchange for additional Todd-AO common stock. Following these
transactions, Todd-AO changed its name to Liberty Livewire. On July 19, 2000,
Liberty purchased all of the assets relating to the post production, content and
sound editorial businesses of Soundelux Entertainment Group. Immediately
following such transaction, the assets of Soundelux were contributed to Liberty
Livewire for additional Liberty Livewire stock. Following these transactions,
Liberty owned approximately 88% of the equity and controlled approximately 99%
of the voting power of Liberty Livewire, and as a result, began to consolidate
the operations of Liberty Livewire during the quarter ended June 30, 2000.
Liberty Livewire is dependent on the television and movie production industries
for a substantial portion of its revenue. A strike by certain entertainment
guilds could have a significant negative impact on Liberty Livewire's revenue
during the periods affected by such strike.

         On Command. On March 28, 2000, Liberty announced that it had completed
its cash tender offer for the outstanding common stock of Ascent Entertainment
Group, Inc. Approximately 85% of the outstanding shares of common stock of
Ascent were tendered in the offer. On June 8, 2000, Liberty completed its
acquisition of 100% of Ascent. On Command is a majority owned subsidiary of
Ascent. On Command's principal business is providing pay-per-view entertainment
and information services to the lodging industry. Upon completion of the tender
offer, Liberty consolidated the operations of On Command. On Command's revenue
could be negatively impacted by a strike by certain entertainment guilds as the
amount of programming available to On Command could be negatively impacted,
thereby potentially reducing purchases of pay-per-view entertainment services by
consumers. Liberty expects On Command's operating loss in 2001 to approximate
its 2000 operating loss.

         Other. Included in this information are the results of Liberty's other
consolidated subsidiaries and corporate expenses.

         Revenue decreased 8% to $298 million for 2000 as compared to $324
million in 1999 primarily due to the deconsolidation of TV Guide on March 1,
1999, which accounted for $97 million of the decrease. The effect of the
deconsolidation of TV Guide was partially offset by a $12 million increase in
revenue at Pramer, a $20 million increase in revenue at Liberty Digital and a
$12 million increase in revenue at other international subsidiaries. Ascent
Network Services, Inc. which was acquired during March 2000 as part of the
Ascent transaction, also contributed $17 million in additional revenue.

         Operating, selling, general and administrative expenses decreased 7% to
$286 million for 2000 as compared to $309 million for 1999. The decrease in
expenses is primarily due to the deconsolidation of TV Guide, which accounted
for $76 million of the decrease. The effect of the TV Guide deconsolidation was
offset by start up expenses of $26 million at True Position, Inc. which was
acquired on January 14, 2000 as part of the Associated Group transaction,
increased expenses of $9 million at each of Pramer and Liberty Digital, and $11
million of expenses associated with the acquisition of Ascent Network Services.

         Depreciation and amortization increased $141 million to $576 million
for 2000 from $435 million for 1999. The increase was a result of the effects of
purchase accounting adjustments related to the AT&T merger and other
acquisitions.

         The amount of expense associated with stock compensation is generally
based on the vesting of the related stock options and stock appreciation rights
and the market price of the underlying common stock. The expense reflected in
the table is based on the market price of the underlying common stock as of the
date of the financial statements and is subject to future adjustment based on
market price fluctuations, vesting percentages and, ultimately, on the final
determination of market value when the rights are exercised.



                                      II-8
<PAGE>   11
         Other Income and Expense. Interest expense was $399 million, $134
million and $25 million for the year ended December 31, 2000, the ten month
period ending December 31, 1999 and the two month period ending February 28,
1999, respectively. The increase in interest expense during 2000 was a result of
increased borrowings by Liberty during the second half of 1999 and the first
quarter of 2000.

         The carrying amount of the senior exchangeable debentures is adjusted
based on the fair value of the underlying Sprint PCS Group Stock. Increases or
decreases in the value of the underlying Sprint PCS Group Stock above the
principal amount of the senior exchangeable debentures (the "Contingent
Portion") is recorded as an adjustment to interest expense in the consolidated
statements of operations and comprehensive earnings. If the value of the
underlying Sprint PCS Group Stock decreases below the principal amount of the
senior exchangeable debentures there is no effect on the principal amount of
such debentures.

         Dividend and interest income was $301 million, $242 million and $10
million for the year ended December 31, 2000, the ten month period ended
December 31, 1999 and the two month period ended February 28, 1999,
respectively. The increase in dividend and interest income during the year ended
December 31, 2000 primarily represents interest earned on the cash collateral
balance associated with the securities lending agreement, increased dividends
from investments in News Corp. and Motorola and interest earned on cash balances
at Ascent and Liberty Satellite and Technology, Inc. ("LSAT").

         During the year ended December 31, 2000, Liberty determined that
certain of its investments experienced other than temporary declines in value.
As a result, the cost bases of such investments were adjusted to their
respective fair values at December 31, 2000 based primarily on recent quoted
market prices. These adjustments are reflected as impairment of investments in
the consolidated statements of operations. The following table identifies the
realized losses attributable to each of the individual investments as follows
(amounts in millions):

<TABLE>
<CAPTION>
         Investments
         -----------                                            Year ended
                                                               December 31,
                                                                   2000
                                                               ------------
<S>                                                            <C>
         Motorola                                               $    1,276
         Primedia                                                      103
         Others                                                         97
                                                                ----------
                                                                $    1,476
                                                                ==========
</TABLE>

         Aggregate gains from dispositions during the year ended December 31,
2000, the ten month period ended December 31, 1999 and the two month period
ended February 28, 1999 were $7,339 million, $4 million and $14 million,
respectively. Liberty recognized a gain of $2,233 million during the year ended
December 31, 2000, in connection with the acquisition of General Instrument by
Motorola. Liberty also recognized a $211 million gain during the year ended
December 31, 2000, in connection with the exchange of Sprint PCS Group stock,
valued at $300 million, for a preferred stock interest in LSAT. Liberty
recognized a gain of $649 million during the year ended December 31, 2000, in
connection with the acquisition of Flextech Limited by Telewest. Liberty
recognized a gain of $4,391 million during the year ended December 31, 2000 in
connection with the acquisition of TV Guide by Gemstar. In all of the above
exchange transactions, the gains were calculated based upon the difference
between the carrying value of the assets relinquished compared to the fair value
of the assets received.

         Liberty recognized a gain on issuance of equity by affiliates and
subsidiaries of $372 million during the two months ended February 28, 1999, in
connection with the acquisition by United Video Satellite Group of the TV Guide
properties.


                                      II-9
<PAGE>   12


         INVESTMENTS IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD

         Liberty's share of losses of affiliates was $1,731 million, $904
million and $66 million during the year ended December 31, 2000, the ten month
period ending December 31, 1999 and the two month period ending February 28,
1999, respectively. A summary of Liberty's share of losses of affiliates is
included below:

<TABLE>
<CAPTION>
                                                                   New Liberty                        Old Liberty
                                                    ---------------------------------------------     ------------
                                                                      Year           Ten months        Two months
                                                                      ended             ended            ended
                                                    Percentage     December 31,      December 31,     February 28,
                                                     Ownership         2000              1999             1999
                                                    ----------     ------------      ------------     ------------
                                                                          amounts in millions
<S>                                                  <C>           <C>               <C>              <C>

         USAI and related investments                   21%        $       (36)              (20)              10
         Telewest                                       25%               (441)             (222)             (38)
         Discovery                                      49%               (293)             (269)              (8)
         Gemstar                                        21%               (254)               --               --
         QVC                                            43%                (12)              (11)              13
         UnitedGlobalCom                                11%               (211)               23               --
         Other                                        Various             (484)             (405)             (43)
                                                                   -----------              ----              ---
                                                                   $    (1,731)             (904)             (66)
                                                                   ===========              ====              ===
</TABLE>

         At December 31, 2000, the excess of Liberty's aggregate carrying amount
in its affiliates over Liberty's proportionate share of its affiliates' net
assets is approximately $15 billion. This excess basis is being amortized over
estimated useful lives ranging from 2 to 20 years. Such amortization was
approximately $936 million, $463 million and $9 million for the year ended
December 31, 2000, the ten months ended December 31, 1999 and the two months
ended February 28, 1999, respectively. Such excess basis amortization is
included in Liberty's share of losses of its affiliates. Liberty expects to
continue to record shares of losses in its affiliates for the foreseeable future
principally due to the significant levels of excess basis amortization that is
included in each affiliate's share of losses.

         USA Networks, Inc. Liberty's share of USA Networks, Inc.'s net earnings
(loss) was approximately $(36) million, $(20) million and $10 million for the
year ended December 31, 2000, the ten month period ended December 31, 1999 and
the two month period ended February 28, 1999, respectively. Liberty's share of
losses for the year ended December 31, 2000 and the ten month period ended
December 31, 1999, included $64 million and $53 million, respectively, in excess
basis amortization. The increase in Liberty's share of USA Networks net loss
from 1999 to 2000 is due to the inclusion of a full year of excess basis
amortization during 2000 as compared to ten months excess basis amortization in
1999.

         Telewest. Liberty's share of Telewest's net losses was approximately
$441 million, $222 million and $38 million for the year ended December 31, 2000,
the ten month period ended December 31, 1999 and the two month period ended
February 28, 1999, respectively. Liberty's share of losses for the year ended
December 31, 2000 and the ten month period ended December 31, 1999 included $164
million and $73 million, respectively, in excess basis amortization. Liberty's
share of Telewest's net loss increased due to the increase in excess basis
amortization combined with a $270 million increase in Telewest's net loss from
1999 to 2000. Telewest's net loss increased due to increased interest expense
and increased depreciation and amortization expense resulting from acquisitions.

         Discovery. Liberty's share of Discovery's net loss was approximately
$293 million, $269 million, and $8 million for the year ended December 31, 2000,
the ten month period ended December 31, 1999 and the two month period ended
February 28, 1999, respectively. Liberty's share of losses for the year ended
December 31, 2000 and the ten month period ended December 31, 1999, included
$187 million and $155 million, respectively, in excess basis amortization. The
increase in Liberty's share of Discovery's net loss from 1999 to 2000 is due to
the inclusion of a full year of excess basis amortization during 2000 as
compared to ten months excess basis amortization in 1999. The increase in excess
basis amortization was offset by a reduction in Discovery's net loss due to an
increase in Operating Cash Flow that was partially offset by increased interest
expense and launch support.


                                     II-10
<PAGE>   13

         Gemstar. Liberty's share of Gemstar's net loss was $254 million from
the date of acquisition through December 31, 2000 and included excess basis
amortization of $199 million. On July 12, 2000, TV Guide and Gemstar completed a
merger whereby Gemstar acquired TV Guide. As a result of this transaction, 133
million shares of TV Guide held by Liberty were exchanged for 87.5 million
shares of Gemstar common stock. Following the merger, Liberty owns approximately
21.4% of Gemstar.

         QVC. Liberty's share of QVC's net earnings (loss) was approximately
$(12) million, $(11) million and $13 million for the year ended December 31,
2000, the ten month period ended December 31, 1999 and the two month period
ended February 28, 1999, respectively. Liberty's share of losses for the year
ended December 31, 2000 and the ten month period ended December 31, 1999
included $110 million and $92 million, respectively, in excess basis
amortization. The increase in excess basis amortization was offset by an
increase in QVC's net income. The increase in net income principally resulted
from growth at QVC's domestic and international businesses.

         UnitedGlobalCom. Liberty's share of UnitedGlobalCom's net loss was $211
million for the year ended December 31, 2000 and Liberty's share of earnings was
$23 million for the ten months ended December 31, 1999. Liberty's share of
UnitedGlobalCom's operations included $46 million and $6 million in excess basis
amortization for the year ended December 31, 2000 and the ten months ended
December 31, 1999, respectively. Liberty purchased 9.9 million class B shares of
UnitedGlobalCom for approximately $493 million in cash on September 30, 1999.
Liberty's ownership in UnitedGlobalCom is approximately 11% on an economic basis
and 37% on voting basis. Liberty recorded share of earnings in 1999 due to gains
that UnitedGlobalCom recorded during the fourth quarter of 1999 resulting from
sales of investments in affiliates. Such gains recorded by UnitedGlobalCom in
1999 were non-recurring.


         YEAR ENDED DECEMBER 31, 1999, COMPARED TO DECEMBER 31, 1998

         CONSOLIDATED SUBSIDIARIES

         Starz Encore Group. Revenue increased to $640 million in 1999 from $541
million in 1998. Revenue from AT&T Broadband increased 13% during 1999, compared
to the same period of 1998, pursuant to the terms of the AT&T/Starz Encore Group
affiliation agreement. Under this agreement, the amount paid by AT&T Broadband
does not vary with the number of subscription units from AT&T Broadband. This
category also includes revenue from cable systems that have been contributed by
AT&T to joint ventures and are subject to the AT&T/Starz Encore Group
affiliation agreement. Revenue from cable affiliates other than AT&T Broadband
increased 33% during 1999, compared to 1998 mainly due to increases in
subscription units for Encore and STARZ! services, combined with small increases
in rates charged. MOVIEplex and Thematic Multiplex subscribers from cable
affiliates other than AT&T Broadband increased by 42% and 414%, respectively,
during 1999 compared to 1998, contributing to the increase in revenue. Revenue
from satellite providers and other distribution technologies increased 21%
during 1999, due to 17%, 15% and 26% increases in STARZ!, Encore and Thematic
Multiplex subscription units, respectively, partially offset by subscriber
volume and penetration discounts.

         Programming and other operating expenses increased by 12% during 1999,
compared to 1998, primarily due to increased first run exhibitions on Encore and
the Thematic Multiplex channels. Sales and marketing expenses increased by 6%
during 1999, compared to 1998, due to the "New Encore" national awareness
campaign during 1999. The "New Encore" campaign is branding Encore as a
first-run premium pay service.

         Depreciation and amortization increased from $8 million during 1998 to
$149 million during 1999. The increase was a direct result of the effects of
purchase accounting adjustments related to the AT&T merger.

         Starz Encore Group has granted phantom stock appreciation rights to
certain of its officers. Compensation relating to the phantom stock appreciation
rights has been recorded based upon the fair value of the Starz Encore Group as
determined by a third-party appraisal. The amount of expense associated with the
phantom stock appreciation rights is generally based on the vesting of such
rights and the change in the fair value of the Starz Encore Group.


                                     II-11
<PAGE>   14


         Other. Revenue decreased 60% from $818 million for 1998, to $324
million for 1999. The decrease in revenue was due to the sale of Netlink
Wholesale, Inc. during January 1999, the sale of CareerTrack, Inc. in February
1999, and the deconsolidation of TV Guide in March 1999. Netlink Wholesale,
Career Track and TV Guide accounted for $33 million, $73 million and $501
million of the decrease, respectively. This decrease was partially offset by the
acquisition of Pramer in August 1998, which contributed $47 million to revenue
in 1999.

         Operating, selling, general and administrative expenses decreased 56%
to $309 million for 1999, from $698 million for 1998. The sales of Netlink and
CareerTrack and the deconsolidation of TV Guide accounted for $22 million, $74
million and $399 million of the decrease, respectively. These decreases were
partially offset by the acquisition of Pramer, which added $37 million of
expenses, and $18 million of additional corporate expenses in 1999 associated
with the AT&T merger.

         Depreciation and amortization increased $314 million to $435 million
for 1999 from $121 million during 1998. The increase was a result of the effects
of purchase accounting adjustments related to the AT&T merger.

         The amount of expense associated with stock compensation is generally
based on the vesting of the related stock options and stock appreciation rights
and the market price of the underlying common stock. The expense reflected in
the table is based on the market price of the underlying common stock as of the
date of the financial statements and is subject to future adjustment based on
market price fluctuations and, ultimately, on the final determination of market
value when the rights are exercised.

         Other Income and Expense. Interest expense was $134 million, $25
million and $104 million for the ten month period ending December 31, 1999, the
two month period ending February 28, 1999, and the year ended December 31, 1998,
respectively. The increase in interest expense during the 1999 periods was a
result of increased borrowings by Liberty during 1999.

         Dividend and interest income was $242 million, $10 million and $65
million for the ten month period ending December 31, 1999, the two month period
ending February 28, 1999 and the year ending December 31, 1998, respectively.
The increase in dividend and interest income during 1999 primarily represents
dividends and interest income from the investment of the $5.5 billion received
in connection with the AT&T merger.

         Aggregate gains from dispositions and issuance of equity by affiliates
and subsidiaries during the ten month period ended December 31, 1999, the two
month period ended February 28, 1999, and the year ended December 31, 1998 were
$4 million, $386 million and $2,554 million, respectively. Liberty recognized a
gain of $372 million during the two months ended February 28, 1999, in
connection with the acquisition by United Video Satellite Group of the TV Guide
properties. Liberty recorded a gain of $1,873 million during 1998 as a result of
the exchange of its interest in PCS Ventures for shares of Sprint PCS Group
stock. Effective January 1, 1998, Time Warner acquired the business of Southern
Satellite from Liberty for $213 million in cash resulting in a $515 million
pre-tax gain.


                                     II-12
<PAGE>   15


         INVESTMENTS IN AFFILIATES ACCOUNTED FOR UNDER THE EQUITY METHOD

         Liberty's share of losses of affiliates was $904 million, $66 million
and $1,002 million during the ten month period ending December 31, 1999, the two
month period ending February 28, 1999, and the year ending December 31, 1998,
respectively. A summary of Liberty's share of losses of affiliates is as
follows:

<TABLE>
<CAPTION>
                                                      New Liberty                      Old Liberty
                                                      ------------          ----------------------------------
                                                       Ten months            Two months               Year
                                                         ended                 ended                 ended
                                                      December 31,          February 28,          December 31,
                                                          1999                  1999                  1998
                                                      ------------          ------------          ------------
                                                                         amounts in millions
<S>                                                   <C>                   <C>                   <C>
         USAI and related investments                 $        (20)                   10                    30
         Telewest                                             (222)                  (38)                 (134)
         Discovery                                            (269)                   (8)                  (39)
         QVC                                                   (11)                   13                    64
         UnitedGlobalCom                                        23                    --                    --
         PCS Ventures                                           --                    --                  (629)
         Other                                                (405)                  (43)                 (294)
                                                      ------------                   ---                ------
                                                      $       (904)                  (66)               (1,002)
                                                      ============                   ===                ======
</TABLE>

         Liberty's share of losses of affiliates included $463 million, $9
million and $8 million in excess basis amortization for the ten months ended
December 31, 1999, the two months ended February 28, 1999 and the year ended
December 31, 1998.

         USA Networks, Inc. Liberty's share of USA Networks, Inc.'s net earnings
(loss) was approximately $(20) million, $10 million and $30 million for the ten
month period ended December 31, 1999, the two month period ended February 28,
1999 and the year ended December 31, 1998, respectively. Liberty's share of
losses for the ten month period ended December 31, 1999, included $53 million in
excess basis amortization. Liberty's recorded increased share of losses in USA
Networks in 1999 due to the excess basis amortization combined with a decrease
in USA Network's net income.

         Telewest. Liberty's share of Telewest's net loss was approximately $222
million, $38 million and $134 million for the ten month period ended December
31, 1999, the two month period ended February 28, 1999, and the year ended
December 31, 1998, respectively. Liberty's share of losses for the ten month
period ended December 31, 1999, included $73 million in excess basis
amortization. Liberty's share of Telewest's net loss increased due to the excess
basis amortization combined with a $308 million increase in Telewest's net loss.
The increase in Telewest's net loss was due to increased interest expense and
increased depreciation and amortization expense resulting from acquisitions and
increased foreign currency transaction losses.

         Discovery. Liberty's share of Discovery's net loss was approximately
$269 million, $8 million and $39 million for the ten month period ended December
31, 1999, the two month period ended February 28, 1999 and the year ended
December 31, 1998, respectively. Liberty's share of losses for the ten month
period ended December 31, 1999, included $155 million in excess basis
amortization. Liberty's share of Discovery's net loss increased due to the
excess basis amortization combined with a $175 million increase in Discovery's
net loss. The increase in the net loss was due to increased interest expense and
launch support.

         QVC. Liberty's share of QVC's net (loss) earnings was approximately
$(11) million, $13 million and $64 million for the ten month period ended
December 31, 1999, the two month period ended February 28, 1999, and the year
ended December 31, 1998, respectively. Liberty's share of losses for the ten
month period ended December 31, 1999 included $92 million in excess basis
amortization. The decrease in Liberty's share of QVC's earnings was due to the
excess basis amortization offset partially by a $72 million increase to QVC's
net income resulting from revenue growth and improved gross margins.


                                     II-13
<PAGE>   16

         PCS Ventures. Liberty's share of losses from its investment in the PCS
Ventures was $629 million during 1998. On November 23, 1998, Liberty exchanged
its investments in certain wireless businesses ("PCS Ventures") for Sprint PCS
Group Stock and certain other instruments convertible into such securities
("Sprint Securities"). Through November 23, 1998, Liberty accounted for its
interest in the PCS Ventures using the equity method of accounting; however, as
a result of the foregoing exchange, Liberty's less than 1% voting interest in
Sprint and the transfer of its Sprint Securities to a trust prior to the AT&T
merger, Liberty no longer exercises significant influence with respect to its
investment in the PCS Ventures. Accordingly, Liberty accounts for its investment
in the Sprint PCS Group stock as an available-for-sale security.

LIQUIDITY AND CAPITAL RESOURCES

         Liberty's sources of funds include its available cash balances, net
cash from operating activities, dividend and interest receipts, proceeds from
asset sales and proceeds from financing activities. Liberty is generally not
entitled to the cash resources or cash generated by operations of its
subsidiaries and business affiliates. Liberty is primarily dependent upon its
financing activities to generate sufficient cash resources to meet its future
cash requirements and planned commitments.

         Upon consummation of the AT&T merger, through a new tax sharing
agreement between Liberty and AT&T, Liberty became entitled to the benefit of
all of the net operating loss carryforwards available to the entities included
in TCI's consolidated income tax return as of the date of the AT&T merger. In
addition, under the tax sharing agreement, Liberty will receive a cash payment
from AT&T in periods when it generates taxable losses and those taxable losses
are utilized by AT&T to reduce the consolidated income tax liability. During the
year ended December 31, 2000 Liberty received $414 million from AT&T pursuant to
the tax sharing agreement.

         Liberty held shares of Time Warner Series LMCN-V common stock, which
were convertible into 114 million shares of Time Warner common stock. Liberty
owns approximately 81.7 million ADRs representing preferred limited voting
shares of News Corp. Liberty owns 62.6 million shares of Motorola common stock.
Liberty receives dividends on its ownership interests in these entities
periodically. On January 11, 2001, Time Warner and America Online, Inc.
completed their merger, pursuant to which each share of the Time Warner common
stock held by Liberty was converted into 1.5 shares of an identical series of
stock of AOL Time Warner. AOL Time Warner does not currently intend to pay
dividends on its common stock. Liberty anticipates that it will continue to
receive dividends on its ownership interests in News Corp. and Motorola.
However, there can be no assurance that such dividends will continue to be paid.

         Liberty receives approximately $8 million in cash dividends quarterly
on the Fox Kids Worldwide preferred stock. This preferred stock pays quarterly
dividends at the annual rate of 9% of the liquidation value of $1,000 per share.
If Fox Kids Worldwide does not declare or pay a quarterly dividend, that
dividend will be added to the liquidation value and the dividend rate will
increase to 11.5% per annum until all accrued and unpaid dividends are paid.
News Corp. has undertaken to fund all amounts needed by Fox Kids Worldwide to
pay any amounts it is required to pay under the certificate of designations for
the Fox Kids Worldwide preferred stock, including payment of the liquidation
value of that stock upon any optional or mandatory redemption of that stock.

         At December 31, 2000, Liberty and its consolidated subsidiaries had
bank credit facilities which provided for borrowings of up to $1.9 billion.
Borrowings under these facilities of $1.6 billion were outstanding at December
31, 2000. Certain assets of Liberty's consolidated subsidiaries serve as
collateral for borrowings under these bank credit facilities. Also, these bank
credit facilities contain provisions which limit additional indebtedness, sale
of assets, liens, guarantees, and distributions by the borrowers.

         On January 7, 2000, a trust, which holds Liberty's investment in
Sprint, entered into agreements to loan 18 million shares of Sprint PCS Group
Stock to a third party, as Agent. The obligation to return those shares is
secured by cash collateral equal to 100% of the market value of that stock,
which was $338 million at December 31, 2000. During the period of the loan,
which is terminable by either party at any time, the cash collateral is to be
marked-to-market daily. The trust, for the benefit of Liberty, has the use of
80% of the cash collateral plus any interest earned thereon during the term of
the loan, and is required to pay a rebate fee equal to the Federal funds rate
less 30 basis points to the borrower of the


                                     II-14
<PAGE>   17

loaned shares. Unutilized cash collateral of $49 million at December 31, 2000
represents restricted cash and is included in other current assets on the
consolidated balance sheets. At December 31, 2000, Liberty had utilized $289
million of the cash collateral under the securities lending agreement.

         In February 2000, Liberty received net cash proceeds of $983 million
from the issuance of its 8-1/4% Senior Debentures due 2030. The 8-1/4% Senior
Debentures have an aggregate principal amount of $1 billion.

         In February 2000, Liberty received net cash proceeds of $735 million
from the issuance of its 3-3/4% Senior Exchangeable Debentures due 2030. In
March 2000, Liberty received net cash proceeds of $59 million, including accrued
interest from February 10, 2000, from the issuance of an additional $60 million
principal amount of such debentures. These debentures are exchangeable, at the
option of the holder, for the value of 16.7764 shares of the Sprint PCS Group
stock. Liberty may pay such value in cash, with a number of shares of Sprint PCS
Group stock or a combination of cash and stock, as determined in the debentures.

         In January 2001, Liberty received net cash proceeds of $588 million
from the issuance of its 3-1/2% senior exchangeable debentures due 2031, in the
aggregate principal amount of $600 million. These debentures are exchangeable,
at the option of the holder, for the value of 36.8189 shares of Motorola stock.
Liberty may pay such value in cash, with a number of shares of Motorola stock or
a combination of cash and stock, as determined in the debentures.

         In March 2001, Liberty received net cash proceeds of $801 million from
the issuance of its 3-1/4% senior exchangeable debentures due 2031. The 3-1/4%
senior exchangeable debentures have an aggregate principal amount of
approximately $818 million. These debentures are exchangeable, at the option of
the holder, for the value of 18.5666 shares of Viacom. Liberty may pay such
value in cash, with a number of shares of Viacom stock or a combination of cash
and stock, as determined in the debentures.

         Based on currently available information and expected future
transactions, Liberty expects to receive approximately $223 million in dividend
and interest income during the year ended December 31, 2001. Based on current
debt levels and current interest rates, Liberty expects to pay approximately
$465 million in interest expense during the year ended December 31, 2001.

         For so long as Liberty is a subsidiary of AT&T, there are restrictions
on incurrence of debt of Liberty through an Inter-Group Agreement with AT&T.
Liberty may not incur any debt that would cause the total indebtedness of
Liberty at any time to be in excess of 25% ($9 billion at December 31, 2000) of
the total market capitalization of the AT&T Liberty Media Group tracking stock,
if the excess would adversely affect the credit rating of AT&T.

         Various partnerships and other affiliates of Liberty accounted for
under the equity method finance a substantial portion of their acquisitions and
capital expenditures through borrowings under their own credit facilities and
net cash provided by their operating activities.

         In September 1999, Liberty Media Group announced the approval to
repurchase from time to time up to 135 million shares of AT&T Class A or Class B
Liberty Media Group common stock. During 2000, Liberty made distributions to
Liberty Media Group totaling approximately $269 million to repurchase
approximately 14 million shares under this repurchase plan. The distributions
were accounted for as a reduction to additional paid-in-capital.

         Pursuant to a final judgment (the "Final Judgment") agreed to by
Liberty, AT&T and the United States Department of Justice (the "DOJ") on
December 31, 1998, Liberty transferred all of its beneficially owned securities
of Sprint PCS to a trustee (the "Trustee") prior to the AT&T Merger. The Final
Judgment, which was entered by the United States District Court of the District
of Columbia on August 23, 1999, requires the Trustee, on or before May 23, 2002,
to dispose of a portion of the Sprint PCS Group stock sufficient to cause
Liberty to beneficially own no more than 10% of the outstanding Sprint PCS Group
common stock -Series 1 on a fully diluted basis on such date. On or before May
23, 2004, the Trustee must divest the remainder of the Sprint Securities
beneficially owned by Liberty.


                                     II-15
<PAGE>   18

         Liberty has guaranteed notes payable and other obligations of certain
affiliates. At December 31, 2000, the U.S. dollar equivalent of the amounts
borrowed pursuant to these guaranteed obligations aggregated approximately $659
million.

         Liberty intends to continue to develop its entertainment and
information programming services and has made certain financial commitments
related to the acquisition of programming. As of December 31, 2000, Starz Encore
Group's future minimum obligation related to certain film licensing agreements
was $1.3 billion. The amount of the total obligation is not currently estimable
because such amount is dependent upon the number of qualifying films released
theatrically by certain motion picture studios as well as the domestic
theatrical exhibition receipts upon the release of such qualifying films.
Continued development may require additional financing and it cannot be
predicted whether Starz Encore Group will obtain such financing. If additional
financing cannot be obtained by Starz Encore Group, Starz Encore Group or
Liberty could attempt to sell assets but there can be no assurance that asset
sales, if any, can be consummated at a price and on terms acceptable to Liberty.

         Liberty has agreed to a transaction with UnitedGlobalCom pursuant to
which Liberty will invest consideration equal to $1.4 billion and contribute
certain of its interests in various international broadband distribution and
programming assets, such as its interests in Cablevision S.A., Pramer S.C.A. and
Torneos y Competencias S.A., in exchange for direct or indirect equity interests
in UnitedGlobalCom. Assuming the consummation of all of the contemplated
transactions and the contribution of all of the assets proposed to be
contributed, Liberty would hold a substantial direct or indirect equity interest
in UnitedGlobalCom and, upon the occurrence of certain events, a controlling
voting interest in UnitedGlobalCom. However, pursuant to certain voting and
standstill arrangements that would be entered into at the time of the closing of
this transaction, Liberty's ability to exercise control of UnitedGlobalCom would
be limited. The voting and standstill arrangements would terminate upon the
tenth anniversary of the closing, subject to earlier termination upon the
occurrence of specified events.

         Proposed Split Off Transaction

         AT&T currently owns all the outstanding shares of Class A Common Stock,
Class B Common Stock and Class C Common Stock of Liberty Media Corporation.
Subsequent to December 31, 2000, AT&T initiated a process for effecting our
split off from AT&T by means of a redemption of AT&T Liberty Media Group
tracking stock (the "Split Off Transaction"). Prior to the Split Off
Transaction, Liberty will increase its authorized capital stock, and the Liberty
Class A and Class B Common Stock will be reclassified as Series A Liberty Media
Corporation common stock ("Series A common stock") and the Class C Common Stock
will be reclassified as Series B Liberty Media Corporation common stock ("Series
B common stock"). In the Split Off Transaction, each share of AT&T Class A and
AT&T Class B Liberty Media Group tracking stock will be exchanged for a like
share of Series A common stock and Series B common stock, respectively. Upon
completion of the Split Off Transaction, Liberty Media Corporation will no
longer be a subsidiary of AT&T and no shares of AT&T Liberty Media Group
tracking stock will be outstanding. The Split Off Transaction will be accounted
for at historical cost. There can be no assurance that the split off will be
effected.

         Immediately prior to the Split Off Transaction, AT&T will contribute to
Liberty Media Corporation assets currently attributed to the Liberty Media Group
but not held by us (the "Contributed Assets"). These assets include (i)
preferred stock and common stock interests in a subsidiary of IDT Corporation, a
multinational telecommunications services provider; and (ii) an approximate 8%
indirect common equity interest in Liberty Digital. The contributions will be
accounted for in a manner similar to a pooling of interests and, accordingly,
the financial statements of Liberty Media Corporation for periods prior to
contributions will be restated to include the financial position and results of
operations of the Contributed Assets once this transaction is completed.

         In connection with the Split Off Transaction, Liberty will also be
deconsolidated from AT&T for federal income tax purposes. As a result, AT&T will
be required to pay Liberty an amount equal to 35% of the amount of the net
operating loss carryforward reflected in TCI's final federal income tax return
that has not been used as an offset to our obligations under the tax sharing
agreement and that has been, or is reasonably expected to be, utilized by AT&T.
The payment will be reduced by Liberty's obligation under the 1995 TCI Tax
Sharing Agreement. The expected net payment from AT&T is approximately $692
million. In addition, certain deferred intercompany gains will be includible
into taxable income as a result


                                     II-16
<PAGE>   19

of the Split Off Transaction and the resulting tax liability of approximately
$122 million will be an obligation to Liberty.

CASH FLOWS FROM OPERATING ACTIVITIES

         Cash provided by operating activities for the year ended December 31,
2000, the ten months ended December 31, 1999 and the year ended December 31,
1998 was $181 million, $133 million and $26 million, respectively. Cash used in
operating activities for the two month period ended February 28, 1999 was $107
million. Improved operating cash flow for Starz Encore Group and increased
dividend and interest income contributed to the higher cash flows from operating
activities for the year ended December 31, 2000 and the ten month period ended
December 31, 1999. Cash used during the two months ended February 28, 1999
included payments related to stock appreciation rights of $126 million.

CASH FLOWS FROM INVESTING ACTIVITIES

         Cash used in investing activities was $2,866 million, $4,658 million,
$79 million and $1,121 million for the year ended December 31, 2000, the ten
months ended December 31, 1999, the two months ended February 28, 1999 and the
year ended December 31, 1998, respectively. Liberty uses cash to make
contributions and investments in entities in which Liberty holds a 50% or less
ownership interest. Cash flows from investing activities included cash used for
investments in and loans to affiliates amounting to $3,372 million, $2,596
million, $51 million and $1,404 million during the year ended December 31, 2000,
the ten months ended December 31, 1999, the two months ended February 28, 1999
and the year ended December 31, 1998, respectively. Liberty made purchases of
marketable securities of $848 million and $7,757 million during the year ended
December 31, 2000 and the ten month period ended December 31, 1999,
respectively. Liberty had cash proceeds from sales and maturities of marketable
securities of $1,820 million and $5,725 million during the year ended December
31, 2000 and ten month period ended December 31, 1999, respectively.
Additionally, Liberty invested $735 million and $109 million in acquisitions of
consolidated businesses during the year ended December 31, 2000 and the ten
month period ended December 31, 1999.

CASH FLOWS FROM FINANCING ACTIVITIES

         Liberty is primarily dependent on financing activities to generate
sufficient cash resources to meet its cash requirements. Financing cash flows
consist primarily of borrowings and repayments of debt. Liberty had borrowings
of $5,509 million, $3,187 million, $155 million and $2,199 million and
repayments of $3,068 million, $2,211 million, $145 million and $609 million
during the year ended December 31, 2000, the ten months ended December 31, 1999,
the two months ended February 28, 1999 and the year ended December 31, 1998,
respectively.

ACCOUNTING STANDARDS

         SFAS 133, Accounting for Derivative Instruments and Hedging Activities,
as amended by SFAS 137, Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133, and SFAS
138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities, is effective for the Company as of January 1, 2001. SFAS 133
requires that an entity recognize all derivatives as either assets or
liabilities measured at fair value. The accounting for changes in the fair value
of a derivative depends on the use of the derivative. Adoption of these new
accounting standards will result in cumulative after-tax increases in net
earnings of approximately $550 million and reductions in other comprehensive
income of approximately $90 million in the first quarter of 2001. The adoption
will also impact assets and liabilities recorded on the balance sheet.


Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

         Liberty is exposed to market risk in the normal course of its business
operations due to its investments in different foreign countries and ongoing
investing and financial activities. Market risk refers to the risk of loss
arising from adverse changes in foreign currency exchange rates, interest rates
and stock prices. The risk of loss can be assessed from the perspective of
adverse changes in fair values, cash flows and future earnings. Liberty has
established policies, procedures and internal processes



                                     II-17
<PAGE>   20

governing its management of market risks and the use of financial instruments to
manage its exposure to such risks.

         Contributions to Liberty's foreign affiliates are denominated in
foreign currency. Liberty therefore is exposed to changes in foreign currency
exchange rates. Liberty does not hedge the majority of its foreign currency
exchange risk because of the long-term nature of its interests in foreign
affiliates. At December 31, 2000, Liberty was party to a foreign currency
forward contract for 100 million Euros. Had the price of the Euro been 10% lower
at December 31, 2000, Liberty would have recorded an additional unrealized loss
on financial instruments of $9 million. Liberty continually evaluates its
foreign currency exposure based on current market conditions and the business
environment in each country in which it operates.

         Liberty is exposed to changes in interest rates primarily as a result
of its borrowing and investment activities, which include fixed and floating
rate investments and borrowings used to maintain liquidity and fund its business
operations. The nature and amount of Liberty's long-term and short-term debt are
expected to vary as a result of future requirements, market conditions and other
factors. Liberty manages its exposure to interest rates primarily through the
issuance of fixed rate debt that Liberty believes has a low stated interest rate
and significant term to maturity. Liberty believes this best protects the
company from interest rate risk. As of December 31, 2000, the majority of
Liberty's debt was composed of fixed rate debt resulting from the 1999 and 2000
issuances of senior notes and senior debentures for net proceeds of
approximately $3.9 billion. The proceeds were used to repay floating rate debt,
which reduced Liberty's exposure to interest rate risk associated with rising
variable interest rates. However it increased Liberty's fair value interest rate
risk. During 2000 market interest rates have declined. Liberty has taken
advantage of these declining rates through the issuance of additional fixed rate
debt at lower stated interest rates. Liberty believes these continued issuances
of fixed rate debt that have a low stated rate and significant term to maturity
best allows Liberty to take advantage of the current historically low interest
rates. If market interest rates were 100 basis points (representing
approximately a 14% increase over Liberty's effective cost of borrowing) higher
throughout the year ended December 31, 2000 and 1999, Liberty would have
recorded approximately $14 million and $16 million of additional interest
expense, respectively. At December 31, 2000, the aggregate fair value of
Liberty's senior notes and debentures was approximately $3.4 billion.

         Liberty is exposed to changes in stock prices primarily as a result of
its significant holdings in publicly traded securities. Liberty continually
monitors changes in stock markets, in general, and changes in the stock prices
of its significant holdings, specifically. Changes in stock prices can be
expected to vary as a result of general market conditions, technological
changes, specific industry changes and other factors. Equity collars and put
spread collars have been used to hedge certain investment positions subject to
fluctuations in stock prices.

         In order to illustrate the effect of changes in stock prices on Liberty
we provide the following sensitivity analysis. If the stock price of our
investments accounted for as available-for-sale securities had been 10% lower at
December 31, 2000, and December 31, 1999, the value of such securities would
have been lower, including consideration of our equity collars, by $1.7 billion
and $2.4 billion, respectively. Our unrealized gains, net of taxes would have
also been lower by $1.0 billion and $1.5 billion, respectively. If the stock
price of our publicly traded investments accounted for using the equity method
been 10% lower at December 31, 2000 and 1999, there would have been no impact on
the carrying value of such investments. If the stock price of the Sprint PCS
Group stock underlying Liberty's senior exchangeable debentures been 10% higher
at December 31, 2000, Liberty's total debt and correspondingly, Liberty's
interest expense would have been unchanged as the stock price of the Sprint PCS
Group stock would have been below the respective initial exchange prices.
Liberty's cash collateral account and debt balance under the securities lending
agreement would be reduced by $34 million if the underlying shares of the Sprint
PCS Group stock decreased in value by 10%.

         Liberty measures the market risk of its derivative financial
instruments through comparison of the blended rates achieved by those derivative
financial instruments to the historical trends in the underlying security. With
regard to interest rate swaps, Liberty monitors the fair value of interest rate
swaps as well as the effective interest rate the interest rate swap yields, in
comparison to historical interest rate trends. Liberty believes that any losses
incurred with regard to interest rate swaps would be offset by the effects of
interest rate changes on the underlying facilities. With regard to equity
collars, Liberty monitors historical market trends relative to values currently
present in the market. Liberty



                                     II-18
<PAGE>   21

believes that any unrealized losses incurred with regard to equity collars would
be offset by the effects of fair value changes on the underlying assets. These
measures allow Liberty's management to measure the success of its use of
derivative instruments and to determine when to enter into or exit from
derivative instruments.

Item 8. Financial Statements and Supplementary Data.

         The consolidated financial statements of Liberty Media Corporation are
filed under this Item, beginning on Page II-20. The financial statement
schedules required by Regulation S-X are filed under Item 14 of this Annual
Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure.

         None.


                                     II-19
<PAGE>   22



                          INDEPENDENT AUDITORS' REPORT



The Board of Directors and Stockholder
Liberty Media Corporation:


We have audited the accompanying consolidated balance sheets of Liberty Media
Corporation and subsidiaries ("New Liberty" or "Successor") as of December 31,
2000 and 1999, and the related consolidated statements of operations and
comprehensive earnings, stockholder's equity, and cash flows for the year ended
December 31, 2000 and the period from March 1, 1999 to December 31, 1999
(Successor periods) and from January 1, 1999 to February 28, 1999 and for the
year ended December 31, 1998 (Predecessor periods). These consolidated financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the aforementioned Successor consolidated financial statements
present fairly, in all material respects, the financial position of New Liberty
as of December 31, 2000 and 1999, and the results of their operations and their
cash flows for the Successor periods, in conformity with accounting principles
generally accepted in the United States of America. Further, in our opinion, the
aforementioned Predecessor consolidated financial statements present fairly, in
all material respects, the results of their operations and their cash flows for
the Predecessor periods, in conformity with accounting principles generally
accepted in the United States of America.

As discussed in note 1 to the consolidated financial statements, effective March
9, 1999, AT&T Corp., parent company of New Liberty, acquired
Tele-Communications, Inc., the former parent company of Liberty Media
Corporation, in a business combination accounted for as a purchase. As a result
of the acquisition, the consolidated financial information for the periods after
the acquisition is presented on a different cost basis than that for the periods
before the acquisition and, therefore, is not comparable.





                                                              KPMG LLP

Denver, Colorado
February 26, 2001


                                     II-20

<PAGE>   23


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
                           (subsidiary of AT&T Corp.)

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                 2000              1999
                                                                                -------          -------
                                                                                   amounts in millions
<S>                                                                             <C>              <C>
Assets
Current assets:
     Cash and cash equivalents                                                  $ 1,295            1,714
     Short-term investments                                                         500              378
     Trade and other receivables, net                                               307              116
     Prepaid expenses and program rights                                            537              405
     Deferred income tax assets (note 9)                                            242              750
     Other current assets                                                            73                5
                                                                                -------          -------
         Total current assets                                                     2,954            3,368
                                                                                -------          -------


Investments in affiliates, accounted for under the equity method, and
     related receivables (note 5)                                                20,379           15,922
Investments in available-for-sale securities and others (note 6)                 19,035           28,593

Property and equipment, at cost                                                     976              162
     Less accumulated depreciation                                                  131               19
                                                                                -------          -------
                                                                                    845              143
                                                                                -------          -------
Intangible assets:
     Excess cost over acquired net assets (note 7)                               11,138            9,966
     Franchise costs                                                                190              273
                                                                                -------          -------
                                                                                 11,328           10,239
         Less accumulated amortization                                            1,047              454
                                                                                -------          -------
                                                                                 10,281            9,785
                                                                                -------          -------
Other assets, at cost, net of accumulated amortization                              682              839
                                                                                -------          -------
         Total assets                                                           $54,176           58,650
                                                                                =======          =======

                                                                                                        (continued)
</TABLE>



                                     II-21
<PAGE>   24
                     LIBERTY MEDIA CORPORATION SUBSIDIARIES
                           (subsidiary of AT&T Corp.)

                           CONSOLIDATED BALANCE SHEETS

                           December 31, 2000 and 1999

<TABLE>
<CAPTION>
                                                                                          2000               1999
                                                                                        --------           --------
                                                                                             amounts in millions
<S>                                                                                     <C>                <C>
Liabilities and Stockholder's Equity
Current liabilities:
     Accounts payable and accrued liabilities                                           $    473                245
     Accrued stock compensation (note 11)                                                  1,216              2,405
     Program rights payable                                                                  179                166
     Current portion of debt                                                               1,094                554
                                                                                        --------           --------
         Total current liabilities                                                         2,962              3,370
                                                                                        --------           --------
Long-term debt (note 8)                                                                    5,269              2,723
Deferred income tax liabilities (note 9)                                                  11,311             14,103
Other liabilities                                                                             62                 23
                                                                                        --------           --------
         Total liabilities                                                                19,604             20,219
                                                                                        --------           --------
Minority interests in equity of subsidiaries (note 7)                                        348                 23

Stockholder's equity (note 10):
     Preferred stock, $.0001 par value.  Authorized 100,000 shares; no
        shares issued and outstanding                                                         --                 --
     Class A common stock $.0001 par value.  Authorized 1,000,000 shares;
        issued and outstanding 1,000 shares                                                   --                 --
     Class B common stock $.0001 par value.  Authorized 1,000,000 shares;
        issued and outstanding 1,000 shares                                                   --                 --
     Class C common stock, $.0001 par value.  Authorized 1,000,000 shares;
        issued and outstanding 1,000 shares                                                   --                 --
     Additional paid-in capital                                                           34,169             33,838
     Accumulated other comprehensive (loss) earnings, net of taxes (note 12)
                                                                                            (397)             6,518
     Accumulated earnings (deficit)                                                          594             (1,975)
                                                                                        --------           --------
                                                                                          34,366             38,381
     Due to (from) related parties                                                          (142)                27
                                                                                        --------           --------
         Total stockholder's equity                                                       34,224             38,408
                                                                                        --------           --------
Commitments and contingencies (note 13)
         Total liabilities and stockholder's equity                                     $ 54,176             58,650
                                                                                        ========           ========
</TABLE>

See accompanying notes to consolidated financial statements.



                                     II-22
<PAGE>   25




                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
                           (subsidiary of AT&T Corp.)

        CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE EARNINGS


<TABLE>
<CAPTION>
                                                                    New Liberty                         Old Liberty
                                                           -----------------------------      ------------------------------
                                                               Year          Ten months        Two months           Year
                                                               ended           ended             ended             ended
                                                           December 31,     December 31,      February 28,      December 31,
                                                               2000             1999              1999              1998
                                                           ------------     ------------      ------------      ------------
                                                                                   amounts in millions
                                                                                        (note 2)
<S>                                                         <C>             <C>               <C>                <C>
Revenue:
     Unaffiliated parties                                    $ 1,283               549               192             1,197
     Related parties (note 10)                                   243               180                43               162
                                                             -------           -------           -------           -------
                                                               1,526               729               235             1,359
                                                             -------           -------           -------           -------
Operating costs and expenses:
     Operating                                                   801               343                95               713
     Selling, general and administrative ("SG&A")                348               229                87               387
     Charges from related parties (note 10)                       37                24                 6                43
     Stock compensation-SG&A (note 11)                          (950)            1,785               183               518
     Depreciation and amortization                               853               562                22               129
                                                             -------           -------           -------           -------
                                                               1,089             2,943               393             1,790
                                                             -------           -------           -------           -------
         Operating income (loss)                                 437            (2,214)             (158)             (431)

Other income (expense):
     Interest expense                                           (399)             (134)              (25)             (104)
     Adjustment to interest expense for contingent
        portion of exchangeable debentures                       153              (153)               --                --
     Interest expense to related parties, net                     --                (1)               (1)               (9)
     Dividend and interest income                                301               242                10                65
     Share of losses of affiliates, net (note 5)              (1,731)             (904)              (66)           (1,002)
     Impairment of investments (note 6)                       (1,476)               --                --                --
     Gains on dispositions, net (notes 5, 6 and 7)             7,339                 4                14             2,449
     Gains on issuance of equity by affiliates and
        subsidiaries (notes 5 and 7)                              --                --               372               105
     Unrealized gains on financial instruments                    70                --                --                --
     Other, net                                                    3                (4)               (9)               (3)
                                                             -------           -------           -------           -------
                                                               4,260              (950)              295             1,501
                                                             -------           -------           -------           -------
        Earnings (loss) before income taxes and
           minority interest                                   4,697            (3,164)              137             1,070
Income tax (expense) benefit (note 9)                         (2,190)            1,097              (211)             (461)
Minority interests in losses of subsidiaries                      62                92                 4                13
                                                             -------           -------           -------           -------
        Net earnings (loss)                                  $ 2,569            (1,975)              (70)              622
                                                             -------           -------           -------           -------
Other comprehensive earnings, net of taxes:
     Foreign currency translation adjustments                   (202)               60               (15)                2
     Unrealized holding (losses) gains arising during
        the period, net of reclassification adjustments       (6,713)            6,458               885             2,417
                                                             -------           -------           -------           -------
     Other comprehensive (loss) earnings                      (6,915)            6,518               870             2,419
                                                             -------           -------           -------           -------

Comprehensive (loss) earnings (note 12)                      $(4,346)            4,543               800             3,041
                                                             =======           =======           =======           =======
</TABLE>

See accompanying notes to consolidated financial statements.


                                     II-23

<PAGE>   26

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
                           (subsidiary of AT&T Corp.)

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>



                                                                           Common stock              Additional
                                                     Preferred    ------------------------------       paid-in
                                                       stock      Class A    Class B     Class C       capital
                                                     ---------    -------    -------     -------     ----------
                                                                        amounts in millions
<S>                                                  <C>          <C>        <C>         <C>         <C>
Balance at January 1, 1998                               --          --          --          --        3,610
    Net earnings                                         --          --          --          --           --
    Foreign currency translation adjustments             --          --          --          --           --
    Unrealized gains on available-for-sale
       securities                                        --          --          --          --           --
    Payments for call agreements                         --          --          --          --         (140)
    Gains in connection with issuances of stock
       of affiliates and subsidiaries (note 5)           --          --          --          --           70
    Transfers from related party due to
       acquisitions of minority interests (note 7)       --          --          --          --          772
    Assignment of option from related party              --          --          --          --           16
    Transfer from related party for acquisition
       of cost investment                                --          --          --          --          354
    Other transfers from related parties, net            --          --          --          --           --
                                                       ----        ----        ----        ----        -----
Balance at December 31, 1998                             --          --          --          --        4,682
    Net loss                                             --          --          --          --           --
    Foreign currency translation adjustments             --          --          --          --           --
    Unrealized gains on available-for-sale
       securities                                        --          --          --          --           --
    Other transfers from (to) related parties, net       --          --          --          --          430
                                                       ----        ----        ----        ----        -----

Balance on February 28, 1999                           $ --          --          --          --        5,112
                                                       ====        ====        ====        ====        =====

<CAPTION>


                                                             Accumulated
                                                                other                           Due to
                                                           comprehensive       Accumulated      (from)         Total
                                                              earnings,         (deficit)       related    stockholder's
                                                            net of taxes         earnings       parties       equity
                                                           -------------       -----------      -------    -------------
                                                                                   amounts in millions

<S>                                                        <C>                 <C>              <C>        <C>
Balance at January 1, 1998                                        767              330               14       4,721
    Net earnings                                                   --              622               --         622
    Foreign currency translation adjustments                        2               --               --           2
    Unrealized gains on available-for-sale
       securities                                               2,417               --               --       2,417
    Payments for call agreements                                   --               --               --        (140)
    Gains in connection with issuances of
       affiliates and subsidiaries (note 5)                        --               --               --          70
    Transfers from related party due to
       acquisitions of minority interests (note 7)                 --               --               --         772
    Assignment of option from related party                        --               --              (16)         --
    Transfer from related party for acquisition
       of cost investment                                          --               --               --         354
    Other transfers from related parties, net                      --               --              412         412
                                                               ------           ------           ------      ------
Balance at December 31, 1998                                    3,186              952              410       9,230
    Net loss                                                       --              (70)              --         (70)
    Foreign currency translation adjustments                      (15)              --               --         (15)
    Unrealized gains on available-for-sale
       securities                                                 885               --               --         885
    Other transfers from (to) related parties, net                 --               --           (1,011)       (581)
                                                               ------           ------           ------      ------
Balance on February 28, 1999                                    4,056              882             (601)      9,449
                                                               ======           ======           ======      ======
</TABLE>




                                     II-24
<PAGE>   27


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
                           (subsidiary of AT&T Corp.)

                 CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY

<TABLE>
<CAPTION>



                                                                           Common stock             Additional
                                                    Preferred     ------------------------------     paid-in
                                                      stock       Class A    Class B     Class C     capital
                                                    ---------     -------    -------     -------    ----------
                                                                      amounts in millions
<S>                                                 <C>           <C>        <C>         <C>        <C>
Balance on February 28, 1999                          $  --          --          --         --          5,112
--------------------------------------------------------------------------------------------------------------
Balance at March 1, 1999                              $  --          --          --         --         33,468
    Net loss                                             --          --          --         --             --
    Foreign currency translation adjustments             --          --          --         --             --
    Recognition of previously unrealized
       losses on available-for-sale securities,
       net                                               --          --          --         --             --
    Unrealized gains on available-for-sale
       securities                                        --          --          --         --             --
    Transfer from related party for redemption of
       debentures                                        --          --          --         --            354
    Gains in connection with issuances of stock
       of affiliates and subsidiaries (note 10)          --          --          --         --            104
    Utilization of net operating losses of
       Liberty by AT&T (note 9)                          --          --          --         --            (88)
    Other transfers to related parties, net              --          --          --         --             --
                                                      -----        ----        ----       ----         ------
Balance at December 31, 1999                          $  --          --          --         --         33,838
                                                      =====        ====        ====       ====         ======
    Net earnings                                         --          --          --         --             --
    Foreign currency translation adjustments             --          --          --         --             --
    Recognition of previously unrealized gains
       on available-for-sale securities, net             --          --          --         --             --
    Unrealized losses on available-for-sale
       securities                                        --          --          --         --             --
    Contribution to equity from related party for
       acquisitions                                      --          --          --         --            217
    Gains in connection with issuances of stock
       of affiliates and subsidiaries, net (note 10)     --          --          --         --            362
    Note receivable from related party                   --          --          --         --             --
    Utilization of net operating losses of
       Liberty by AT&T (note 9)                          --          --          --         --            (38)
    Other transfers to related parties, net              --          --          --         --           (210)
                                                       ----        ----        ----       ----         ------
Balance at December 31, 2000                          $  --          --          --         --         34,169
                                                      =====        ====        ====       ====         ======
</TABLE>


<TABLE>
<CAPTION>


                                                             Accumulated
                                                                other                           Due to
                                                           comprehensive       Accumulated      (from)         Total
                                                              earnings,         (deficit)       related    stockholder's
                                                            net of taxes         earnings       parties       equity
                                                           -------------       -----------      -------    -------------
                                                                                   amounts in millions
<S>                                                        <C>                 <C>              <C>        <C>
Balance on February 28, 1999                                 4,056               882              (601)            9,449
------------------------------------------------------------------------------------------------------------------------
Balance at March 1, 1999                                        --                --               197            33,665
    Net loss                                                    --            (1,975)               --            (1,975)
    Foreign currency translation adjustments                    60                --                --                60
    Recognition of previously unrealized
       losses on available-for-sale securities,
       net                                                       7                --                --                 7
    Unrealized gains on available-for-sale
       securities                                            6,451                --                --             6,451
    Transfer from related party for redemption of
       debentures                                               --                --                --               354
    Gains in connection with issuances of stock
       of affiliates and subsidiaries (note 10)                 --                --                --               104
    Utilization of net operating losses of
       Liberty by AT&T (note 9)                                 --                --                --               (88)
    Other transfers to related parties, net                     --                --              (170)             (170)
                                                             -----            ------              ----            ------
Balance at December 31, 1999                                 6,518            (1,975)               27            38,408
                                                             =====            ======              ====            ======
    Net earnings                                                --             2,569                --             2,569
    Foreign currency translation adjustments                  (202)               --                --              (202)
    Recognition of previously unrealized
       on available-for-sale securities, net                  (635)               --                --              (635)
    Unrealized losses on available-for-sale
       securities                                           (6,078)               --                --            (6,078)
    Contribution to equity from related party for
       acquisitions                                             --                --                --               217
    Gains in connection with issuances of stock
       of affiliates and subsidiaries, net (note 10)            --                --                --               362
    Note receivable from related party                          --                --              (476)             (476)
    Utilization of net operating losses of
       Liberty by AT&T (note 9)                                 --                --                --               (38)
    Other transfers to related parties, net                     --                --               307                97
                                                             -----            ------              ----            ------
Balance at December 31, 2000                                  (397)              594              (142)           34,224
                                                             =====            ======              ====            ======

</TABLE>
See accompanying notes to consolidated financial statements.



                                     II-25
<PAGE>   28
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
                           (subsidiary of AT&T Corp.)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                              New Liberty                       Old Liberty
                                                                     ----------------------------       ---------------------------
                                                                         Year         Ten months         Two months        Year
                                                                         ended           ended             ended           ended
                                                                     December 31,    December 31,       February 28,    December 31,
                                                                         2000            1999               1999           1998
                                                                     ------------    ------------       ------------   ------------
                                                                                              amounts in millions
                                                                                                   (note 4)
<S>                                                                  <C>                <C>                  <C>            <C>
Cash flows from operating activities:
     Net earnings (loss)                                              $ 2,569            (1,975)              (70)           622
     Adjustments to reconcile net earnings (loss) to net cash
        provided (used) by operating activities:
        Depreciation and amortization                                     853               562                22            129
        Stock compensation                                               (950)            1,785               183            518
        Payments of stock compensation                                   (319)             (111)             (126)           (58)
        Share of losses of affiliates, net                              1,731               904                66          1,002
        Deferred income tax expense (benefit)                           2,325            (1,025)              212            546
        Intergroup tax allocation                                        (141)              (75)               (1)           (89)
        Cash payment from AT&T pursuant to tax sharing agreement          414                 1                --             --
        Minority interests in losses of subsidiaries                      (62)              (92)               (4)           (13)
        Unrealized gains on financial instruments                         (70)               --                --             --
        Gains on issuance of equity by affiliates and
           subsidiaries                                                    --                --              (372)          (105)
        Gains on disposition of assets, net                            (7,339)               (4)              (14)        (2,449)
        Impairment of investments                                       1,476                --                --             --
        Noncash interest                                                 (138)              153                --             --
        Other noncash charges                                              --                 3                18             --
        Changes in operating assets and liabilities, net of the
           effect of acquisitions and dispositions:
               Receivables                                               (134)                7                33            (56)
               Prepaid expenses and program rights                       (121)             (119)              (23)           (65)
               Payables and other current liabilities                      87               119               (31)            44
                                                                      -------           -------           -------        -------
                 Net cash provided (used) by operating
                    activities                                            181               133              (107)            26
                                                                      -------           -------           -------        -------
Cash flows used by investing activities:
     Cash paid for acquisitions                                          (735)             (109)               --            (92)
     Capital expended for property and equipment                         (221)              (40)              (15)           (60)
     Investments in and loans to affiliates and others                 (3,372)           (2,596)              (51)        (1,404)
     Purchases of marketable securities                                  (848)           (7,757)               (3)            --
     Sales and maturities of marketable securities                      1,820             5,725                 9             --
     Cash proceeds from dispositions                                      456               130                43            423
     Other, net                                                            34               (11)              (62)            12
                                                                      -------           -------           -------        -------
        Net cash used by investing activities                          (2,866)           (4,658)              (79)        (1,121)
                                                                      -------           -------           -------        -------
Cash flows from financing activities:
     Borrowings of debt                                                 5,509             3,187               155          2,199
     Repayments of debt                                                (3,068)           (2,211)             (145)          (609)
     Net proceeds from issuance of stock by subsidiaries                  121               123                --             --
     Payments for call agreements                                          --                --                --           (140)
     Cash transfers (to) from related parties                            (268)             (159)               31           (215)
     Other, net                                                           (28)              (20)              (52)           (12)
                                                                      -------           -------           -------        -------
        Net cash provided (used) by financing activities                2,266               920               (11)         1,223
                                                                      -------           -------           -------        -------
             Net (decrease) increase in cash and cash
                equivalents                                              (419)           (3,605)             (197)           128
             Cash and cash equivalents at beginning of year             1,714             5,319               228            100
                                                                      -------           -------           -------        -------
             Cash and cash equivalents at end of year                 $ 1,295             1,714                31            228
                                                                      =======           =======           =======        =======
</TABLE>

See accompanying notes to consolidated financial statements.



                                     II-26
<PAGE>   29


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

                        December 31, 2000, 1999 and 1998

(1)      Basis of Presentation


         The accompanying consolidated financial statements include the accounts
         of Liberty Media Corporation ("Liberty" or the "Company") and those of
         all majority-owned subsidiaries. The AT&T Class A Liberty Media Group
         common stock and the AT&T Class B Liberty Media Group common stock
         (together, the AT&T Liberty Media Group tracking stock) are tracking
         stocks of AT&T designed to reflect the economic performance of the
         businesses and assets of AT&T attributed to the Liberty Media Group.
         The subsidiaries and assets of Liberty Media Corporation are attributed
         to the Liberty Media Group. All significant intercompany accounts and
         transactions have been eliminated in consolidation. Effective March 9,
         1999, AT&T Corp. ("AT&T") indirectly owns 100% of the outstanding
         common stock of Liberty. Previously, Liberty was a wholly owned
         subsidiary of the former Tele-Communications, Inc. ("TCI").

         Liberty's domestic subsidiaries generally operate or hold interests in
         businesses which provide programming services including production,
         acquisition and distribution through all available formats and media of
         branded entertainment, educational and informational programming and
         software. In addition, certain of Liberty's subsidiaries hold interests
         in businesses engaged in wireless telephony, electronic retailing,
         direct marketing and advertising sales relating to programming
         services, infomercials and transaction processing. Liberty also has
         significant interests in foreign affiliates which operate in cable
         television, programming and satellite distribution.

(2)      Merger with AT&T

         On March 9, 1999, AT&T acquired TCI in a merger transaction (the "AT&T
         Merger") whereby a wholly owned subsidiary of AT&T merged with and into
         TCI, and TCI thereby became a subsidiary of AT&T. As a result of the
         AT&T Merger, each series of TCI common stock was converted into a class
         of AT&T common stock subject to applicable exchange ratios. The AT&T
         Merger has been accounted for using the purchase method. Accordingly,
         Liberty's assets and liabilities have been recorded at their respective
         fair values therefore, creating a new cost basis. For financial
         reporting purposes the AT&T Merger is deemed to have occurred on March
         1, 1999. Accordingly, for periods prior to March 1, 1999 the assets and
         liabilities of Liberty and the related consolidated financial
         statements are sometimes referred to herein as "Old Liberty", and for
         periods subsequent to February 28, 1999 the assets and liabilities of
         Liberty and the related consolidated financial statements are sometimes
         referred to herein as "New Liberty". The "Company" and "Liberty" refers
         to both New Liberty and Old Liberty.



                                     II-27
<PAGE>   30


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         The following table represents the summary balance sheet of Old Liberty
         at February 28, 1999, prior to the AT&T Merger and the opening summary
         balance sheet of New Liberty subsequent to the AT&T Merger. Certain
         pre-merger transactions occurring between March 1, 1999, and March 9,
         1999, that affected Old Liberty's equity, gains on issuance of equity
         by affiliates and subsidiaries and stock compensation have been
         reflected in the two-month period ended February 28, 1999.

<TABLE>
<CAPTION>

                                                          New Liberty      Old Liberty
                                                          -----------      -----------
                                                              amounts in millions
<S>                                                       <C>              <C>
Assets:
Cash and cash equivalents                                   $ 5,319               31
Other current assets                                            434              410
Investments in affiliates                                    17,116            3,971
Investments in available-for-sale securities                 13,053           11,974
Property and equipment, net                                     125              111
Intangibles and other assets                                 11,159              389
                                                            -------          -------
                                                            $47,206           16,886
                                                            =======          =======
Liabilities and Equity:
Current liabilities                                         $ 1,675            1,051
Long-term debt                                                1,845            2,087
Deferred income taxes                                         9,963            4,147
Other liabilities                                                19               90
                                                            -------          -------
      Total liabilities                                      13,502            7,375
                                                            -------          -------
Minority interests in equity of subsidiaries                     39               62
Stockholder's equity                                         33,665            9,449
                                                            -------          -------
                                                            $47,206           16,886
                                                            =======          =======
</TABLE>

(3) Summary of Significant Accounting Policies


         Cash and Cash Equivalents

         Cash equivalents consist of investments which are readily convertible
         into cash and have maturities of three months or less at the time of
         acquisition.


         Receivables

         Receivables are reflected net of an allowance for doubtful accounts.
         Such allowance at December 31, 2000 and 1999 was not material.


         Program Rights

         Prepaid program rights are amortized on a film-by-film basis over the
         anticipated number of exhibitions. Committed program rights and program
         rights payable are recorded at the estimated cost of the programs when
         the film is available for airing less prepayments. These amounts are
         amortized on a film-by-film basis over the anticipated number of
         exhibitions.

         Investments

         All marketable equity securities held by the Company are classified as
         available-for-sale and are carried at fair value. Unrealized holding
         gains and losses on securities classified as available-for-


                                     II-28
<PAGE>   31

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         sale are carried net of taxes as a component of accumulated other
         comprehensive earnings in stockholder's equity. Realized gains and
         losses are determined on a specific-identification basis.

         Other investments in which the ownership interest is less than 20% and
         are not considered marketable securities are carried at the lower of
         cost or net realizable value. For those investments in affiliates in
         which the Company's voting interest is 20% to 50%, the equity method of
         accounting is generally used. Under this method, the investment,
         originally recorded at cost, is adjusted to recognize the Company's
         share of net earnings or losses of the affiliates as they occur rather
         then as dividends or other distributions are received, limited to the
         extent of the Company's investment in, advances to and commitments for
         the investee. The Company's share of net earnings or losses of
         affiliates includes the amortization of the difference between the
         Company's investment and its share of the net assets of the investee.

         Subsequent to the AT&T Merger, changes in the Company's proportionate
         share of the underlying equity of a subsidiary or equity method
         investee, which result from the issuance of additional equity
         securities by such subsidiary or equity investee, are recognized as
         gains or losses in the Company's consolidated statements of
         stockholder's equity.

         The company continually reviews its investments to determine whether a
         decline in fair value below the cost basis is other than temporary. If
         the decline in fair value is deemed to be other than temporary, the
         cost basis of the security is written down to fair value and the amount
         of the write-down is included in the consolidated statements of
         operations as an impairment of investments.


         Property and Equipment

         Property and equipment, including significant improvements, is stated
         at cost. Depreciation is computed on a straight-line basis using
         estimated useful lives of 3 to 20 years for support equipment and 10 to
         40 years for buildings and improvements.


         Excess Cost Over Acquired Net Assets

         Excess cost over acquired net assets consists of the difference between
         the cost of acquiring non-cable entities and amounts assigned to their
         tangible assets. Such amounts are amortized on a straight-line basis
         over periods ranging from 5 to 20 years.


         Franchise Costs

         Franchise costs generally include the difference between the cost of
         acquiring cable companies and amounts allocated to their tangible
         assets. Such amounts are amortized on a straight-line basis over 20
         years.


         Impairment of Long-lived Assets

         The Company periodically reviews the carrying amounts of property,
         plant and equipment and its intangible assets to determine whether
         current events or circumstances warrant adjustments to such carrying
         amounts. If an impairment adjustment is deemed necessary, such loss is
         measured by the amount that the carrying value of such assets exceeds
         their fair value. Considerable management judgment is necessary to
         estimate the fair value of assets, accordingly, actual results could
         vary significantly from such estimates. Assets to be disposed of are
         carried at the lower of their financial statement carrying amount or
         fair value less costs to sell.


                                     II-29
<PAGE>   32

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         Minority Interests

         Recognition of minority interests' share of losses of subsidiaries is
         generally limited to the amount of such minority interests' allocable
         portion of the common equity of those subsidiaries. Further, the
         minority interests' share of losses is not recognized if the minority
         holders of common equity of subsidiaries have the right to cause the
         Company to repurchase such holders' common equity.

         Preferred stock (and accumulated dividends thereon) of subsidiaries are
         included in minority interests in equity of subsidiaries. Dividend
         requirements on such preferred stocks are reflected as minority
         interests in earnings of subsidiaries in the accompanying consolidated
         statements of operations and comprehensive earnings.


         Foreign Currency Translation

         The functional currency of the Company is the United States ("U.S.")
         dollar. The functional currency of the Company's foreign operations
         generally is the applicable local currency for each foreign subsidiary
         and foreign equity method investee. Assets and liabilities of foreign
         subsidiaries and foreign equity investees are translated at the spot
         rate in effect at the applicable reporting date, and the consolidated
         statements of operations and the Company's share of the results of
         operations of its foreign equity affiliates are translated at the
         average exchange rates in effect during the applicable period. The
         resulting unrealized cumulative translation adjustment, net of
         applicable income taxes, is recorded as a component of accumulated
         other comprehensive earnings in stockholder's equity.

         Transactions denominated in currencies other than the functional
         currency are recorded based on exchange rates at the time such
         transactions arise. Subsequent changes in exchange rates result in
         transaction gains and losses which are reflected in the accompanying
         consolidated statements of operations and comprehensive earnings as
         unrealized (based on the applicable period end exchange rate) or
         realized upon settlement of the transactions.

         Unless otherwise indicated, convenience translations of foreign
         currencies into U.S. dollars are calculated using the applicable spot
         rate at December 31, 2000, as published in The Wall Street Journal.


         Derivative Instruments and Hedging Activities

         The Company uses various derivative instruments including equity
         collars, put spread collars, and interest rate swaps to manage fair
         value risk associated with certain investments and interest rate risk
         on certain indebtedness. Derivative instruments are generally not used
         for speculative purposes. The derivative instruments may involve
         elements of credit and market risk in excess of amounts recognized in
         the financial statements. The Company monitors its positions and the
         credit quality of counter parties, consisting primarily of major
         financial institutions, and does not anticipate nonperformance by any
         counter-party.

         Disclosures regarding the fair value of derivative and other financial
         instruments are included in notes 6 and 8. Fair value of these
         instruments is based on market quotes or option pricing models using
         the historical volatility of the underlying security.

         Statement of Financial Accounting Standards No. 133, Accounting for
         Derivative Instruments and Hedging Activities, as amended by Statement
         of Financial Accounting Standards No. 137, Accounting for Derivative
         Instruments and Hedging Activities - Deferral of the Effective Date of


                                     II-30
<PAGE>   33

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         FASB Statement No. 133, and Statement of Financial Accounting Standards
         No. 138, Accounting for Certain Derivative Instruments and Certain
         Hedging Activities, is effective for the Company as of January 1, 2001.
         Statement of Financial Accounting Standards No. 133 requires that an
         entity recognize all derivatives as either assets or liabilities
         measured at fair value. The accounting for changes in the fair value of
         a derivative depends on the use of the derivative. Adoption of these
         new accounting standards will result in cumulative after-tax increases
         in net earnings of approximately $550 million and reductions in other
         comprehensive earnings of approximately $90 million in the first
         quarter of 2001. The adoption will also impact assets and liabilities
         recorded on the balance sheet.


         Revenue Recognition

         Programming revenue is recognized in the period during which
         programming is provided, pursuant to affiliation agreements.
         Advertising revenue is recognized, net of agency commissions, in the
         period during which underlying advertisements are broadcast. Revenue
         from post-production services is recognized in the period the services
         are rendered. Cable and other distribution revenue is recognized in the
         period that services are rendered. Cable installation revenue is
         recognized in the period the related services are provided to the
         extent of direct selling costs. Any remaining amount is deferred and
         recognized over the estimated average period that customers are
         expected to remain connected to the cable distribution system.


         Stock Based Compensation

         Statement of Financial Accounting Standards No. 123, Accounting for
         Stock-Based Compensation ("Statement 123"), establishes financial
         accounting and reporting standards for stock-based employee
         compensation plans as well as transactions in which an entity issues
         its equity instruments to acquire goods or services from non-employees.
         As allowed by Statement 123, Liberty continues to account for
         stock-based compensation pursuant to Accounting Principles Board
         Opinion No. 25 ("APB Opinion No. 25").

         Compensation relating to stock options with tandem stock appreciation
         rights ("SARs") granted to employees of Liberty and its subsidiaries
         have been recorded as variable award plans in the accompanying
         consolidated financial statements pursuant to APB Opinion No. 25 and
         related interpretations. Liabilities under these awards are subject to
         future adjustment based upon vesting provisions and the market value of
         the underlying security and, ultimately, on the final determination of
         market value when the rights are exercised. The amount of compensation
         under Statement 123 would not have been significantly different from
         what has been reflected in the accompanying consolidated financial
         statements due to substantially all of Liberty's stock option plans
         having tandem SARs, which are treated as liabilities for financial
         statement purposes and require periodic remeasurement under both APB
         Opinion No. 25 and Statement 123.

         Agreements that may require Liberty to reacquire interests in
         subsidiaries held by officers and employees in the future are
         marked-to-market periodically with corresponding adjustments being
         recorded to stock compensation expense.


         Reclassifications

         Certain prior period amounts have been reclassified for comparability
         with the 2000 presentation.



                                     II-31
<PAGE>   34


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         Estimates

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities at the date of the financial statements and the reported
         amounts of revenue and expenses during the reporting period. Actual
         results could differ from those estimates.

(4)      Supplemental Disclosures to Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                          New Liberty                    Old Liberty
                                                ----------------------------   ------------------------------
                                                   Year          Ten months     Two months          Year
                                                   ended           ended          ended             ended
                                                December 31,    December 31,   February 28,      December 31,
                                                ------------    ------------   ------------      ------------
                                                   2000            1999            1999             1998
                                                ------------    ------------   ------------      ------------
                                                                     amounts in millions
<S>                                             <C>             <C>             <C>              <C>
Cash paid for acquisitions:
    Fair value of assets acquired                 $ 2,345           122               --              903
    Net liabilities assumed                        (1,208)          (13)              --             (107)
    Deferred tax asset                                260            --               --             (154)
       (liability)
    Minority interest                                (445)           --               --              224
    Contribution to equity for
       acquisitions                                  (217)           --               --             (772)
    Other                                              --            --               --               (2)
                                                  -------           ---          -------          -------

       Cash paid for acquisitions
                                                  $   735           109               --               92
                                                  =======           ===          =======          =======
       Cash paid for interest                     $   335            93               32              103
                                                  =======           ===          =======          =======
       Cash paid for income taxes
                                                  $    --            --               --               29
                                                  =======           ===          =======          =======
</TABLE>

         During the ten months ended December 31, 1999 certain subsidiaries with
         a carrying value of $135 million were exchanged for a cost method
         investment in an online music venture.

         The following table reflects the change in cash and cash equivalents
         resulting from the AT&T Merger and related restructuring transactions
         (amounts in millions):

<TABLE>

<S>                                                                           <C>
         Cash and cash equivalents prior to the AT&T Merger                   $     31
             Cash contribution in connection with the AT&T Merger                5,464
             Cash paid to TCI for certain warrants                                (176)
                                                                              --------
         Cash and cash equivalents subsequent to the AT&T Merger              $  5,319
                                                                              ========
</TABLE>


                                     II-32
<PAGE>   35



                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

(5)      Investments in Affiliates Accounted for under the Equity Method

         Liberty has various investments accounted for under the equity method.
         The following table includes Liberty's carrying amount and percentage
         ownership of the more significant investments in affiliates at December
         31, 2000 and the carrying amount at December 31, 1999:

<TABLE>
<CAPTION>
                                                                December 31,                  December 31,
                                                                    2000                          1999
                                                        ---------------------------           ------------
                                                        Percentage         Carrying             Carrying
                                                        Ownership           Amount               Amount
                                                        ----------         --------           -----------
                                                                      dollar amounts in millions
<S>                                                     <C>              <C>                  <C>
         USA Networks, Inc. ("USAI") and related
             investments                                     21%         $     2,824               2,699
         Telewest Communications plc ("Telewest")            25%               2,712               1,996
         Discovery Communications, Inc. ("Discovery")        49%               3,133               3,441
         Gemstar-TV Guide International, Inc.
             ("Gemstar")                                     21%               5,855                  --
         QVC, Inc. ("QVC")                                   43%               2,508               2,515
         UnitedGlobalCom, Inc. ("UnitedGlobalCom")           11%                 314                 505
         TV Guide                                                                 --               1,732
         Foreign investments (other than Telewest)          various            1,754               2,190
         Other                                              various            1,279                 844
                                                                         -----------          ----------
                                                                         $    20,379              15,922
                                                                         ===========          ==========
</TABLE>

         The following table reflects Liberty's share of earnings (losses) of
affiliates:

<TABLE>
<CAPTION>
                                                          New Liberty                                    Old Liberty
                                               ----------------------------------            -----------------------------------
                                                   Year                Ten months            Two months                Year
                                                  ended                  ended                  ended                  ended
                                               December 31,           December 31,           February 28,           December 31,
                                               ------------           ------------           ------------           ------------
                                                   2000                   1999                   1999                   1998
                                               ------------           ------------           ------------           ------------
                                                                                amounts in millions

<S>                                            <C>                    <C>                     <C>                    <C>
         USAI and related investments          $        (36)                   (20)                    10                     30
         Telewest                                      (441)                  (222)                   (38)                  (134)
         Discovery                                     (293)                  (269)                    (8)                   (39)
         Gemstar                                       (254)                    --                     --                     --
         QVC                                            (12)                   (11)                    13                     64
         UnitedGlobalCom                               (211)                    23                     --                     --
         Foreign investments                           (350)                  (208)                   (27)                  (146)
         PCS Ventures (note 6)                           --                     --                     --                   (629)
         Other                                         (134)                  (197)                   (16)                  (148)
                                               ------------           ------------           ------------           ------------
                                               $     (1,731)                  (904)                   (66)                (1,002)
                                               ============           ============           ============           ============
</TABLE>

         The $15 billion aggregate excess of Liberty's aggregate carrying amount
         in its affiliates over Liberty's proportionate share of its affiliates'
         net assets is being amortized over estimated useful lives ranging from
         2 to 20 years. Such amortization was approximately $936 million, $463
         million, $9 million and $8 million for the year ended December 31,
         2000, the ten months ended December 31, 1999, the two months ended
         February 28, 1999 and the year ended December 31, 1998, respectively,
         and is included in share of losses of affiliates.


                                     II-33
<PAGE>   36


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         Certain of Liberty's affiliates are general partnerships and, as such,
         are liable as a matter of partnership law for all debts (other than
         non-recourse debts) of that partnership in the event liabilities of
         that partnership were to exceed its assets.

         Summarized unaudited combined financial information for affiliates is
as follows:

<TABLE>
<CAPTION>

                                                           December 31,
                                                    ------------------------
                                                      2000            1999
                                                    -------          -------
                                                       amounts in millions
<S>                                                 <C>                <C>
Combined Financial Position
     Investments                                    $ 1,795            1,415
     Property and equipment, net                     11,294            8,885
     Other intangibles, net                          31,430           19,778
     Other assets, net                                9,682            9,207
                                                    -------          -------
         Total assets                               $54,201           39,285
                                                    =======          =======

     Debt                                           $19,781           17,210
     Other liabilities                               15,158           12,645
     Owners' equity                                  19,262            9,430
                                                    -------          -------
         Total liabilities and equity               $54,201           39,285
                                                    =======          =======
</TABLE>


<TABLE>
<CAPTION>

                                                  Year             Ten months      Two months          Year
                                                  ended              ended           ended            ended
                                              December 31,        December 31,    February 28,     December 31,
                                              ------------        ------------    ------------     ------------
                                                  2000                1999               1999          1998
                                              ------------        ------------    ------------     ------------
                                                                        amounts in millions
<S>                                           <C>                  <C>            <C>              <C>
         Combined Operations
              Revenue                         $    13,743              10,492         2,341            14,062
              Operating expenses                  (12,193)             (9,066)       (1,894)          (13,092)
              Depreciation and
                 amortization                      (2,227)             (1,461)         (353)           (2,629)
                                              -----------         -----------     ---------         ---------
                  Operating income (loss)
                                                     (677)                (35)           94            (1,659)
              Interest expense                     (1,051)               (886)         (281)           (1,728)
              Other, net                              169                (151)         (127)             (166)
                                              -----------         -----------     ---------         ---------
                  Net loss                    $    (1,559)             (1,072)         (314)           (3,553)
                                              ===========         ===========     =========         =========
</TABLE>


         USAI

         USAI owns and operates businesses in network and television production,
         television broadcasting, electronic retailing, ticketing operations,
         and internet services. At December 31, 2000, Liberty directly and
         indirectly held 74.4 million shares of USAI's common stock. Liberty
         also held shares directly in certain subsidiaries of USAI which are
         exchangeable into 79 million shares of USAI common stock. Liberty's
         direct ownership of USAI is currently restricted by Federal
         Communications Commission ("FCC") regulations. The exchange of these
         shares can be accomplished only if there is a change to existing
         regulations or if Liberty obtains permission from the FCC. If the
         exchange of subsidiary stock into USAI common stock was completed at
         December 31, 2000, Liberty would own 153.4 million shares or
         approximately 21% (on a fully-diluted basis) of USAI common stock.
         USAI's common stock had a closing market value of $19.44 per share on
         December 31, 2000. Liberty accounts for its investments in USAI and
         related subsidiaries on a combined basis under the equity method.

         In February 1998, USAI paid cash and issued shares and one of its
         subsidiaries issued shares in connection with the acquisition of
         certain assets from Universal Studios, Inc. (the "Universal
         Transaction"). Liberty recorded an increase to its investment in USAI
         of $54 million and an


                                     II-34
<PAGE>   37

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         increase to additional paid-in-capital of $33 million (after deducting
         deferred income taxes of $21 million) as a result of this share
         issuance.

         USAI issued shares in June 1998 to acquire the remaining stock of
         Ticketmaster Group, Inc. which it did not previously own (the
         "Ticketmaster Transaction"). Liberty recorded an increase to its
         investment in USAI of $52 million and an increase to additional
         paid-in-capital of $31 million (after deducting deferred income taxes
         of $21 million) as a result of this share issuance. No gain was
         recognized in the consolidated statement of operations and
         comprehensive earnings for either the Universal Transaction or the
         Ticketmaster Transaction due primarily to Liberty's intention to
         purchase additional equity interests in USAI.

         In connection with the Universal Transaction, Liberty was granted an
         antidilutive right with respect to any future issuance of USAI's common
         stock, subject to certain limitations, that enables it to maintain its
         percentage ownership interests in USAI.


         Telewest

         Telewest currently operates and constructs cable television and
         telephone systems in the UK. Flextech Limited ("Flextech") develops and
         sells a variety of television programming in the UK. In April 2000,
         Telewest acquired Flextech. As a result, each share of Flextech was
         exchanged for 3.78 new Telewest shares. Prior to the acquisition,
         Liberty owned an approximate 37% equity interest in Flextech and a 22%
         equity interest in Telewest. As a result of the acquisition, Liberty
         owns an approximate 24.6% equity interest in Telewest. Liberty
         recognized a $649 million gain (excluding related tax expense of $227
         million) on the acquisition based on the difference between the
         carrying value of Liberty's interest in Flextech and the fair value of
         the Telewest shares received. At December 31, 2000 Liberty indirectly
         owned 724 million of the issued and outstanding Telewest ordinary
         shares. Telewest's ordinary shares reported a closing price of $1.58
         per share on December 31, 2000.

         Effective September 1, 1998, Telewest and General Cable PLC ("General
         Cable") consummated a merger (the "General Cable Merger") in which
         holders of General Cable received New Telewest shares and cash. Based
         upon Telewest's closing price of $1.51 per share on April 14, 1998, the
         General Cable Merger was valued at approximately $1.1 billion. The cash
         portion of the General Cable Merger was financed through an offer to
         qualifying Telewest shareholders for the purchase of approximately 261
         million new Telewest shares at a price of $1.57 per share (the
         "Telewest Offer"). Liberty subscribed to 85 million Telewest ordinary
         shares at an aggregate cost of $133 million in connection with the
         Telewest Offer. In connection with the General Cable Merger, Liberty
         converted its entire holdings of Telewest convertible preference shares
         (133 million shares) into Telewest ordinary shares. As a result of the
         General Cable Merger, Liberty's ownership interest in Telewest
         decreased to 22%. In connection with the increase in Telewest's equity,
         net of the dilution of Liberty's interest in Telewest, that resulted
         from the General Cable Merger, Liberty recorded a non-cash gain of $60
         million (before deducting deferred income taxes of $21 million) during
         1998.

         Gemstar

         Gemstar is a leading global technology and media company focused on
         consumer entertainment. The common stock of Gemstar is publicly traded.
         At December 31, 2000, Liberty held 87.5 million shares of Gemstar
         common stock. Gemstar's stock reported a closing price of $46.13 per
         share on December 31, 2000.

         On July 12, 2000, TV Guide and Gemstar completed a merger whereby
         Gemstar acquired TV Guide. TV Guide shareholders received .6573 shares
         of Gemstar common stock in exchange for each share of TV Guide. As a
         result of this transaction, 133 million shares of TV Guide held by



                                     II-35
<PAGE>   38

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         Liberty were exchanged for 87.5 million shares of Gemstar common stock.
         Following the merger, Liberty owns approximately 21.4% of Gemstar.
         Liberty recognized a $4.4 billion gain (before deducting deferred
         income taxes of $1.7 billion) on such transaction based on the
         difference between the carrying value of Liberty's interest in TV Guide
         and the fair value of the Gemstar securities received.


         UnitedGlobalCom

         UnitedGlobalCom is a global broadband communications provider of video,
         voice and data services with operations in over 20 countries throughout
         the world. At December 31, 2000, Liberty owned an approximate 10.9%
         economic ownership interest representing an approximate 36.8% voting
         interest in UnitedGlobalCom. Liberty owns 9.9 million shares of
         UnitedGlobalCom Class B common stock and .6 million shares of
         UnitedGlobalCom Class A common stock. The UnitedGlobalCom Class B
         common stock is convertible, on a one-for-one basis, into
         UnitedGlobalCom Class A common stock. UnitedGlobalCom's Class A common
         stock reported a closing price of $13.63 per share on December 31,
         2000.

(6)      Investments in Available-for-sale Securities and Others

         Investments in available-for-sale securities and others are summarized
         as follows:

<TABLE>
<CAPTION>
                                                                       December 31,
                                                                 ------------------------
                                                                   2000            1999
                                                                 -------          -------
                                                                   amounts in millions
<S>                                                              <C>              <C>
Sprint Corporation ("Sprint PCS")                                $ 5,192           10,186
Time Warner, Inc. ("Time Warner")                                  6,325            8,202
News Corp.                                                         2,342            2,403
Motorola, Inc. ("Motorola")                                        1,982            3,430
Other available-for-sale securities                                2,989            3,765
Other investments, at cost, and related receivables                  705              985
                                                                 -------          -------
                                                                  19,535           28,971
    Less short-term investments                                      500              378
                                                                 -------          -------
                                                                 $19,035           28,593
                                                                 =======          =======
</TABLE>

         Sprint PCS

         Liberty and certain of its consolidated subsidiaries collectively are
         the beneficial owners of approximately 197 million shares of Sprint PCS
         Group Stock and certain other instruments convertible into such
         securities (the "Sprint Securities"). The Sprint PCS Group Stock is a
         tracking stock intended to reflect the performance of Sprint's domestic
         wireless PCS operations. Liberty accounts for its investment in the
         Sprint Securities as an available-for-sale security.

         Pursuant to a final judgment (the "Final Judgment") agreed to by
         Liberty, AT&T and the United States Department of Justice (the "DOJ")
         on December 31, 1998, Liberty transferred all of its beneficially owned
         securities of Sprint PCS to a trustee (the "Trustee") prior to the AT&T
         Merger. The Final Judgment, which was entered by the United States
         District Court of the District of Columbia on August 23, 1999, requires
         the Trustee, on or before May 23, 2002, to dispose of a portion of the
         Sprint Securities sufficient to cause Liberty to beneficially own no
         more than 10% of the outstanding Sprint PCS Group common stock - Series
         1 on a fully diluted basis on such date. On or before May 23, 2004, the
         Trustee must divest the remainder of the Sprint Securities beneficially
         owned by Liberty.

         The Final Judgment requires that the Trustee vote the Sprint Securities
         beneficially owned by Liberty and its consolidated subsidiaries in the
         same proportion as other holders of Sprint


                                     II-36
<PAGE>   39

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         Securities so long as such securities are held by the trust. The Final
         Judgment also prohibits the acquisition by Liberty of additional Sprint
         Securities, with certain exceptions, without the prior written consent
         of the DOJ.

         On November 23, 1998, Liberty exchanged its investments in certain
         wireless businesses ("PCS Ventures") for the Sprint Securities (the
         "PCS Exchange"). Liberty recorded a non-cash gain of $1.9 billion
         (before deducting deferred income taxes of $647 million) on the PCS
         Exchange based on the difference between the carrying amount of
         Liberty's equity method interest in the PCS Ventures and the fair value
         of the Sprint Securities received.

         Time Warner

         Liberty holds shares of a series of Time Warner's common stock with
         limited voting rights (the "TW Exchange Stock") that are convertible
         into an aggregate of 114 million shares of Time Warner common stock.
         Liberty accounts for its investment in Time Warner as an
         available-for-sale security.

         On January 11, 2001, Time Warner and America Online, Inc. completed
         their merger, pursuant to which each share of the Time Warner common
         stock held by Liberty was converted into 1.5 shares of an identical
         series of stock of AOL Time Warner, Inc. ("AOL Time Warner"). Following
         this conversion, Liberty owns approximately 171 million shares of AOL
         Time Warner, which represents an approximate 4% interest in the
         combined entity.

         Pursuant to an option granted by Liberty, Time Warner acquired Southern
         Satellite Systems, Inc., effective January 1, 1998, for $213 million in
         cash. Liberty recognized a $515 million pre-tax gain in connection with
         such transaction in the first quarter of 1998.

         News Corp.

         On July 15, 1999, News Corp. acquired Liberty's 50% interest in
         Fox/Liberty Networks in exchange for 51.8 million News Corp. American
         Depository Receipts ("ADRs") representing preferred limited voting
         ordinary shares of News Corp. Of the 51.8 million ADRs received, 3.6
         million were placed in an escrow (the "Escrow Shares") pending an
         independent third party valuation, as of the third anniversary of the
         transaction. The remainder of the 51.8 million ADRs received (the
         "Restricted Shares") are subject to a two-year lockup which restricts
         any transfer of the securities for a period of two years from the date
         of the transaction. Liberty recorded the Restricted Shares at fair
         value of $1,403 million, which included a discount from market value
         due to the two-year restriction on transfer, resulting in a $13 million
         gain on the transaction. In a related transaction, Liberty acquired
         from News Corp. 28.1 million additional ADRs representing preferred
         limited voting ordinary shares of News Corp. for approximately $695
         million. Liberty accounts for its investment in News Corp. as an
         available-for-sale security.


         Motorola

         On January 5, 2000, Motorola completed the acquisition of General
         Instrument through a merger of General Instrument with a wholly owned
         subsidiary of Motorola. In connection with the merger Liberty received
         54 million shares and warrants to purchase 37 million shares of
         Motorola common stock in exchange for its holdings in General
         Instrument. Liberty recognized a $2.2 billion gain (excluding related
         tax expense of $883 million) on such transaction during the first
         quarter of 2000 based on the difference between the carrying value of
         Liberty's interest in General Instrument and the fair value of the
         Motorola securities received. During 2000, Liberty exercised a warrant
         to purchase approximately 9 million shares of Motorola common stock at
         an exercise price of $8.26 per share. At December 31, 2000 Liberty
         holds approximately 63 million shares of


                                     II-37
<PAGE>   40

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         Motorola common stock and vested warrants to purchase an additional 28
         million shares of such common stock.

         Investments in available-for-sale securities are summarized as follows:


<TABLE>
<CAPTION>

                                                           December 31,
                                                  ---------------------------
                                                    2000               1999
                                                  --------           --------
                                                     amounts in millions
<S>                                               <C>                  <C>
Equity securities:
   Cost basis                                     $ 17,641             13,657
   Gross unrealized holding gains                    2,254             11,453
   Gross unrealized holding losses                  (2,620)              (646)
                                                  --------           --------
   Fair value                                       17,275             24,464
                                                  --------           --------
Debt securities:
   Cost basis                                        1,533              2,017
   Gross unrealized holding gains                       86                 --
   Gross unrealized holding losses                     (64)               (22)
                                                  --------           --------
   Fair value                                     $  1,555              1,995
                                                  --------           --------
</TABLE>


         Management estimates the fair market value of all of its investments in
         available-for-sale securities and others aggregated $19.7 billion and
         $29.2 billion at December 31, 2000 and December 31, 1999, respectively.
         Management calculates market values using a variety of approaches
         including multiple of cash flow, per subscriber value, a value of
         comparable public or private businesses or publicly quoted market
         prices. No independent appraisals were conducted for those assets.


         Impairment of Investments

         During the year ended December 31, 2000, Liberty determined that
         certain of its investments experienced other than temporary declines in
         value. As a result, the cost bases of such investments were adjusted to
         their respective fair values at December 31, 2000 based primarily on
         recent quoted market prices. These adjustments are reflected as
         impairment of investments in the consolidated statements of operations.
         The following table identifies the realized losses attributable to each
         of the individual investments as follows (amounts in millions):

<TABLE>
<CAPTION>
                  Investments                                            Year ended
                  -----------                                           December 31,
                                                                            2000
                                                                        ------------
<S>                                                                    <C>
                  Motorola                                             $       1,276
                  Primedia                                                       103
                  Others                                                          97
                                                                       -------------
                                                                       $       1,476
                                                                       =============
</TABLE>


         Equity Collars and Put Spread Collars

         The Company enters into equity collars and put spread collars to manage
         pricing risk associated with its investments in certain marketable
         securities. These instruments are recorded at fair value based on
         option pricing models using the historical volatility of the underlying
         security. Accounting for changes in fair value of these instruments
         depends on the amount of correlation between the change in the fair
         value of the instrument and the offsetting change in the underlying
         equity security. Equity collars generally have a high correlation with
         the underlying


                                     II-38
<PAGE>   41

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         security, while put spread collars generally do not have high
         correlation. Accordingly, changes in the fair value of the equity
         collar are recorded as an adjustment to the carrying value of the
         related investment with an offsetting change recorded in other
         comprehensive earnings. The offsetting change in the value of put
         spread collars is recorded in the consolidated statements of operations
         as unrealized gains on financial instruments. The following table
         illustrates the fair value of the Company's equity collars and put
         spread collars as follows:

<TABLE>
<CAPTION>

                                                                             December 31,
                                                                   ------------------------------
                              Type of Derivative                       2000               1999
                              ------------------                   -----------         ----------
                                                                          amounts in millions
<S>                                                                <C>                 <C>
               Equity collars                                        $     1,293            (633)
               Put spread collars                                            188              --
</TABLE>


(7)      Acquisitions and Dispositions

         2000

         Associated Group, Inc. ("Associated Group")

         On January 14, 2000, Liberty completed its acquisition of Associated
         Group pursuant to a merger agreement among AT&T, Liberty and Associated
         Group. Under the merger agreement, each share of Associated Group's
         Class A common stock and Class B common stock was converted into
         0.49634 shares of AT&T common stock and 2.41422 shares of AT&T Class A
         Liberty Media Group common stock. Prior to the merger, Associated
         Group's primary assets were (1) approximately 19.7 million shares of
         AT&T common stock, (2) approximately 46.8 million shares of AT&T Class
         A Liberty Media Group common stock, (3) approximately 10.6 million
         shares of AT&T Class B Liberty Media Group common stock, (4)
         approximately 21.4 million shares of common stock of Teligent, Inc.
         ("Teligent"), and (5) all of the outstanding shares of common stock of
         TruePosition, Inc., which provides location services for wireless
         carriers and users designed to determine the location of any wireless
         transmitter, including cellular and PCS telephones. Immediately
         following the completion of the merger, all of the assets and
         businesses of Associated Group were transferred to Liberty. All of the
         shares of AT&T common stock, AT&T Class A Liberty Media Group common
         stock and AT&T Class B Liberty Media Group common stock previously held
         by Associated Group were retired by AT&T.

         The acquisition of Associated Group was accounted for as a purchase,
         and the $17 million excess of the fair value of the net assets acquired
         over the purchase price is being amortized over ten years. As a result
         of the issuance of AT&T Class A Liberty Media Group common stock, net
         of the shares of AT&T Class A Liberty Media Group common stock acquired
         in this transaction, Liberty recorded a $778 million increase to
         additional paid-in-capital, which represents the total purchase price
         of this acquisition.


         Liberty Satellite and Technology, Inc. ("LSAT")

         On March 16, 2000, Liberty purchased shares of preferred stock in TCI
         Satellite Entertainment, Inc. in exchange for Liberty's economic
         interest in approximately 5 million shares of Sprint PCS Group stock,
         for a total purchase price of $300 million. During the third quarter of
         2000, TCI Satellite Entertainment, Inc. changed its name to LSAT.
         Liberty received 150,000 shares of LSAT Series A 12% Cumulative
         Preferred Stock and 150,000 shares of LSAT Series B 8% Cumulative
         Convertible Voting Preferred Stock. The Series A preferred stock does
         not have voting rights, while the Series B preferred stock gives
         Liberty approximately 85% of the voting power of LSAT. In connection
         with this transaction, Liberty realized a $211 million gain (before
         related tax



                                     II-39
<PAGE>   42

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         expense of $84 million) based on the difference between the cost basis
         and fair value of the economic interest in the Sprint PCS Group stock
         exchanged.

         Ascent Entertainment Group, Inc. ("Ascent")

         On March 28, 2000, Liberty completed its cash tender offer for the
         outstanding common stock of Ascent at a price of $15.25 per share.
         Approximately 85% of the outstanding shares of common stock of Ascent
         were tendered in the offer and Liberty paid approximately $385 million.
         On June 8, 2000, Liberty completed its acquisition of 100% of Ascent
         for an additional $67 million. The total purchase price for the
         acquisition was $452 million. Such transaction was accounted for as a
         purchase and the $228 million excess of the purchase price over the
         fair value of the net assets acquired is being amortized over 5 years.

         Liberty Livewire Corporation ("Liberty Livewire")

         On April 10, 2000, Liberty acquired all of the outstanding common stock
         of Four Media Company ("Four Media") for total consideration of $462
         million comprised of $123 million in cash, $194 million of assumed
         debt, 6.4 million shares of AT&T Class A Liberty Media Group common
         stock and a warrant to purchase approximately 700,000 shares of AT&T
         Class A Liberty Media Group common stock at an exercise price of $23
         per share. The acquisition was accounted for as a purchase. In
         connection with the AT&T Class A Liberty Media Group common stock
         issued in this transaction, Liberty recorded a $145 million increase to
         additional paid-in-capital, and the $276 million excess of the purchase
         price over the fair value of the net assets acquired is being amortized
         over 20 years. Four Media provides technical and creative services to
         owners, producers and distributors of television programming, feature
         films and other entertainment products both domestically and
         internationally.

         On June 9, 2000, Liberty acquired a controlling interest in The Todd-AO
         Corporation ("Todd-AO"), consisting of approximately 6.5 million shares
         of Class B Common Stock of Todd-AO, representing 60% of the equity and
         approximately 94% of the voting power of Todd-AO outstanding
         immediately prior to the closing, in exchange for approximately 5.4
         million shares of AT&T Class A Liberty Media Group common stock. The
         acquisition was accounted for as a purchase. In connection with the
         AT&T Class A Liberty Media Group common stock issued in this
         transaction, Liberty recorded a $106 million increase to additional
         paid-in-capital, which represents the purchase price, and the $96
         million excess of the purchase price over the fair value of the net
         assets acquired is being amortized over 20 years. Todd-AO provides
         sound, video and ancillary post production and distribution services to
         the motion picture and television industries in the United States and
         Europe.

         Immediately following the closing of such transaction, Liberty
         contributed to Todd-AO 100% of the capital stock of Four Media, in
         exchange for approximately 16.6 million shares of the Class B Common
         Stock of Todd-AO increasing Liberty's ownership interest in Todd-AO to
         approximately 84% of the equity and approximately 98% of the voting
         power of Todd-AO outstanding immediately following the closing.

         Following Liberty's acquisition of Todd-AO, and the contribution by
         Liberty to Todd-AO of Liberty's ownership in Four Media, Todd-AO
         changed its name to Liberty Livewire.

         On July 19, 2000, Liberty purchased all of the assets relating to the
         post production, content and sound editorial businesses of Soundelux
         Entertainment Group ("Soundelux") for $90 million. Immediately
         following such transaction, the assets of Soundelux were contributed to
         Liberty Livewire in exchange for approximately 8.2 million additional
         shares of Liberty Livewire Class B Common Stock. Following this
         contribution, Liberty's ownership in Liberty Livewire increased to
         approximately 88% of the equity and approximately 99% of the voting
         power of Liberty Livewire outstanding immediately following the
         contribution.


                                     II-40
<PAGE>   43
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         1999

         TV Guide

         On March 1, 1999, United Video Satellite Group, Inc. ("UVSG") and News
         Corp. completed a transaction whereby UVSG acquired News Corp.'s TV
         Guide properties and UVSG was renamed TV Guide. Upon completion of this
         transaction, and another transaction completed by TV Guide on the same
         date, Liberty owned an economic interest of approximately 44% and
         controlled approximately 49% of the voting power of TV Guide. In
         connection with the increase in TV Guide's equity, net of dilution of
         Liberty's ownership interest in TV Guide, Liberty recognized a gain of
         $372 million (before deducting deferred income taxes of $147 million).
         Upon consummation, Liberty began accounting for its interest in TV
         Guide under the equity method of accounting.

         1998

         Pramer S.A. ("Pramer")

         On August 24, 1998, Liberty purchased 100% of the issued and
         outstanding common stock of Pramer, an Argentine programming company,
         for a total purchase price of $97 million, which was satisfied by $32
         million in cash and the issuance of notes payable in the amount of $65
         million. Such transaction was accounted for under the purchase method.
         Accordingly, the results of operations of Pramer have been consolidated
         with those of Liberty since August 24, 1998. The $101 million excess
         cost over acquired net assets is being amortized over ten years.


         Other

         During 1998, TCI acquired certain minority interests of TV Guide and
         Liberty Media International, Inc. (formerly named Tele-Communications
         International, Inc.). The transactions were accounted for as
         acquisitions of minority interests. The aggregate value assigned to the
         shares issued by TCI was based upon the market value of the shares
         issued at the time each transaction was announced. Immediately
         following the transactions TCI contributed the minority interests
         acquired to Liberty. The contributions were recorded as an increase to
         additional paid-in-capital of $772 million, which represents the
         purchase price of such acquisitions.

         Pro Forma Information

         The following unaudited pro forma revenue and net earnings (loss) for
         the years ended December 31, 2000 and 1999 were prepared assuming the
         2000 acquisitions discussed above and the AT&T Merger occurred on
         January 1, 1999. These pro forma amounts are not necessarily indicative
         of operating results that would have occurred if the acquisitions
         discussed above and the AT&T Merger had occurred on January 1, 1999.

<TABLE>
<CAPTION>
                                             Years ended
                                            December 31,
                                        ---------------------
                                          2000        1999
                                        ---------   ---------
                                         amounts in millions
<S>                                     <C>         <C>
             Revenue ................   $   1,769       1,754
             Net earnings (loss) ....   $   2,497      (2,826)
</TABLE>




                                     II-41
<PAGE>   44

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued




(8)      Long-Term Debt

         Debt is summarized as follows:

<TABLE>
<CAPTION>
                                                     Weighted
                                                     average
                                                     interest       December 31,
                                                       rate       ---------------
                                                       2000        2000     1999
                                                    ---------     ------   ------
<S>                                                 <C>           <C>       <C>
                                                         amounts in millions
         Parent company debt:
             Senior notes                              7.88%      $  742      741
             Senior debentures                         8.33%       1,486      494
             Senior exchangeable debentures            3.70%       1,679    1,022
             Securities lending agreement              6.53%         338       --
             Bank credit facilities                    7.43%         475      390
             Other debt                                8.00%         242       --
                                                                  ------    -----
                                                                   4,962    2,647
         Debt of subsidiaries:
             Bank credit facilities                    8.41%       1,129      573
             Senior notes                             11.88%         179       --
             Other debt, at varying rates                             93       57
                                                                  ------    -----
                                                                   1,401      630
                                                                  ------    -----
             Total debt                                            6,363    3,277
         Less current maturities                                   1,094      554
                                                                  ------    -----
             Total long-term debt                                 $5,269    2,723
                                                                  ======    =====
</TABLE>



         Senior Notes and Debentures

         On July 7, 1999, Liberty issued $750 million of 7-7/8% Senior Notes due
         2009 and issued $500 million of 8-1/2% Senior Debentures due 2029 for
         aggregate cash proceeds of $741 million and $494 million, respectively.
         Interest on both issuances is payable on January 15 and July 15 of each
         year.

         On February 2, 2000, Liberty issued $1 billion of 8-1/4% Senior
         Debentures due 2030 for aggregate cash proceeds of $983 million.
         Interest on these debentures is payable on February 1 and August 1 of
         each year.

         The senior notes and debentures are stated net of an aggregate
         unamortized discount of $22 million and $15 million at December 31,
         2000 and 1999, respectively, which is being amortized to interest
         expense in the consolidated statements of operations.

         Senior Exchangeable Debentures

         On November 16, 1999, Liberty issued $869 million of 4% Senior
         Exchangeable Debentures due 2030 for aggregate cash proceeds of $854
         million. Interest is payable on May 15 and November 15 of each year.
         Each $1,000 debenture is exchangeable at the holder's option for the
         value of 22.9486 shares of Sprint PCS Group stock. After the later of
         December 31, 2001 or the date Liberty's ownership level in the Sprint
         PCS Group falls below a specified level, Liberty may, at its election,
         pay the exchange value in cash, Sprint PCS Group stock or a combination
         thereof. Prior to such time, the exchange value must be paid in cash.

         On February 10, 2000, Liberty issued $750 million of 3-3/4% Senior
         Exchangeable Debentures due 2030 for aggregate cash proceeds of $735
         million. On March 8, 2000, an additional $60



                                     II-42
<PAGE>   45

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         million of 3-3/4% Senior Exchangeable Debentures due 2030 were issued
         for aggregate proceeds of $59 million. Interest is payable on February
         15 and August 15 of each year. Each $1,000 debenture is exchangeable at
         the holder's option for the value of 16.7764 shares of Sprint PCS Group
         stock. After the later of February 15, 2002 or the date Liberty's
         ownership level in the Sprint PCS Group falls below a specified level,
         Liberty may, at its election, pay the exchange value in cash, Sprint
         PCS Group stock or a combination thereof. Prior to such time, the
         exchange value must be paid in cash.

         The carrying amount of the senior exchangeable debentures is adjusted
         based on the fair value of the underlying Sprint PCS Group stock.
         Increases or decreases in the value of the underlying Sprint PCS Group
         stock above the principal amount of the senior exchangeable debentures
         (the "Contingent Portion") is recorded as an adjustment to interest
         expense in the consolidated statements of operations and comprehensive
         earnings. If the value of the underlying Sprint PCS Group stock
         decreases below the principal amount of the senior exchangeable
         debentures there is no effect on the principal amount of such
         debentures.


         Securities Lending Agreement

         On January 7, 2000, a trust, which holds Liberty's investment in
         Sprint, entered into agreements to loan 18 million shares of Sprint PCS
         Group stock to a third party, as Agent. The obligation to return those
         shares is secured by cash collateral equal to 100% of the market value
         of that stock, which was $338 million at December 31, 2000. During the
         period of the loan, which is terminable by either party at any time,
         the cash collateral is to be marked-to-market daily. The trust, for the
         benefit of Liberty, has the use of 80% of the cash collateral plus any
         interest earned thereon during the term of the loan, and is required to
         pay a rebate fee equal to the federal funds rate less 30 basis points
         to the borrower of the loaned shares. Unutilized cash collateral of $49
         million at December 31, 2000 represents restricted cash and is included
         in other current assets on the consolidated balance sheets. At December
         31, 2000, Liberty had utilized $289 million of the cash collateral
         under the securities lending agreement.

         At December 31, 2000, Liberty had approximately $270 million in unused
         lines of credit under its bank credit facilities. The bank credit
         facilities of Liberty generally contain restrictive covenants which
         require, among other things, the maintenance of certain financial
         ratios, and include limitations on indebtedness, liens, encumbrances,
         acquisitions, dispositions, guarantees and dividends. Liberty was in
         compliance with its debt covenants at December 31, 2000. Additionally,
         Liberty pays fees ranging from .15% to .375% per annum on the average
         unborrowed portions of the total amounts available for borrowings under
         bank credit facilities.

         The U.S. dollar equivalent of the annual maturities of Liberty's debt
         for each of the next five years are as follows: 2001: $1,094 million;
         2002: $28 million; 2003: $132 million; 2004: $270 million and 2005:
         $347 million.

         Based on quoted market prices, the fair value of Liberty's debt at
         December 31, 2000 is as follows (amounts in millions):

<TABLE>

<S>                                                                             <C>
                 Senior notes of parent company                                 $      737
                 Senior debentures of parent company                                 1,384
                 Senior exchangeable debentures of parent company                    1,053
                 Senior notes of subsidiary                                            184
</TABLE>

         Liberty believes that the carrying amount of the remainder of its debt
         approximated its fair value at December 31, 2000.



                                     II-43
<PAGE>   46
                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


(9)      Income Taxes

         Subsequent to the AT&T Merger, Liberty is included in the consolidated
         federal income tax return of AT&T and is a party to a tax sharing
         agreement with AT&T (the "AT&T Tax Sharing Agreement"). Liberty
         calculates its respective tax liability on a separate return basis. The
         income tax provision for Liberty is calculated based on the increase or
         decrease in the tax liability of the AT&T consolidated group resulting
         from the inclusion of those items in the consolidated tax return of
         AT&T which are attributable to Liberty.

         Under the AT&T Tax Sharing Agreement, Liberty receives a cash payment
         from AT&T in periods when it generates taxable losses and such taxable
         losses are utilized by AT&T to reduce the consolidated income tax
         liability. This utilization of taxable losses is accounted for by
         Liberty as a current federal intercompany income tax benefit. To the
         extent such losses are not utilized by AT&T, such amounts are available
         to reduce federal taxable income generated by Liberty in future
         periods, similar to a net operating loss carryforward, and are
         accounted for as a deferred federal income tax benefit.

         In periods when Liberty generates federal taxable income, AT&T has
         agreed to satisfy such tax liability on Liberty's behalf up to a
         certain amount. The reduction of such computed tax liabilities will be
         accounted for by Liberty as an addition to additional paid-in-capital.
         The total amount of future federal tax liabilities of Liberty which
         AT&T will satisfy under the AT&T Tax Sharing Agreement is approximately
         $830 million, which represents the tax effect of the net operating loss
         carryforward reflected in TCI's final federal income tax return,
         subject to IRS adjustments. Thereafter, Liberty is required to make
         cash payments to AT&T for federal tax liabilities of Liberty.

         To the extent AT&T utilizes existing net operating losses of Liberty,
         such amounts will be accounted for by Liberty as a reduction of
         additional paid-in-capital. Net operating losses of Liberty with a tax
         effected carrying value of $38 million and $88 million were recorded as
         a reduction to additional paid-in-capital during the year ended
         December 31, 2000 and the ten months ended December 31, 1999.

         Liberty will generally make cash payments to AT&T related to states
         where it generates taxable income and receive cash payments from AT&T
         in states where it generates taxable losses.

         Prior to the AT&T Merger, Liberty was included in TCI's consolidated
         tax return and was a party to the TCI tax sharing agreements.

         Liberty's obligation under the 1995 TCI Tax Sharing Agreement of
         approximately $138 million (subject to adjustment), which is included
         in "due to (from) related parties," shall be paid at the time, if ever,
         that Liberty deconsolidates from AT&T. Liberty's receivable under the
         1997 TCI Tax Sharing Agreement of approximately $220 million was
         forgiven in the AT&T Tax Sharing Agreement and recorded as an
         adjustment to additional paid-in-capital by Liberty in connection with
         the AT&T Merger.


                                     II-44
<PAGE>   47

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         Income tax benefit (expense) consists of:

<TABLE>
<CAPTION>
                                                  New Liberty                      Old Liberty
                                         -----------------------------     -----------------------------
                                             Year          Ten months      Two months           Year
                                            ended            ended            ended            ended
                                         December 31,     December 31,     February 28,     December 31,
                                         ------------     ------------     ------------     ------------
                                             2000             1999             1999             1998
                                         ------------     ------------     ------------     ------------
                                                               amounts in millions
<S>                                      <C>              <C>              <C>              <C>
         Current:
             Federal                     $        132               75                1               89
             State and local                        3               (3)              --               (4)
                                         ------------     ------------     ------------     ------------
                                                  135               72                1               85
                                         ------------     ------------     ------------     ------------

         Deferred:
             Federal                           (1,904)             873             (168)            (437)
             State and local                     (421)             152              (44)            (109)
                                         ------------     ------------     ------------     ------------
                                               (2,325)           1,025             (212)            (546)
                                         ------------     ------------     ------------     ------------

         Income tax benefit (expense)    $     (2,190)           1,097             (211)            (461)
                                         ============     ============     ============     ============
</TABLE>

         Income tax benefit (expense) differs from the amounts computed by
         applying the U.S. federal income tax rate of 35% as a result of the
         following:

<TABLE>
<CAPTION>
                                                     New Liberty                      Old Liberty
                                            -----------------------------     -----------------------------
                                                Year          Ten months       Two months          Year
                                               ended            ended            ended            ended
                                            December 31,     December 31,     February 28,     December 31,
                                            ------------     ------------     ------------     ------------
                                                2000             1999             1999             1998
                                            ------------     ------------     ------------     ------------
                                                                   amounts in millions
<S>                                         <C>              <C>              <C>              <C>
         Computed expected tax benefit
             (expense)                      $     (1,666)           1,075              (49)            (379)
         Dividends excluded for income
             tax purposes                             22               11                2               13
         Minority interest in equity of
             subsidiaries                             22               32               --               (5)
         Amortization not deductible for
             income tax purposes                    (187)            (122)              (4)             (21)
         State and local income taxes,
             net of federal income taxes            (267)              97              (29)             (74)
         Recognition of difference in
             income tax basis of
             investments in subsidiaries             (54)              --             (130)              --
         Change in valuation allowance               (50)              --               --               --
         Other, net                                  (10)               4               (1)               5
                                            ------------     ------------     ------------     ------------
                                            $     (2,190)           1,097             (211)            (461)
                                            ============     ============     ============     ============
</TABLE>





                                     II-45
<PAGE>   48

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         The tax effects of temporary differences that give rise to significant
         portions of the deferred tax assets and deferred tax liabilities at
         December 31, 2000 and 1999 are presented below:

<TABLE>
<CAPTION>
                                                                   December 31,
                                                             ------------------------
                                                                2000          1999
                                                             ----------    ----------
                                                               amounts in millions
<S>                                                          <C>           <C>
         Deferred tax assets:
             Net operating and capital loss carryforwards    $      295            43
             Accrued stock compensation                             247           749
             Other future deductible amounts                         --            61
                                                             ----------    ----------
             Deferred tax assets                                    542           853
                Less valuation allowance                            131            50
                                                             ----------    ----------
             Net deferred tax assets                                411           803
                                                             ----------    ----------
         Deferred tax liabilities:
             Investments in affiliates                           11,229        13,912
             Intangible assets                                      221           200
             Other                                                   30            44
                                                             ----------    ----------
             Deferred tax liabilities                            11,480        14,156
                                                             ----------    ----------

         Net deferred tax liabilities                        $   11,069        13,353
                                                             ==========    ==========
</TABLE>

         At December 31, 2000, Liberty had net operating and capital loss
         carryforwards for income tax purposes aggregating approximately $800
         million which, if not utilized to reduce taxable income in future
         periods, will expire as follows: 2004: $63 million; 2005: $42 million;
         2006: $14 million; 2007: $27 million; 2008: $12 million; 2009: $23
         million; 2010: $34 million; and beyond 2010: $585 million. These net
         operating losses are subject to certain rules limiting their usage.

(10)     Stockholder's Equity

         Preferred Stock

         The Preferred Stock is issuable, from time to time, with such
         designations, preferences and relative participating, option or other
         special rights, qualifications, limitations or restrictions thereof, as
         shall be stated and expressed in a resolution or resolutions providing
         for the issue of such Preferred Stock adopted by the Board.

         Common Stock

         The Class A Stock has one vote per share, and each of the Class B and
         Class C Stock has ten votes per share.

         As of December 31, 2000, all of the issued and outstanding common stock
         of Liberty was held by AT&T.


         Stock Issuances of Subsidiaries and Equity Affiliates

         Certain consolidated subsidiaries and equity affiliates of Liberty have
         issued shares of common stock in connection with acquisitions and the
         exercise of employee stock options. In connection with the increase in
         the issuers' equity, net of the dilution of Liberty's ownership
         interest, that resulted from such stock issuances, Liberty recorded
         increases to additional paid-in-capital as follows:


                                     II-46
<PAGE>   49

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

<TABLE>
<CAPTION>
                                                                                      Ten months
                                                                      Year ended        ended
                                                                     December 31,    December 31,
                                                                         2000            1999
                                                                     ------------    ------------
                                                                          amounts in millions
<S>                                                                  <C>             <C>
                  Stock issuances by consolidated subsidiaries       $        199             102
                  Stock issuances by equity affiliates (net of
                     deferred income taxes of  $88 million and $1
                     million, respectively)                                   163               2
                                                                     ------------    ------------
                                                                     $        362             104
                                                                     ============    ============
</TABLE>


         Transactions with Officers and Directors

         In December 2000, Liberty entered into an agreement to guaranty the
         repayment of a revolving line of credit extended by a financial
         institution to a director of Liberty with an aggregate available amount
         of up to $19.2 million. In consideration of this guaranty, the director
         has agreed to pay Liberty an annual fee of $96,000, payable quarterly,
         for each year of the two year term of the line of credit. To secure the
         director's repayment of any amount paid by Liberty under the guaranty,
         the director has granted to Liberty a security interest in all of his
         stock options and tandem or free-standing SARs with respect to shares
         of AT&T Liberty Media Group tracking stock and shares of AT&T's common
         stock. If the value of these securities fall below two times the amount
         of the loan Liberty has guaranteed, the director is required to pledge
         additional collateral to Liberty of sufficient value to maintain the
         two-times coverage ratio.

         In November 2000, Liberty granted certain officers, a director of
         Liberty and a board member of a subsidiary an aggregate 4.0725% common
         stock interest in a subsidiary that owns a direct interest in Liberty
         Livewire. The common stock interest granted to these individuals had a
         value of approximately $400,000. The subsidiary also awarded the
         director of Liberty a deferred bonus in the initial total amount of
         approximately $3.4 million, which amount will decrease by an amount
         equal to any increase over the five-year period from the date of the
         award in the value of certain of the common shares granted to the
         director. Liberty and the individuals entered into a stockholders'
         agreement in which the individuals could require Liberty to repurchase,
         after five years, all or part of their common stock interest in
         exchange for AT&T Class A Liberty Media Group common stock at its then
         fair market value. In addition, Liberty has the right to repurchase, in
         exchange for AT&T Class A Liberty Media Group common stock, the common
         stock interests held by the individuals at fair market value at any
         time.

         In October 2000, Liberty restructured its ownership interests in
         certain assets into a new consolidated subsidiary. Liberty then sold a
         preferred interest in such subsidiary to the Chairman of the Board of
         Directors in exchange for approximately 540,000 shares of LSAT Series A
         common stock, approximately 3.3 million shares of LSAT Series B common
         stock and cash consideration of approximately $88 million. No gain or
         loss was recognized due to the related party nature of such
         transaction.

         In September 2000, certain officers of Liberty purchased a 6% common
         stock interest in a subsidiary for $1.3 million. Such subsidiary owns
         an indirect interest in an entity that holds certain of Liberty's
         investments in satellite and technology related assets. Liberty and the
         officers entered into a shareholders agreement in which the officers
         could require Liberty to purchase, after five years, all or part of
         their common stock interest in exchange for AT&T Class A Liberty Media
         Group common stock at the then fair market value. In addition, Liberty
         has the right to purchase, in exchange for AT&T Class A Liberty Media
         Group common stock, the common stock interests held by the officers at
         fair market value at any time.



                                     II-47
<PAGE>   50

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         In August 2000, a subsidiary of Liberty sold shares of such
         subsidiary's Series A Convertible Participating Preferred Stock (the
         "Preferred Shares") to a director of Liberty, who is also the Chairman
         and Chief Executive Officer of such subsidiary, for a $21 million note.
         The Preferred Shares are convertible into 1.4 million shares of the
         subsidiary's common stock. The note is secured by the Preferred Shares
         or the proceeds from the sale of such shares and the director's
         personal obligations under such loan are limited. The note, which
         matures on August 1, 2005, may not be prepaid and interest on the note
         accrues at a rate of 7% per annum.

         In May 2000, an officer of Liberty, certain officers of a subsidiary
         and another individual purchased an aggregate 20% common stock interest
         in a subsidiary for $800,000. This subsidiary owns a 10% interest in
         Jupiter Telecommunications Co., Inc. Liberty and the individuals
         entered into a shareholders agreement in which the individuals could
         require Liberty to purchase, after five years, all or part of their
         common stock interest in exchange for AT&T Class A Liberty Media Group
         common stock at its then fair market value. In addition, Liberty has
         the right to purchase, in exchange for AT&T Class A Liberty Media Group
         common stock, the common stock interests held by the officers at fair
         market value at any time. Liberty recognized $3 million of compensation
         expense related to changes in the market value of its contingent
         liability to reacquire the common stock interests held by these
         officers during the year ended December 31, 2000.

         In connection with the AT&T Merger, Liberty paid two of its directors
         and one other individual, all three of whom were directors of TCI, an
         aggregate of $12 million for services rendered in connection with the
         AT&T Merger. Such amount is included in operating, selling, general and
         administrative expenses for the two months ended February 28, 1999 in
         the accompanying consolidated statements of operations and
         comprehensive earnings.

         Liberty is party to a call agreement with certain shareholders of AT&T
         Class B Liberty Media Group common stock, including the Chairman of the
         Board of Directors, which grants Liberty a right to acquire all of the
         AT&T Class B Liberty Media Group common stock held by such shareholders
         in certain circumstances. The price of acquiring such shares is
         generally limited to the market price of the AT&T Class A Liberty Media
         Group common stock, plus a 10% premium. Liberty paid an aggregate $140
         million to these shareholders for the rights under the call agreement
         in February 1998.

         The Split Off Transaction discussed in note 15 will not affect the
         transactions with officers and directors described above, except that
         conditions of the transactions involving the issuance of AT&T Liberty
         Media Group tracking stock will be replaced with conditions involving
         the issuance of Series A common stock and Series B common stock.

         Transactions with AT&T and Other Related Parties

         Certain subsidiaries of Liberty produce and/or distribute programming
         and other services to cable distribution operators (including AT&T) and
         others pursuant to long term affiliation agreements. Charges to AT&T
         are based upon customary rates charged to others. Amounts included in
         revenue for services provided to AT&T were $243 million, $180 million,
         $43 million and $162 million for the twelve months ended December 31,
         2000, the ten months ending December 31, 1999, the two month period
         ending February 28, 1999 and the year ended December 31, 1998,
         respectively.

         AT&T allocates certain corporate general and administrative costs to
         Liberty pursuant to an intergroup agreement. Management believes such
         allocation methods are reasonable and materially approximate the amount
         that Liberty would have incurred on a stand-alone basis. In addition,
         there are arrangements between subsidiaries of Liberty and AT&T and its
         other subsidiaries for satellite transponder services, marketing
         support, programming, and hosting services. These expenses aggregated
         $37 million, $24 million, $6 million and $43 million during



                                     II-48
<PAGE>   51

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         the year ended December 31, 2000, the ten months ended December 31,
         1999, the two months ended February 28, 1999 and the year ended
         December 31, 1998, respectively.

         On April 8, 1999, Liberty redeemed all of its outstanding 4-1/2%
         convertible subordinated debentures. The debentures were convertible
         into shares of AT&T Liberty Media Group Class A common stock at a
         conversion price of $11.77, or 84.96 shares per $1,000 principal
         amount. Certain holders of the debentures had exercised their rights to
         convert their debentures and 29.2 million shares of AT&T Liberty Media
         Group tracking stock were issued to such holders. In connection with
         such issuance of AT&T Liberty Media Group tracking stock, Liberty
         recorded an increase to additional paid-in-capital of $354 million.

         During September 1998, TCI assigned its obligation under an option
         contract to Liberty. As a result of such assignment, Liberty recorded a
         $16 million reduction to the intercompany amount due to TCI and a
         corresponding increase to additional paid-in-capital.


         Due to (from) Related Parties

         The components of "Due to (from) related parties" are as follows:


<TABLE>
<CAPTION>
                                                   December 31,
                                               -------------------
                                                 2000       1999
                                               -------     -------
                                               amounts in millions
<S>                                            <C>         <C>
         Note receivable from related party    $  (476)         --
         Intercompany account                      334          27
                                               -------     -------
                                               $  (142)         27
                                               =======     =======
</TABLE>

         During 2000, Liberty transferred its interest in ICG Communications,
         Inc. ("ICG") to an attributed subsidiary of Liberty Media Group that is
         not a subsidiary of the Company for $485 million which was equal to
         Liberty's carrying value of ICG. No gain or loss was recognized due to
         the related party nature of such transaction. In exchange for its
         interest in ICG, Liberty received a note receivable, which is due and
         payable in 2010. During the fourth quarter of 2000, Liberty received a
         $9 million payment on the note from the related party.

         The non-interest bearing intercompany account with AT&T includes income
         tax allocations that are to be settled at some future date. All other
         amounts included in the intercompany account are to be settled within
         thirty days following notification.

(11)     Stock Options and Stock Appreciation Rights

         Liberty

         Certain officers and employees of Liberty hold options with tandem
         stock appreciation rights ("SARs") to acquire AT&T common stock and
         AT&T Class A and/or B Liberty Media Group common stock as well as
         restricted stock awards of AT&T common stock and AT&T Class A Liberty
         Media Group common stock. The following descriptions of stock options
         and/or SARs have been adjusted to reflect the AT&T Merger and any
         subsequent stock splits.

         The following table presents the number and weighted average exercise
         price ("WAEP") of certain options in tandem with SARs to purchase AT&T
         common stock and AT&T Liberty Media Group Class A and Class B tracking
         stock granted to certain officers and other key employees of the
         Company.



                                     II-49
<PAGE>   52


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


<TABLE>
<CAPTION>
                                                                                   AT&T Liberty
                                                          AT&T                      Media Group
                                                         common                      tracking
                                                         stock           WAEP         stock           WAEP
                                                       ----------     ----------   -------------   ----------
                                                               amounts in thousands, except for WAEP
<S>                                                    <C>            <C>          <C>             <C>
         Outstanding at January 1, 1998                     3,628     $    10.38        54,380     $     8.05
               Granted                                        137          22.10        33,362          43.11
               Exercised                                   (1,549)          8.90        (9,538)          6.63
               Canceled                                       (27)         12.82           (46)          4.40
                                                       ----------                   ----------
         Outstanding at December 31, 1998                   2,189          12.06        78,158          23.19
               Granted                                         --             --         1,244          18.43
               Exercised                                     (316)         11.65        (7,510)          5.02
               Adjustment for transfer of employees        (1,140)          8.14        (1,158)          6.70
                                                       ----------                   ----------
         Outstanding at December 31, 1999                     733          13.23        70,734           6.97
               Granted                                         --             --         2,341          21.73
               Exercised                                      (55)         12.53        (7,214)          5.69
               Canceled                                        --             --          (479)          9.45
               Options issued in mergers                       --             --        12,134           4.75
                                                       ----------                   ----------
         Outstanding at December 31, 2000                     678          13.29        77,516           7.20
                                                       ==========                   ==========
         Exercisable at December 31, 2000                     614                       52,856
                                                       ==========                   ==========
         Vesting period                                   5 yrs                        5yrs
</TABLE>

         Liberty Digital, Inc. ("Liberty Digital")

         Deferred Compensation and Stock Option Plan. On September 8, 1999, the
         Deferred Compensation and Stock Appreciation Rights Plan was adopted
         for key executives. This plan is comprised of a deferred compensation
         component and SARs grants. The deferred compensation component provides
         participants with the right to receive an aggregate of nine and one
         half percent of the appreciation in the Liberty Digital Series A common
         stock market price over $2.46 subject to a maximum amount of $19.125.
         The SARs provide participants with the appreciation in the market price
         of the Liberty Digital Series A common stock above the maximum amount
         payable under the deferred compensation component. Obligations to the
         executives under both the deferred compensation and SAR elements of
         this plan are accounted for as variable award plans.

         There are 19,295,193 shares subject to this plan all of which were
         granted in 1999 at an effective exercise price of $2.46 and a weighted
         average remaining life of 3 years at year end. The deferred
         compensation and SARs components vest 20% annually beginning with the
         first vesting date of December 15, 1999. Fully vested unexercised
         options total 3,046,188 at year-end. During the year ended December 31,
         1999, 3,859,038 options were exercised, 3,251,401 options were
         cancelled and no options expired during 2000. This plan terminates on
         December 15, 2003.


         Starz Encore Group

         Starz Encore Group Phantom Stock Appreciation Rights Plan. During 2000,
         1999 and 1998 Starz Encore Group granted Phantom Stock Appreciation
         Rights (PSARS) to certain of its officers under this plan. PSARS
         granted under the plan generally vest over a five year period.
         Compensation under the PSARS is computed based upon a formula derived
         from the appraised fair value of the net assets of Starz Encore Group.
         All amounts earned under the plan are payable in cash.




                                     II-50
<PAGE>   53


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         Other

         Certain of our subsidiaries have stock based compensation plans under
         which employees and non-employees are granted options or similar stock
         based awards. Awards made under these plans vest and become exercisable
         over various terms. The awards and compensation recorded, if any, under
         these plans is not significant to Liberty.

(12)     Other Comprehensive Earnings

         Accumulated other comprehensive earnings included in Liberty's
         consolidated balance sheets and consolidated statements of
         stockholder's equity reflect the aggregate of foreign currency
         translation adjustments and unrealized holding gains and losses on
         securities classified as available-for-sale. The change in the
         components of accumulated other comprehensive earnings, net of taxes,
         is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                      Accumulated
                                                       Foreign                                           other
                                                      currency               Unrealized              comprehensive
                                                     translation              gains on            earnings (loss), net
                                                     adjustments             securities                 of taxes
                                                --------------------     --------------------     --------------------
                                                                          amounts in millions
<S>                                             <C>                      <C>                      <C>
         Balance at January 1, 1998             $                  3                      764                      767
         Other comprehensive earnings                              2                    2,417                    2,419
                                                --------------------     --------------------     --------------------
         Balance at December 31, 1998                              5                    3,181                    3,186

         Other comprehensive earnings (loss)                     (15)                     885                      870
                                                --------------------     --------------------     --------------------
         Balance at February 28, 1999           $                (10)                   4,066                    4,056
                                                ====================     ====================     ====================

         -------------------------------------------------------------------------------------------------------------

         Balance at March 1, 1999               $                 --                       --                       --
         Other comprehensive earnings                             60                    6,458                    6,518
                                                --------------------     --------------------     --------------------
         Balance at December 31, 1999                             60                    6,458                    6,518
                                                --------------------     --------------------     --------------------

         Other comprehensive loss                               (202)                  (6,713)                  (6,915)
                                                --------------------     --------------------     --------------------
         Balance at December 31, 2000           $               (142)                    (255)                    (397)
                                                ====================     ====================     ====================
</TABLE>





                                     II-51
<PAGE>   54


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         The components of other comprehensive earnings are reflected in
         Liberty's consolidated statements of operations and comprehensive
         earnings, net of taxes and reclassification adjustments for gains
         realized in net earnings (loss). The following table summarizes the tax
         effects and reclassification adjustments related to each component of
         other comprehensive earnings.

<TABLE>
<CAPTION>
                                                                                           Tax
                                                                         Before-tax     (expense)      Net-of-tax
                                                                           amount         benefit        amount
                                                                         ----------     ----------     ----------
                                                                                   amounts in millions
<S>                                                                      <C>            <C>            <C>
         Year ended December 31, 2000:
         Foreign currency translation adjustments                        $     (334)           132           (202)
                                                                         ----------     ----------     ----------
         Unrealized gains on securities:
              Unrealized holding losses arising during period               (10,055)         3,977         (6,078)
              Less reclassification adjustment for gains realized in
                  net loss                                                   (1,050)           415           (635)
                                                                         ----------     ----------     ----------
              Net unrealized losses                                         (11,105)         4,392         (6,713)
                                                                         ----------     ----------     ----------
         Other comprehensive loss                                        $  (11,439)         4,524         (6,915)
                                                                         ==========     ==========     ==========

         Ten months ended December 31, 1999:
         Foreign currency translation adjustments                        $       99            (39)            60
                                                                         ----------     ----------     ----------
         Unrealized gains on securities:
              Unrealized holding gains arising during period                 10,671         (4,220)         6,451
              Less reclassification adjustment for losses realized in
                  net loss                                                       12             (5)             7
                                                                         ----------     ----------     ----------
              Net unrealized gains                                           10,683         (4,225)         6,458
                                                                         ----------     ----------     ----------
         Other comprehensive earnings                                    $   10,782         (4,264)         6,518
                                                                         ==========     ==========     ==========

         --------------------------------------------------------------------------------------------------------

         Two months ended February 28, 1999:
         Foreign currency translation adjustments                        $      (25)            10            (15)
         Unrealized gains on securities:
              Unrealized holding gains arising during period                  1,464           (579)           885
                                                                         ----------     ----------     ----------
         Other comprehensive earnings                                    $    1,439           (569)           870
                                                                         ==========     ==========     ==========

         Year ended December 31, 1998:
         Foreign currency translation adjustments                        $        3             (1)             2
         Unrealized gains on securities:
              Unrealized holding gains arising during period                  3,998         (1,581)         2,417
                                                                         ----------     ----------     ----------
         Other comprehensive earnings                                    $    4,001         (1,582)         2,419
                                                                         ==========     ==========     ==========
</TABLE>


(13)     Commitments and Contingencies

         Starz Encore Group, a wholly owned subsidiary of Liberty, provides
         premium programming distributed by cable, direct satellite, TVRO and
         other distributors throughout the United States. Starz Encore Group is
         obligated to pay fees for the rights to exhibit certain films that are
         released by various producers through 2017 (the "Film Licensing
         Obligations"). Based on customer levels at December 31, 2000, these
         agreements require minimum payments aggregating approximately $1.3
         billion. The aggregate amount of the Film Licensing Obligations under
         these license agreements is not currently estimable because such amount
         is dependent upon the number of qualifying films released theatrically
         by certain motion picture studios as well as the domestic theatrical
         exhibition receipts upon the release of such qualifying films.
         Nevertheless, required aggregate payments under the Film Licensing
         Obligations could prove to be significant.

                                     II-52
<PAGE>   55

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         Liberty has guaranteed various loans, notes payable, letters of credit
         and other obligations (the "Guaranteed Obligations") of certain
         affiliates. At December 31, 2000, the Guaranteed Obligations aggregated
         approximately $659 million. Currently, Liberty is not certain of the
         likelihood of being required to perform under such guarantees.

         Liberty leases business offices, has entered into pole rental and
         transponder lease agreements and uses certain equipment under lease
         arrangements. Rental expense under such arrangements amounts to $50
         million, $30 million, $9 million and $27 million for the year ended
         December 31, 2000, for the ten months ended December 31, 1999, the two
         months ended February 28, 1999 and the year ended December 31, 1998,
         respectively.

         A summary of future minimum lease payments under noncancelable
         operating leases as of December 31, 2000 follows (amounts in millions):

<TABLE>
<CAPTION>
<S>                                                       <C>
                  Years ending December 31:
                        2001                              $      46
                        2002                                     41
                        2003                                     37
                        2004                                     32
                        2005                                     23
                        Thereafter                               61
</TABLE>


         It is expected that in the normal course of business, leases that
         expire generally will be renewed or replaced by leases on other
         properties; thus, it is anticipated that future minimum lease
         commitments will not be less than the amount shown for 2000.

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

(14)     Information about Liberty's Operating Segments

         Liberty is a holding company with a variety of subsidiaries and
         investments operating in the media, communications and entertainment
         industries. Each of these businesses is separately managed. Liberty
         identifies its reportable segments as those consolidated subsidiaries
         that represent 10% or more of its combined revenue and those equity
         method affiliates whose share of earnings or losses represent 10% or
         more of its pre-tax earnings or loss. Subsidiaries and affiliates not
         meeting this threshold are aggregated together for segment reporting
         purposes.

         For the year ended December 31, 2000, Liberty had four operating
         segments: Starz Encore Group, Liberty Livewire, On Command Corporation
         ("On Command") and Other. Starz Encore Group provides premium
         programming distributed by cable, direct-to-home satellite and other
         distribution media throughout the United States and is wholly owned and
         consolidated by Liberty. Liberty Livewire provides sound, video and
         ancillary post production and distribution services to the motion
         picture and television industries in the United States and Europe and
         is majority owned and consolidated by Liberty. On Command provides
         in-room on-demand video entertainment and information services to the
         domestic lodging industry and is majority owned and consolidated by
         Liberty. Other includes Liberty's non-consolidated investments,
         corporate and other consolidated businesses not representing separately
         reportable segments.

         The accounting policies of the segments that are also consolidated
         subsidiaries are the same as those described in the summary of
         significant accounting policies. Liberty evaluates performance



                                     II-53
<PAGE>   56

                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         based on the measures of revenue and operating cash flow (as defined by
         Liberty), appreciation in stock price along with other non-financial
         measures such as average prime time rating, prime time audience
         delivery, subscriber growth and penetration, as appropriate. Liberty
         believes operating cash flow is a widely used financial indicator of
         companies similar to Liberty and its affiliates, which should be
         considered in addition to, but not as a substitute for, operating
         income, net income, cash flow provided by operating activities and
         other measures of financial performance prepared in accordance with
         generally accepted accounting principles. Liberty generally accounts
         for intersegment sales and transfers as if the sales or transfers were
         to third parties, that is, at current prices.

         Liberty's reportable segments are strategic business units that offer
         different products and services. They are managed separately because
         each segment requires different technology and marketing strategies.

         Liberty utilizes the following financial information for purposes of
         making decisions about allocating resources to a segment and assessing
         a segment's performance:

<TABLE>
<CAPTION>

                                                Starz
                                                Encore     Liberty        On
                                                 Group     Livewire    Command      Other       Total
                                               --------    --------    --------    --------    --------
                                                                 amounts in millions
<S>                                            <C>         <C>         <C>         <C>         <C>
         Performance measures:

         Year ended December 31, 2000
             Revenue                           $    733         295         200         298       1,526
             Operating cash flow                    235          44          49          12         340

         Ten months ended December 31, 1999
             Revenue                                539          --          --         190         729
             Operating cash flow                    124          --          --           9         133

         Balance Sheet Information:

         As of December 31, 2000
             Total assets                         2,754       1,141         439      49,842      54,176
             Investments in affiliates              155           8           2      20,214      20,379

         As of December 31, 1999
             Total assets                         2,636          --          --      56,014      58,650
             Investments in affiliates               --          --          --      15,922      15,922

         ----------------------------------------------------------------------------------------------

         Performance Measures:

         Two months ended February 28, 1999
             Revenue                           $    101          --          --         134         235
             Operating cash flow                     41          --          --           6          47

         Year ended December 31, 1998
             Revenue                                541          --          --         818       1,359
             Operating cash flow                     96          --          --         120         216

</TABLE>



                                     II-54
<PAGE>   57


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued


         The following table provides a reconciliation of segment operating cash
         flow to earnings before income taxes:

<TABLE>
<CAPTION>
                                                     New Liberty                       Old Liberty
                                            -----------------------------     -----------------------------
                                                Year          Ten months       Two months          Year
                                               ended            ended            ended            ended
                                            December 31,     December 31,     February 28,     December 31,
                                            ------------     ------------     ------------     ------------
                                                2000             1999             1999             1998
                                            ------------     ------------     ------------     ------------
                                                                  amounts in millions
<S>                                         <C>              <C>              <C>              <C>
         Segment operating cash flow        $        340              133               47              216
         Stock compensation                          950           (1,785)            (183)            (518)
         Depreciation and amortization              (853)            (562)             (22)            (129)
         Interest expense, including
              amounts to related parties            (246)            (288)             (26)            (113)
         Share of losses of affiliates            (1,731)            (904)             (66)          (1,002)
         Gains on dispositions, net                7,339                4               14            2,449
         Impairment of investments                (1,476)              --               --               --
         Other, net                                  436              330              377              180
                                            ------------     ------------     ------------     ------------
         Earnings (loss) before income
              taxes                         $      4,759           (3,072)             141            1,083
                                            ============     ============     ============     ============
</TABLE>

(15)     Proposed Split Off Transaction

         AT&T currently owns all the outstanding shares of Class A Common Stock,
         Class B Common Stock and Class C Common Stock of Liberty Media
         Corporation. Subsequent to December 31, 2000, AT&T initiated a process
         for effecting the split off of Liberty Media Corporation from AT&T by
         means of a redemption of AT&T Liberty Media Group tracking stock (the
         "Split Off Transaction"). Prior to the Split Off Transaction, Liberty
         will increase its authorized capital stock, and the Liberty Class A and
         Class B Common Stock will be reclassified as Series A Liberty Media
         Corporation common stock ("Series A common stock") and the Class C
         Common Stock will be reclassified as Series B Liberty Media Corporation
         common stock ("Series B common stock"). In the Split Off Transaction,
         each share of Class A and Class B Liberty Media Group Common Stock will
         be exchanged for a like share of Series A common stock and Series B
         common stock, respectively. Upon completion of the Split Off
         Transaction, Liberty Media Corporation will no longer be a subsidiary
         of AT&T and no shares of AT&T Liberty Media Group tracking stock will
         remain outstanding. The Split Off Transaction will be accounted for at
         historical cost. There can be no assurance that the Split Off will be
         effected.

         Immediately prior to the Split Off Transaction, AT&T will contribute to
         Liberty Media Corporation assets that are currently attributed to the
         Liberty Media Group but not held by Liberty Media Corporation (the
         "Contributed Assets"). These assets include (i) preferred stock and
         common stock interests in a subsidiary of IDT Corporation, a
         multinational telecommunications services provider; and (ii) an
         approximate 8% indirect common equity interest in Liberty Digital, a
         consolidated subsidiary of Liberty. The contributions will be accounted
         for in a manner similar to a pooling of interests and, accordingly, the
         financial statements of Liberty Media Corporation for periods prior to
         contributions will be restated to include the financial position and
         results of operations of the Contributed Assets once this transaction
         is completed.

         In connection with the Split Off Transaction, Liberty will also be
         deconsolidated from AT&T for federal income tax purposes. As a result,
         AT&T will be required to pay Liberty an amount equal to 35% of the
         amount of the net operating loss carryforward reflected in TCI's final
         federal income tax return that has not been used as an offset to our
         obligations under the AT&T Tax Sharing Agreement and that has been, or
         is reasonably expected to be, utilized by AT&T. The payment will be
         reduced by Liberty's obligation under the 1995 TCI Tax Sharing
         Agreement. The expected



                                     II-55
<PAGE>   58


                   LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

              Notes to Consolidated Financial Statements, continued

         net payment from AT&T is approximately $692 million and will be
         accounted for as an increase to additional paid-in-capital immediately
         prior to the proposed Split Off. In addition, certain deferred
         intercompany gains will be includible in taxable income as a result of
         the Split Off Transaction and the resulting tax liability of
         approximately $122 million will be an obligation of Liberty.

(16)     Quarterly Financial Information (Unaudited)

<TABLE>
<CAPTION>
                                                                         1st          2nd          3rd          4th
                                                                       Quarter      Quarter      Quarter      Quarter
                                                                      ---------    ---------    ---------    ---------
                                                                                     amounts in millions
<S>                                                                   <C>          <C>          <C>          <C>
             2000:
               Revenue                                                $     235          382          436          473
                                                                      =========    =========    =========    =========
               Operating income (loss)                                $     (83)          67          147          306
                                                                      =========    =========    =========    =========
               Net earnings (loss)                                    $     977          318        2,621       (1,347)
                                                                      =========    =========    =========    =========
</TABLE>



<TABLE>
<CAPTION>

                                                     Old Liberty                        New Liberty
                                                     -----------     ---------------------------------------------------
                                                     Two months      One month
                                                        ended          ended          2nd           3rd           4th
                                                     February 28     March 31,      Quarter       Quarter       Quarter
                                                     -----------     ---------     ---------     ---------     ---------
                                                                               amounts in millions
<S>                                                  <C>             <C>           <C>           <C>           <C>
             1999:
               Revenue                               $       235            71           221           214           223
                                                     ===========     =========     =========     =========     =========
               Operating income (loss)               $      (158)            3          (636)          (95)       (1,486)
                                                     ===========     =========     =========     =========     =========
               Net loss                              $       (70)          (58)         (543)         (213)       (1,161)
                                                     ===========     =========     =========     =========     =========

</TABLE>

                                     II-56