##### 









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-Q

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended
    September 30, 2004                                       
|  
|OR
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13
    OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|  
|   |  | For the transition period
    from           to                                             

Commission File
Number 000-50671

Liberty Media International, Inc.

(Exact name of Registrant as specified in its
charter)


|                                                                                            |  |                                         
|------------------------------------------------------------------------------------------- |  | ----------------------------------------
|State of Delaware                                                                           |  | 20-0893138                              
|(State or other jurisdiction of
    incorporation or organization)                          |  | (I.R.S. Employer
    Identification No.)
|                                                                                           
|12300 Liberty Boulevard
    Englewood, Colorado(Address of principal executive
    offices) |  | 80112(Zip Code)                         

Registrants telephone number, including
area code:

(720) 875-5800


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 þ          No o

Indicate
by check mark whether the Registrant is an accelerated filer as
defined in Rule 12b-2 of the Exchange
Act.     Yes o          No þ

The
number of outstanding shares of Liberty Media International,
Inc.s common stock as of October 29, 2004 was:

Series A common stock
168,162,756 shares; and

Series B common stock 7,264,300 shares.




---






---



##### 



LIBERTY MEDIA INTERNATIONAL, INC

(See note 1)


CONDENSED CONSOLIDATED BALANCE
SHEETS

(unaudited)


|                                                                                                       |                                  |                      |           |              |            |  |           |         |           | 
|------------------------------------------------------------------------------------------------------ | -------------------------------- | -------------------- | --------- | ------------ | ---------- |  | --------- | ------- | --------- | 
|                                                                                                       |                                  | September 30,        |           | December 31,
|                                                                                                       |                                  | 2004                 |           | 2003        
|                                                                                                       |                                  |                      |           |             
|                                                                                                       |                                  |                     
|                                                                                                       |                                  | amounts in thousands
|ASSETS                                                                                                
|Current assets:                                                                                        |                                  |                      |           |              |            |  |           |        
|                                                                                                       | Cash and cash equivalents        |                      | $         | 1,738,730    |            |  |           | 12,753  |          
|                                                                                                       | Restricted cash                  |                      |           | 23,367       |            |  |           |        |          
|                                                                                                       | Short-term liquid investments    |                      |           | 111,536      |            |  |           |        |          
|                                                                                                       | Trade and other receivables, net |                      |           | 232,223      |            |  |           | 15,130  |          
|                                                                                                       | Other current assets             |                      |           | 168,579      |            |  |           | 16,453  |          
|                                                                                                       |                                  |                      |           |              |            |  |           |        
|                                                                                                       |                                  | Total current assets |           |              | 2,274,435  |  |           |         | 44,336    | 
|                                                                                                       |                                  |                      |           |              |            |  |           |        
|Investments in affiliates, accounted for using
    the equity method, and related receivables (note 7) |                                  |                      | 1,940,372 |              |            |  | 1,740,552 |        
|                                                                                                      
|Other investments (note 8)                                                                             |                                  |                      | 1,068,734 |              |            |  | 450,134   |        
|                                                                                                      
|Property and equipment, at cost                                                                        |                                  |                      | 4,658,036 |              |            |  | 128,013   |        
|Accumulated depreciation                                                                               |                                  |                      | (685,263  | )            |            |  | (30,436   | )      
|                                                                                                       |                                  |                      |           |              |            |  |           |        
|                                                                                                       |                                  |                      | 3,972,773 |              |            |  | 97,577    |        
|                                                                                                       |                                  |                      |           |              |            |  |           |        
|Intangible assets not subject to amortization:                                                         |                                  |                      |           |              |            |  |           |        
|                                                                                                       | Goodwill (note 9)                |                      |           | 2,592,138    |            |  |           | 525,576 |          
|                                                                                                       | Franchise rights and other       |                      |           | 224,866      |            |  |           | 163,450 |          
|                                                                                                       |                                  |                      |           |              |            |  |           |        
|                                                                                                       |                                  |                      | 2,817,004 |              |            |  | 689,026   |        
|                                                                                                       |                                  |                      |           |              |            |  |           |        
|                                                                                                      
|Intangible assets subject to amortization, net
    (note 9)                                            |                                  |                      | 367,422   |              |            |  | 4,504     |        
|                                                                                                      
|Deferred income tax assets                                                                             |                                  |                      | 12,511    |              |            |  | 583,945   |        
|                                                                                                      
|Other assets, net                                                                                      |                                  |                      | 177,341   |              |            |  | 76,963    |        
|                                                                                                       |                                  |                      |           |              |            |  |           |        
|                                                                                                       |                                  | Total assets         |           | $            | 12,630,592 |  |           |         | 3,687,037 | 
|                                                                                                       |                                  |                      |           |              |            |  |           |        

I-1



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC

(See note 1)


CONDENSED CONSOLIDATED BALANCE
SHEETS  (Continued)

(unaudited)


|                                         |                                                                                                                                               |                                            |           |              |            |  |         |            |           | 
|---------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | --------- | ------------ | ---------- |  | ------- | ---------- | --------- | 
|                                         |                                                                                                                                               | September 30,                              |           | December 31,
|                                         |                                                                                                                                               | 2004                                       |           | 2003        
|                                         |                                                                                                                                               |                                            |           |             
|                                         |                                                                                                                                               |                                           
|                                         |                                                                                                                                               | amounts in thousands                      
|                                        
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                                                                                                                               |                                            |           |              |            |  |         |           
|                                         | Accounts payable                                                                                                                              |                                            | $         | 258,912      |            |  |         | 20,629     |          
|                                         | Accrued liabilities                                                                                                                           |                                            |           | 465,502      |            |  |         | 13,532     |          
|                                         | Subscriber advance payments and deposits                                                                                                      |                                            |           | 305,978      |            |  |         | 283        |          
|                                         | Current portion of accrued stock-based
    compensation                                                                                       |                                            |           | 19,078       |            |  |         | 15,052     |          
|                                         | Derivative instruments (note 10)                                                                                                              |                                            |           | 39,102       |            |  |         | 21,010     |          
|                                         | Current portion of debt payable (note 11)                                                                                                     |                                            |           | 90,052       |            |  |         | 12,426     |          
|                                         | Current portion of deferred tax liability                                                                                                     |                                            |           | 110,583      |            |  |         |           |          
|                                         |                                                                                                                                               |                                            |           |              |            |  |         |           
|                                         |                                                                                                                                               | Total current liabilities                  |           |              | 1,289,207  |  |         |            | 82,932    | 
|                                        
|Long-term debt (note 11)                 |                                                                                                                                               |                                            | 4,258,810 |              |            |  | 41,700  |           
|Deferred income tax liabilities          |                                                                                                                                               |                                            | 453,194   |              |            |  | 135,811 |           
|Other long-term liabilities              |                                                                                                                                               |                                            | 328,795   |              |            |  | 7,948   |           
|                                         |                                                                                                                                               |                                            |           |              |            |  |         |           
|                                         |                                                                                                                                               | Total liabilities                          |           |              | 6,330,006  |  |         |            | 268,391   | 
|                                         |                                                                                                                                               |                                            |           |              |            |  |         |           
|Commitments and contingencies (note 15)  |                                                                                                                                               |                                            |           |              |            |  |         |           
|                                        
|Minority interests in subsidiaries       |                                                                                                                                               |                                            | 1,117,032 |              |            |  | 78      |           
|                                        
|Stockholders Equity:                    |                                                                                                                                               |                                            |           |              |            |  |         |           
|                                         | Series A common stock, $.01 par value.
    Authorized 500,000,000 shares; issued and outstanding
    168,163,767 shares at September 30, 2004 |                                            |           | 1,682        |            |  |         |           |          
|                                         | Series B common stock, $.01 par value.
    Authorized 50,000,000 shares; issued and outstanding
    7,264,300 shares at September 30, 2004    |                                            |           | 73           |            |  |         |           |          
|                                         | Series C common stock, $.01 par value.
    Authorized 500,000,000 shares; no shares issued at
    September 30, 2004                          |                                            |           |             |            |  |         |           |          
|                                         | Additional paid-in capital                                                                                                                    |                                            |           | 6,956,349    |            |  |         |           |          
|                                         | Accumulated deficit                                                                                                                           |                                            |           | (1,641,575   | )          |  |         | (1,630,949 | )        
|                                         | Accumulated other comprehensive loss, net of taxes                                                                                            |                                            |           | (132,975     | )          |  |         | (46,566    | )        
|                                         | Parents investment                                                                                                                           |                                            |           |             |            |  |         | 5,096,083  |          
|                                         |                                                                                                                                               |                                            |           |              |            |  |         |           
|                                         |                                                                                                                                               | Total stockholders equity                 |           |              | 5,183,554  |  |         |            | 3,418,568 | 
|                                         |                                                                                                                                               |                                            |           |              |            |  |         |           
|                                         |                                                                                                                                               | Total liabilities and stockholders equity |           | $            | 12,630,592 |  |         |            | 3,687,037 | 
|                                         |                                                                                                                                               |                                            |           |              |            |  |         |           

The accompanying notes are an integral part of
these condensed consolidated financial statements.

I-2



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC.

(See note 1)


CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS

(unaudited)


|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |        |      |        | 
|----------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------------------------------------- | ----------------- | ---- | ------- | ------ | ------ | ---- | ------ | --------- | -------- | ----- | -------- | ------- | ------ | ---- | ------ | 
|                                                                        |                                                                                     |                                                |                                                                |                  
|                                                                        |                                                                                     | Three Months Ended                             |                                                                | Nine Months Ended
|                                                                        |                                                                                     | September 30,                                  |                                                                | September 30,    
|                                                                        |                                                                                     |                                                |                                                                |                  
|                                                                        |                                                                                     | 2004                                           |                                                                | 2003              |      | 2004    |        | 2003  
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |       
|                                                                        |                                                                                     |                                               
|                                                                        |                                                                                     | amounts in thousands, except per share amounts
|Revenue                                                                 |                                                                                     | $                                              | 708,807                                                        |                   |      |         | 27,951 |        |      |        | 1,865,769 |          |       |          | 80,416  |       
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|Operating costs and expenses:                                           |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|                                                                        | Operating (other than depreciation)                                                 |                                                |                                                                | 280,898           |      |         |        | 13,140 |      |        |           | 728,423  |       |          |         | 36,725 |     
|                                                                        | Selling, general and administrative (SG&A)
    (note 13)                            |                                                |                                                                | 176,154           |      |         |        | 10,451 |      |        |           | 482,110  |       |          |         | 29,898 |     
|                                                                        | Stock-based compensation charges (credits)
    primarily SG&A (note 6)             |                                                |                                                                | 13,377            |      |         |        | (993   | )    |        |           | 66,120   |       |          |         | (323   | )   
|                                                                        | Depreciation and amortization                                                       |                                                |                                                                | 253,615           |      |         |        | 3,808  |      |        |           | 696,624  |       |          |         | 11,139 |     
|                                                                        | Impairment of long-lived assets (note 9)                                            |                                                |                                                                | 26,000            |      |         |        |       |      |        |           | 42,623   |       |          |         |       |     
|                                                                        | Restructuring charges (note 16)                                                     |                                                |                                                                | 1,824             |      |         |        |       |      |        |           | 10,749   |       |          |         |       |     
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|                                                                        |                                                                                     |                                                | 751,868                                                        |                   |      |         | 26,406 |        |      |        | 2,026,649 |          |       |          | 77,439  |       
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|                                                                        |                                                                                     |                                                | Operating income (loss)                                        |                   |      | (43,061 | )      |        |      | 1,545  |           |          |       | (160,880 | )       |        |      | 2,977  | 
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|Other income (expense):                                                 |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|                                                                        | Interest expense                                                                    |                                                |                                                                | (61,443           | )    |         |        | (10    | )    |        |           | (209,801 | )     |          |         | (1,374 | )   
|                                                                        | Interest and dividend income                                                        |                                                |                                                                | 18,849            |      |         |        | 6,317  |      |        |           | 44,043   |       |          |         | 18,182 |     
|                                                                        | Share of earnings of affiliates, net (note 7)                                       |                                                |                                                                | 15,673            |      |         |        | 7,990  |      |        |           | 54,518   |       |          |         | 10,833 |     
|                                                                        | Realized and unrealized gains (losses) on
    derivative instruments, net (note 10) |                                                |                                                                | 1,193             |      |         |        | (4,410 | )    |        |           | 16,218   |       |          |         | 16,016 |     
|                                                                        | Foreign currency transaction gains (losses), net                                    |                                                |                                                                | 21,888            |      |         |        | 463    |      |        |           | (7,015   | )     |          |         | 4,654  |     
|                                                                        | Gain on exchange of investment securities
    (note 8)                              |                                                |                                                                | 168,301           |      |         |        |       |      |        |           | 168,301  |       |          |         |       |     
|                                                                        | Other-than-temporary declines in fair values of
    investments (note 8)            |                                                |                                                                | (12,429           | )    |         |        | (1,200 | )    |        |           | (15,115  | )     |          |         | (5,612 | )   
|                                                                        | Gain on extinguishment of debt (note 11)                                            |                                                |                                                                |                  |      |         |        |       |      |        |           | 35,787   |       |          |         |       |     
|                                                                        | Gains (losses) on disposition of assets, net
    (notes 7 and 8)                    |                                                |                                                                | (12,092           | )    |         |        | (111   | )    |        |           | 12,632   |       |          |         | 3,847  |     
|                                                                        | Other income (expense), net                                                         |                                                |                                                                | (2,285            | )    |         |        | (207   | )    |        |           | (9,088   | )     |          |         | 2,800  |     
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|                                                                        |                                                                                     |                                                | 137,655                                                        |                   |      |         | 8,832  |        |      |        | 90,480    |          |       |          | 49,346  |       
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|                                                                        |                                                                                     |                                                | Earnings (loss) before income taxes and minority
    interests |                   |      | 94,594  |        |        |      | 10,377 |           |          |       | (70,400  | )       |        |      | 52,323 | 
|Income tax expense                                                      |                                                                                     |                                                | (56,634                                                        | )                 |      |         | (1,362 | )      |      |        | (91,027   | )        |       |          | (25,999 | )     
|Minority interests in losses of subsidiaries                            |                                                                                     |                                                | 36,405                                                         |                   |      |         | 36     |        |      |        | 150,801   |          |       |          | 28      |       
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|                                                                        |                                                                                     |                                                | Net earnings (loss)                                            |                   | $    | 74,365  |        |        |      | 9,051  |           |          |       | (10,626  | )       |        |      | 26,352 | 
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|Historical and pro forma earnings (loss) per
    common share (note 4): |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       
|                                                                        |                                                                                     | Basic and diluted                              |                                                                | $                 | 0.44 |         |        |        | 0.06 |        |           |          | (0.07 | )        |         |        | 0.17 |       
|                                                                        |                                                                                     |                                                |                                                                |                   |      |         |        |        |      |        |           |          |       |          |         |       

The accompanying notes are an integral part of
these condensed consolidated financial statements.

I-3



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC.

(See note 1)


CONDENSED CONSOLIDATED STATEMENTS OF
COMPREHENSIVE EARNINGS (LOSS)

(unaudited)


|                                                   |                                                                                                                             |                      |        |                   |   |      |         |         |  |  |          |          |   |  |         |         |  
|-------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------- | -------------------- | ------ | ----------------- | - | ---- | ------- | ------- |  |  | -------- | -------- | - |  | ------- | ------- | -
|                                                   |                                                                                                                             |                      |        |                  
|                                                   |                                                                                                                             | Three Months Ended   |        | Nine Months Ended
|                                                   |                                                                                                                             | September 30,        |        | September 30,    
|                                                   |                                                                                                                             |                      |        |                  
|                                                   |                                                                                                                             | 2004                 |        | 2003              |   | 2004 |         | 2003   
|                                                   |                                                                                                                             |                      |        |                   |   |      |         |        
|                                                   |                                                                                                                             |                     
|                                                   |                                                                                                                             | amounts in thousands
|Net earnings (loss)                                |                                                                                                                             | $                    | 74,365 |                   |   |      | 9,051   |         |  |  | (10,626  | )        |   |  | 26,352  |        
|                                                   |                                                                                                                             |                      |        |                   |   |      |         |         |  |  |          |          |   |  |         |        
|Other comprehensive earnings (loss), net of taxes: |                                                                                                                             |                      |        |                   |   |      |         |         |  |  |          |          |   |  |         |        
|                                                   | Foreign currency translation adjustments                                                                                    |                      |        | 22,971            |   |      |         | 63,682  |  |  |          | (18,331  | ) |  |         | 62,707  |  
|                                                   | Reclassification adjustment for foreign currency
    translation gains included in net earnings (loss) (note 7)             |                      |        |                  |   |      |         |        |  |  |          | (143     | ) |  |         | (28     | )
|                                                   | Unrealized gains (losses) on available-for-sale
    securities                                                              |                      |        | (15,458           | ) |      |         | 47,246  |  |  |          | (29,636  | ) |  |         | 73,580  |  
|                                                   | Reclassification adjustment for net gains on
    available-for-sale securities included in net earnings (loss)
    (note 8) |                      |        | (89,281           | ) |      |         |        |  |  |          | (89,281  | ) |  |         |        |  
|                                                   |                                                                                                                             |                      |        |                   |   |      |         |         |  |  |          |          |   |  |         |        
|                                                   | Other comprehensive earnings (loss)                                                                                         |                      |        | (81,768           | ) |      |         | 110,928 |  |  |          | (137,391 | ) |  |         | 136,259 |  
|                                                   |                                                                                                                             |                      |        |                   |   |      |         |         |  |  |          |          |   |  |         |        
|Comprehensive earnings (loss)                      |                                                                                                                             | $                    | (7,403 | )                 |   |      | 119,979 |         |  |  | (148,017 | )        |   |  | 162,611 |        
|                                                   |                                                                                                                             |                      |        |                   |   |      |         |         |  |  |          |          |   |  |         |        

The accompanying notes are an integral part of
these condensed consolidated financial statements.

I-4



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC

(See note 1)


CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS EQUITY

(unaudited)


|                              |                                                                                                                                  |                                      |       |             |  |             |    |                  |  |          |   |               |  |            |           |           |   |  |            |         |   |  |          |          |   |  |           |            |   |  |           |          |  
|----------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ----- | ----------- |  | ----------- | -- | ---------------- |  | -------- | - | ------------- |  | ---------- | --------- | --------- | - |  | ---------- | ------- | - |  | -------- | -------- | - |  | --------- | ---------- | - |  | --------- | -------- | -
|                              |                                                                                                                                  |                                     
|                              |                                                                                                                                  | Nine Months Ended September 30, 2004
|                              |                                                                                                                                  |                                     
|                              |                                                                                                                                  |                                      |       | Accumulated |  |            
|                              |                                                                                                                                  |                                      |       |             |  | other       |    |                 
|                              |                                                                                                                                  | Common stock                         |       | Additional  |  |             |    | comprehensive    |  |          |   | Total        
|                              |                                                                                                                                  |                                      |       | paid-in     |  | Accumulated |    | earnings (loss), |  | Parents |   | stockholders
|                              |                                                                                                                                  | Series A                             |       | Series B    |  | Series C    |    | capital          |  | deficit  |   | net of taxes  |  | investment |           | equity   
|                              |                                                                                                                                  |                                      |       |             |  |             |    |                  |  |          |   |               |  |            |           |          
|                              |                                                                                                                                  |                                     
|                              |                                                                                                                                  | amounts in thousands                
|Balance at January 1, 2004    |                                                                                                                                  | $                                    |      |             |  |             |   |                  |  |          |  |               |  |            |          |           |   |  | (1,630,949 | )       |   |  | (46,566  | )        |   |  | 5,096,083 |            |   |  | 3,418,568 |         
|                              | Net loss                                                                                                                         |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           |          |   |  |            | (10,626 | ) |  |          |         |   |  |           |           |   |  |           | (10,626  | )
|                              | Other comprehensive loss                                                                                                         |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           |          |   |  |            |        |   |  |          | (137,391 | ) |  |           |           |   |  |           | (137,391 | )
|                              | Intercompany tax allocation                                                                                                      |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           |          |   |  |            |        |   |  |          |         |   |  |           | 6,133      |   |  |           | 6,133    |  
|                              | Allocation of corporate overhead (note 13)                                                                                       |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           |          |   |  |            |        |   |  |          |         |   |  |           | 9,357      |   |  |           | 9,357    |  
|                              | Issuance of Liberty Media Corporation common
    stock in acquisition (note 5)                                                   |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           |          |   |  |            |        |   |  |          |         |   |  |           | 152,122    |   |  |           | 152,122  |  
|                              | Contribution of cash, investments and other net
    liabilities in connection with spin off (note 2)                             |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           |          |   |  |            |        |   |  |          | 50,982   |   |  |           | 304,578    |   |  |           | 355,560  |  
|                              | Assumption by Liberty Media Corporation of
    obligation for stock appreciation rights in connection with spin
    off (note 2) |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           |          |   |  |            |        |   |  |          |         |   |  |           | 5,763      |   |  |           | 5,763    |  
|                              | Adjustment due to issuance of stock by
    subsidiaries and affiliates, net of taxes                                             |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           | (6,241    | ) |  |            |        |   |  |          |         |   |  |           | 1,025      |   |  |           | (5,216   | )
|                              | Net cash transfers from parent                                                                                                   |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           |          |   |  |            |        |   |  |          |         |   |  |           | 654,250    |   |  |           | 654,250  |  
|                              | Change in capitalization in connection with spin
    off (note 2)                                                                |                                      |       | 1,399       |  |             |    | 61               |  |          |   |              |  |            |           | 6,227,851 |   |  |            |        |   |  |          |         |   |  |           | (6,229,311 | ) |  |           |         |  
|                              | Common stock issued in rights offering
    (note 3)                                                                              |                                      |       | 283         |  |             |    | 12               |  |          |   |              |  |            |           | 735,366   |   |  |            |        |   |  |          |         |   |  |           |           |   |  |           | 735,661  |  
|                              | Stock-based compensation, net of taxes
    (note 6)                                                                              |                                      |       |            |  |             |    |                 |  |          |   |              |  |            |           | (627      | ) |  |            |        |   |  |          |         |   |  |           |           |   |  |           | (627     | )
|                              |                                                                                                                                  |                                      |       |             |  |             |    |                  |  |          |   |               |  |            |           |           |   |  |            |         |   |  |          |          |   |  |           |            |   |  |           |         
|Balance at September 30, 2004 |                                                                                                                                  | $                                    | 1,682 |             |  |             | 73 |                  |  |          |  |               |  |            | 6,956,349 |           |   |  | (1,641,575 | )       |   |  | (132,975 | )        |   |  |          |            |   |  | 5,183,554 |         
|                              |                                                                                                                                  |                                      |       |             |  |             |    |                  |  |          |   |               |  |            |           |           |   |  |            |         |   |  |          |          |   |  |           |            |   |  |           |         

The accompanying notes are an integral part of
these condensed consolidated financial statements.

I-5



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC

(See note 1)


CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS

(unaudited)


|                                      |                                                                                                |                                                                                      |                                 |                                           |          |         |          |          |         |        |          |  
|------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------ | ------------------------------- | ----------------------------------------- | -------- | ------- | -------- | -------- | ------- | ------ | -------- | -
|                                      |                                                                                                |                                                                                     
|                                      |                                                                                                | Nine Months Ended                                                                   
|                                      |                                                                                                | September 30,                                                                       
|                                      |                                                                                                |                                                                                     
|                                      |                                                                                                | 2004                                                                                 |                                 | 2003                                     
|                                      |                                                                                                |                                                                                      |                                 |                                          
|                                      |                                                                                                |                                                                                     
|                                      |                                                                                                | amounts in thousands                                                                
|Cash flows from operating activities: |                                                                                                |                                                                                      |                                 |                                           |          |         |          |         
|                                      | Net earnings (loss)                                                                            |                                                                                      | $                               | (10,626                                   | )        |         |          | 26,352   |        
|                                      | Adjustments to reconcile net earnings (loss) to
    net cash provided by operating activities: |                                                                                      |                                 |                                           |          |         |          |          |        
|                                      |                                                                                                | Stock-based compensation charges (credits)                                           |                                 |                                           | 66,120   |         |          |          | (323    | )     
|                                      |                                                                                                | Depreciation and amortization                                                        |                                 |                                           | 696,624  |         |          |          | 11,139  |       
|                                      |                                                                                                | Impairment of long-lived assets                                                      |                                 |                                           | 42,623   |         |          |          |        |       
|                                      |                                                                                                | Restructuring charges                                                                |                                 |                                           | 10,749   |         |          |          |        |       
|                                      |                                                                                                | Amortization of deferred financing costs                                             |                                 |                                           | 13,637   |         |          |          | 88      |       
|                                      |                                                                                                | Share of earnings of affiliates, net                                                 |                                 |                                           | (54,518  | )       |          |          | (10,833 | )     
|                                      |                                                                                                | Realized and unrealized gains on derivative
    instruments, net                     |                                 |                                           | (16,218  | )       |          |          | (16,016 | )     
|                                      |                                                                                                | Foreign currency transaction losses (gains), net                                     |                                 |                                           | 7,015    |         |          |          | (4,654  | )     
|                                      |                                                                                                | Gain on exchange of investment securities                                            |                                 |                                           | (168,301 | )       |          |          |        |       
|                                      |                                                                                                | Other-than-temporary declines in fair values of
    investments                      |                                 |                                           | 15,115   |         |          |          | 5,612   |       
|                                      |                                                                                                | Gain on extinguishment of debt                                                       |                                 |                                           | (35,787  | )       |          |          |        |       
|                                      |                                                                                                | Gains on disposition of assets, net                                                  |                                 |                                           | (12,632  | )       |          |          | (3,847  | )     
|                                      |                                                                                                | Deferred income tax expense                                                          |                                 |                                           | 59,007   |         |          |          | 25,898  |       
|                                      |                                                                                                | Minority interests in losses of subsidiaries                                         |                                 |                                           | (150,801 | )       |          |          | (28     | )     
|                                      |                                                                                                | Non-cash charges from Liberty Media Corporation                                      |                                 |                                           | 15,490   |         |          |          | 5,290   |       
|                                      |                                                                                                | Other noncash items                                                                  |                                 |                                           | (1,317   | )       |          |          |        |       
|                                      |                                                                                                | Changes in operating assets and liabilities, net
    of the effects of acquisitions: |                                 |                                           |          |         |          |          |         |       
|                                      |                                                                                                |                                                                                      | Receivables, prepaids and other |                                           |          | (58,284 | )        |          |         | (3,895 | )       
|                                      |                                                                                                |                                                                                      | Payables and accruals           |                                           |          | 93,959  |          |          |         | (6,810 | )       
|                                      |                                                                                                |                                                                                      |                                 |                                           |          |         |          |         
|                                      |                                                                                                |                                                                                      |                                 | Net cash provided by operating activities |          |         | 511,855  |          |         |        | 27,973   |  
|                                      |                                                                                                |                                                                                      |                                 |                                           |          |         |          |         
|Cash flows from investing activities: |                                                                                                |                                                                                      |                                 |                                           |          |         |          |         
|                                      | Cash paid for acquisitions, net of cash acquired                                               |                                                                                      |                                 | (428,156                                  | )        |         |          |         |        
|                                      | Investments in and loans to affiliates and others                                              |                                                                                      |                                 | (241,183                                  | )        |         |          | (413,322 | )      
|                                      | Repayment of amounts loaned to affiliate                                                       |                                                                                      |                                 | 129,237                                   |          |         |          |         |        
|                                      | Cash proceeds received upon redemption of shares
    by affiliate                              |                                                                                      |                                 | 27,677                                    |          |         |          |         |        
|                                      | Purchases of short-term liquid investments                                                     |                                                                                      |                                 | (244,859                                  | )        |         |          |         |        
|                                      | Proceeds received from sale of short-term liquid
    investments                               |                                                                                      |                                 | 135,371                                   |          |         |          |         |        
|                                      | Capital expended for property and equipment                                                    |                                                                                      |                                 | (325,262                                  | )        |         |          | (17,251  | )      
|                                      | Net cash received (paid) to purchase or
    settle derivative instruments                      |                                                                                      |                                 | (69,672                                   | )        |         |          | 17,998   |        
|                                      | Proceeds from dispositions of assets                                                           |                                                                                      |                                 | 136,273                                   |          |         |          | 8,222    |        
|                                      | Other investing activities, net                                                                |                                                                                      |                                 | 5,576                                     |          |         |          | 2,370    |        
|                                      |                                                                                                |                                                                                      |                                 |                                           |          |         |          |         
|                                      |                                                                                                |                                                                                      |                                 | Net cash used by investing activities     |          | $       | (874,998 | )        |         |        | (401,983 | )
|                                      |                                                                                                |                                                                                      |                                 |                                           |          |         |          |         

I-6



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS  (Continued)

(unaudited)


|                                      |                                                 |                                           |                         |           |           |           |  |         |         |        | 
|------------------------------------- | ----------------------------------------------- | ----------------------------------------- | ----------------------- | --------- | --------- | --------- |  | ------- | ------- | ------ | 
|                                      |                                                 |                                          
|                                      |                                                 | Nine Months Ended                        
|                                      |                                                 | September 30,                            
|                                      |                                                 |                                          
|                                      |                                                 | 2004                                      |                         | 2003     
|                                      |                                                 |                                           |                         |          
|                                      |                                                 |                                          
|                                      |                                                 | amounts in thousands                     
|Cash flows from financing activities: |                                                 |                                           |                         |           |           |           |  |        
|                                      | Borrowings of debt                              |                                           | $                       | 1,214,534 |           |           |  |        |        
|                                      | Repayments of debt                              |                                           |                         | (978,776  | )         |           |  | (7,159  | )      
|                                      | Net proceeds received from rights offering      |                                           |                         | 735,661   |           |           |  |        |        
|                                      | Proceeds from issuance of stock by subsidiaries |                                           |                         | 486,457   |           |           |  |        |        
|                                      | Contributions from Liberty Media Corporation    |                                           |                         | 704,250   |           |           |  | 385,529 |        
|                                      | Deferred financing costs                        |                                           |                         | (58,186   | )         |           |  |        |        
|                                      | Other financing activities, net                 |                                           |                         | (3,302    | )         |           |  |        |        
|                                      |                                                 |                                           |                         |           |           |           |  |        
|                                      |                                                 | Net cash provided by financing activities |                         |           | 2,100,638 |           |  |         | 378,370 |       
|                                      |                                                 |                                           |                         |           |           |           |  |        
|                                     
|                                      |                                                 | Effect of exchange rates on cash          |                         |           | (11,518   | )         |  |         | 536     |       
|                                      |                                                 |                                           |                         |           |           |           |  |        
|                                      |                                                 | Net increase in cash and cash equivalents |                         |           | 1,725,977 |           |  |         | 4,896   |       
|                                      |                                                 | Cash and cash equivalents:                |                         |           |           |           |  |         |         |       
|                                      |                                                 |                                           | Beginning of period     |           |           | 12,753    |  |         |         | 5,592  | 
|                                      |                                                 |                                           |                         |           |           |           |  |        
|                                      |                                                 |                                           | End of period           |           | $         | 1,738,730 |  |         |         | 10,488 | 
|                                      |                                                 |                                           |                         |           |           |           |  |        
|                                     
|                                      |                                                 |                                           | Cash paid for interest  |           | $         | 231,139   |  |         |         | 620    | 
|                                      |                                                 |                                           |                         |           |           |           |  |        
|                                      |                                                 |                                           | Net cash paid for taxes |           | $         | 2,504     |  |         |         | 1,269  | 
|                                      |                                                 |                                           |                         |           |           |           |  |        

The accompanying notes are an integral part of
these condensed consolidated financial statements.

I-7



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC

(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

September 30, 2004


(unaudited)




|    |                      
|--- | ---------------------
|(1) | Basis of Presentation

The accompanying condensed consolidated financial
statements of Liberty Media International, Inc.
(LMI) include the historical financial information of
(i) certain international cable television and programming
subsidiaries and assets of Liberty Media Corporation (Liberty),
which we collectively refer to as LMC International, for periods
prior to the June 7, 2004 consummation of the spin off
transaction described in note 2 and (ii) LMI and its
consolidated subsidiaries for the period following such date.
Upon consummation of the spin off, LMI became the owner of the
assets that comprise LMC International. In the following text,
we, our, our company and
us may refer, as the context requires, to LMC
International (prior to June 7, 2004), LMI and its
consolidated subsidiaries (on and subsequent to June 7,
2004) or both.

Our operating subsidiaries and our most
significant equity method investments as of September 30,
2004 are set forth below.

Operating
subsidiaries:



| |  |                                                                
| |  | ---------------------------------------------------------------
| |  | Liberty Cablevision of Puerto Rico Ltd. (Puerto
    Rico Cable)

| |                               
| | ------------------------------
| | Pramer S.C.A. (Pramer)        
| | Princes Holdings Limited (PHL)
| | UnitedGlobalCom, Inc. (UGC)   

Our most significant subsidiary is UGC, an
international broadband communications provider of video, voice,
and Internet access services with operations in 11 European
countries and three Latin American countries. UGCs largest
operating segments are located in The Netherlands, France,
Austria and Chile. At September 30, 2004, we owned
approximately 417 million shares of UGC common stock,
representing an approximate 53% economic interest and a 90%
voting interest. As further described in note 5, we began
consolidating UGC on January 1, 2004. Prior to that date,
we used the equity method to account for our investment in UGC.
PHL and Puerto Rico Cable are wholly-owned subsidiaries that own
and operate cable television systems in Ireland and Puerto Rico,
respectively. As further described in note 5, we acquired
PHL during the second quarter of 2004. Pramer is a wholly-owned
Argentine programming company that supplies programming services
to cable television and direct-to-home (DTH) satellite
distributors in Latin America, Spain and some Spanish speaking
markets in the United States (U.S.).

Significant
equity method investments:



| |  |                                    
| |  | -----------------------------------
| |  | Jupiter Programming Co., Ltd. (JPC)

| |                                             
| | --------------------------------------------
| | Jupiter Telecommunications Co., Ltd. (J-COM)

We do not control the decision making process or
business management practices of our equity affiliates.
Accordingly, we rely on management of these affiliates and their
independent auditors to provide us with accurate financial
information prepared in accordance with accounting principles
generally accepted in the U.S. (GAAP) that we use in
the application of the equity method. We are not aware, however,
of any errors in or possible misstatements of the financial
information provided by our equity affiliates that would have a
material effect on our financial statements. For information
concerning our equity method investments, see note 7.

The accompanying interim condensed consolidated
financial statements are unaudited but, in the opinion of
management, reflect all adjustments (consisting of normal
recurring accruals) necessary for a fair presentation of the
results for such periods. The results of operations for any
interim period are not necessarily indicative of results for the
full year. These condensed consolidated financial statements
should be read in

I-8



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

conjunction with our December 31, 2003
combined financial statements and notes thereto included in our
Registration Statement on Form S-1, as amended (File
No. 333-116157).

The preparation of financial statements in
conformity with GAAP 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. Estimates and assumptions are used in accounting for,
among other things, allowances for uncollectible accounts,
deferred income tax valuation allowances, loss contingencies,
fair values of financial instruments, asset impairments, useful
lives of property and equipment, restructuring accruals and
other special items. Actual results could differ from those
estimates.

Unless otherwise indicated, convenience
translations into U.S. dollars are calculated as of
September 30, 2004.



|    |                     
|--- | --------------------
|(2) | Spin Off Transaction

On June 7, 2004 (the Spin Off Date), our
common stock was distributed to Libertys shareholders in
the spin off transaction. In connection with the spin off,
holders of Liberty common stock on June 1, 2004 (the Record
Date) received in the aggregate 139,921,145 shares of LMI
Series A Common Stock for their shares of Liberty
Series A Common Stock owned at 5:00 p.m. New York City
time on the Record Date and 6,053,173 shares of LMI
Series B Common Stock for their shares of Liberty
Series B Common Stock owned at 5:00 p.m. New York City
time on the Record Date. The number of shares of LMI Common
Stock distributed in the spin off was based on a ratio of .05 of
a share of LMI Common Stock for each share of Liberty Common
Stock. The spin off was intended to qualify as a tax-free spin
off.

In addition to the contributed subsidiaries and
net assets that comprise LMC International, Liberty also
contributed certain other assets and liabilities to our company
in connection with the spin off, as set forth in the following
table (amounts in thousands):

|                              |  |   |          |  
|----------------------------- |  | - | -------- | -
|Cash and cash equivalents     |  | $ | 50,000   |  
|Available-for-sale securities |  |   | 561,130  |  
|Net deferred tax liability    |  |   | (253,163 | )
|Other net liabilities         |  |   | (2,407   | )
|                              |  |   |          |  
|                              |  | $ | 355,560  |  
|                              |  |   |          |  

The contributed available-for-sale securities
included 5,000,000 American Depositary Shares (ADSs) for
preferred limited voting ordinary shares of The News Corporation
Limited (News Corp.) and a 99.9% economic interest in
345,000 shares of ABC Family Worldwide, Inc. (ABC Family)
Series A preferred stock. Liberty also contributed a
variable forward transaction with respect to the News Corp.
ADSs. The 5,000,000 News Corp. ADSs are to be converted into
10,000,000 shares of News Corp.s Class A
non-voting common stock (News Corp. Class A Common Stock)
pursuant to News Corp.s reincorporation from Australia to
the United States. All of the following references to News Corp.
shares herein assume such conversion has occurred. For financial
reporting purposes, the contribution of such assets is deemed to
have occurred on June 1, 2004.

All of the net assets contributed to our company
by Liberty in connection with the spin off have been recorded at
Libertys historical cost.

As a result of the spin off, we operate
independently from Liberty, and neither we nor Liberty have any
stock ownership, beneficial or otherwise, in the other. In
connection with the spin off, we and Liberty entered into
certain agreements in order to govern certain of the ongoing
relationships between Liberty and our

I-9



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

company after the spin off and to provide for an
orderly transition. These agreements include a Reorganization
Agreement, a Facilities and Services Agreement and a Tax Sharing
Agreement. In addition, Liberty and we entered into a Short-Term
Credit Facility that has since been cancelled.

The Reorganization Agreement provides for, among
other things, the principal corporate transactions required to
effect the spin off, the issuance of LMI stock options upon
adjustment of certain Liberty stock incentive awards and the
allocation of responsibility for LMI and Liberty stock incentive
awards, cross indemnities and other matters. Such cross
indemnities are designed to make (i) our company
responsible for all liabilities related to the businesses of LMC
International prior to the spin off, as well as for all
liabilities incurred by our company following the spin off, and
(ii) Liberty responsible for all of our potential
liabilities that are not related to our businesses, including,
for example, liabilities arising as a result of our company
having been a subsidiary of Liberty.

The Facilities and Services Agreement, the Tax
Sharing Agreement and the Short-Term Credit Facility are
described in note 13.

Prior to the spin off, we were included in
Libertys consolidated tax return. As a result of the spin
off, we became a separate tax paying entity. In connection with
this change, we re-evaluated the estimated blended state tax
rate used to compute certain of our deferred tax balances, and
concluded that our estimate of this blended state tax rate
should be reduced. As a result, we recorded a $22,914,000
deferred tax benefit during the third quarter of 2004 to reflect
the impact of the reduced rate on our net deferred tax
liabilities.



|    |                
|--- | ---------------
|(3) | Rights Offering

On July 26, 2004, we commenced a rights
offering (the LMI Rights Offering) whereby holders of record of
LMI Common Stock at 5:00 p.m., New York City time, on that
date received 0.20 transferable subscription rights for each
share of LMI Common Stock held. Each whole right to purchase LMI
Series A Common Stock entitled the holder to purchase one
share of LMI Series A Common Stock at a subscription price
of $25.00 per share. Each whole right to purchase LMI
Series B Common Stock entitled the holder to purchase one
share of LMI Series B Common Stock at a subscription price
of $27.50 per share. Each whole Series A and
Series B right entitled the holder to subscribe, at the
same applicable subscription price pursuant to an
oversubscription privilege, for additional shares of the
applicable series of LMI Common Stock, subject to proration. The
LMI Rights Offering expired in accordance with its terms on
August 23, 2004. Pursuant to the terms of the LMI Rights
Offering, we issued 28,245,000 shares of LMI Series A
Common Stock and 1,211,157 shares of LMI Series B
Common Stock in exchange for aggregate cash proceeds of
$739,432,000, before deducting related offering costs of
$3,771,000.

As a result of the LMI Rights Offering, certain
terms of the then outstanding LMI stock options were modified.
All references herein to the number of outstanding LMI stock
options reflect these modified terms.



|    |                                     
|--- | ------------------------------------
|(4) | Earnings (Loss) per Common
    Share

Basic earnings (loss) per common share is
computed by dividing net earnings (loss) by the weighted average
number of common shares outstanding for the period. Diluted
earnings (loss) per common share presents the dilutive effect on
a per share basis of potential common shares (e.g. options
and convertible securities) as if they had been converted at the
beginning of the periods presented.

As described in note 2, we issued shares of
LMI Series A Common Stock and LMI Series B Common
Stock in connection with the spin off. The pro forma net
earnings (loss) per share amounts set forth in the accompanying
condensed consolidated statements of operations were computed
using historical net earnings (loss) and a pro forma weighted
average share amount that includes 145,974,318 shares of
LMI Common Stock for periods prior to the Spin Off Date and
actual weighted average shares outstanding for periods

I-10



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

subsequent to that date. In addition, the
weighted average share amounts for periods prior to
July 26, 2004, the date that certain subscription rights
were distributed to stockholders pursuant to the LMI Rights
Offering, have been increased to give effect to the benefit
derived by our stockholders as a result of the distribution of
such subscription rights. The details of the calculations of our
weighted average common shares outstanding are set forth in the
following table:

|                                                                 |  |                    |             |                   |  |       |             |       |  |  |             |  |  |  |             | 
|---------------------------------------------------------------- |  | ------------------ | ----------- | ----------------- |  | ----- | ----------- | ----- |  |  | ----------- |  |  |  | ----------- | 
|                                                                 |  |                    |             |                  
|                                                                 |  | Three Months Ended |             | Nine Months Ended
|                                                                 |  | September 30,      |             | September 30,    
|                                                                 |  |                    |             |                  
|                                                                 |  | 2004               |             | 2003*             |  | 2004* |             | 2003*
|                                                                 |  |                    |             |                   |  |       |             |      
|Basic and diluted:                                               |  |                    |             |                   |  |       |             |       |  |  |             |  |  |  |             | 
|Weighted average common shares outstanding before
    adjustment |  |                    | 167,423,193 |                   |  |       | 145,974,318 |       |  |  | 153,175,881 |  |  |  | 145,974,318 | 
|Adjustment for July 2004 LMI Rights Offering                     |  |                    | 1,865,896   |                   |  |       | 6,866,731   |       |  |  | 5,187,572   |  |  |  | 6,866,731   | 
|                                                                 |  |                    |             |                   |  |       |             |       |  |  |             |  |  |  |             | 
|Weighted average common shares, as adjusted                      |  |                    | 169,289,089 |                   |  |       | 152,841,049 |       |  |  | 158,363,453 |  |  |  | 152,841,049 | 
|                                                                 |  |                    |             |                   |  |       |             |       |  |  |             |  |  |  |             | 



---



|  |                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The weighted average share amounts for these
    periods assume that the shares of LMI Common Stock issued in the
    spin off were issued and outstanding on the first day of the
    respective periods.

At September 30, 2004, 5,279,169 potential
common shares (as adjusted) were outstanding. All of such
potential common shares represent shares issuable upon the
exercise of stock options that were issued in June 2004 and
adjusted in connection with the LMI Rights Offering. Prior to
the consummation of the spin off, no potential common shares
were outstanding, and accordingly, there is no difference
between basic and diluted earnings per share for the three and
nine months ended September 30, 2003. Potential common
shares have been excluded from the pro forma calculation of
diluted earnings per share for the three and nine months ended
September 30, 2004 because their inclusion would be
anti-dilutive.



|    |             
|--- | ------------
|(5) | Acquisitions



| |                                               
| | ----------------------------------------------
| | Acquisition of Controlling Interest in
    UGC

On January 5, 2004, we completed a
transaction pursuant to which UGCs founding shareholders
(the Founders) transferred 8.2 million shares of UGC
Class B Common Stock to our company in exchange for
12.6 million shares of Liberty Series A Common Stock
valued, for accounting purposes, at $152,122,000 and a cash
payment of $15,827,000 (including acquisition costs). This
transaction was the last of a number of independent transactions
pursuant to which we acquired our controlling interest in UGC
from 2001 through January 2004. Our acquisition of
281.3 million shares of UGC Common Stock in January 2002
gave us a greater than 50% economic interest in UGC, but due to
certain voting and standstill arrangements, we used the equity
method to account for our investment in UGC through
December 31, 2003. Upon closing of the January 5, 2004
transaction, the restrictions on the exercise by us of our
voting power with respect to UGC terminated, and we gained
voting control of UGC. Accordingly, UGC has been accounted for
as a consolidated subsidiary and included in our financial
position and results of operations since January 1, 2004.

We have accounted for our acquisition of UGC as a
step acquisition, and have allocated our investment basis to our
pro rata share of UGCs assets and liabilities at each
significant acquisition date based on the estimated fair values
of such assets and liabilities on such dates. Prior to the
acquisition of the Founders shares, our investment basis
in UGC had been reduced to zero as a result of the prior
recognition of our share

I-11



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

of UGCs losses. The following table
reflects the amounts allocated to our assets and liabilities
upon completion of the January 2004 acquisition of the
Founders shares (amounts in thousands):

|                                           |                          |   |            |         | 
|------------------------------------------ | ------------------------ | - | ---------- | ------- | 
|Current assets, including cash of $310,361 |                          | $ | 622,321    |        
|Property and equipment                     |                          |   | 3,386,252  |        
|Goodwill                                   |                          |   | 2,022,761  |        
|Intangible assets other than goodwill      |                          |   | 446,065    |        
|Investments and other assets               |                          |   | 370,137    |        
|Current liabilities                        |                          |   | (1,407,275 | )      
|Long-term debt                             |                          |   | (3,615,902 | )      
|Deferred income taxes                      |                          |   | (780,086   | )      
|Other liabilities                          |                          |   | (268,632   | )      
|Minority interest                          |                          |   | (607,692   | )      
|                                           |                          |   |            |        
|                                           | Aggregate purchase price |   | $          | 167,949 | 
|                                           |                          |   |            |        

We have entered into a new Standstill Agreement
with UGC that limits our ownership of UGC common stock to 90% of
the outstanding common stock unless we make an offer or effect
another transaction to acquire all outstanding UGC common stock.
Under certain circumstances, such an offer or transaction would
require an independent appraisal to establish the price to be
paid to stockholders unaffiliated with us.

During the nine months ended September 30,
2004, we also purchased an additional 20.0 million shares
of UGC Class A Common Stock pursuant to certain pre-emptive
rights granted to our company pursuant to the aforementioned
Standstill Agreement with UGC. The $152,284,000 purchase price
for such shares was comprised of (i) the cancellation of
indebtedness due from subsidiaries of UGC to certain of our
subsidiaries in the amount of $104,462,000 (including accrued
interest) and (ii) $47,822,000 in cash. As UGC was one of
our consolidated subsidiaries at the time of these purchases,
the effect of these purchases was eliminated in consolidation.

Also, in January 2004, UGC initiated a rights
offering pursuant to which holders of each of UGCs
Class A, Class B and Class C Common Stock
received .28 transferable subscription rights to purchase a like
class of common stock for each share of UGC Common Stock owned
by them on January 21, 2004. The rights offering expired on
February 12, 2004. UGC received cash proceeds of
approximately $1.02 billion from the rights offering. As a
holder of UGC Class A, Class B and Class C Common
Stock, we participated in the rights offering and exercised our
rights to purchase 90.7 million shares for a total
cash purchase price of $544,250,000.

PHL

On May 20, 2004, we acquired all of the
issued and outstanding ordinary shares of PHL for
2,000,000
($2,386,000 at May 20, 2004). PHL, through its subsidiary
Chorus Communications Limited, owns and operates broadband
communications systems in Ireland. In connection with this
acquisition, we loaned an aggregate of
75,000,000
($89,475,000 as of May 20, 2004) to PHL. The proceeds from
this loan were used by PHL to discharge liabilities pursuant to
a debt restructuring plan and to provide funds for capital
expenditures and working capital. We have committed to loan up
to an additional
14,500,000
($18,032,000) to PHL, of which
4,500,000
($5,596,000) had been loaned as of September 30, 2004. We
have accounted for this acquisition using the purchase method of
accounting. For financial reporting purposes, the PHL

I-12



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

acquisition is deemed to have occurred on
June 1, 2004. The purchase price allocation for this
acquisition is as follows (amounts in thousands):

|                                                               |  |   |         |  
|-------------------------------------------------------------- |  | - | ------- | -
|Cash and cash equivalents at acquisition date                  |  | $ | 14,474  |  
|Other current assets                                           |  |   | 7,425   |  
|Property and equipment                                         |  |   | 72,625  |  
|Customer relationships                                         |  |   | 10,459  |  
|Goodwill                                                       |  |   | 26,840  |  
|Current liabilities                                            |  |   | (26,570 | )
|Subscriber advance payments and deposits                       |  |   | (12,850 | )
|                                                               |  |   |         |  
|Aggregate cash consideration (including
    acquisition costs) |  | $ | 92,403  |  
|                                                               |  |   |         |  

Noos

On July 1, 2004, UPC Broadband France SAS
(UPC Broadband France), an indirect wholly-owned subsidiary of
UGC and the owner of UGCs French cable television
operations, acquired Suez-Lyonnaise Télécom SA
(Noos), from Suez SA (Suez). Noos is a
provider of digital and analog cable television services and
high-speed Internet access services in France. UPC Broadband
France purchased Noos to achieve certain financial, operational
and strategic benefits through the integration of Noos with its
French operations and the creation of a platform for further
growth and innovation in Paris and its remaining French systems.
The preliminary purchase price for a 100% interest in Noos was
approximately
623,450,000
($758,547,000 at July 1, 2004), consisting of
529,929,000
($644,761,000 at July 1, 2004) in cash, a 19.9% equity
interest in UPC Broadband France valued at approximately
85,000,000
($103,419,000 at July 1, 2004) and
8,521,000
($10,367,000 at July 1, 2004) in direct acquisition costs.
The preliminary purchase price and the value assigned to the
19.9% interest in UPC Broadband France are subject to a review
of certain historical financial information of Noos and UPC
Broadband France. In this regard,
100,000,000
($121,669,000) of the cash consideration is being held in escrow
pending final determination of the purchase price.

UGC has accounted for this transaction as the
acquisition of an 80.1% interest in Noos and the sale of a 19.9%
interest in UPC Broadband France. Under the purchase method of
accounting, the preliminary purchase price was allocated to the
acquired identifiable tangible and intangible assets and
liabilities based upon their respective fair values, and the
excess of the purchase price over the fair value of such
identifiable net assets was allocated to goodwill. The
preliminary fair values assigned to property and equipment and
intangible assets, and the excess purchase price assigned to
goodwill have been adjusted to give effect to UGCs 80.1%
ownership interest in Noos. The preliminary accounting for the
Noos transaction, as reflected in these condensed consolidated
financial statements, is subject to adjustment based upon the
(i) final determination of the Noos purchase price and the
value assigned to the 19.9% equity interest in UPC Broadband
France and (ii) the final assessment of the fair values of
Noos identifiable assets and liabilities. Such potential
adjustments could result in significant changes to the
preliminary accounting for the Noos transaction and to the
impact of this transaction on our consolidated operating results.

UGC has recorded a preliminary loss of
$12,196,000 associated with the dilution of its ownership
interest in UPC Broadband France as a result of the Noos
transaction. Our $6,497,000 share of this loss is reflected
as a reduction of additional paid-in capital in our condensed
consolidated statement of stockholders equity.

Suez 19.9% equity interest in UPC Broadband
France consists of 85.0 million shares of Class B
common stock of UPC Broadband France (the UPC Broadband France
Class B Shares). Subject to the terms of a call

I-13



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

option agreement, UPC France Holding BV (UPC
France), the parent company of UPC Broadband France, has the
right through June 30, 2005 to purchase from Suez all of
the UPC Broadband France Class B Shares for
85,000,000
($105,706,000), subject to adjustment, plus interest. The
purchase price for the UPC Broadband France Class B Shares
may be paid in cash, UGC Class A Common Stock or LMI
Series A Common Stock. Subject to the terms of a put
option, Suez may require UPC France to purchase the UPC
Broadband France Class B Shares at specific times prior to
or after the third, fourth or fifth anniversaries of the
purchase date. UPC France will be required to pay the then fair
market value, payable in cash or marketable securities, for the
UPC Broadband France Class B Shares or assist Suez in
obtaining an offer to purchase the UPC Broadband France
Class B Shares. UPC France also has the option to purchase
the UPC Broadband France Class B Shares from Suez shortly
after the third, fourth or fifth anniversaries of the purchase
date at the then fair market value in cash or marketable
securities.

Pro Forma
Information

The following unaudited pro forma
information for the nine months ended September 30, 2004
and 2003 was prepared assuming we had acquired UGC, PHL and Noos
on January 1, 2003. These pro forma amounts are not
necessarily indicative of operating results that would have
occurred if the UGC, PHL and Noos acquisitions had occurred on
January 1, 2003 (amounts in thousands, except per share
amounts):

|               |  |                   |           |      |  |  |           |  
|-------------- |  | ----------------- | --------- | ---- |  |  | --------- | -
|               |  |                  
|               |  | Nine Months Ended
|               |  | September 30,    
|               |  |                  
|               |  | 2004              |           | 2003
|               |  |                   |           |     
|Revenue        |  | $                 | 2,098,644 |      |  |  | 1,771,957 |  
|Net loss       |  | $                 | (44,843   | )    |  |  | (10,591   | )
|Loss per share |  | $                 | (0.28     | )    |  |  | (0.07     | )



|    |                         
|--- | ------------------------
|(6) | Stock-Based Compensation

As a result of the spin off and related
adjustments to Libertys stock incentive awards, options to
acquire an aggregate of 1,759,247 shares (as adjusted) of
LMI Series A Common Stock and 1,498,154 shares (as
adjusted) of LMI Series B Common Stock were issued to our
and Libertys employees. Consistent with Libertys
accounting for the adjusted Liberty stock options and stock
appreciation rights, we use variable-plan accounting to account
for all LMI stock options issued as adjustments of
Libertys stock incentive awards in connection with the
spin off.

In addition, options to acquire an aggregate of
453,206 shares (as adjusted) of LMI Series A Common
Stock and 1,568,562 shares (as adjusted) of LMI
Series B Common Stock were issued to LMI employees and
directors. Prior to the LMI Rights Offering, we used fixed-plan
accounting to account for these LMI stock options. As a result
of the modification of certain terms of the LMI stock options
that were outstanding at the time of the LMI Rights Offering, we
began accounting for these LMI options as variable-plan options.
Accordingly, all outstanding LMI stock options at
September 30, 2004 are accounted for as variable-plan
options.

As a result of the spin off and the related
issuance of options to acquire LMI Common Stock, certain persons
who remained employees of Liberty immediately following the spin
off hold options to purchase LMI Common Stock and certain
persons who are our employees hold options, stock appreciation
rights (SARs) and options with tandem SARs to purchase Liberty
Common Stock. Pursuant to the Reorganization Agreement, we are
responsible for all stock incentive awards related to LMI Common
Stock and Liberty is responsible for all stock incentive awards
related to Liberty Common Stock regardless of whether such stock
incentive awards are held by our or Libertys employees.
Notwithstanding the foregoing, our stock-based

I-14



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##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

compensation expense is based on the stock
incentive awards held by our employees regardless of whether
such awards relate to LMI or Liberty Common Stock. Accordingly,
any stock-based compensation that we record with respect to
Liberty stock incentive awards is treated as a capital
transaction with the offset to stock-based compensation expense
reflected as an adjustment of additional paid-in capital.

We apply the intrinsic value method of Accounting
Principles Board Opinion No. 25, Accounting for
Stock Issued to Employees, to account for fixed and
variable plan stock options. Generally, under the intrinsic
value method, (i) compensation expense for fixed-plan stock
options is recognized only if the current market price of the
underlying stock exceeds the exercise price on the date of
grant, in which case, compensation is recognized based on the
percentage of options that are vested, and
(ii) compensation for variable-plan options, including
options granted in tandem with SARs, is recognized based upon
the percentage of the options that are vested and the difference
between the market price of the underlying common stock and the
exercise price of the options at the balance sheet date.

As a result of the modification of certain terms
of UGCs stock options in connection with its February 2004
rights offering, UGC began accounting for such options as
variable-plan options. In addition, UGC also uses variable-plan
accounting to account for its SARs. Substantially all of the
stock-based compensation included in our condensed consolidated
statements of operations for the nine months ended
September 30, 2004 is attributable to UGCs stock
incentive awards.

The following table illustrates the effect on net
earnings (loss) and earnings (loss) per share as if we had
applied the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation,(Statement 123) to
our outstanding options. As Statement 123 did not change
the accounting for SARs, the pro forma adjustments included in
the following table do not include amounts related to our
calculation of compensation expense related to SARs or to
options with tandem SARs (amounts in thousands, except per share
amounts):

|                                                                            |                                                                                                       |                    |        |                   |      |      |       |      |      |  |         |         |       |   |        |      |      | 
|--------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------------------ | ------ | ----------------- | ---- | ---- | ----- | ---- | ---- |  | ------- | ------- | ----- | - | ------ | ---- | ---- | 
|                                                                            |                                                                                                       |                    |        |                  
|                                                                            |                                                                                                       | Three Months Ended |        | Nine Months Ended
|                                                                            |                                                                                                       | September 30,      |        | September 30,    
|                                                                            |                                                                                                       |                    |        |                  
|                                                                            |                                                                                                       | 2004               |        | 2003              |      | 2004 |       | 2003
|                                                                            |                                                                                                       |                    |        |                   |      |      |       |     
|Net earnings (loss)                                                         |                                                                                                       | $                  | 74,365 |                   |      |      | 9,051 |      |      |  | (10,626 | )       |       |   | 26,352 |     
|                                                                            | Add stock-based compensation charges as
    determined under the intrinsic value method, net of taxes |                    |        | 2,541             |      |      |       |     |      |  |         | 39,973  |       |   |        |     |     
|                                                                            | Deduct stock-based compensation as determined
    under the fair value method, net of taxes           |                    |        | (4,172            | )    |      |       | (208 | )    |  |         | (45,421 | )     |   |        | (624 | )   
|                                                                            |                                                                                                       |                    |        |                   |      |      |       |      |      |  |         |         |       |   |        |     
|Pro forma net earnings (loss)                                               |                                                                                                       | $                  | 72,734 |                   |      |      | 8,843 |      |      |  | (16,074 | )       |       |   | 25,728 |     
|                                                                            |                                                                                                       |                    |        |                   |      |      |       |      |      |  |         |         |       |   |        |     
|Basic and diluted earnings (loss) from continuing
    operations per share: |                                                                                                       |                    |        |                   |      |      |       |      |      |  |         |         |       |   |        |     
|                                                                            |                                                                                                       | As reported        |        | $                 | 0.44 |      |       |      | 0.06 |  |         |         | (0.07 | ) |        |      | 0.17 | 
|                                                                            |                                                                                                       |                    |        |                   |      |      |       |      |      |  |         |         |       |   |        |     
|                                                                            |                                                                                                       | Pro forma          |        | $                 | 0.43 |      |       |      | 0.06 |  |         |         | (0.10 | ) |        |      | 0.17 | 
|                                                                            |                                                                                                       |                    |        |                   |      |      |       |      |      |  |         |         |       |   |        |     

I-15



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##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                                                    
|--- | -------------------------------------------------------------------
|(7) | Investments in Affiliates Accounted for
    Using the Equity Method

Our affiliates generally are engaged in the cable
and/or programming businesses in various foreign countries. The
following table includes our carrying value and percentage
ownership of certain of our investments in affiliates:

|                                                            |  |                             |         |              |  |          |           |  |  |  |           | 
|----------------------------------------------------------- |  | --------------------------- | ------- | ------------ |  | -------- | --------- |  |  |  | --------- | 
|                                                            |  |                             |         | December 31,
|                                                            |  | September 30, 2004          |         | 2003        
|                                                            |  |                             |         |             
|                                                            |  | Percentage                  |         | Carrying     |  | Carrying
|                                                            |  | ownership                   |         | amount       |  | amount  
|                                                            |  |                             |         |              |  |         
|                                                            |  |                            
|                                                            |  | dollar amounts in thousands
|J-COM                                                       |  |                             | 45%     |              |  | $        | 1,372,096 |  |  |  | 1,330,602 | 
|JPC                                                         |  |                             | 50%     |              |  |          | 266,917   |  |  |  | 259,571   | 
|Cordillera Comunicaciones Holding Limitada
    (Cordillera) |  |                             | 50%     |              |  |          | 47,054    |  |  |  | 52,223    | 
|Other                                                       |  |                             | Various |              |  |          | 254,305   |  |  |  | 98,156    | 
|                                                            |  |                             |         |              |  |          |           |  |  |  |           | 
|                                                            |  |                             |         |              |  | $        | 1,940,372 |  |  |  | 1,740,552 | 
|                                                            |  |                             |         |              |  |          |           |  |  |  |           | 

The following table reflects our share of
earnings (losses) of affiliates including any
other-than-temporary declines in value:

|           |  |                      |        |      |  |  |        |  
|---------- |  | -------------------- | ------ | ---- |  |  | ------ | -
|           |  |                     
|           |  | Nine months ended   
|           |  | September 30,       
|           |  |                     
|           |  | 2004                 |        | 2003
|           |  |                      |        |     
|           |  |                     
|           |  | amounts in thousands
|J-COM      |  | $                    | 47,376 |      |  |  | 10,430 |  
|JPC        |  |                      | 11,021 |      |  |  | 7,627  |  
|Cordillera |  |                      | (7,842 | )    |  |  | (5,749 | )
|Other      |  |                      | 3,963  |      |  |  | (1,475 | )
|           |  |                      |        |      |  |  |        |  
|           |  | $                    | 54,518 |      |  |  | 10,833 |  
|           |  |                      |        |      |  |  |        |  



| |      
| | -----
| | J-COM

J-COM was incorporated in 1995 to own and operate
broadband businesses in Japan. At September 30, 2004, our
company, Sumitomo Corporation (Sumitomo) and Microsoft
Corporation (Microsoft) owned approximately 45%, 32% and 19% of
J-COM, respectively. The functional currency of J-COM is the
Japanese yen.

On August 6, 2004, our company, Sumitomo,
Microsoft and J-COM executed transactions that effectively
resulted in the conversion of shareholder loans with an
aggregate principal amount of ¥30,000,034,000 ($275,660,000
at August 6, 2004) to equity. Such amount includes
¥14,064,830,000 ($129,237,000 at August 6, 2004) of
shareholder loans held by us that were converted to equity. Such
conversions did not materially impact the J-COM ownership
interests of our company, Sumitomo or Microsoft.

At September 30, 2004, our investment in
J-COM included ¥41,260,795,000 ($375,064,000) of
shareholder loans to J-COM. Such loans are denominated in
Japanese yen and bear interest at the 3-month Tokyo Interbank
Offered Rate plus the applicable margin per annum (1.83% to
2.08% at September 30, 2004). Such shareholder loans, which
are subordinated to J-COMs third party indebtedness, are
due and payable on February 6, 2011. During the nine months
ended September 30, 2004 and 2003, we recognized interest
income on the J-COM shareholder loans of $7,461,000 and
$6,972,000, respectively. At Septem-

I-16



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ber 30, 2004, our other accumulated
comprehensive loss account included foreign currency translation
gains related to our loans to J-COM of $23,473,000, after
deducting related deferred taxes of $13,050,000.

In 2003, we purchased an 8% equity interest in
J-COM from Sumitomo for $141,000,000 in cash, and we and
Sumitomo each converted certain shareholder loans to equity
interests in J-COM.

Summarized financial information for J-COM is as
follows:

|                                 |                              |                      |           |              |  |  |           |           | 
|-------------------------------- | ---------------------------- | -------------------- | --------- | ------------ |  |  | --------- | --------- | 
|                                 |                              | September 30,        |           | December 31,
|                                 |                              | 2004                 |           | 2003        
|                                 |                              |                      |           |             
|                                 |                              |                     
|                                 |                              | amounts in thousands
|Financial Position               |                              |                      |           |              |  |  |           |          
|Investments                      |                              | $                    | 55,563    |              |  |  | 52,962    |          
|Property and equipment, net      |                              |                      | 2,267,179 |              |  |  | 2,274,632 |          
|Intangible and other assets, net |                              |                      | 1,622,479 |              |  |  | 1,601,596 |          
|                                 |                              |                      |           |              |  |  |           |          
|                                 | Total assets                 |                      | $         | 3,945,221    |  |  |           | 3,929,190 | 
|                                 |                              |                      |           |              |  |  |           |          
|Third party debt                 |                              | $                    | 902,098   |              |  |  | 984,089   |          
|Due to LMI                       |                              |                      | 375,064   |              |  |  | 492,639   |          
|Other shareholder loans          |                              |                      | 757,571   |              |  |  | 901,971   |          
|Other liabilities                |                              |                      | 637,281   |              |  |  | 637,434   |          
|Minority interest                |                              |                      | 8,713     |              |  |  | 11,794    |          
|Owners equity                   |                              |                      | 1,264,494 |              |  |  | 901,263   |          
|                                 |                              |                      |           |              |  |  |           |          
|                                 | Total liabilities and equity |                      | $         | 3,945,221    |  |  |           | 3,929,190 | 
|                                 |                              |                      |           |              |  |  |           |          

|                                                            |                  |                      |           |         |  |  |          |        | 
|----------------------------------------------------------- | ---------------- | -------------------- | --------- | ------- |  |  | -------- | ------ | 
|                                                            |                  |                     
|                                                            |                  | Nine months ended   
|                                                            |                  | September 30,       
|                                                            |                  |                     
|                                                            |                  | 2004                 |           | 2003   
|                                                            |                  |                      |           |        
|                                                            |                  |                     
|                                                            |                  | amounts in thousands
|Results of Operations                                       |                  |                      |           |         |  |  |          |       
|Revenue                                                     |                  | $                    | 1,090,476 |         |  |  | 885,517  |       
|Operating, selling, general and administrative
    expenses |                  |                      | (657,364  | )       |  |  | (584,753 | )     
|Stock-based compensation                                    |                  |                      | (636      | )       |  |  | (825     | )     
|Depreciation and amortization                               |                  |                      | (263,844  | )       |  |  | (222,272 | )     
|                                                            |                  |                      |           |         |  |  |          |       
|                                                            | Operating income |                      |           | 168,632 |  |  |          | 77,667 | 
|Interest expense, net of interest income                    |                  |                      | (52,123   | )       |  |  | (49,581  | )     
|Other, net                                                  |                  |                      | (12,028   | )       |  |  | (3,925   | )     
|                                                            |                  |                      |           |         |  |  |          |       
|                                                            | Net earnings     |                      | $         | 104,481 |  |  |          | 24,161 | 
|                                                            |                  |                      |           |         |  |  |          |       



| |    
| | ---
| | JPC

JPC, a joint venture formed in 1996 by our
company and Sumitomo, is a programming company in Japan, which
owns and invests in a variety of channels including Shop
Channel. Our company and Sumitomo each own 50% of JPC. The
functional currency of JPC is the Japanese yen.

At September 30, 2004, our investment in JPC
included ¥500,000,000 ($4,545,000) of shareholder loans to
JPC. Such loans are denominated in Japanese yen and bear
interest at variable rates (1.7% at September 30, 2004).
Such shareholder loans are due and payable on July 25,
2008. During the nine months

I-17



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

ended September 30, 2004 and 2003, we
recognized interest income on the JPC shareholder loans of
$74,000 and $45,000, respectively.

On April 22, 2004, JPC issued
24,000 shares of JPC ordinary shares to Sumitomo for
¥6 billion ($54,260,000 as of April 22, 2004). On
April 26, 2004, JPC paid ¥3 billion ($27,677,000
as of April 26, 2004) to each of our company and Sumitomo
to redeem 12,000 shares of JPC ordinary shares from each
shareholder. On April 27, 2004, we transferred our 100%
indirect ownership interest in Liberty J-Sports, Inc.
(Liberty J-Sports), the owner of an indirect minority interest
in J-SPORTS Broadcasting Corporation, to JPC in exchange for
24,000 ordinary shares of JPC valued at ¥6 billion
($54,805,000 as of April 27, 2004). We recognized a
$25,256,000 gain on this transaction, representing the excess of
the cash received from the earlier share redemption over 50% of
our historical cost basis in Liberty J-Sports.



| |           
| | ----------
| | Cordillera

We and CrístalChile Comunicaciones S.A.
(CristalChile) each own 50% interests in Cordillera. Cordillera
owns substantially all of the equity of Metrópolis-Intercom
S.A. (Metropolis), a cable operator in Chile. We and
CristalChile have entered into an agreement pursuant to which we
each have agreed to use commercially reasonable efforts to merge
Metropolis and VTR GlobalCom S.A. (VTR), a wholly-owned
subsidiary of UGC that owns UGCs Chilean operations. The
merger is subject to certain conditions, including the execution
of definitive agreements, Chilean regulatory approvals and the
approval of the boards of directors of our company,
CristalChile, VTR and UGC (including, in the case of UGC, the
independent members of UGCs board of directors) and the
receipt of necessary third party approvals and waivers. If the
proposed merger is consummated as originally contemplated, we
would own a direct and indirect interest aggregating 80% of the
voting and equity rights in the new entity, and CristalChile
would own the remaining 20%. We would also receive a
$100 million promissory note from the combined entity,
which would bear interest at the London Interbank Offered Rate
(LIBOR) plus 3% per annum and would be unsecured and
subordinated to third party debt. In addition, CristalChile
would have a put right which would allow CristalChile to require
Liberty to purchase all, but not less than all, of its interest
in the new entity for not less than $140 million on or
after the first anniversary of the date on which Chilean
regulatory approval of the merger is deemed to be received. We
have agreed to assume and indemnify Liberty against this put
obligation in connection with the spin off. If the merger does
not occur, we and CristalChile have agreed to fund our pro rata
share of a capital call sufficient to retire Metropolis
local debt facility, which had an outstanding principal amount
of Chilean pesos 34 billion ($55,652,000) at
September 30, 2004. Subsequent to September 30, 2004,
the Chilean regulatory authority approved the merger of VTR and
Metropolis, subject to certain conditions. For additional
information, see note 18.

I-18



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                  
|--- | -----------------
|(8) | Other Investments

The following table sets forth the carrying
amount of our other investments:

|                                                                                   |                         |                      |         |              |  |  |         |         | 
|---------------------------------------------------------------------------------- | ----------------------- | -------------------- | ------- | ------------ |  |  | ------- | ------- | 
|                                                                                   |                         | September 30,        |         | December 31,
|                                                                                   |                         | 2004                 |         | 2003        
|                                                                                   |                         |                      |         |             
|                                                                                   |                         |                     
|                                                                                   |                         | amounts in thousands
|ABC Family                                                                         |                         | $                    | 406,688 |              |  |  |        |        
|Telewest Global, Inc., the successor to Telewest
    Communications plc (Telewest) |                         |                      | 91,407  |              |  |  | 281,392 |        
|SBS Broadcasting S.A. (SBS)                                                        |                         |                      | 201,960 |              |  |  |        |        
|News Corp.                                                                         |                         |                      | 157,096 |              |  |  |        |        
|Cable Partners Europe (CPE)                                                        |                         |                      | 110,018 |              |  |  |        |        
|Sky Latin America                                                                  |                         |                      | 91,046  |              |  |  | 94,347  |        
|Other                                                                              |                         |                      | 10,519  |              |  |  | 74,395  |        
|                                                                                   |                         |                      |         |              |  |  |         |        
|                                                                                   | Total other investments |                      | $       | 1,068,734    |  |  |         | 450,134 | 
|                                                                                   |                         |                      |         |              |  |  |         |        

Our investments in ABC Family, Telewest, SBS,
News Corp. and CPE are all accounted for as
available-for-sale securities.



| |           
| | ----------
| | ABC Family

At September 30, 2004, we owned a 99.9%
beneficial interest in 345,000 shares of the 9%
Series A Preferred Stock of ABC Family with an aggregate
liquidation value of $345 million. Liberty contributed this
interest to our company in connection with the spin off. We
recognized dividend income on the ABC Family preferred
stock of $10,290,000 during the period from the Spin Off Date
through September 30, 2004.



| |         
| | --------
| | Telewest

On July 19, 2004, our investment in Telewest
Communications plc Senior Notes and Senior Discount Notes
was converted into 18,417,883 shares or approximately 7.5%
of the issued and outstanding common stock of Telewest. In
connection with this transaction, we recognized a pre-tax gain
of $168,301,000, representing the excess of the fair value of
the Telewest common stock received over our cost basis in the
Senior Notes and Senior Discount Notes. During the third quarter
of 2004, we sold 10,551,509 of the acquired Telewest shares for
aggregate cash proceeds of $121,459,000, resulting in a pre-tax
loss of $17,821,000. In connection with the disposition of
certain of these shares, we entered into a call agreement with
respect to the 7,866,374 shares of Telewest common stock
that we held at September 30, 2004. For additional
information concerning this call agreement, see note 10. As
we intend to dispose of our remaining Telewest shares during the
fourth quarter of 2004, the $12,429,000 excess of the carrying
value over the fair value of such shares as of
September 30, 2004 is included in other-than-temporary
declines in fair values of investments in our condensed
consolidated statement of operations. Consistent with our
classification of the Senior Notes and Senior Discount Notes and
the Telewest common stock as available-for-sale securities, the
above-described gains and losses were reflected as components of
our accumulated other comprehensive loss account prior to their
reclassification into our condensed consolidated statements of
operations.



| |    
| | ---
| | SBS

At September 30, 2004, UGC owned
6,000,000 shares or approximately 19% of the outstanding
shares of SBS, a European commercial television and radio
broadcasting company.

I-19



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |           
| | ----------
| | News Corp.

At September 30, 2004, we owned
10,000,000 shares of News Corp. Class A Common
Stock. Liberty contributed these shares to us in connection with
the spin off.



| |    
| | ---
| | CPE

At September 30, 2004, we owned certain debt
of CPE and one of its two indirect majority-owned entities that
collectively own a non-controlling ownership interest in Telenet
Group Holdings NV (Telenet), a broadband cable operator in
Belgium. Subsequent to September 30, 2004, we entered into
an agreement to restructure our indirect investment in Telenet.
For additional information, see note 18.



| |                  
| | -----------------
| | Sky Latin America

We own a 10% equity interest in each of the
entities that comprise Sky Latin America. Sky Latin America
offers entertainment services via satellite to households
through its owned and affiliated distribution platforms in Latin
America. Subsequent to September 30, 2004, we executed
certain transactions and agreements related to the sale of our
interests in Sky Latin America. For additional information, see
note 18.



|    |                  
|--- | -----------------
|(9) | Long-Lived Assets



| |                       
| | ----------------------
| | Property and Equipment

In the second quarter of 2004, UGC recorded a
$16,623,000 impairment of certain tangible fixed assets
associated with its telecommunications operations in Norway. The
impairment assessment was triggered by competitive factors in
2004 that led to greater than expected price erosion and the
inability to reach forecasted market share. Fair value of the
tangible assets was estimated using discounted cash flow
analysis, along with other available market data.



| |         
| | --------
| | Goodwill

Changes in the carrying amount of goodwill for
the nine months ended September 30, 2004 are as follows:

|                                |           |                      |         |              |  |             |        |                  |  |               |         |         |   |  |        |        |   |  |         |           | 
|------------------------------- | --------- | -------------------- | ------- | ------------ |  | ----------- | ------ | ---------------- |  | ------------- | ------- | ------- | - |  | ------ | ------ | - |  | ------- | --------- | 
|                                |           |                      |         |              |  |             |        | Foreign currency |  |              
|                                |           | January 1,           |         |              |  |             |        | translation      |  | September 30,
|                                |           | 2004                 |         | Acquisitions |  | Impairments |        | adjustments      |  | 2004         
|                                |           |                      |         |              |  |             |        |                  |  |              
|                                |           |                     
|                                |           | amounts in thousands
|UGC Broadband  The Netherlands |           | $                    | 670,576 |              |  |             |       |                  |  |               |        |         |   |  | (8,739 | )      |   |  | 661,837 |          
|UGC Broadband  France          |           |                      |        |              |  |             | 51,270 |                  |  |               |        |         |   |  | 1,135  |        |   |  | 52,405  |          
|UGC Broadband  Austria         |           |                      | 452,012 |              |  |             |       |                  |  |               |        |         |   |  | (6,100 | )      |   |  | 445,912 |          
|UGC Broadband  Other Europe    |           |                      | 467,615 |              |  |             |       |                  |  |               |        |         |   |  | 11,581 |        |   |  | 479,196 |          
|UGC Broadband  Chile (VTR)     |           |                      | 191,786 |              |  |             |       |                  |  |               |        |         |   |  | (4,755 | )      |   |  | 187,031 |          
|J-COM                           |           |                      | 203,000 |              |  |             |       |                  |  |               |        |         |   |  |       |        |   |  | 203,000 |          
|All other                       |           |                      | 563,348 |              |  |             | 26,840 |                  |  |               | (26,000 | )       |   |  | (1,431 | )      |   |  | 562,757 |          
|                                |           |                      |         |              |  |             |        |                  |  |               |         |         |   |  |        |        |   |  |         |          
|                                | Total LMI |                      | $       | 2,548,337    |  |             |        | 78,110           |  |               |         | (26,000 | ) |  |        | (8,309 | ) |  |         | 2,592,138 | 
|                                |           |                      |         |              |  |             |        |                  |  |               |         |         |   |  |        |        |   |  |         |          

During the third quarter of 2004, we recorded a
$26,000,000 impairment of certain enterprise level goodwill
associated with one of our consolidated subsidiaries. The
impairment assessment was triggered by our determination that it
was more-likely-than-not that we will sell this subsidiary.
Accordingly, the fair value

I-20



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

used to assess the recoverability of the
enterprise level goodwill associated with this subsidiary was
based on the value that we would expect to receive upon the sale
of this subsidiary.



| |                                                   
| | --------------------------------------------------
| | Intangible Assets Subject to Amortization,
    Net

The details of our amortizable intangible assets
are set forth below:

|                         |  |                      |         |              |  |  |        |  
|------------------------ |  | -------------------- | ------- | ------------ |  |  | ------ | -
|                         |  | September 30,        |         | December 31,
|                         |  | 2004                 |         | 2003        
|                         |  |                      |         |             
|                         |  |                     
|                         |  | amounts in thousands
|Gross carrying amount    |  |                      |         |              |  |  |        |  
|Customer relationships   |  | $                    | 404,106 |              |  |  |       |  
|Other                    |  |                      | 15,357  |              |  |  | 6,083  |  
|                         |  |                      |         |              |  |  |        |  
|                         |  | $                    | 419,463 |              |  |  | 6,083  |  
|                         |  |                      |         |              |  |  |        |  
|Accumulated amortization |  |                      |         |              |  |  |        |  
|Customer relationships   |  | $                    | (48,826 | )            |  |  |       |  
|Other                    |  |                      | (3,215  | )            |  |  | (1,579 | )
|                         |  |                      |         |              |  |  |        |  
|                         |  | $                    | (52,041 | )            |  |  | (1,579 | )
|                         |  |                      |         |              |  |  |        |  
|Net carrying amount      |  |                      |         |              |  |  |        |  
|Customer relationships   |  | $                    | 355,280 |              |  |  |       |  
|Other                    |  |                      | 12,142  |              |  |  | 4,504  |  
|                         |  |                      |         |              |  |  |        |  
|                         |  | $                    | 367,422 |              |  |  | 4,504  |  
|                         |  |                      |         |              |  |  |        |  

Customer relationships are amortized over useful
lives ranging from 4 to 10 years. Amortization of
intangible assets with finite useful lives was $49,108,000 and
$353,000 for the nine months ended September 30, 2004 and
2003, respectively. Based on our current amortizable intangible
assets, we expect that amortization expense will be as follows
for the remainder of 2004, the next four years and thereafter
(amounts in thousands):

|                  |       |   |        |         | 
|----------------- | ----- | - | ------ | ------- | 
|Remainder of 2004 |       | $ | 15,857 |        
|2005              |       |   | 72,162 |        
|2006              |       |   | 66,389 |        
|2007              |       |   | 64,523 |        
|2008              |       |   | 61,179 |        
|Thereafter        |       |   | 87,312 |        
|                  |       |   |        |        
|                  | Total |   | $      | 367,422 | 
|                  |       |   |        |        



|     |                       
|---- | ----------------------
|(10) | Derivative Instruments



| |                           
| | --------------------------
| | Foreign Exchange Contracts

We generally do not hedge our foreign currency
exchange risk because of the long-term nature of our interests
in foreign affiliates. However, in order to reduce our foreign
currency exchange risk related to our investment in J-COM, we
have entered into collar agreements with respect to
¥30 billion ($272,702,000). These collar agreements
have a weighted average remaining term of approximately
4 months, an average call price of
¥106/U.S. dollar and an average put price of
¥112/U.S. dollar. We had also entered into forward
sales

I-21



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

contracts with respect to the Japanese yen.
During the second quarter of 2004, we paid $10,593,000 to settle
our yen forward sales contracts. As a result, we had no yen
forward sales contracts outstanding at September 30, 2004.
The net fair value of these collar agreements was a $541,000
asset at September 30, 2004.



| |                        
| | -----------------------
| | Total Return Debt Swaps

We have entered into total return debt swaps in
connection with (i) bank debt of a subsidiary of United
Pan-Europe Communications N.V., a subsidiary of UGC (UPC), and
(ii) public debt of Cablevisión S.A. (Cablevision),
the largest cable television company in Argentina, in terms of
basic cable subscribers. Liberty currently owns an indirect
78.2% economic and non-voting interest in a limited liability
company that owns 50% of the outstanding capital stock of
Cablevision. Under the total return debt swaps, a counterparty
purchases a specified amount of the underlying debt security for
the benefit of our company. We have posted collateral with the
counterparties equal to 30% of the counterpartys purchase
price for the purchased indebtedness of the UPC subsidiary and
90% of the counterpartys purchase price for the purchased
indebtedness of Cablevision. We record a derivative asset equal
to the posted collateral and such asset is included in other
assets in the accompanying condensed consolidated balance
sheets. We earn interest income based upon the face amount and
stated interest rate of the underlying debt securities, and pay
interest expense at market rates on the amount funded by the
counterparty. In the event the fair value of the underlying
purchased indebtedness of the UPC subsidiary declines by 10% or
more, we are required to post cash collateral for the decline,
and we record an unrealized loss on derivative instruments. The
cash collateral related to the UPC subsidiary indebtedness is
further adjusted up or down for subsequent changes in the fair
value of the underlying indebtedness or for foreign currency
exchange rate movements involving the euro and U.S. dollar.
At September 30, 2004, the aggregate purchase price of debt
securities underlying our total return debt swap arrangements
involving the indebtedness of the UPC subsidiary and Cablevision
was $121,738,000. As of such date, we had posted cash collateral
equal to $49,661,000. In the event the fair value of the
purchased debt securities were to fall to zero, we would be
required to post additional cash collateral of $72,077,000. The
aggregate principal amount of the UPC subsidiary indebtedness
that is the subject of our total return debt swaps was
approximately $108,904,000 at September 30, 2004.
Accordingly, if at September 30, 2004, we had acquired the
UPC subsidiary indebtedness pursuant to the total return swaps,
our consolidated indebtedness at September 30, 2004 would
have been reduced by $108,904,000. For additional information
concerning the status of the Cablevision total return debt swap,
see note 18.



| |                                     
| | ------------------------------------
| | UGC Interest Rate Swaps and
    Caps

During the first and second quarters of 2004, UGC
purchased interest rate caps for approximately $21,442,000 that
capped the variable interest rate on notional amounts
totaling 2.25 billion
to 2.6 billion
($2.8 billion to $3.2 billion) at 3.0% and 4.0% for
2005 and 2006, respectively. During the first quarter of 2003,
UGC purchased an interest rate cap that capped the variable
interest rate at 3.0% on a notional amount
of 2.7 billion
($3.4 billion) for 2003 and 2004. UGC has also entered into
a cross currency and interest rate swap pursuant to which a
notional amount of $347,500,000 was swapped at an average rate
of 1.13 per
U.S. dollar until July 2005, with the interest rate capped
at 2.35%. At September 30, 2004, the fair value of the
interest rate swap derivative contracts was a
31,053,000
($38,618,000) liability and the fair value of the interest rate
cap derivative contracts was
a 4,344,000
($5,402,000) asset.



| |                             
| | ----------------------------
| | Variable Forward Transaction

Prior to the spin off, Liberty contributed to our
company 10,000,000 shares of News Corp. Class A Common
Stock, together with a related variable forward transaction. The
forward, which expires on September 17, 2009, provides
(i) us with the right to effectively require the
counterparty to buy 10,000,000

I-22



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

News Corp. Class A Common Stock at a price
of $15.72 per share, or an aggregate price of $157,200,000
(the Floor Price), and (ii) the counterparty with the
effective right to require us to sell 10,000,000 shares of
News Corp. Class A Common Stock at a price of
$26.19 per share. The fair value of the forward was a
$12,255,000 asset at September 30, 2004. At any time during
the term of the forward, we can require the counterparty to
advance the full Floor Price. Provided we do not draw an
aggregate amount in excess of the present value of the Floor
Price, as determined in accordance with the forward, we may
elect to draw such amounts on a discounted or undiscounted
basis. As long as the aggregate advances are not in excess of
the present value of the Floor Price, undiscounted advances will
bear interest at prevailing three-month LIBOR and discounted
advances will not bear interest. Amounts advanced up to the
present value of the Floor Price are secured by the underlying
shares of News Corp. Class A Common Stock. If we elect to
draw amounts in excess of the present value of the Floor Price,
those amounts will be unsecured and will bear interest at a
negotiated interest rate. During the third quarter of 2004, we
received undiscounted advances aggregating $126,000,000 under
the forward. Such advances were subsequently repaid during the
quarter.



| |               
| | --------------
| | Call Agreement

We have entered into a call agreement with
respect to all of our remaining shares of Telewest. Pursuant to
this call agreement, a counterparty has the right to
purchase 7,866,374 shares of Telewest common stock at
a price of $11.80 per share. The number of options subject
to the call agreement will be reduced by 182,939 options on each
of the 43 business days ending December 14, 2004. We
reflect our obligation under the call agreement in our
consolidated balance sheet at fair value ($188,000 liability at
September 30, 2004).



| |                                                                     
| | --------------------------------------------------------------------
| | Realized and Unrealized Gains (Losses) on
    Derivative Instruments

Realized and unrealized gains (losses) on
derivative instruments are comprised of the following amounts
for the indicated periods:

|                                                                   |       |                      |         |                   |  |      |         |        |   |  |         |        |  |  |        |        | 
|------------------------------------------------------------------ | ----- | -------------------- | ------- | ----------------- |  | ---- | ------- | ------ | - |  | ------- | ------ |  |  | ------ | ------ | 
|                                                                   |       |                      |         |                  
|                                                                   |       | Three months ended   |         | Nine months ended
|                                                                   |       | September 30,        |         | September 30,    
|                                                                   |       |                      |         |                  
|                                                                   |       | 2004                 |         | 2003              |  | 2004 |         | 2003  
|                                                                   |       |                      |         |                   |  |      |         |       
|                                                                   |       |                     
|                                                                   |       | amounts in thousands
|Foreign exchange derivatives                                       |       | $                    | 1,858   |                   |  |      | (10,257 | )      |   |  | 8,074   |        |  |  | (6,679 | )     
|Total return debt swaps                                            |       |                      | 510     |                   |  |      | 6,180   |        |   |  | (1,001  | )      |  |  | 23,028 |       
|Variable forward transaction (News Corp.
    Class A Common Stock) |       |                      | 13,834  |                   |  |      |        |        |   |  | 20,002  |        |  |  |       |       
|UGC interest rate swaps and caps                                   |       |                      | (16,838 | )                 |  |      |        |        |   |  | (14,512 | )      |  |  |       |       
|Other                                                              |       |                      | 1,829   |                   |  |      | (333    | )      |   |  | 3,655   |        |  |  | (333   | )     
|                                                                   |       |                      |         |                   |  |      |         |        |   |  |         |        |  |  |        |       
|                                                                   | Total |                      | $       | 1,193             |  |      |         | (4,410 | ) |  |         | 16,218 |  |  |        | 16,016 | 
|                                                                   |       |                      |         |                   |  |      |         |        |   |  |         |        |  |  |        |       

I-23



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|     |     
|---- | ----
|(11) | Debt

The components of debt are as follows:

|                               |                         |                      |           |              |           |  |        |         |        | 
|------------------------------ | ----------------------- | -------------------- | --------- | ------------ | --------- |  | ------ | ------- | ------ | 
|                               |                         | September 30,        |           | December 31,
|                               |                         | 2004                 |           | 2003        
|                               |                         |                      |           |             
|                               |                         |                     
|                               |                         | amounts in thousands
|UPC Distribution Bank Facility |                         | $                    | 3,495,406 |              |           |  |       |        
|UGC Convertible Notes          |                         |                      | 621,813   |              |           |  |       |        
|Other UGC debt                 |                         |                      | 169,252   |              |           |  |       |        
|Other subsidiary debt          |                         |                      | 62,391    |              |           |  | 54,126 |        
|                               |                         |                      |           |              |           |  |        |        
|                               |                         | Total debt           |           |              | 4,348,862 |  |        |         | 54,126 | 
|                               | Less current maturities |                      |           | (90,052      | )         |  |        | (12,426 | )     
|                               |                         |                      |           |              |           |  |        |        
|                               |                         | Total long-term debt |           | $            | 4,258,810 |  |        |         | 41,700 | 
|                               |                         |                      |           |              |           |  |        |        



| |                                   
| | ----------------------------------
| | UPC Distribution Bank
    Facility

The UPC Distribution Bank Facility, as refinanced
in June 2004, provides for euro denominated borrowings by a UPC
subsidiary under four different facilities
aggregating 3,044 million
($3,786 million) and U.S. dollar denominated
borrowings under a fifth facility aggregating $345,763,000. The
following table presents certain terms of the UPC Distribution
Bank Facility as of September 30, 2004 (dollars in
thousands):

|   |  |                             |  |                        |           |             |  |               |           |           |  |                      |  |                         
|-- |  | --------------------------- |  | ---------------------- | --------- | ----------- |  | ------------- | --------- | --------- |  | -------------------- |  | ------------------------
|   |  |                             |  |                        |           |             |  |              
|   |  |                             |  | U.S. dollar equivalent |           |             |  |              
|   |  |                             |  |                        |           |             |  |              
|   |  |                             |  |                        |           | Amount      |  |               |           | Repayment
|   |  | Facility (Description)      |  | Availability           |           | outstanding |  | Interest rate |           | dates    
|   |  |                             |  |                        |           |             |  |               |           |          
|A  |  | (Revolving credit facility) |  | $                      | 829,188   |             |  |               | 192,762   |           |  | EURIBOR + 2.25%  4% |  | June-06 through June-08 
|B  |  | (Term loan)                 |  |                        | 1,568,524 |             |  |               | 1,568,524 |           |  | EURIBOR + 2.25%  4% |  | June-04 through June-08 
|C1 |  | (Term loan)                 |  |                        | 117,554   |             |  |               | 117,554   |           |  | EURIBOR + 5.5%       |  | June-04 through March-09
|C2 |  | (Term loan)                 |  |                        | 345,763   |             |  |               | 345,763   |           |  | LIBOR + 5.5%         |  | June-04 through March-09
|E  |  | (Term loan)                 |  |                        | 1,270,803 |             |  |               | 1,270,803 |           |  | EURIBOR + 3%         |  | July-09                 
|   |  |                             |  |                        |           |             |  |               |           |           |  |                      |  |                         
|   |  | Total                       |  | $                      | 4,131,832 |             |  |               | 3,495,406 |           |  |                      |  |                         
|   |  |                             |  |                        |           |             |  |               |           |           |  |                      |  |                         

At September 30, 2004, the aggregate
availability under the UPC Distribution Facility
was 511,750,000
($636,426,000). The UPC Distribution Bank Facility
(i) provides for a commitment fee of 0.5% of unused
borrowing availability, (ii) is secured by the assets of
most of UPCs majority-owned European cable operating
companies and is senior to other long-term obligations of UPC
and (iii) contains certain financial covenants and
restrictions on UPCs subsidiaries regarding payment of
dividends, ability to incur additional indebtedness, disposition
of assets, mergers and affiliated transactions. The weighted
average interest rate on borrowings under the UPC Distribution
Bank Facility was 6.2% for the nine months ended
September 30,

I-24



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2004. In June 2004, the UPC subsidiary borrowed
approximately 1.0 billion
($1.2 billion) under Facility E, which was used to
repay some of the indebtedness borrowed under the other
facilities.



| |                      
| | ---------------------
| | UGC Convertible Notes

On April 6, 2004, UGC completed the offering
and sale
of 500 million
($622 million) 1 3/4% euro-denominated Convertible
Senior Notes due April 15, 2024 (UGC Convertible Notes).
Interest is payable semi-annually on April 15 and
October 15 of each year, beginning October 15, 2004.
The UGC Convertible Notes are senior unsecured obligations that
rank equally in right of payment with all of UGCs existing
and future senior unsubordinated and unsecured indebtedness and
rank senior in right of payment to all of UGCs existing
and future subordinated indebtedness. The UGC Convertible Notes
are effectively subordinated to all existing and future
indebtedness and other obligations of UGCs subsidiaries.
The UGC Convertible Notes will be convertible into shares of UGC
Class A Common Stock at an initial conversion price
of 9.7561 per
share, which was equivalent to a conversion price of
$12.00 per share on the date of issue, representing a
conversion rate of 102.5 shares
per 1,000
principal amount of the UGC Convertible Notes. On or after
April 20, 2011, UGC has the right to redeem the UGC
Convertible Notes, in whole or in part, at a redemption price in
euros equal to 100% of the principal amount, together with
accrued and unpaid interest. On April 15, 2011,
April 15, 2014, and April 15, 2019, holders have the
right to tender all or part of their UGC Convertible Notes to
UGC for purchase in euros at 100% of the principal amount, plus
accrued and unpaid interest. Holders may also similarly tender
their UGC Convertible Notes to UGC in the event of a change in
control, as defined in the related indenture. Holders may
surrender their UGC Convertible Notes for conversion prior to
maturity only if certain conditions are met.



| |               
| | --------------
| | Other UGC Debt

UPC Polska, Inc. (UPC Polska) is an indirect
subsidiary of UGC. On February 18, 2004, in connection with
the consummation of UPC Polskas plan of reorganization and
emergence from its U.S. bankruptcy proceeding, third-party
holders of UPC Polska Notes and other claimholders received a
total of $87,361,000 in cash, $101,701,000 in new 9% UPC Polska
Notes due 2007 and 2,011,813 shares of UGC Class A
Common Stock in exchange for the cancellation of their claims.
UGC recognized a gain of $31,916,000 from the extinguishment of
the UPC Polska Notes and other liabilities subject to
compromise, equal to the excess of their respective carrying
amounts over the fair value of consideration given. During 2004,
UPC Polska incurred costs associated with its reorganization
aggregating $5,951,000. Such costs are included in other income
(expense), net in the accompanying condensed consolidated
statement of operations. On July 16, 2004, UGC redeemed the
new 9% UPC Polska Notes due 2007 for a cash payment of
$101,701,000.



| |                      
| | ---------------------
| | Other Subsidiary Debt

Other subsidiary debt includes bank borrowings of
Puerto Rico Cable and Pramer. One of our subsidiaries posts cash
collateral equal to the outstanding borrowings under the Puerto
Rico Cable facility ($50,000,000 at September 30, 2004).
Such cash collateral is included in other assets, net in the
accompanying condensed consolidated financial statements.

At September 30, 2004, Pramers
U.S. dollar denominated bank borrowings aggregated
$12,391,000. During 2002, following the devaluation of the
Argentine peso, Pramer failed to make certain required payments
due under its bank credit facility. Since that time, Pramer has
been in technical default under its bank credit facility.
However, the bank lenders have not provided notice of default or
requested acceleration of the payments due under the facility.
Pramer and the banks are negotiating the refinancing of this
credit facility and all amounts due under this facility are
classified as current in the accompanying condensed consolidated
balance sheets.

I-25



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

We believe that the fair value and the carrying
value of our debt were approximately equal at September 30,
2004.



|     |                       
|---- | ----------------------
|(12) | Old UGC Reorganization

Old UGC, Inc. (Old UGC) is a wholly-owned
subsidiary of UGC that owns VTR and an approximate 34% interest
in Austar United Communications Ltd. Certain information
concerning the consolidated operating performance and total
assets of VTR are set forth in note 17. On January 12,
2004, Old UGC filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. On
September 21, 2004, UGC and Old UGC filed with the
Bankruptcy Court a plan of reorganization, which was
subsequently amended on October 5, 2004. The plan of
reorganization provides for the acquisition by Old UGC of
$638,008,000 face amount of certain senior notes of Old UGC (Old
UGC Senior Notes) held by UGC (following cancellation of certain
offsetting obligations) for common stock of Old UGC and
$599,173,000 face amount of Old UGC Senior Notes held by another
consolidated subsidiary of UGC for preferred stock of Old UGC.
Old UGC Senior Notes held by third parties ($24,627,000 face
amount) would be left outstanding (after cure, through the
repayment of approximately $5,125,000 in unpaid interest, and
reinstatement). In addition, Old UGC will make a payment of
approximately $3,131,000 in settlement of certain outstanding
guarantee obligations. On November 10, 2004, the Bankruptcy
Court entered an order confirming Old UGCs plan of
reorganization. With the exception of the $24,627,000 face
amount of the Old UGC Senior Notes held by third parties, all of
the remaining principal and interest due under the Old UGC
Senior Notes is eliminated in consolidation.

We and UGC continue to consolidate the financial
position and results of operations of Old UGC while in
bankruptcy, for the following primary reasons:



| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | UGC is the sole shareholder and majority creditor
    of Old UGC (direct and indirect holder of 98% of the Old UGC
    Senior Notes);                                         
|
| |  | UGC negotiated a restructuring agreement that
    provides for UGC to continue to be Old UGCs controlling
    equity holder upon Old UGCs emergence from
    bankruptcy; and
|
| |  | The bankruptcy proceedings are expected to be
    completed in less than one year.                                                                                            

Liabilities subject to compromise related to Old
UGC of $24,627,000 (representing the Old UGC Senior Notes) and
$4,691,000 (representing interest on the Old UGC Senior Notes
and other guarantees) are reflected in current portion of debt
and accrued liabilities, respectively, in the accompanying
condensed consolidated balance sheet at September 30, 2004.



|     |                           
|---- | --------------------------
|(13) | Related Party Transactions

During the 2004 period prior to the spin off, a
subsidiary of our company borrowed $116,666,000 from Liberty
pursuant to certain notes payable. Interest expense accrued on
the amounts borrowed pursuant to such notes payable was
$1,534,000 during the nine months ended September 30, 2004.
In connection with the spin off, Liberty also entered into a
Short-Term Credit Facility with us. Pursuant to the Short-Term
Credit Facility, Liberty had agreed to make loans to us from
time to time up to an aggregate principal amount of
$383,334,000. Amounts borrowed under the Short-Term Credit
Facility and the notes payable accrued interest at 6% per
annum, compounded semi-annually, and were due and payable no
later than March 31, 2005. During the third quarter of
2004, all amounts due to Liberty under the notes payable were
repaid with proceeds from the LMI Rights Offering and the
Short-Term Credit Facility was cancelled.

For periods prior to the spin off, corporate
expenses were allocated from Liberty to us based upon the cost
of general and administrative services provided. We believe such
allocations were reasonable and materially approximate the
amount that we would have incurred on a stand-alone basis.
Amounts allocated to us prior to

I-26



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the spin off pursuant to these arrangements
aggregated $10,833,000 and $8,155,000 during the nine months
ended September 30, 2004 and 2003, respectively. The 2004
amount includes costs associated with the spin off aggregating
$2,952,000. Pursuant to the Reorganization Agreement, we and
Liberty each agreed to pay 50% of such spin off costs. Excluding
our share of such spin off costs, the intercompany amounts owed
to Liberty as a result of these allocations were contributed to
our equity in connection with the spin off. The amounts
allocated by Liberty are included in SG&A expenses in the
accompanying condensed consolidated statements of operations.

In connection with the spin off, we and Liberty
entered into a Facilities and Services Agreement that sets forth
the terms that will apply to services and other benefits to be
provided by Liberty to us following the spin off. Pursuant to
the Facilities and Services Agreement, Liberty provides us with
office space and certain general and administrative services
including legal, tax, accounting, treasury, engineering and
investor relations support. We reimburse Liberty for direct,
out-of-pocket expenses incurred by Liberty in providing these
services and for our allocable portion of facilities costs and
costs associated with any shared services or personnel. Amounts
charged to us pursuant to this agreement aggregated $757,000 for
the period from the Spin Off Date through September 30,
2004 and are included in SG&A expenses in the accompanying
condensed consolidated statements of operations.

Under the Tax Sharing Agreement, Liberty will
generally be responsible for U.S. federal, state, local and
foreign income taxes reported on a consolidated, combined or
unitary return that includes our company or one of its
subsidiaries, on the one hand, and Liberty or one of its
subsidiaries on the other hand, subject to certain limited
exceptions. We will be responsible for all other taxes that are
attributable to our company or one of its subsidiaries, whether
accruing before, on or after the spin off. The Tax Sharing
Agreement requires that we will not take, or fail to take, any
action where such action, or failure to act, would be
inconsistent with or prohibit the spin off from qualifying as a
tax-free transaction. Moreover, we will indemnify Liberty for
any loss resulting from such action or failure to act, if such
action or failure to act precludes the spin off from qualifying
as a tax-free transaction.

Prior to the Spin Off Date, LMI and its
80%-or-more-owned subsidiaries (the LMI Tax Group) were included
in Libertys consolidated federal and state income tax
returns. Accordingly, our income taxes during the periods prior
to the Spin Off Date, included those items in Libertys
consolidated tax returns applicable to the LMI Tax Group and any
income taxes related to our consolidated foreign and domestic
subsidiaries that were excluded from the consolidated federal
and state income tax returns of Liberty.

Prior to the spin off, Liberty transferred to our
company a 25% ownership interest in two of Libertys
aircraft. In connection with the transfer, we and Liberty
entered into certain agreements pursuant to which, among other
things, we and Liberty share the costs of Libertys flight
department and the costs of maintaining and operating the
jointly owned aircraft. Costs are allocated based upon either
our actual usage or our ownership interest, depending on the
type of costs. Amounts charged to us pursuant to these
agreements aggregated $131,000 for the period from the Spin Off
Date through September 30, 2004 and are included in
SG&A expenses in the accompanying condensed consolidated
statements of operations.

See note 2 for a description of the
Reorganization Agreement between Liberty and our company.

John C. Malone beneficially owns shares of
Liberty Common Stock representing approximately 29.3% of
Libertys voting power and beneficially owns shares of LMI
Common Stock which may represent up to approximately 32.6% of
the voting power in our company, assuming the exercise in full
of certain compensatory options to acquire shares of LMI
Series B Common Stock granted to Mr. Malone at the
time of the spin off. In addition, six of our seven directors
are also directors of Liberty. By virtue of
Mr. Malones voting power in Liberty and our company,
as well as his position as Chairman of the Board of Liberty and

I-27



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

positions as Chairman of the Board, President and
Chief Executive Officer of our company, and the aforementioned
common directors, Liberty may be deemed an affiliate of our
company.

In the normal course of business, Pramer provides
programming and uplink services to equity method affiliates of
LMI. Total revenue for such services from the LMI affiliates
aggregated $157,000 and $545,000, for the nine months ended
September 30, 2004 and 2003, respectively.

In the normal course of business, Puerto Rico
Cable purchases programming services from subsidiaries of
Liberty. During the nine months ended September 30, 2004
and 2003, the charges for such services aggregated $397,000 and
$532,000, respectively.



|     |                                             
|---- | --------------------------------------------
|(14) | Transactions with Officers and
    Directors



| |                      
| | ---------------------
| | VLG Acquisition Corp.

Liberty owns a 78.2% economic and non-voting
interest in VLG Argentina LLC, an entity that owns a 50%
interest in Cablevision. VLG Acquisition Corp., an entity in
which neither Liberty nor our company has any ownership
interests, owns the remaining 21.8% economic interest and all of
the voting power in VLG Argentina LLC. An executive officer and
an officer of our company were shareholders of VLG Acquisition
Corp. Prior to joining our company, they sold their equity
interests in VLG Acquisition Corp. to the remaining shareholder,
but each retained a contractual right to 33% of any proceeds in
excess of $100,000 from the sale of VLG Acquisition Corp.s
interest in VLG Argentina LLC, or from distributions to VLG
Acquisition Corp. by VLG Argentina LLC in connection with a sale
of VLG Argentina LLCs interest in Cablevision. Although we
have no direct or indirect equity interest in Cablevision, we
have the right and obligation to contribute $27,500,000 to
Cablevision in exchange for newly issued Cablevision shares
representing approximately 40.0% of Cablevisions fully
diluted equity in the event that Cablevisions
restructuring is approved in its current form. For additional
information concerning our proposed participation in the
Cablevision restructuring, see notes 15 and 18.



| |                              
| | -----------------------------
| | J-COM
    Ownership Interests

Our interest in J-COM is held through five
separate corporations, four of which are wholly owned. Several
individuals, including two of our executive officers and one of
our directors, own common stock representing an aggregate of 20%
of the common equity in the fifth corporation, which owns an
approximate 5.4% interest in J-COM. Compensation expense with
respect to the interests held by the aforementioned executive
officers and directors was $656,000 and $1,260,000 during the
nine months ended September 30, 2004 and 2003, respectively.



|     |                              
|---- | -----------------------------
|(15) | Commitments and Contingencies

Various partnerships and other affiliates of our
company accounted for using 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.
Notwithstanding the foregoing, certain of our affiliates may
require additional capital to finance their operating or
investing activities. In addition, we are a party to stockholder
and partnership agreements that provide for possible capital
calls on stockholders and partners. In the event our affiliates
require additional financing and we fail to meet a capital call,
or other commitment to provide capital or loans to a particular
company, such failure may have adverse consequences to our
company. These consequences may include, among others, the
dilution of our equity interest in that company, the forfeiture
of our right to vote or exercise other rights, the right of the
other stockholders or partners to force us to sell our interest
at less than fair value, the forced dissolution of the company
to which

I-28



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

we have made the commitment or, in some
instances, a breach of contract action for damages against us.
Our ability to meet capital calls or other capital or loan
commitments is subject to our ability to access cash.

In addition to the foregoing, the agreement
governing one of our affiliate investments contains a put-call
arrangement whereby we could be required to purchase another
investors ownership interest at fair value.

For a description of certain put obligations that
we assumed in connection with the Noos acquisition, see
note 5. For a description of certain put obligations that
we will assume in the event that the proposed restructuring of
our indirect investment in Telenet closes, see note 18.

In the normal course of business, we have entered
into agreements that commit our company to make cash payments in
future periods with respect to non-cancelable leases,
programming contracts, purchases of customer premise equipment,
construction activities, network maintenance, and upgrade and
other commitments arising from our agreements with local
franchise authorities.

At September 30, 2004, Liberty guaranteed
¥13,620,821,000 ($123,814,000) of the bank debt of J-COM.
Libertys guarantees expire as the underlying debt matures
and is repaid. The debt maturity dates range from 2004 to 2019.
In connection with the spin off, we have agreed to indemnify
Liberty for any amounts Liberty is required to fund under these
arrangements. During the nine months ended September 30,
2004 and 2003, we recognized income from J-COM guarantee fees
aggregating $422,000 and $238,000, respectively.

At September 30, 2004, we had severally
guaranteed certain transponder and equipment lease obligations
of Sky Latin America aggregating $92,950,000 and $3,407,000,
respectively. Such amounts were not reflected in our condensed
consolidated balance sheet at September 30, 2004. In
connection with the execution of certain transactions and
agreements subsequent to September 30, 2004, our guarantees
of the obligations under these transponder leases were
terminated and our guarantees of the obligations under these
equipment leases will be terminated no later than
December 31, 2004. For additional information, see
note 18.

As a result of the termination by Argentina of
its decade-old currency peg in late 2001, Cablevision
(consistent with other Argentine issuers) stopped servicing its
U.S. dollar denominated debt in 2002, which it is currently
seeking to restructure pursuant to an out of court
reorganization agreement. That agreement has been submitted to
Cablevisions creditors for their consent, and a petition
for its approval has been filed by Cablevision with a commercial
court in Buenos Aires under Argentinas bankruptcy laws. If
the restructuring is approved in its current form, we would
contribute to Cablevision $27,500,000, for which we would
receive, after giving effect to a capital reduction pertaining
to the current shareholders of Cablevision (including the entity
in which Liberty has a 78.2% economic interest), approximately
40.0% of the equity of the restructured Cablevision. The
proceeds of our cash contribution would be distributed as part
of the consideration being offered to Cablevisions
creditors. No assurance can be given as to whether
Cablevisions restructuring plan will be accepted by the
court. For information concerning the status of our rights and
obligations under the restructuring agreement, see note 18.

In 2000, certain of UGCs subsidiaries
pursued a transaction with Excite@Home, which if completed,
would have merged UGCs chello broadband subsidiary with
Excite@Homes international broadband operations to form a
European Internet business. The transaction was not completed,
and discussions between the parties ended in late 2000. On
November 3, 2003, UGC received a complaint filed on
September 26, 2003 by Frank Morrow, on behalf of the
General Unsecured Creditors Liquidating Trust of At Home
Corporation in the United States Bankruptcy Court for the
Northern District of California, styled as In re At Home
Corporation, Frank Morrow v. UnitedGlobalCom, Inc.
et al. (Case No. 01-32495-TC). In general, the
complaint alleges breach of contract and fiduciary duty by UGC
and Old UGC. The action has been stayed by the Bankruptcy Court
in the Old UGC bankruptcy proceedings. The plaintiff had filed a
claim in the bankruptcy proceedings of approximately
$2.2 billion. On September 16, 2004, the Bankruptcy
Court held that the claim against Old UGC was estimated at zero.
Although no assurance can be given, UGC believes

I-29



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

that the ultimate outcome of this matter will not
have a material adverse effect on its financial position or
results of operations.

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



|     |                      
|---- | ---------------------
|(16) | Restructuring Charges

A summary of UGCs restructuring charge
activity is set forth in the table below (amounts in thousands):

|                                                     |       |             |        |          |  |             |        |        |  |       |        |        |  |  |       |       |  |  |         |        | 
|---------------------------------------------------- | ----- | ----------- | ------ | -------- |  | ----------- | ------ | ------ |  | ----- | ------ | ------ |  |  | ----- | ----- |  |  | ------- | ------ | 
|                                                     |       | Employee    |        |          |  | Programming |        |        |  |      
|                                                     |       | severance   |        |          |  | and lease   |        |        |  |      
|                                                     |       | and         |        | Office   |  | contract    |        |        |  |      
|                                                     |       | termination |        | closures |  | termination |        | Other  |  | Total
|                                                     |       |             |        |          |  |             |        |        |  |      
|Restructuring liability as of January 1, 2004        |       | $           | 8,405  |          |  |             | 16,821 |        |  |       | 34,399 |        |  |  | 2,442 |       |  |  | 62,067  |       
|Restructuring charges                                |       |             | 9,618  |          |  |             | 892    |        |  |       |       |        |  |  | 239   |       |  |  | 10,749  |       
|Cash paid                                            |       |             | (5,236 | )        |  |             | (4,182 | )      |  |       | (3,372 | )      |  |  | (685  | )     |  |  | (13,475 | )     
|Foreign currency translation adjustments             |       |             | 16     |          |  |             | (218   | )      |  |       | 913    |        |  |  | (75   | )     |  |  | 636     |       
|                                                     |       |             |        |          |  |             |        |        |  |       |        |        |  |  |       |       |  |  |         |       
|Restructuring liability as of September 30,
    2004 |       | $           | 12,803 |          |  |             | 13,313 |        |  |       | 31,940 |        |  |  | 1,921 |       |  |  | 59,977  |       
|                                                     |       |             |        |          |  |             |        |        |  |       |        |        |  |  |       |       |  |  |         |       
|Short-term portion                                   |       | $           | 5,554  |          |  |             | 4,707  |        |  |       | 3,907  |        |  |  | 217   |       |  |  | 14,385  |       
|Long-term portion                                    |       |             | 7,249  |          |  |             | 8,606  |        |  |       | 28,033 |        |  |  | 1,704 |       |  |  | 45,592  |       
|                                                     |       |             |        |          |  |             |        |        |  |       |        |        |  |  |       |       |  |  |         |       
|                                                     | Total |             | $      | 12,803   |  |             |        | 13,313 |  |       |        | 31,940 |  |  |       | 1,921 |  |  |         | 59,977 | 
|                                                     |       |             |        |          |  |             |        |        |  |       |        |        |  |  |       |       |  |  |         |       



|     |                                         
|---- | ----------------------------------------
|(17) | Information About Operating
    Segments

We own a variety of international subsidiaries
and investments that provide broadband distribution services and
video programming services. We identify our reportable segments
as (i) those consolidated subsidiaries that represent 10%
or more of our revenue, operating cash flow (as defined below),
or total assets, and (ii) those equity method affiliates
where our investment or share of earnings or loss represents 10%
of more of our total assets or pre-tax earnings (loss),
respectively. We evaluate performance and make decisions about
allocating resources to our operating segments based on
financial measures such as revenue, operating cash flow and
revenue or sales per customer. In addition, we review
non-financial measures such as subscriber growth and
penetration, as appropriate.

We define operating cash flow as revenue less
operating and SG&A expenses (excluding stock-based
compensation, depreciation and amortization, impairment of
long-lived assets, and restructuring charges). We believe this
is an important indicator of the operational strength and
performance of our businesses, including the ability to service
debt and fund capital expenditures. In addition, this measure
allows management to view operating results and perform
analytical comparisons and benchmarking between businesses and
identify strategies to improve performance. In this regard, we
believe that operating cash flow is meaningful because it
provides investors a means to evaluate the operating performance
of our company and our reportable segments on an ongoing basis
using criteria that is used by our internal decision makers.
This measure of performance

I-30



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

excludes stock-based compensation, depreciation
and amortization, and impairment and restructuring charges that
are included in the measurement of operating income pursuant to
GAAP. Accordingly, operating cash flow 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
GAAP. We generally account for intersegment sales and transfers
as if the sales or transfers were to third parties, that is, at
current prices.

For the nine months ended September 30,
2004, we have identified the following consolidated subsidiaries
and equity method affiliates as our reportable segments:



| |   |                                
| | - | -------------------------------
| |  | UGC Broadband  The Netherlands
| |  | UGC Broadband  France         
| |  | UGC Broadband  Austria        
| |  | UGC Broadband  Other Europe   
| |  | UGC Broadband  Chile (VTR)    
| |  | J-COM                          

UGC, a 53%-owned subsidiary of our company, is an
international broadband communications provider of video, voice,
and Internet services with operations in 14 countries.
UGCs operations are located primarily in Europe and Latin
America. UGC Broadband  The Netherlands, UGC
Broadband   France and UGC Broadband 
Austria represent UGCs three largest operating segments in
Europe in terms of revenue. UGC Broadband  Other
Europe includes broadband operations in Norway, Sweden, Belgium,
Hungary, Poland, Czech Republic, Slovak Republic, and Romania.
None of the components of UGC Broadband  Other Europe
constitute a reportable segment. UGC Broadband  Chile
(VTR) represents UGCs operating segment in Latin
America. J-COM is a 45%-owned equity method affiliate that
provides broadband communication services in Japan.

The amounts presented below represent 100% of
each business revenue and operating cash flow. These
amounts are combined on an unconsolidated basis and are then
adjusted to remove the amounts related to UGC during the 2003
period and J-COM during the 2004 and 2003 periods to arrive at
the reported consolidated amounts. This presentation is designed
to reflect the manner in which management reviews the operating
performance of individual businesses regardless of whether the
investment is accounted for as a consolidated subsidiary or an
equity investment. It should be noted, however, that this
presentation is not in accordance with GAAP since the results of
equity method investments are required to be reported on a net
basis. Further, we could not, among other things, cause any
noncontrolled affiliate to distribute to us our proportionate
share of the revenue or operating cash flow of such affiliate.

I-31



---



##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                     
| | --------------------
| | Performance Measures

|                                         |                        |                                 |            |           |  |         |          |           |  |  |            |        |  |  |          |        | 
|---------------------------------------- | ---------------------- | ------------------------------- | ---------- | --------- |  | ------- | -------- | --------- |  |  | ---------- | ------ |  |  | -------- | ------ | 
|                                         |                        |                                
|                                         |                        | Nine months ended September 30,
|                                         |                        |                                
|                                         |                        |                                 |            |          
|                                         |                        | 2004                            |            | 2003     
|                                         |                        |                                 |            |          
|                                         |                        |                                 |            | Operating |  |         |          | Operating
|                                         |                        | Revenue                         |            | cash flow |  | Revenue |          | cash flow
|                                         |                        |                                 |            |           |  |         |          |          
|                                         |                        |                                
|                                         |                        | amounts in thousands           
|UGC Broadband  The Netherlands          |                        | $                               | 519,948    |           |  |         | 267,097  |           |  |  | 430,620    |        |  |  | 188,528  |       
|UGC Broadband  France                   |                        |                                 | 182,850    |           |  |         | 28,285   |           |  |  | 84,435     |        |  |  | 8,709    |       
|UGC Broadband  Austria                  |                        |                                 | 221,780    |           |  |         | 86,489   |           |  |  | 189,880    |        |  |  | 73,288   |       
|UGC Broadband  Other Europe             |                        |                                 | 506,095    |           |  |         | 202,487  |           |  |  | 411,266    |        |  |  | 148,587  |       
|UGC Broadband  Chile (VTR)              |                        |                                 | 216,537    |           |  |         | 74,942   |           |  |  | 161,667    |        |  |  | 47,884   |       
|J-COM                                    |                        |                                 | 1,090,476  |           |  |         | 433,112  |           |  |  | 885,517    |        |  |  | 300,764  |       
|Corporate and all other                  |                        |                                 | 320,725    |           |  |         | (4,064   | )         |  |  | 271,841    |        |  |  | (10,335  | )     
|Elimination of intercompany transactions |                        |                                 | (102,166   | )         |  |         |         |           |  |  | (93,627    | )      |  |  |         |       
|Elimination of equity affiliates         |                        |                                 | (1,090,476 | )         |  |         | (433,112 | )         |  |  | (2,261,183 | )      |  |  | (743,632 | )     
|                                         |                        |                                 |            |           |  |         |          |           |  |  |            |        |  |  |          |       
|                                         | Total consolidated LMI |                                 | $          | 1,865,769 |  |         |          | 655,236   |  |  |            | 80,416 |  |  |          | 13,793 | 
|                                         |                        |                                 |            |           |  |         |          |           |  |  |            |        |  |  |          |       



| |             
| | ------------
| | Total Assets

|                                 |                        |                      |            |              |  |  |             |           | 
|-------------------------------- | ---------------------- | -------------------- | ---------- | ------------ |  |  | ----------- | --------- | 
|                                 |                        | September 30,        |            | December 31,
|                                 |                        | 2004                 |            | 2003        
|                                 |                        |                      |            |             
|                                 |                        |                     
|                                 |                        | amounts in thousands
|UGC Broadband  The Netherlands  |                        | $                    | 1,884,074  |              |  |  | 2,493,134   |          
|UGC Broadband  France           |                        |                      | 1,125,815  |              |  |  | 274,180     |          
|UGC Broadband  Austria          |                        |                      | 753,982    |              |  |  | 700,209     |          
|UGC Broadband  Other Europe     |                        |                      | 1,507,968  |              |  |  | 1,845,202   |          
|UGC Broadband  Chile (VTR)      |                        |                      | 672,283    |              |  |  | 602,762     |          
|J-COM                            |                        |                      | 3,945,221  |              |  |  | 3,929,190   |          
|Corporate and all other          |                        |                      | 6,686,470  |              |  |  | 4,871,221   |          
|Elimination of equity affiliates |                        |                      | (3,945,221 | )            |  |  | (11,028,861 | )        
|                                 |                        |                      |            |              |  |  |             |          
|                                 | Total consolidated LMI |                      | $          | 12,630,592   |  |  |             | 3,687,037 | 
|                                 |                        |                      |            |              |  |  |             |          

I-32



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##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table provides a reconciliation of
total segment operating cash flow to earnings (loss) before
income taxes and minority interests:

|                                                                 |                                                                |                      |          |          |   |  |         |        | 
|---------------------------------------------------------------- | -------------------------------------------------------------- | -------------------- | -------- | -------- | - |  | ------- | ------ | 
|                                                                 |                                                                |                     
|                                                                 |                                                                | Nine months ended   
|                                                                 |                                                                | September 30,       
|                                                                 |                                                                |                     
|                                                                 |                                                                | 2004                 |          | 2003    
|                                                                 |                                                                |                      |          |         
|                                                                 |                                                                |                     
|                                                                 |                                                                | amounts in thousands
|Total segment operating cash flow                                |                                                                | $                    | 655,236  |          |   |  | 13,793  |       
|Stock-based compensation credits (charges)                       |                                                                |                      | (66,120  | )        |   |  | 323     |       
|Depreciation and amortization                                    |                                                                |                      | (696,624 | )        |   |  | (11,139 | )     
|Impairment of long-lived assets                                  |                                                                |                      | (42,623  | )        |   |  |        |       
|Restructuring charges                                            |                                                                |                      | (10,749  | )        |   |  |        |       
|                                                                 |                                                                |                      |          |          |   |  |         |       
|                                                                 | Operating income (loss)                                        |                      |          | (160,880 | ) |  |         | 2,977  | 
|                                                                
|Interest expense                                                 |                                                                |                      | (209,801 | )        |   |  | (1,374  | )     
|Interest and dividend income                                     |                                                                |                      | 44,043   |          |   |  | 18,182  |       
|Share of earnings of affiliates, net                             |                                                                |                      | 54,518   |          |   |  | 10,833  |       
|Realized and unrealized gains on derivative
    instruments, net |                                                                |                      | 16,218   |          |   |  | 16,016  |       
|Foreign currency transaction gains (losses), net                 |                                                                |                      | (7,015   | )        |   |  | 4,654   |       
|Gain on exchange of investment securities                        |                                                                |                      | 168,301  |          |   |  |        |       
|Other-than-temporary declines in fair values of
    investments  |                                                                |                      | (15,115  | )        |   |  | (5,612  | )     
|Gain on extinguishment of debt                                   |                                                                |                      | 35,787   |          |   |  |        |       
|Gains on dispositions of assets, net                             |                                                                |                      | 12,632   |          |   |  | 3,847   |       
|Other income (expense), net                                      |                                                                |                      | (9,088   | )        |   |  | 2,800   |       
|                                                                 |                                                                |                      |          |          |   |  |         |       
|                                                                 | Earnings (loss) before income taxes and minority
    interests |                      | $        | (70,400  | ) |  |         | 52,323 | 
|                                                                 |                                                                |                      |          |          |   |  |         |       



|     |                  
|---- | -----------------
|(18) | Subsequent Events



| |                              
| | -----------------------------
| | Sky Latin America Transaction

In October 2004, we sold our interest in the Sky
Multicountry DTH platform in exchange for reimbursement by the
purchaser of $1,500,000 of funding provided by us in the
previous few months and the release from certain guarantees
described below. We were deemed to owe the purchaser $6,000,000
in respect of such platform, which amount was offset against a
separate payment we received from the purchaser as explained
below. We also agreed to sell our interest in the Sky Brasil DTH
platform and granted the purchaser an option to purchase our
interest in the Sky Mexico DTH platform.

On October 28, 2004, we received $54,000,000
in cash from the purchaser, which consisted of $60,000,000
consideration payable for our Sky Brasil interest less the
$6,000,000 we were deemed to owe the purchaser in respect of the
Sky Multicountry DTH platform. The $60,000,000 is refundable by
us if the Sky Brasil transaction is terminated. It may be
terminated by us or the purchaser if it has not closed by
October 8, 2007 or by the purchaser if certain conditions
are incapable of being satisfied.

We will receive $88,000,000 in cash upon the
transfer of our Sky Mexico interest to the purchaser. The Sky
Mexico interest will not be transferred until certain Mexican
regulatory conditions are satisfied. If the purchaser does not
exercise its option to purchase our Sky Mexico interest on or
before October 8, 2006 (or in some cases an earlier date),
then we have the right to require the purchaser to purchase our
interest if certain conditions, including the absence of Mexican
regulatory prohibition of the transaction, have been satisfied
or waived.

I-33



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##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

In light of the contingencies involved, we will
not treat either of the Sky Mexico or Sky Brasil transactions as
a sale for accounting purposes until such time as the necessary
regulatory approvals are obtained and, in the case of Sky
Mexico, the cash is received.

In connection with these transactions our
guarantees of the obligations of the Sky Multicountry, Sky
Brasil and Sky Mexico platforms under certain transponder leases
were terminated and our guarantees of obligations under certain
equipment leases will be terminated no later than
December 31, 2004. The buyer has agreed to indemnify us for
any amounts we are required to pay under such equipment leases
subsequent to the transaction date through the date that our
guarantees are terminated.



| |                
| | ---------------
| | CPE Transaction

At September 30, 2004, LMI owned debt of CPE
and one of its two indirect majority-owned entities (the
InvestCos) that collectively own an 18.99% equity interest in
Telenet. CPE owns its interests in the InvestCos through its
100% owned subsidiary, Callahan Associates Holdings Belgium
(CAHB). In addition, CAHB holds call options expiring in August
2007 and August 2009 to purchase approximately 11.6% and 17.6%,
respectively, of the outstanding equity of Telenet from existing
third-party shareholders. On October 15, 2004, we entered
into an agreement to restructure our indirect investment in
Telenet. Pursuant to this agreement, we will transfer cash of
approximately $137 million (including accrued interest
through an assumed closing date of November 30, 2004) and
our investment in the debt of one of the InvestCos to CAHB in
exchange for 78.4% of the common interests and 100% of the
Preferred A and Preferred B interests of CAHB. The Preferred A
interest will have an initial liquidation value of
$132 million and dividends will accrue at a rate of
16% per annum from May 1, 2004, payable in additional
shares of Preferred A interests. The Preferred B interest will
have a liquidation value of $15 million and no dividends
will accrue on the Preferred B interest. CPE will own the
remaining 21.6% common interest in CAHB. Most of the proceeds to
be received by CAHB will, in turn, be distributed to CPE to be
used to purchase the debt of CPE owned by our company at a
purchase price approximately equal to our cost plus accrued
interest. Upon the completion of the foregoing transactions, our
net indirect investment in Telenet will increase by
approximately $22 million. CAHB is a party to a
shareholders agreement that controls the voting and disposition
of 21.36% of the stock of Telenet, including the aggregate
18.99% interest owned by the InvestCos. The foregoing ownership
structure will result in CAHBs indirect ownership of an
approximate 14% economic interest in Telenet. Due to certain
veto rights we will hold with respect to Telenet, we expect to
use the equity method to account for our indirect investment in
Telenet.

The agreement also provides that CPE will have
the right to require our company to purchase its CAHB interest
at fair value at any time after the third anniversary of closing.

Subject to the satisfaction of certain
conditions, including the receipt of required consents, the
transactions contemplated by these arrangements are anticipated
to be consummated during the fourth quarter of 2004.



| |                                                                
| | ---------------------------------------------------------------
| | Chilean Regulatory Approval of Merger of
    VTR and Metropolis

As discussed in note 7, we and CristalChile
have entered into an agreement pursuant to which we each have
agreed to use commercially reasonable efforts to merge
Metropolis and VTR. On October 25, 2004, the Chilean
anti-trust tribunal (the Tribunal) approved a potential
combination of VTR with Metropolis, subject to certain
conditions. The decision of the Tribunal has been appealed to
Chiles Supreme Court by parties opposing the possible
combination of VTR and Metropolis (the Appeal). UGC,
CristalChile and we are (i) reviewing in detail the
conditions imposed by the Tribunal and (ii) monitoring the
Appeal, and (iii) engaging in discussions regarding the
terms of the potential combination of VTR and Metropolis. The

I-34



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##### 



LIBERTY MEDIA INTERNATIONAL, INC


(See note 1)


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

terms of any such combination are subject to
review and approval by a committee of UGCs independent
directors.



| |                                       
| | --------------------------------------
| | Cablevision Total Return Debt
    Swap

Subsequent to September 30, 2004, the
counterparty to the Cablevision total return debt swap, with our
consent, entered into a participation agreement with a third
party, which, if consummated, would result in the termination of
our liability under this debt swap and the return of our
collateral. For additional information concerning the
Cablevision debt swap, see note 10.



| |                          
| | -------------------------
| | Cablevision Restructuring

As discussed in note 15, we have the right
and obligation to contribute $27,500,000 to Cablevision in
exchange for newly issued Cablevision shares representing
approximately 40.0% of Cablevisions fully diluted equity
in the event that Cablevisions restructuring is approved
in its current form. Subsequent to September 30, 2004, we
entered into an agreement, which, if consummated, would
eliminate this right and obligation in exchange for cash
consideration of approximately $40.5 million.

I-35



---



##### 





|        |                                                                                              
|------- | ---------------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations

The capitalized terms used below have been
defined in the notes to the accompanying condensed consolidated
financial statements. In the following text, the terms,
we, our, our company and
us may refer, as the context requires, to LMC
International (prior to June 7, 2004), LMI and its
consolidated subsidiaries (on and subsequent to June 7,
2004) or both. Unless otherwise indicated, convenience
translations into U.S. dollars are calculated as of
September 30, 2004.

Certain statements in this Quarterly Report on
Form 10-Q constitute forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
To the extent that such statements are not recitations of
historical fact, such statements constitute forward-looking
statements, which, by definition, involve risks and
uncertainties. Where, in any forward-looking statement, we
express an expectation or belief as to future results or events,
such expectation or belief is expressed in good faith and
believed to have a reasonable basis, but there can be no
assurance that the statement of expectation or belief will
result or be achieved or accomplished. The following include
some but not all of the factors that could cause actual results
or events to differ materially from those anticipated:



| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | economic and business conditions and industry
    trends in the countries in which we operate;                                                                                                                 
|
| |  | currency exchange risks;                                                                                                                                                                                       
|
| |  | consumer disposable income and spending levels,
    including the availability and amount of individual consumer
    debt;                                                                                     
|
| |  | changes in television viewing preferences and
    habits by our subscribers and potential subscribers;                                                                                                         
|
| |  | consumer acceptance of existing service
    offerings, including our newer digital video, telephone and
    Internet access services                                                                           
|
| |  | consumer acceptance of new technology,
    programming alternatives and broadband services that we may
    offer:                                                                                              
|
| |  | our ability to manage rapid technological
    changes, and grow our digital video, telephone and Internet
    access services:                                                                                 
|
| |  | spending on domestic and foreign television
    advertising;                                                                                                                                                   
|
| |  | the regulatory and competitive environment in the
    broadband communications and programming industries in the
    countries in which we operate;                                                            
|
| |  | continued consolidation of the foreign broadband
    distribution industry;                                                                                                                                    
|
| |  | uncertainties inherent in the development and
    integration of new business lines and business strategies;                                                                                                   
|
| |  | the expanded deployment of personal video
    recorders and the impact on television advertising revenue;                                                                                                      
|
| |  | rapid technological changes;                                                                                                                                                                                   
|
| |  | capital spending for the acquisition and/or
    development of telecommunications networks and services;                                                                                                       
|
| |  | uncertainties associated with product and service
    development and market acceptance, including the development and
    provision of programming for new television and
    telecommunications technologies;
|
| |  | future financial performance, including
    availability, terms and deployment of capital;                                                                                                                     
|
| |  | the ability of suppliers and vendors to timely
    deliver products, equipment, software and services;                                                                                                         
|
| |  | the outcome of any pending or threatened
    litigation;                                                                                                                                                       
|
| |  | availability of qualified personnel;                                                                                                                                                                           
|
| |  | changes in, or failure or inability to comply
    with, government regulations in the countries in which we
    operate and adverse outcomes from regulatory proceedings;                                      

I-36



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##### 





| |   |                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | government intervention which opens our broadband
    distribution networks to competitors;                                                            
|
| |  | our ability to successfully negotiate rate
    increases with local authorities;                                                                       
|
| |  | changes in the nature of key strategic
    relationships with partners and joint venturers;                                                            
|
| |  | conditions imposed by the Tribunal on the
    potential merger of VTR and Metropolis;                                                                  
|
| |  | uncertainties associated with our ability and
    UGCs ability to comply with the internal control
    requirements of the Sarbanes Oxley Act of 2002;
|
| |  | competitor responses to our products and
    services, and the products and services of the entities in which
    we have interests; and               
|
| |  | threatened terrorist attacks and ongoing military
    action in the Middle East and other parts of the world.                                          

You should be aware that the video, voice and
Internet access services industries are changing rapidly, and,
therefore, the forward-looking statements and statements of
expectations, plans and intent herein are subject to a greater
degree of risk than similar statements regarding certain other
industries.

These forward-looking statements and the risks,
uncertainties and other factors listed above speak only as of
the date of this Quarterly Report, and we expressly disclaim any
obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein, to
reflect any change in our expectations with regard thereto, or
any other change in events, conditions or circumstances on which
any such statement is based.

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 condensed consolidated financial statements and
the notes thereto included elsewhere herein.

Overview

We own majority and minority interests in
international broadband distribution and programming companies.
On June 7, 2004, Liberty completed the spin off of LMI to
Libertys shareholders. In connection with the spin off,
holders of Liberty Common Stock on the June 1, 2004 Record
Date received 0.05 of a share of LMI Series A Common Stock
for each share of Liberty Series A Common Stock owned at
5:00 p.m. New York City time on the Record Date and
0.05 of a share of LMI Series B Common Stock for each share
of Liberty Series B Common Stock owned at 5:00 p.m.
New York City time on the Record Date. The spin off was intended
to qualify as a tax-free spin off. For financial reporting
purposes, the spin off is deemed to have occurred on
June 1, 2004.

Following the spin off, we and Liberty operate
independently, and neither has any stock ownership, beneficial
or otherwise, in the other.

Our operating subsidiaries and most significant
equity method investments at September 30, 2004 are as
follows:

Operating
subsidiaries:



| |                  
| | -----------------
| | Puerto Rico Cable
| | Pramer           
| | PHL              
| | UGC              

Significant equity method
investments:



| |      
| | -----
| | JPC  
| | J-COM

Our most significant subsidiary is UGC, an
international broadband communications provider of video, voice,
and Internet access services with operations in 11 European
countries and three Latin American

I-37



---



##### 



countries. UGCs largest operating segments
are located in The Netherlands, France, Austria and Chile. At
September 30, 2004, we owned approximately 417 million
shares of UGC Common Stock, representing an approximate 53%
economic interest and a 90% voting interest. As further
described in note 5 to the accompanying condensed
consolidated financial statements, we began consolidating UGC on
January 1, 2004. Prior to that date, we used the equity
method to account for our investment in UGC. PHL and Puerto Rico
Cable are wholly-owned subsidiaries that own and operate cable
television systems in Ireland and Puerto Rico, respectively. As
further described in note 5 to the accompanying condensed
consolidated financial statements, we acquired PHL during the
second quarter of 2004. Pramer is a wholly-owned Argentine
programming company that supplies programming services to cable
television and DTH satellite distributors in Latin America,
Spain and some Spanish speaking markets in the United States.
J-COM is a 45%-owned equity affiliate that owns and operates
broadband distribution businesses in Japan. JPC is a 50%-owned
affiliate that owns and invests in a variety of programming
channels in Japan.


We believe our primary opportunities in our
international markets include continued growth in subscribers;
increasing the average revenue per unit by continuing to rollout
broadband communication services such as telephony, Internet
access and digital video; developing foreign programming
businesses; and maximizing operating efficiencies on a regional
basis. Potential impediments to achieving these goals include
increasing price competition for broadband services; competition
from alternative video distribution technologies; and
availability of sufficient capital to finance the rollout of new
services.

Results of Operations

Due to the January 1, 2004 change from the
equity method to the consolidation method of accounting for our
investment in UGC, our historical revenue and expenses for the
three and nine months ended September 30, 2004 are not
comparable to the corresponding prior year periods. Accordingly,
in addition to a discussion of our historical results of
operations, we have also included an analysis of our operating
results based on the approach we use to analyze our reportable
operating segments. As further described below, we believe that
our operating segment discussion provides a more meaningful
basis for comparing UGCs operating results than does our
historical discussion.

Changes in foreign currency exchange rates have a
significant impact on our operating results as all of our
operating segments except Puerto Rico Cable have functional
currencies other than the U.S. dollar. Our primary exposure
is currently to the euro as over 50% of our U.S. dollar
revenue during the nine months ended September 30, 2004 was
derived from countries where the euro is the functional
currency. In addition, our operating results are also
significantly impacted by changes in the exchange rates for the
Japanese yen, Chilean peso and, to a lesser degree, other local
currencies in Europe.



| |                                                            
| | -----------------------------------------------------------
| | Discussion and Analysis of Historical
    Operating Results

As noted above, we began consolidating UGC
effective January 1, 2004. Unless otherwise indicated in
the discussion below, the significant increases in our
historical revenue, expenses and other items during the 2004
periods, as compared to the corresponding prior year periods,
are primarily attributable to this change in our consolidated
reporting entities.

We incurred stock-based compensation expense of
$13,377,000 and $66,120,000 during the three and nine months
ended September 30, 2004, respectively. Substantially all
of such amounts are attributable to UGCs stock incentive
awards. The nine-month amount includes a $50,409,000 first
quarter charge to reflect a change from fixed-plan accounting to
variable-plan accounting for all of UGCs stock options.
This change in accounting is attributable to adjustments to
certain terms of such UGC options in connection with UGCs
February 2004 rights offering. The $13,377,000 expense during
the three-month period is attributable primarily to an increase
in the market price of the common stock underlying UGCs
variable-plan options and SARs. Compensation expense with
respect to the LMI and Liberty stock incentive awards held by
LMI employees was not significant during the 2004 and 2003
periods. However, similar to the accounting for UGC stock
incentive awards, all of the LMI options and Liberty stock
incentive awards held by LMI employees are accounted for as
variable-plan stock incentive awards. As such, stock
compensation expense with respect to

I-38



---



##### 



LMI and Liberty options held by LMI employees and
UGC stock incentive awards held by UGC employees is subject to
adjustment based on vesting schedules and the market value of
the underlying common stock, and ultimately on the final
determination of market value when the incentive awards are
exercised.


We recorded charges to reflect the impairment of
long-lived assets of $16,623,000 and $26,000,000 during the
second and third quarters of 2004, respectively. The third
quarter charge of $26,000,000 is the result of our assessment of
the recoverability of enterprise level goodwill that is
associated with one of our consolidated subsidiaries. This
assessment was triggered by our determination that it was
more-likely-than-not that we will sell this subsidiary. The
second quarter 2004 charge was recorded by UGC to write-down the
long-lived assets of certain telecommunications operations in
Norway. For additional information, see note 9 to the
accompanying condensed consolidated financial statements.

Interest and dividend income increased
$12,532,000 and $25,861,000 during the three and nine months
ended September 30, 2004, respectively, as compared to the
corresponding prior year periods. In addition to the increases
of $5,380,000 and $16,903,000, respectively, that are
attributable to the January 1, 2004 consolidation of UGC,
we also experienced an increase in interest and dividend income
attributable to dividends on the ABC Family preferred stock that
was contributed by Liberty to our company in connection with the
spin off.

Our share of earnings of affiliates increased
$7,683,000 and $43,685,000 during the three and nine months
ended September 30, 2004, respectively, as compared to the
corresponding prior year periods. Such increases primarily are
attributable to increases in our share of the net earnings of
J-COM and, to a lesser extent, JPC. The increase in J-COMs
net earnings is primarily attributable to revenue growth due to
increases in the subscribers to J-COMs telephone, Internet
and cable television services. During the nine months ended
September 30, 2003, we did not recognize our share of
UGCs losses as our investment in UGC previously had been
reduced to zero and we had no commitment to make additional
investments in UGC. For additional discussion of J-COMs
operating results, see Discussion and Analysis of
Reportable Segments below.

The details of our realized and unrealized gains
(losses) on derivative instruments are as follows for the
indicated periods:

|                                                                   |  |                      |         |                   |  |      |         |      |  |  |         |   |  |  |        |  
|------------------------------------------------------------------ |  | -------------------- | ------- | ----------------- |  | ---- | ------- | ---- |  |  | ------- | - |  |  | ------ | -
|                                                                   |  |                      |         |                  
|                                                                   |  | Three months ended   |         | Nine months ended
|                                                                   |  | September 30,        |         | September 30,    
|                                                                   |  |                      |         |                  
|                                                                   |  | 2004                 |         | 2003              |  | 2004 |         | 2003
|                                                                   |  |                      |         |                   |  |      |         |     
|                                                                   |  |                     
|                                                                   |  | amounts in thousands
|Foreign exchange derivatives                                       |  | $                    | 1,858   |                   |  |      | (10,257 | )    |  |  | 8,074   |   |  |  | (6,679 | )
|Total return debt swaps                                            |  |                      | 510     |                   |  |      | 6,180   |      |  |  | (1,001  | ) |  |  | 23,028 |  
|Variable forward transaction (News Corp.
    Class A Common Stock) |  |                      | 13,834  |                   |  |      |        |      |  |  | 20,002  |   |  |  |       |  
|UGC interest rate swaps and caps                                   |  |                      | (16,838 | )                 |  |      |        |      |  |  | (14,512 | ) |  |  |       |  
|Other                                                              |  |                      | 1,829   |                   |  |      | (333    | )    |  |  | 3,655   |   |  |  | (333   | )
|                                                                   |  |                      |         |                   |  |      |         |      |  |  |         |   |  |  |        |  
|                                                                   |  | $                    | 1,193   |                   |  |      | (4,410  | )    |  |  | 16,218  |   |  |  | 16,016 |  
|                                                                   |  |                      |         |                   |  |      |         |      |  |  |         |   |  |  |        |  

I-39



---



##### 



The details of our foreign currency transaction
gains (losses) are as follows for the indicated periods.

|                                                                                              |  |                      |         |                   |  |      |      |      |  |  |         |   |  |  |       | 
|--------------------------------------------------------------------------------------------- |  | -------------------- | ------- | ----------------- |  | ---- | ---- | ---- |  |  | ------- | - |  |  | ----- | 
|                                                                                              |  |                      |         |                  
|                                                                                              |  | Three months ended   |         | Nine months ended
|                                                                                              |  | September 30,        |         | September 30,    
|                                                                                              |  |                      |         |                  
|                                                                                              |  | 2004                 |         | 2003              |  | 2004 |      | 2003
|                                                                                              |  |                      |         |                   |  |      |      |     
|                                                                                              |  |                     
|                                                                                              |  | amounts in thousands
|U.S. dollar debt issued by UGCs
    European subsidiaries                                    |  | $                    | (7,525  | )                 |  |      |     |      |  |  | (7,525  | ) |  |  |      | 
|Intercompany notes denominated in a currency
    other than the entities functional currency |  |                      | 27,628  |                   |  |      |     |      |  |  | 24,808  |   |  |  |      | 
|U.S. dollar debt issued and cash held by VTR                                                  |  |                      | 2,401   |                   |  |      |     |      |  |  | (2,493  | ) |  |  |      | 
|Euro denominated debt issued by the parent
    company of UGC                                 |  |                      | (11,982 | )                 |  |      |     |      |  |  | (17,218 | ) |  |  |      | 
|Euro denominated cash held by the parent company
    of UGC                                   |  |                      | 6,845   |                   |  |      |     |      |  |  | (4,580  | ) |  |  |      | 
|U.S. dollar denominated debt issued by Pramer                                                 |  |                      | 126     |                   |  |      | (309 | )    |  |  | 472     |   |  |  | 3,458 | 
|Other                                                                                         |  |                      | 4,395   |                   |  |      | 772  |      |  |  | (479    | ) |  |  | 1,196 | 
|                                                                                              |  |                      |         |                   |  |      |      |      |  |  |         |   |  |  |       | 
|                                                                                              |  | $                    | 21,888  |                   |  |      | 463  |      |  |  | (7,015  | ) |  |  | 4,654 | 
|                                                                                              |  |                      |         |                   |  |      |      |      |  |  |         |   |  |  |       | 

We recognized a $168,301,000 pre-tax gain on the
exchange of investment securities during the third quarter of
2004. This gain, which is attributable to the July 19, 2004
conversion of our investment in Telewest Communications plc
Senior Notes and Senior Discount Notes into
18,417,883 shares or approximately 7.5% of the issued and
outstanding common stock of Telewest, represents the excess of
the fair value of the Telewest common stock received over our
cost basis in the Senior Notes and Senior Discount Notes.

We recognized other-than-temporary declines in
fair values of investments of $15,115,000 and $5,612,000 during
the nine months ended September 30, 2004 and 2003,
respectively. The 2004 amount includes $12,429,000 representing
the excess of the carrying cost over the fair value of the
Telewest shares held by our company at September 30, 2004.
We considered such excess to be other-than-temporary as we
intend to dispose of our remaining Telewest shares during the
fourth quarter of 2004.

We recognized gains (losses) on dispositions of
assets of ($12,092,000) and $12,632,000 during the three and
nine months ended September 30, 2004. The $12,029,000 loss
during the three-month period includes a $17,281,000 loss on the
disposition of 10,551,509 Telewest shares and a $6,878,000 gain
associated with the redemption of our investment in certain
bonds. During the nine-month period, the net impact of these
transactions was more than offset by a $25,256,000 gain that we
recognized during the second quarter of 2004 in connection with
the contribution to JPC of certain indirect interests in an
equity method affiliate. For additional information concerning
this transaction, see note 7 to the accompanying condensed
consolidated financial statements.

During the nine months ended September 30,
2004, we recognized a $35,787,000 gain on extinguishment of
debt. Such gain primarily relates to the $31,916,000 gain
recognized by UGC in connection with the first quarter 2004
consummation of UPC Polskas plan of reorganization
and emergence from U.S. bankruptcy proceedings. For
additional information, see note 11 to the accompanying
condensed consolidated financial statements.

We recognized income tax expense of $91,027,000
and $25,999,000 during the nine months ended September 30,
2004 and 2003, respectively. The 2004 amount differs from the
amount that would have resulted from the application of
statutory tax rates due primarily to (i) increases in the
valuation allowances provided against our net operating loss
carryforwards and other deferred tax assets and (ii) the
impact of certain permanent differences between the financial
and tax accounting treatment of interest and other items
associated with cross jurisdictional intercompany loans and
investments. The effect of these items was partially offset by a
$22,914,000 deferred tax benefit that we recorded during the
third quarter of 2004 to reflect a reduction in the estimated
blended state tax rate used to compute our net deferred tax
liabilities. Such reduction represents a change in estimate that
resulted from our re-evaluation of this rate upon our becoming a
separate tax paying entity in connection with the spin off. The
difference between the actual and expected

I-40



---



##### 



rate during the nine months ended
September 30, 2003 is primarily attributable to foreign
income that is taxed at a higher rate than the federal statutory
rate.




| |                                                   
| | --------------------------------------------------
| | Discussion and Analysis of Reportable
    Segments

For purposes of evaluating the performance of our
operating segments, we compare and analyze 100% of the revenue
and operating cash flow of our reportable operating segments
regardless of whether we use the consolidation or equity method
to account for such reportable segments. Accordingly, in the
following tables, we have presented 100% of the revenue,
operating expenses, SG&A expenses and operating cash flow of
our reportable segments, notwithstanding the fact that we used
the equity method to account for (i) UGC during the 2003
periods and (ii) our 45% investment in J-COM for all
periods presented. The revenue, operating expenses, SG&A
expenses and operating cash flow of UGC for the 2003 periods and
J-COM for all periods presented are then eliminated to arrive at
the reported amounts. It should be noted, however, that this
presentation is not in accordance with GAAP since the results of
operations of equity method investments are required to be
reported on a net basis. Further, we could not, among other
things, cause any noncontrolled affiliate to distribute to us
our proportionate share of the revenue or operating cash flow of
such affiliate. For additional information concerning our
operating segments, including a discussion of our performance
measures and a reconciliation of operating cash flow to pre-tax
earnings (loss), see note 17 to the accompanying condensed
consolidated financial statements.

The financial information presented below for
equity method affiliates was obtained directly from those
affiliates. We do not control the decision-making process or
business management practices of our equity affiliates.
Accordingly, we rely on the management of these affiliates and
their independent auditors to provide us with financial
information prepared in accordance with GAAP that we use in the
application of the equity method. We are not aware, however, of
any errors in or possible misstatements of the financial
information provided by our equity affiliates that would have a
material effect on our condensed consolidated financial
statements.

The tables presented below in this section
provide a separate analysis of each of the line items that
comprise operating cash flow (revenue, operating expenses and
SG&A expenses) as well as an analysis of operating cash flow
by operating segment for the three and nine months ended
September 30, 2004, as compared to the corresponding prior
year periods. In each case, the tables present (i) the
amounts reported by each of our operating segments for the
comparative periods, (ii) the U.S. dollar change and
percentage change from period to period, and (iii) the
U.S. dollar equivalent of the change and the percentage
change from period to period, after removing foreign currency
effects (FX). The comparisons that exclude FX assume that
exchange rates remained constant during the 2004 and 2003
periods.

UPC Broadband France acquired Noos on
July 1, 2004. Accordingly, increases in the amounts
presented for UGC Broadband  France during the
three and nine months ended September 30, 2004, as compared
to the corresponding prior year periods, are primarily
attributable to the Noos acquisition. For additional information
concerning the Noos acquisition, see note 5 to the
accompanying condensed consolidated financial statements.

I-41



---



##### 





| |                                       
| | --------------------------------------
| | Revenue of our Reportable
    Segments

An analysis of the revenue of our reportable
segments for the indicated periods is set forth below (dollar
amounts in thousands):

|                                         |                              |                                  |          |                     |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |        |         |      |  |       |      |      | 
|---------------------------------------- | ---------------------------- | -------------------------------- | -------- | ------------------- | ------- | ------------------- | -------- | ------- | ------ | - | ------- | ------- | ------- |  | ----- | ---- | ---- |  | ------ | ------- | ---- |  | ----- | ---- | ---- | 
|                                         |                              |                                 
|                                         |                              | Three Months Ended September 30,
|                                         |                              |                                 
|                                         |                              |                                  |          |                    
|                                         |                              |                                  |          |                     |         | Increase (decrease)
|                                         |                              |                                  |          | Increase (decrease) |         | excluding FX       
|                                         |                              |                                  |          |                     |         |                    
|                                         |                              | 2004                             |          | 2003                |         | $                   |          | %       |        | $ |         | %      
|                                         |                              |                                  |          |                     |         |                     |          |         |        |   |         |        
|UGC Broadband  The Netherlands          |                              | $                                | 178,996  |                     |         |                     | 150,838  |         |        |   | 28,158  |         |         |  | 18.7  | %    |      |  | 14,028 |         |      |  | 9.3   | %   
|UGC Broadband  France                   |                              |                                  | 120,591  |                     |         |                     | 29,744   |         |        |   | 90,847  |         |         |  | 305.4 | %    |      |  | 88,329 |         |      |  | 296.0 | %   
|UGC Broadband  Austria                  |                              |                                  | 72,482   |                     |         |                     | 65,085   |         |        |   | 7,397   |         |         |  | 11.4  | %    |      |  | 1,692  |         |      |  | 2.6   | %   
|UGC Broadband  Other Europe             |                              |                                  | 173,587  |                     |         |                     | 137,285  |         |        |   | 36,302  |         |         |  | 26.4  | %    |      |  | 21,041 |         |      |  | 15.3  | %   
|                                         |                              |                                  |          |                     |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |        |         |      |  |       |     
|                                         | UGC Broadband  Total Europe |                                  |          | 545,656             |         |                     |          | 382,952 |        |   |         | 162,704 |         |  |       | 42.5 | %    |  |        | 125,090 |      |  |       | 32.7 | %   
|UGC Broadband  Chile (VTR)              |                              |                                  | 75,096   |                     |         |                     | 58,608   |         |        |   | 16,488  |         |         |  | 28.1  | %    |      |  | 9,436  |         |      |  | 16.1  | %   
|J-COM                                    |                              |                                  | 367,062  |                     |         |                     | 312,929  |         |        |   | 54,133  |         |         |  | 17.3  | %    |      |  | 32,667 |         |      |  | 10.4  | %   
|Corporate and all other                  |                              |                                  | 123,341  |                     |         |                     | 94,167   |         |        |   | 29,174  |         |         |  | 31.0  | %    |      |  | 23,872 |         |      |  | 25.4  | %   
|Elimination of intercompany transactions |                              |                                  | (35,286  | )                   |         |                     | (33,261  | )       |        |   | (2,025  | )       |         |  | N.M.  |      |      |  | N.M.   |         |      |  | N.M.  |     
|Elimination of equity affiliates         |                              |                                  | (367,062 | )                   |         |                     | (787,444 | )       |        |   | 420,382 |         |         |  | N.M.  |      |      |  | N.M.   |         |      |  | N.M.  |     
|                                         |                              |                                  |          |                     |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |        |         |      |  |       |     
|                                         |                              | Total consolidated LMI           |          | $                   | 708,807 |                     |          |         | 27,951 |   |         |         | 680,856 |  |       |      | N.M. |  |        |         | N.M. |  |       |      | N.M. | 
|                                         |                              |                                  |          |                     |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |        |         |      |  |       |     

|                                         |                              |                                 |            |                     |           |                     |            |           |        |   |           |         |           |  |       |      |      |  |         |         |      |  |       |      |      | 
|---------------------------------------- | ---------------------------- | ------------------------------- | ---------- | ------------------- | --------- | ------------------- | ---------- | --------- | ------ | - | --------- | ------- | --------- |  | ----- | ---- | ---- |  | ------- | ------- | ---- |  | ----- | ---- | ---- | 
|                                         |                              |                                
|                                         |                              | Nine Months Ended September 30,
|                                         |                              |                                
|                                         |                              |                                 |            |                    
|                                         |                              |                                 |            |                     |           | Increase (decrease)
|                                         |                              |                                 |            | Increase (decrease) |           | excluding FX       
|                                         |                              |                                 |            |                     |           |                    
|                                         |                              | 2004                            |            | 2003                |           | $                   |            | %         |        | $ |           | %      
|                                         |                              |                                 |            |                     |           |                     |            |           |        |   |           |        
|UGC Broadband  The Netherlands          |                              | $                               | 519,948    |                     |           |                     | 430,620    |           |        |   | 89,328    |         |           |  | 20.7  | %    |      |  | 41,340  |         |      |  | 9.6   | %   
|UGC Broadband  France                   |                              |                                 | 182,850    |                     |           |                     | 84,435     |           |        |   | 98,415    |         |           |  | 116.6 | %    |      |  | 89,699  |         |      |  | 106.2 | %   
|UGC Broadband  Austria                  |                              |                                 | 221,780    |                     |           |                     | 189,880    |           |        |   | 31,900    |         |           |  | 16.8  | %    |      |  | 11,393  |         |      |  | 6.0   | %   
|UGC Broadband  Other Europe             |                              |                                 | 506,095    |                     |           |                     | 411,266    |           |        |   | 94,829    |         |           |  | 23.1  | %    |      |  | 61,069  |         |      |  | 14.8  | %   
|                                         |                              |                                 |            |                     |           |                     |            |           |        |   |           |         |           |  |       |      |      |  |         |         |      |  |       |     
|                                         | UGC Broadband  Total Europe |                                 |            | 1,430,673           |           |                     |            | 1,116,201 |        |   |           | 314,472 |           |  |       | 28.2 | %    |  |         | 203,501 |      |  |       | 18.2 | %   
|UGC Broadband  Chile (VTR)              |                              |                                 | 216,537    |                     |           |                     | 161,667    |           |        |   | 54,870    |         |           |  | 33.9  | %    |      |  | 25,382  |         |      |  | 15.7  | %   
|J-COM                                    |                              |                                 | 1,090,476  |                     |           |                     | 885,517    |           |        |   | 204,959   |         |           |  | 23.1  | %    |      |  | 116,108 |         |      |  | 13.1  | %   
|Corporate and all other                  |                              |                                 | 320,725    |                     |           |                     | 271,841    |           |        |   | 48,884    |         |           |  | 18.0  | %    |      |  | 30,173  |         |      |  | 11.1  | %   
|Elimination of intercompany transactions |                              |                                 | (102,166   | )                   |           |                     | (93,627    | )         |        |   | (8,539    | )       |           |  | N.M.  |      |      |  | N.M.    |         |      |  | N.M.  |     
|Elimination of equity affiliates         |                              |                                 | (1,090,476 | )                   |           |                     | (2,261,183 | )         |        |   | 1,170,707 |         |           |  | N.M.  |      |      |  | N.M.    |         |      |  | N.M.  |     
|                                         |                              |                                 |            |                     |           |                     |            |           |        |   |           |         |           |  |       |      |      |  |         |         |      |  |       |     
|                                         |                              | Total consolidated LMI          |            | $                   | 1,865,769 |                     |            |           | 80,416 |   |           |         | 1,785,353 |  |       |      | N.M. |  |         |         | N.M. |  |       |      | N.M. | 
|                                         |                              |                                 |            |                     |           |                     |            |           |        |   |           |         |           |  |       |      |      |  |         |         |      |  |       |     



---

N.M.  Not Meaningful

UGC Broadband  The
Netherlands.UGC Broadband 
The Netherlands revenue increased 18.7% and 20.7% for the
three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
such increases were 9.3% and 9.6%, respectively. The majority of
the increases in local currency revenue are attributable to
increases in the average revenue per RGU (ARPU). ARPU increased
6.9% and 8.7% for the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods,

I-42



---



##### 



primarily due to rate increases in cable
television services and the impact of the increased penetration
of broadband Internet services, offset by reduced tariffs for
telephone services as lower outbound interconnect rates were
passed through to the consumer to maintain the product at a
competitive level in the market. Growth in overall average RGUs
of 2.2% and 0.8% for the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods, provided the remainder of the
increase in revenue. The growth in average RGUs resulted
primarily from the continued successful sale of broadband
Internet services, as broadband Internet subscribers increased
20.5% from September 30, 2003 to September 30, 2004.
UGC previously announced that it would increase rates for analog
video customers in The Netherlands towards a standard rate,
effective January 1, 2004. As previously reported, UGC has
been enjoined from, or has voluntarily waived, implementing
these rate increases in certain cities within The Netherlands.
Thus far, UGC has reached agreement with a majority of these
municipalities, including the municipality of Amsterdam,
allowing UGC to increase its cable tariffs to a standard rate
through the course of the year. UGC is currently negotiating
with other municipalities and expects a satisfactory resolution.


UGC Broadband 
Austria.UGC Broadband 
Austria revenue increased 11.4% and 16.8% for the three and nine
months ended September 30, 2004, respectively, as compared
to the corresponding prior year periods. Excluding the effects
of foreign exchange fluctuations, such increases were 2.6% and
6.0%, respectively. These local currency increases are primarily
attributable to an overall average RGU increase of 3.6% and 3.8%
for the three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Internet subscriber growth of 16.3% from
September 30, 2003 to September 30, 2004 was the major
contributor to these RGU increases. ARPU decreased 1.0% for the
three months ended September 30, 2004, and increased 2.1%
for the nine months ended September 30, 2004, as compared
to the corresponding prior year periods. The 1.0% decline in
ARPU during the three-month period resulted primarily from
reduced outbound telephone traffic as more customers migrate
from dial-up Internet services to broadband Internet access and
from fixed-line telephone usage to cellular phone usage. The
movement of some broadband Internet subscribers to lower-tier
services also contributed to the decrease in ARPU during the
three-month period. The 2.1% increase in ARPU during the
nine-month period is due to increased penetration of broadband
Internet services.

UGC Broadband 
France.UGC Broadband 
France revenue increased 305.4% and 116.6% during the three and
nine months ended September 30, 2004, respectively, as
compared to the corresponding prior year periods. Such increases
primarily reflect the July 1, 2004 acquisition of Noos.
Excluding the effects of the Noos acquisition and foreign
exchange fluctuations, UGC Broadband  France revenue
decreased 1.2% for the three months ended September 30,
2004 and increased 1.2% for the nine months ended
September 30, 2004, as compared to the corresponding prior
year periods. Such fluctuations are due to decreases in ARPU
that were largely offset by increases in RGUs. ARPU decreased
11.5% and 6.3% for the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year period, primarily due to the effects of
(i) an eight-fold increase in digital television
subscribers from September 30, 2003 to September 30,
2004 (as the incremental revenue increase from a digital
customer does not offset the impact of an additional RGU in the
ARPU calculation), (ii) lower tariffs from telephone
services, as lower outbound interconnect rates were passed
through to the customer to maintain the service at a competitive
level in the market, and (iii) reduced outbound telephone
traffic as more customers migrate from dial-up Internet access
to broadband Internet access and from fixed-line telephone usage
to cellular phone usage. These ARPU decreases were offset by an
increase in average RGUs of 11.7% and 8.0% for the three and
nine months ended September 30, 2004, respectively,
compared to the same periods in the prior year, Such RGU
increases primarily are attributable to growth in digital
television and broadband Internet services.

UGC Broadband  Other
Europe.UGC Broadband 
Other Europe includes broadband operations in Norway, Sweden,
Belgium, Hungary, Poland, Czech Republic, Slovak Republic, and
Romania. UGC Broadband  Other Europe revenue
increased 26.4% and 23.1% during the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods. Excluding the effects of
foreign exchange fluctuations, such increases were 15.3% and
14.8%, respectively. The local currency revenue increases during
the three-month and nine month-periods are attributable to
increases in ARPU of

I-43



---



##### 



10.7% and 10.1%, respectively, and increases in
average RGUs of 4.1% and 4.2%, respectively. Such RGU and ARPU
increases are primarily attributable to increased penetration of
broadband Internet access services.


UGC Broadband  Chile
(VTR).UGC Broadband  Chile
revenue increased 28.1% and 33.9% during the three and nine
months ended September 30, 2004, respectively, as compared
to the corresponding prior year periods. Excluding the effects
of foreign exchange fluctuations, such increases were 16.1% and
15.7%, respectively. The revenue increases in the local currency
are due primarily to growth in average RGUs of 14.0% and 15.0%
during the three and nine months ended September 30, 2004,
as compared to the corresponding prior year periods. The
increases in average RGUs are due primarily to the continued
successful sale of analog cable television services, broadband
Internet services and telephone services through improved direct
sales and mass marketing initiatives. Reduced subscriber churn
also contributed to the RGU increases. ARPU remained relatively
flat from period to period due primarily to significant
competition in UGC Broadband  Chiles markets.

J-COM.J-COMs
revenue increased 17.3% and 23.1% during the three and nine
months ended September 30, 2004, respectively, as compared
to the corresponding prior year periods. Excluding the effects
of foreign exchange fluctuations, such increases were 10.4% and
13.1%, respectively. The local currency increases are primarily
attributable to a 17.1% increase in subscribers from
September 30, 2003 to September 30, 2004. Most of this
subscriber increase is attributable to growth within
J-COMs telephony and Internet access services. An increase
in average revenue per household per month of 4% during the nine
months ended September 30, 2004, as compared to the
corresponding prior year period, also contributed to the
increase in local currency revenue. The increases in average
revenue per household per month is primarily attributable to the
full-year effect of cable television service price increases
implemented during 2003 and increased penetration of
J-COMs higher-priced broadband Internet service. These
factors were somewhat offset by a reduction in the price for
J-COMs lower-priced broadband Internet service and a
decrease in customer call volumes for J-COMs telephone
service.



| |                                                  
| | -------------------------------------------------
| | Operating Expenses of our Reportable
    Segments

An analysis of the operating expenses of our
reportable segments for the indicated periods is set forth below
(dollar amounts in thousands):

|                                         |                              |                                  |          |                     |         |              |          |         |        |   |         |        |         |  |       |      |      |  |        |        |      |  |       |      |      | 
|---------------------------------------- | ---------------------------- | -------------------------------- | -------- | ------------------- | ------- | ------------ | -------- | ------- | ------ | - | ------- | ------ | ------- |  | ----- | ---- | ---- |  | ------ | ------ | ---- |  | ----- | ---- | ---- | 
|                                         |                              |                                 
|                                         |                              | Three Months Ended September 30,
|                                         |                              |                                 
|                                         |                              |                                  |          |                    
|                                         |                              |                                  |          | Increase           
|                                         |                              |                                  |          |                     |         | (decrease)  
|                                         |                              |                                  |          | Increase (decrease) |         | excluding FX
|                                         |                              |                                  |          |                     |         |             
|                                         |                              | 2004                             |          | 2003                |         | $            |          | %       |        | $ |         | %     
|                                         |                              |                                  |          |                     |         |              |          |         |        |   |         |       
|UGC Broadband  The Netherlands          |                              | $                                | 60,241   |                     |         |              | 48,100   |         |        |   | 12,141  |        |         |  | 25.2  | %    |      |  | 7,407  |        |      |  | 15.4  | %   
|UGC Broadband  France                   |                              |                                  | 69,571   |                     |         |              | 16,368   |         |        |   | 53,203  |        |         |  | 325.0 | %    |      |  | 51,722 |        |      |  | 315.8 | %   
|UGC Broadband  Austria                  |                              |                                  | 30,353   |                     |         |              | 28,844   |         |        |   | 1,509   |        |         |  | 5.2   | %    |      |  | (894   | )      |      |  | (3.1  | )%  
|UGC Broadband  Other Europe             |                              |                                  | 76,156   |                     |         |              | 64,308   |         |        |   | 11,848  |        |         |  | 18.4  | %    |      |  | 6,191  |        |      |  | 9.6   | %   
|                                         |                              |                                  |          |                     |         |              |          |         |        |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     
|                                         | UGC Broadband  Total Europe |                                  |          | 236,321             |         |              |          | 157,620 |        |   |         | 78,701 |         |  |       | 49.9 | %    |  |        | 64,426 |      |  |       | 40.9 | %   
|UGC Broadband  Chile (VTR)              |                              |                                  | 24,107   |                     |         |              | 20,342   |         |        |   | 3,765   |        |         |  | 18.5  | %    |      |  | 1,505  |        |      |  | 7.4   | %   
|J-COM                                    |                              |                                  | 122,151  |                     |         |              | 109,488  |         |        |   | 12,663  |        |         |  | 11.6  | %    |      |  | 5,519  |        |      |  | 5.0   | %   
|Corporate and all other                  |                              |                                  | 53,222   |                     |         |              | 52,281   |         |        |   | 941     |        |         |  | 1.8   | %    |      |  | (1,817 | )      |      |  | (3.5  | )%  
|Elimination of Intercompany transactions |                              |                                  | (32,752  | )                   |         |              | (30,697  | )       |        |   | (2,055  | )      |         |  | N.M.  |      |      |  | N.M.   |        |      |  | N.M.  |     
|Elimination of Equity Affiliates         |                              |                                  | (122,151 | )                   |         |              | (295,894 | )       |        |   | 173,743 |        |         |  | N.M.  |      |      |  | N.M.   |        |      |  | N.M.  |     
|                                         |                              |                                  |          |                     |         |              |          |         |        |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     
|                                         |                              | Total consolidated LMI           |          | $                   | 280,898 |              |          |         | 13,140 |   |         |        | 267,758 |  |       |      | N.M. |  |        |        | N.M. |  |       |      | N.M. | 
|                                         |                              |                                  |          |                     |         |              |          |         |        |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     

I-44



---



##### 



|                                         |                              |                                 |          |                     |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |         |        |      |  |      |      |      | 
|---------------------------------------- | ---------------------------- | ------------------------------- | -------- | ------------------- | ------- | ------------------- | -------- | ------- | ------ | - | ------- | ------- | ------- |  | ----- | ---- | ---- |  | ------- | ------ | ---- |  | ---- | ---- | ---- | 
|                                         |                              |                                
|                                         |                              | Nine Months Ended September 30,
|                                         |                              |                                
|                                         |                              |                                 |          |                    
|                                         |                              |                                 |          |                     |         | Increase (decrease)
|                                         |                              |                                 |          | Increase (decrease) |         | excluding FX       
|                                         |                              |                                 |          |                     |         |                    
|                                         |                              | 2004                            |          | 2003                |         | $                   |          | %       |        | $ |         | %      
|                                         |                              |                                 |          |                     |         |                     |          |         |        |   |         |        
|UGC Broadband  The Netherlands          |                              | $                               | 175,810  |                     |         |                     | 170,123  |         |        |   | 5,687   |         |         |  | 3.3   | %    |      |  | (10,548 | )      |      |  | (6.2 | )%  
|UGC Broadband  France                   |                              |                                 | 106,078  |                     |         |                     | 51,224   |         |        |   | 54,854  |         |         |  | 107.1 | %    |      |  | 49,727  |        |      |  | 98.8 | %   
|UGC Broadband  Austria                  |                              |                                 | 98,226   |                     |         |                     | 85,758   |         |        |   | 12,468  |         |         |  | 14.5  | %    |      |  | 3,345   |        |      |  | 3.9  | %   
|UGC Broadband  Other Europe             |                              |                                 | 224,831  |                     |         |                     | 191,994  |         |        |   | 32,837  |         |         |  | 17.1  | %    |      |  | 19,035  |        |      |  | 9.9  | %   
|                                         |                              |                                 |          |                     |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |         |        |      |  |      |     
|                                         | UGC Broadband  Total Europe |                                 |          | 604,945             |         |                     |          | 499,099 |        |   |         | 105,846 |         |  |       | 21.2 | %    |  |         | 61,559 |      |  |      | 12.3 | %   
|UGC Broadband  Chile (VTR)              |                              |                                 | 69,142   |                     |         |                     | 58,872   |         |        |   | 10,270  |         |         |  | 17.4  | %    |      |  | 765     |        |      |  | 1.3  | %   
|J-COM                                    |                              |                                 | 361,884  |                     |         |                     | 310,539  |         |        |   | 51,345  |         |         |  | 16.5  | %    |      |  | 21,859  |        |      |  | 7.0  | %   
|Corporate and all other                  |                              |                                 | 148,629  |                     |         |                     | 139,449  |         |        |   | 9,180   |         |         |  | 6.6   | %    |      |  | (169    | )      |      |  | N.M. |     
|Elimination of Intercompany transactions |                              |                                 | (94,293  | )                   |         |                     | (86,301  | )       |        |   | (7,992  | )       |         |  | N.M.  |      |      |  | N.M.    |        |      |  | N.M. |     
|Elimination of equity affiliates         |                              |                                 | (361,884 | )                   |         |                     | (884,933 | )       |        |   | 523,049 |         |         |  | N.M.  |      |      |  | N.M.    |        |      |  | N.M. |     
|                                         |                              |                                 |          |                     |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |         |        |      |  |      |     
|                                         |                              | Total consolidated LMI          |          | $                   | 728,423 |                     |          |         | 36,725 |   |         |         | 691,698 |  |       |      | N.M. |  |         |        | N.M. |  |      |      | N.M. | 
|                                         |                              |                                 |          |                     |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |         |        |      |  |      |     



---

N.M.  Not Meaningful

General.Operating
expenses include programming, broadcasting, content, network
operations, customer operations, customer care, and other direct
costs. Programming costs are expected to rise in future periods
as a result of the expansion of service offerings and the
potential for price increases. Any cost increases that we are
not able to pass on to our subscribers through service rate
increases would result in increased pressure on our operating
margins.

UGC Broadband  Total
Europe.Operating expenses for UGC
Broadband  Total Europe increased 49.9% and 21.2% for
the three and nine months ended September 30, 2004,
respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations
and the Noos acquisition, operating expenses increased 8.6% and
2.1%, respectively, primarily due to (i) increases in
direct programming costs related to subscriber growth and, in
certain markets, an increase in channels on the analog and
digital platforms, (ii) increased customer operation
expense as a result of higher numbers of new and reconnecting
subscribers, (iii) increased network operations costs for
broadband Internet access services as a result of subscriber
growth, (iv) normal annual wage and cost increases,
(v) increases in customer care expense, reflecting
increased call volumes due to RGU growth and new systems in
certain locations, (vi) increases in the amounts
effectively paid to suppliers in Poland due to the elimination
of value added tax during 2004 (which tax was recoverable prior
to its elimination) without corresponding decreases to the
prices paid to suppliers and (vii) an increase during the
three-month period due to a one-time credit that was included in
The Netherlands operating expenses during the third
quarter of 2003. These increases were partially offset by
decreases in operating expenses resulting from (i) improved
cost controls across all aspects of the business, including more
effective procurement of support services, lower billing and
collections charges and the increasing operational leverage of
the business, and (ii) cost savings in The Netherlands
through a restructuring plan implemented in the second quarter
of 2004 whereby the management structure was changed from a
three-region model to a centralized management organization.

UGC Broadband  Chile
(VTR).UGC Broadband  Chile
operating expenses increased 18.5% and 17.4% for the three and
nine months ended September 30, 2004, respectively, as
compared to the corresponding prior year periods. Excluding the
effects of foreign exchange fluctuations, such increases were
7.4% and 1.3%, respectively. The local currency increases
primarily are due to (i) an increase in programming costs
driven by RGU growth, (ii) an increase in access charges
and international bandwidth costs, and (iii) an increase in
the cost of technical services.

J-COM.J-COM
operating expenses increased 11.6% and 16.5% for the three and
nine months ended September 30, 2004, respectively, as
compared to the corresponding prior year periods. Excluding the
effects

I-45



---



##### 



of foreign exchange fluctuations, such increases
were 5.0% and 7.0%, respectively. These local currency increases
primarily are due to an increase in programming costs as a
result of subscriber growth and improved service offerings.
Increases in network maintenance and technical support costs
associated with the expansion of J-COMs network also
contributed to the increases.




| |                                             
| | --------------------------------------------
| | SG&A Expenses of our Reportable
    Segments

An analysis of the SG&A expenses of our
reportable segments for the indicated periods is set forth below
(dollar amounts in thousands):

|                                         |                              |                                  |         |                     |         |                     |          |        |        |   |         |        |         |  |       |      |      |  |        |        |      |  |       |      |      | 
|---------------------------------------- | ---------------------------- | -------------------------------- | ------- | ------------------- | ------- | ------------------- | -------- | ------ | ------ | - | ------- | ------ | ------- |  | ----- | ---- | ---- |  | ------ | ------ | ---- |  | ----- | ---- | ---- | 
|                                         |                              |                                 
|                                         |                              | Three Months Ended September 30,
|                                         |                              |                                 
|                                         |                              |                                  |         |                    
|                                         |                              |                                  |         |                     |         | Increase (decrease)
|                                         |                              |                                  |         | Increase (decrease) |         | excluding FX       
|                                         |                              |                                  |         |                     |         |                    
|                                         |                              | 2004                             |         | 2003                |         | $                   |          | %      |        | $ |         | %     
|                                         |                              |                                  |         |                     |         |                     |          |        |        |   |         |       
|UGC Broadband  The Netherlands          |                              | $                                | 25,159  |                     |         |                     | 24,130   |        |        |   | 1,029   |        |         |  | 4.3   | %    |      |  | (925   | )      |      |  | (3.8  | )%  
|UGC Broadband  France                   |                              |                                  | 28,298  |                     |         |                     | 7,725    |        |        |   | 20,573  |        |         |  | 266.3 | %    |      |  | 19,960 |        |      |  | 258.4 | %   
|UGC Broadband  Austria                  |                              |                                  | 13,908  |                     |         |                     | 10,411   |        |        |   | 3,497   |        |         |  | 33.6  | %    |      |  | 2,354  |        |      |  | 22.6  | %   
|UGC Broadband  Other Europe             |                              |                                  | 27,269  |                     |         |                     | 23,219   |        |        |   | 4,050   |        |         |  | 17.4  | %    |      |  | 2,418  |        |      |  | 10.4  | %   
|                                         |                              |                                  |         |                     |         |                     |          |        |        |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     
|                                         | UGC Broadband  Total Europe |                                  |         | 94,634              |         |                     |          | 65,485 |        |   |         | 29,149 |         |  |       | 44.5 | %    |  |        | 23,807 |      |  |       | 36.4 | %   
|UGC Broadband  Chile (VTR)              |                              |                                  | 25,064  |                     |         |                     | 19,337   |        |        |   | 5,727   |        |         |  | 29.6  | %    |      |  | 3,331  |        |      |  | 17.2  | %   
|J-COM                                    |                              |                                  | 98,472  |                     |         |                     | 93,177   |        |        |   | 5,295   |        |         |  | 5.7   | %    |      |  | (374   | )      |      |  | N.M.  |     
|Corporate and all other                  |                              |                                  | 58,990  |                     |         |                     | 44,936   |        |        |   | 14,054  |        |         |  | 31.3  | %    |      |  | 11,349 |        |      |  | 25.3  | %   
|Elimination of Intercompany transactions |                              |                                  | (2,534  | )                   |         |                     | (2,564   | )      |        |   | 30      |        |         |  | N.M.  |      |      |  | N.M.   |        |      |  | N.M.  |     
|Elimination of equity affiliates         |                              |                                  | (98,472 | )                   |         |                     | (209,920 | )      |        |   | 111,448 |        |         |  | N.M.  |      |      |  | N.M.   |        |      |  | N.M.  |     
|                                         |                              |                                  |         |                     |         |                     |          |        |        |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     
|                                         |                              | Total consolidated LMI           |         | $                   | 176,154 |                     |          |        | 10,451 |   |         |        | 165,703 |  |       |      | N.M. |  |        |        | N.M. |  |       |      | N.M. | 
|                                         |                              |                                  |         |                     |         |                     |          |        |        |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     

|                                         |                              |                                 |          |                     |         |              |          |         |        |   |         |        |         |  |      |      |      |  |        |        |      |  |      |      |      | 
|---------------------------------------- | ---------------------------- | ------------------------------- | -------- | ------------------- | ------- | ------------ | -------- | ------- | ------ | - | ------- | ------ | ------- |  | ---- | ---- | ---- |  | ------ | ------ | ---- |  | ---- | ---- | ---- | 
|                                         |                              |                                
|                                         |                              | Nine Months Ended September 30,
|                                         |                              |                                
|                                         |                              |                                 |          |                    
|                                         |                              |                                 |          | Increase           
|                                         |                              |                                 |          |                     |         | (decrease)  
|                                         |                              |                                 |          | Increase (decrease) |         | excluding FX
|                                         |                              |                                 |          |                     |         |             
|                                         |                              | 2004                            |          | 2003                |         | $            |          | %       |        | $ |         | %     
|                                         |                              |                                 |          |                     |         |              |          |         |        |   |         |       
|UGC Broadband  The Netherlands          |                              | $                               | 77,041   |                     |         |              | 71,969   |         |        |   | 5,072   |        |         |  | 7.0  | %    |      |  | (2,408 | )      |      |  | (3.3 | )%  
|UGC Broadband  France                   |                              |                                 | 48,487   |                     |         |              | 24,502   |         |        |   | 23,985  |        |         |  | 97.9 | %    |      |  | 21,350 |        |      |  | 87.1 | %   
|UGC Broadband  Austria                  |                              |                                 | 37,065   |                     |         |              | 30,834   |         |        |   | 6,231   |        |         |  | 20.2 | %    |      |  | 2,698  |        |      |  | 8.8  | %   
|UGC Broadband  Other Europe             |                              |                                 | 78,777   |                     |         |              | 70,685   |         |        |   | 8,092   |        |         |  | 11.4 | %    |      |  | 1,909  |        |      |  | 3.4  | %   
|                                         |                              |                                 |          |                     |         |              |          |         |        |   |         |        |         |  |      |      |      |  |        |        |      |  |      |     
|                                         | UGC Broadband  Total Europe |                                 |          | 241,370             |         |              |          | 197,990 |        |   |         | 43,380 |         |  |      | 21.9 | %    |  |        | 23,549 |      |  |      | 11.9 | %   
|UGC Broadband  Chile (VTR)              |                              |                                 | 72,453   |                     |         |              | 54,911   |         |        |   | 17,542  |        |         |  | 31.9 | %    |      |  | 7,618  |        |      |  | 13.9 | %   
|J-COM                                    |                              |                                 | 295,480  |                     |         |              | 274,214  |         |        |   | 21,266  |        |         |  | 7.8  | %    |      |  | (2,809 | )      |      |  | (1.0 | )%  
|Corporate and all other                  |                              |                                 | 176,160  |                     |         |              | 142,727  |         |        |   | 33,433  |        |         |  | 23.4 | %    |      |  | 23,323 |        |      |  | 16.4 | %   
|Elimination of Intercompany transactions |                              |                                 | (7,873   | )                   |         |              | (7,326   | )       |        |   | (547    | )      |         |  | N.M. |      |      |  | N.M.   |        |      |  | N.M. |     
|Elimination of equity affiliates         |                              |                                 | (295,480 | )                   |         |              | (632,618 | )       |        |   | 337,138 |        |         |  | N.M. |      |      |  | N.M.   |        |      |  | N.M. |     
|                                         |                              |                                 |          |                     |         |              |          |         |        |   |         |        |         |  |      |      |      |  |        |        |      |  |      |     
|                                         |                              | Total consolidated LMI          |          | $                   | 482,110 |              |          |         | 29,898 |   |         |        | 452,212 |  |      |      | N.M. |  |        |        | N.M. |  |      |      | N.M. | 
|                                         |                              |                                 |          |                     |         |              |          |         |        |   |         |        |         |  |      |      |      |  |        |        |      |  |      |     



---

N.M.  Not Meaningful

General.SG&A
expenses include human resources, information technology,
general services, management, finance, legal and marketing costs
and other general expenses.

UGC Broadband  Total
Europe. UGC
Broadband  Total Europe SG&A expenses increased
44.5% and 21.9% for the three and nine months ended
September 30, 2004, respectively, as compared to the
corresponding prior year periods. Excluding the effects of
foreign exchange fluctuations and the Noos

I-46



---



##### 



acquisition, SG&A increased 5.7% and 1.8%,
respectively. These local currency increases primarily are due
to (i) increased marketing expenditures to support
subscriber growth and new digital programming services,
(ii) normal annual wage and cost increases,
(iii) increased consulting and other information technology
support costs associated with the implementation of new customer
care systems in several countries and UGCs subscriber
management system in Austria, and (iv) higher legal,
accounting and other professional advisory fees due, in part, to
requirements of the Sarbanes-Oxley Act of 2002. These increases
were largely offset by improved cost controls across all aspects
of the business and cost savings resulting from The
Netherlands restructuring that was implemented during the
second quarter of 2004, as mentioned above.


UGC Broadband  Chile
(VTR) UGC
Broadband  Chile SG&A expenses increased 29.6%
and 31.9% for the three and nine months ended September 30,
2004, respectively, as compared to the corresponding prior year
periods. Excluding the effects of foreign exchange fluctuations,
such increases were 17.2% and 13.9%, respectively. These local
currency increases primarily are due to (i) normal annual
wage and cost increases, (ii) an increase in commissions
and marketing expense as a result of increased competition, and
(ii) higher legal, accounting and other professional
advisory fees due in part to requirements of the Sarbanes-Oxley
Act of 2002.

J-COM.J-COM
SG&A expenses increased 5.7% and 7.8% for the three and nine
months ended September 30, 2004, respectively, as compared
to the corresponding prior year periods. Excluding the effects
of foreign exchange fluctuations, J-COM SG&A expenses
remained relatively constant over the 2004 and 2003 periods, as
the effect of reduced marketing personnel and advertising and
promotion costs was offset by increased labor and other overhead
costs associated primarily with increases in J-COMs
customers.



| |                                                   
| | --------------------------------------------------
| | Operating Cash Flow of our Reportable
    Segments

An analysis of the operating cash flow of our
reportable segments for the indicated periods is set forth below
(dollar amounts in thousands):

|                                 |                              |                                  |          |                      |         |                     |          |         |       |   |         |        |         |  |       |      |      |  |        |        |      |  |       |      |      | 
|-------------------------------- | ---------------------------- | -------------------------------- | -------- | -------------------- | ------- | ------------------- | -------- | ------- | ----- | - | ------- | ------ | ------- |  | ----- | ---- | ---- |  | ------ | ------ | ---- |  | ----- | ---- | ---- | 
|                                 |                              |                                 
|                                 |                              | Three Months Ended September 30,
|                                 |                              |                                 
|                                 |                              |                                  |          |                     
|                                 |                              |                                  |          |                      |         | Increase (decrease)
|                                 |                              |                                  |          | Increased (decrease) |         | excluding FX       
|                                 |                              |                                  |          |                      |         |                    
|                                 |                              | 2004                             |          | 2003                 |         | $                   |          | %       |       | $ |         | %     
|                                 |                              |                                  |          |                      |         |                     |          |         |       |   |         |       
|UGC Broadband  The Netherlands  |                              | $                                | 93,596   |                      |         |                     | 78,608   |         |       |   | 14,988  |        |         |  | 19.1  | %    |      |  | 7,546  |        |      |  | 9.6   | %   
|UGC Broadband  France           |                              |                                  | 22,722   |                      |         |                     | 5,651    |         |       |   | 17,071  |        |         |  | 302.1 | %    |      |  | 16,647 |        |      |  | 294.6 | %   
|UGC Broadband  Austria          |                              |                                  | 28,221   |                      |         |                     | 25,830   |         |       |   | 2,391   |        |         |  | 9.3   | %    |      |  | 232    |        |      |  | 0.9   | %   
|UGC Broadband  Other Europe     |                              |                                  | 70,162   |                      |         |                     | 49,758   |         |       |   | 20,404  |        |         |  | 41.0  | %    |      |  | 12,432 |        |      |  | 25.0  | %   
|                                 |                              |                                  |          |                      |         |                     |          |         |       |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     
|                                 | UGC Broadband  Total Europe |                                  |          | 214,701              |         |                     |          | 159,847 |       |   |         | 54,854 |         |  |       | 34.3 | %    |  |        | 36,857 |      |  |       | 23.1 | %   
|UGC Broadband  Chile (VTR)      |                              |                                  | 25,925   |                      |         |                     | 18,929   |         |       |   | 6,996   |        |         |  | 37.0  | %    |      |  | 4,600  |        |      |  | 24.3  | %   
|J-COM                            |                              |                                  | 146,439  |                      |         |                     | 110,264  |         |       |   | 36,175  |        |         |  | 32.8  | %    |      |  | 27,522 |        |      |  | 25.0  | %   
|Corporate and all other          |                              |                                  | 11,129   |                      |         |                     | (3,050   | )       |       |   | 14,179  |        |         |  | N.M.  |      |      |  | 14,340 |        |      |  | N.M.  |     
|Elimination of equity affiliates |                              |                                  | (146,439 | )                    |         |                     | (281,630 | )       |       |   | 135,191 |        |         |  | N.M.  |      |      |  | N.M.   |        |      |  | N.M.  |     
|                                 |                              |                                  |          |                      |         |                     |          |         |       |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     
|                                
|                                 |                              | Total consolidated LMI           |          | $                    | 251,755 |                     |          |         | 4,360 |   |         |        | 247,395 |  |       |      | N.M. |  |        |        | N.M. |  |       |      | N.M. | 
|                                 |                              |                                  |          |                      |         |                     |          |         |       |   |         |        |         |  |       |      |      |  |        |        |      |  |       |     

I-47



---



##### 



|                                 |                              |                                 |          |                      |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |        |         |      |  |       |      |      | 
|-------------------------------- | ---------------------------- | ------------------------------- | -------- | -------------------- | ------- | ------------------- | -------- | ------- | ------ | - | ------- | ------- | ------- |  | ----- | ---- | ---- |  | ------ | ------- | ---- |  | ----- | ---- | ---- | 
|                                 |                              |                                
|                                 |                              | Nine Months Ended September 30,
|                                 |                              |                                
|                                 |                              |                                 |          |                     
|                                 |                              |                                 |          |                      |         | Increase (decrease)
|                                 |                              |                                 |          | Increased (decrease) |         | excluding FX       
|                                 |                              |                                 |          |                      |         |                    
|                                 |                              | 2004                            |          | 2003                 |         | $                   |          | %       |        | $ |         | %      
|                                 |                              |                                 |          |                      |         |                     |          |         |        |   |         |        
|UGC Broadband  The Netherlands  |                              | $                               | 267,097  |                      |         |                     | 188,528  |         |        |   | 78,569  |         |         |  | 41.7  | %    |      |  | 54,296 |         |      |  | 28.8  | %   
|UGC Broadband  France           |                              |                                 | 28,285   |                      |         |                     | 8,709    |         |        |   | 19,576  |         |         |  | 224.8 | %    |      |  | 18,622 |         |      |  | 213.0 | %   
|UGC Broadband  Austria          |                              |                                 | 86,489   |                      |         |                     | 73,288   |         |        |   | 13,201  |         |         |  | 18.0  | %    |      |  | 5,350  |         |      |  | 7.3   | %   
|UGC Broadband  Other Europe     |                              |                                 | 202,487  |                      |         |                     | 148,587  |         |        |   | 53,900  |         |         |  | 36.3  | %    |      |  | 40,125 |         |      |  | 27.0  | %   
|                                 |                              |                                 |          |                      |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |        |         |      |  |       |     
|                                 | UGC Broadband  Total Europe |                                 |          | 584,358              |         |                     |          | 419,112 |        |   |         | 165,248 |         |  |       | 39.4 | %    |  |        | 118,393 |      |  |       | 28.2 | %   
|UGC Broadband  Chile (VTR)      |                              |                                 | 74,942   |                      |         |                     | 47,884   |         |        |   | 27,058  |         |         |  | 56.5  | %    |      |  | 16,999 |         |      |  | 35.5  | %   
|J-COM                            |                              |                                 | 433,112  |                      |         |                     | 300,764  |         |        |   | 132,348 |         |         |  | 44.0  | %    |      |  | 97,058 |         |      |  | 32.3  | %   
|Corporate and all other          |                              |                                 | (4,064   | )                    |         |                     | (10,335  | )       |        |   | 6,271   |         |         |  | 60.7  | %    |      |  | 7,019  |         |      |  | 68.9  | %   
|Elimination of equity affiliates |                              |                                 | (433,112 | )                    |         |                     | (743,632 | )       |        |   | 310,520 |         |         |  | N.M.  |      |      |  | N.M.   |         |      |  | N.M.  |     
|                                 |                              |                                 |          |                      |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |        |         |      |  |       |     
|                                
|                                 |                              | Total consolidated LMI          |          | $                    | 655,236 |                     |          |         | 13,793 |   |         |         | 641,443 |  |       |      | N.M. |  |        |         | N.M. |  |       |      | N.M. | 
|                                 |                              |                                 |          |                      |         |                     |          |         |        |   |         |         |         |  |       |      |      |  |        |         |      |  |       |     



---

N.M.  Not Meaningful

For explanations of the factors contributing to
the changes in operating cash flow, see the above analyses of
the revenue, operating expenses and SG&A expenses of our
reportable segments.

Liquidity and Capital Resources



| |                         
| | ------------------------
| | Sources and Uses of Cash

Prior to the spin off, cash transfers from
Liberty represented our primary source of funds. Due to the spin
off, cash transfers from Liberty no longer represent a source of
liquidity for us. Although our consolidated operating
subsidiaries have generated cash from operating activities and
have borrowed funds under their respective bank facilities, we
generally are not entitled to the resources of our operating
subsidiaries or business affiliates. In this regard, we and each
of our subsidiaries perform separate assessments of our
respective liquidity needs. Accordingly, the current and future
liquidity of our corporate and subsidiary operations is
discussed separately below. Following the discussion of our
sources and uses of liquidity, we present a discussion of our
historical cash flows.



| |                    
| | -------------------
| | Corporate Liquidity

At September 30, 2004, we held cash and cash
equivalents of $739,344,000 at the corporate level. Our
remaining cash and cash equivalents at September 30, 2004
of $999,386,000 were held by UGC and our other subsidiaries. As
noted above, we do not anticipate that any of the cash held by
our subsidiaries will be made available to us to satisfy our
corporate liquidity requirements. As described in greater detail
below, our current sources of liquidity include (i) our
cash and cash equivalents, (ii) our ability to monetize
certain investments and derivative instruments, and
(iii) interest and dividend income received on our cash and
cash equivalents and investments. From time to time, we may also
receive distributions or loan repayments from our subsidiaries
or affiliates and proceeds upon the disposition of investments
and other assets.

During the 2004 period prior to the spin off, a
subsidiary of our company borrowed $116,666,000 from Liberty
pursuant to certain notes payable. In connection with the spin
off, Liberty also entered into a Short-Term Credit Facility with
us. Pursuant to the Short-Term Credit Facility, Liberty had
agreed to make loans to us from time to time up to an aggregate
principal amount of $383,334,000. During the third quarter of
2004, all amounts due to Liberty under the notes payable were
repaid with proceeds from the LMI Rights Offering and the
Short-Term Credit Facility was cancelled.

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In connection with the spin off, Liberty
contributed to our company cash and cash equivalents of
$50,000,000 and available-for-sale securities with a fair value
of $561,130,000 on the contribution date. For additional
information, see note 2 to the accompanying condensed
consolidated financial statements.

On July 19, 2004, our investment in Telewest
Communications plc Senior Notes and Senior Discount Notes was
converted into 18,417,883 shares or approximately 7.5% of
the issued and outstanding common stock of Telewest. During the
third quarter of 2004, we sold 10,551,509 of the acquired
Telewest shares for aggregate cash proceeds of $121,459,000. At
September 30, 2004, we held 7,866,374 shares of
Telewest common stock. We intend to dispose of our remaining
Telewest shares during the fourth quarter of 2004.

On July 26, 2004, we commenced the LMI
Rights Offering whereby holders of record of LMI Common Stock at
5:00 p.m., New York City time, on that date received 0.20
transferable subscription rights for each share of LMI Common
Stock held. The LMI Rights Offering expired in accordance with
its terms on August 23, 2004. Pursuant to the terms of the
LMI Rights Offering, we issued 28,245,000 shares of LMI
Series A Common Stock and 1,211,157 shares of LMI
Series B Common Stock in exchange for aggregate cash
proceeds of $739,432,000, before deducting related offering
costs of $3,771,000. For additional information concerning the
LMI Rights Offering, see note 3 to the accompanying
condensed consolidated financial statements.

In October 2004, we sold our interest in the Sky
Multicountry DTH platform in exchange for reimbursement by the
purchaser of $1,500,000 of funding provided by us in the
previous few months and the release from certain guarantees
described below. We were deemed to owe the purchaser $6,000,000
in respect of such platform, which amount was offset against a
separate payment we received from the purchaser as explained
below. We also agreed to sell our interest in the Sky Brasil DTH
platform and granted the purchaser an option to purchase our
interest in the Sky Mexico DTH platform. On October 28,
2004, we received $54,000,000 in cash from the purchaser, which
consisted of $60,000,000 consideration payable for our Sky
Brasil interest less the $6,000,000 we were deemed to owe the
purchaser in respect of the Sky Multicountry DTH platform. The
$60,000,000 is refundable by us if the Sky Brasil transaction is
terminated. It may be terminated by us or the purchaser if it
has not closed by October 8, 2007 or by the purchaser if
certain conditions are incapable of being satisfied. We will
receive $88,000,000 in cash upon the transfer of our Sky Mexico
interest to the purchaser. The Sky Mexico interest will not be
transferred until certain Mexican regulatory conditions are
satisfied. If the purchaser does not exercise its option to
purchase our Sky Mexico interest on or before October 8,
2006 (or in some cases an earlier date), then we have the right
to require the purchaser to purchase our interest if certain
conditions, including the absence of Mexican regulatory
prohibition of the transaction, have been satisfied or waived.
In light of the contingencies involved, we will not treat either
of the Sky Mexico or Sky Brasil transactions as a sale for
accounting purposes until such time as the necessary regulatory
approvals are obtained and, in the case of Sky Mexico, the cash
is received. In connection with these transactions our
guarantees of the obligations of the Sky Multicountry, Sky
Brasil and Sky Mexico platforms under certain transponder leases
were terminated and our guarantees of obligations under certain
equipment leases will be terminated no later than
December 31, 2004. The buyer has agreed to indemnify us for
any amounts we are required to pay under such equipment leases
subsequent to the transaction date through the date that our
guarantees are terminated.

At September 30, 2004, our investment in
J-COM included ¥41,260,795,000 ($375,064,000) of
shareholder loans to J-COM. Such loans are denominated in
Japanese yen and bear interest at the 3-month Tokyo Interbank
Offered Rate plus the applicable margin per annum (1.83% to
2.08% at September 30, 2004). Such shareholder loans, which
are subordinated to J-COMs third party indebtedness, are
due and payable on February 6, 2011. J-COM is currently
negotiating the refinancing of certain of its indebtedness. In
the event that J-COM successfully completes this refinancing, we
expect that J-COM will repay all amounts due to us pursuant to
the shareholder loans. Although we expect that J-COM will
complete its refinancing during the fourth quarter of 2004, no
assurance can be given that J-COM will successfully complete
this refinancing and, in turn, repay all amounts due to us under
the shareholder loans prior to their maturities. If the
shareholder loans had been repaid as of September 30, 2004,
we would have recognized a $36,523,000 pre-tax gain in
connection with the reclassification of foreign currency
translation gains related to the shareholder

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loans from our other accumulated comprehensive
loss account. The amount of any foreign currency transaction
gain ultimately realized will be dependent on the exchange rate
in effect on the transaction date.


In addition to the above sources and potential
sources of liquidity, we may elect to monetize our investments
in News Corp., ABC Family preferred stock and/or certain other
investments and derivative instruments that we hold. In this
regard, we are a party to a variable forward sale transaction
with respect to our shares of News Corp. Class A Common
Stock that provided us with available liquidity of $157,200,000
at September 30, 2004. For additional information
concerning our investments and derivative contracts, see
notes 7, 8 and 10 to the accompanying condensed
consolidated financial statements.

We believe that our current sources of liquidity
are sufficient to meet our known liquidity requirements through
2005. However, in the event a major investment or acquisition
opportunity were to arise, it is likely that we would be
required to seek additional capital in order to consummate any
such transaction.

Our primary uses of cash have historically been
investments in affiliates and acquisitions of consolidated
businesses. We intend to continue expanding our collection of
international broadband and programming assets. Accordingly, our
future cash needs include making additional investments in and
loans to existing affiliates, funding new investment
opportunities, and funding our corporate general and
administrative expenses.

We and CristalChile each own 50% interests in
Cordillera. Cordillera owns substantially all of the equity of
Metropolis. We and CristalChile have entered into an agreement
pursuant to which we each have agreed to use commercially
reasonable efforts to merge Metropolis and VTR. The merger is
subject to certain conditions, including the execution of
definitive agreements, Chilean regulatory approvals and the
approval of the boards of directors of our company,
CristalChile, VTR and UGC (including, in the case of UGC, the
independent members of UGCs board of directors) and the
receipt of necessary third party approvals and waivers. If the
proposed merger is consummated as originally contemplated, we
would own a direct and indirect interest aggregating 80% of the
voting and equity rights in the new entity, and CristalChile
would own the remaining 20%. We would also receive a
$100 million promissory note from the combined entity,
which would bear interest at LIBOR plus 3% per annum and
would be unsecured and subordinated to third party debt. In
addition, CristalChile would have a put right which would allow
CristalChile to require Liberty to purchase all, but not less
than all, of its interest in the new entity for not less than
$140 million on or after the first anniversary of the date
on which Chilean regulatory approval of the merger is deemed to
be received. We have agreed to assume and indemnify Liberty
against this put obligation in connection with the spin off. If
the merger does not occur, we and CristalChile have agreed to
fund our pro rata share of a capital call sufficient to retire
Metropolis local debt facility, which had an outstanding
principal amount of Chilean pesos 34 billion ($55,838,000)
at September 30, 2004. On October 25, 2004, the
Chilean anti-trust tribunal, which we refer to as the Tribunal,
approved a potential combination of VTR with Metropolis, subject
to certain conditions. The decision of the Tribunal has been
appealed to Chiles Supreme Court by parties opposing the
possible combination of VTR and Metropolis (the Appeal). UGC,
CristalChile and we are (i) reviewing in detail the
conditions imposed by the Tribunal, (ii) monitoring the
Appeal, and (iii) engaging in discussions regarding the
terms of the potential combination of VTR and Metropolis. The
terms of any such combination are subject to review and approval
by a committee of UGCs independent directors.

On May 20, 2004, we acquired all of the
issued and outstanding ordinary shares of PHL for
2,000,000
($2,386,000 at May 20, 2004). PHL, through its subsidiary
Chorus Communications Limited, owns and operates broadband
communications systems in Ireland. In connection with this
acquisition, we loaned an aggregate of
75,000,000
($89,475,000 as of May 20, 2004) to PHL. The proceeds from
such loan were used by PHL to discharge liabilities pursuant to
a debt restructuring plan and to provide funds for capital
expenditures and working capital. We have committed to loan up
to an additional
14,500,000
($18,032,000) to PHL, of which
4,500,000
($5,596,000) had been loaned as of September 30, 2004.

At September 30, 2004, we owned certain debt
of CPE and one of its two indirect majority-owned entities that
collectively own a non-controlling ownership interest in
Telenet. Subsequent to September 30, 2004, we entered into
an agreement to restructure our indirect investment in Telenet
that will, if consummated, result in

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a net increase in our cash investment in Telenet
of approximately $22 million. For additional information,
see note 18 to the accompanying condensed consolidated
financial statements.


As a result of the termination by Argentina of
its decade-old currency peg in late 2001, Cablevision
(consistent with other Argentine issuers) stopped servicing its
U.S. dollar denominated debt in 2002, which it is currently
seeking to restructure pursuant to an out of court
reorganization agreement. That agreement has been submitted to
Cablevisions creditors for their consent, and a petition
for its approval has been filed by Cablevision with a commercial
court in Buenos Aires under Argentinas bankruptcy laws. If
the restructuring is approved in its current form, we would
contribute to Cablevision $27,500,000, for which we would
receive, after giving effect to a capital reduction pertaining
to the current shareholders of Cablevision (including the entity
in which Liberty has a 78.2% economic interest), approximately
40.0% of the equity of the restructured Cablevision. The
proceeds of our cash contribution would be distributed as part
of the consideration being offered to Cablevisions
creditors. No assurance can be given as to whether
Cablevisions restructuring plan will be accepted by the
court. Subsequent to September 30, 2004, we entered into an
agreement, which, if consummated, would eliminate our rights and
obligations under the restructuring agreement in exchange for
cash consideration of approximately $40.5 million.



| |                     
| | --------------------
| | Subsidiary Liquidity

UGC.At
September 30, 2004, UGC held cash and cash equivalents of
$981,638,000 and short-term liquid investments of $111,536,000.
In addition to its cash and cash equivalents and its short-term
liquid investments, UGCs sources of liquidity include
borrowing availability under its existing credit facilities and
its operating cash flow.

UGC completed a rights offering in February 2004
and received net cash proceeds of $1.02 billion. As a
holder of UGC Class A, Class B and Class C Common
Stock, we participated in the rights offering and exercised our
rights to purchase 90.7 million shares for a total
cash purchase price of $544,250,000.

On April 6, 2004, UGC completed the offering
and sale of
500 million
($622 million) UGC Convertible Notes. Interest is payable
semi-annually on April 15 and October 15 of each year,
beginning October 15, 2004. The UGC Convertible Notes are
senior unsecured obligations that rank equally in right of
payment with all of UGCs existing and future senior
unsubordinated and unsecured indebtedness and ranks senior in
right of payment to all of UGCs existing and future
subordinated indebtedness. The UGC Convertible Notes are
effectively subordinated to all existing and future indebtedness
and other obligations or UGCs subsidiaries. The UGC
Convertible Notes will be convertible into shares of UGC
Class A Common Stock at an initial conversion price of
9.7561 per
share, which was equivalent to a conversion price of
$12.00 per share on the date of issue, representing a
conversion rate of 102.5 shares per
1,000 principal
amount of the UGC Convertible Notes. On or after April 20,
2011, UGC has the right to redeem the UGC Convertible Notes, in
whole or in part, at a redemption price in euros equal to 100%
of the principal amount, together with accrued and unpaid
interest. On April 15, 2011, April 15, 2014, and
April 15, 2019, holders have a right to tender all or part
of their UGC Convertible Notes to UGC for purchase in euros at
100% of the principal amount, plus accrued and unpaid interest.
Holders may also similarly tender their UGC Convertible Notes to
UGC in the event of a change in control, as defined in the
related indenture. Holders may surrender their UGC Convertible
Notes for conversion prior to maturity only if certain
conditions are met.

At September 30, 2004, UGCs debt
includes $3,495 million borrowed by a subsidiary of UPC
pursuant to the UPC Distribution Bank Facility, the
500 million
($622 million) UGC Convertible Notes and certain other
borrowings. The UPC Distribution Bank Facility, as refinanced in
June 2004, provides for euro denominated borrowings by a UPC
subsidiary under four different facilities aggregating
3,044 million
($3,786 million) and U.S. dollar denominated
borrowings under a fifth facility aggregating $345,763,000. At
September 30, 2004, the aggregate availability under the
UPC Distribution Facility was
511,750,000
(636,426,000). The UPC Distribution Bank Facility
(i) provides for a commitment fee of 0.5% of unused
borrowing availability, (ii) is secured by the assets of
most of UPCs majority-owned European cable operating
companies and is senior to other long-term obligations of UPC
and (iii) contains certain financial covenants and
restrictions on UPCs subsidiaries regarding payment of
dividends, ability to incur additional

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indebtedness, disposition of assets, mergers and
affiliated transactions. The weighted average interest rate on
borrowings under the UPC Distribution Bank Facility was 6.2% for
the nine months ended September 30, 2004. For additional
information concerning the UPC Distribution Bank Facility, see
note 11 to the accompanying condensed consolidated
financial statements.


On July 1, 2004, UPC Broadband France, an
indirect wholly-owned subsidiary of UGC and the owner of
UGCs French cable television operations, acquired Noos,
from Suez. The preliminary purchase price for a 100% interest in
Noos was approximately
623,450,000
($758,547,000 at July 1, 2004), consisting of
529,929,000
($644,761,000 at July 1, 2004) in cash, a 19.9% equity
interest in UPC Broadband France valued at approximately
85,000,000
($103,419,000 at July 1, 2004) and
8,521,000
($10,367,000 at July 1, 2004) in direct acquisition costs.
The preliminary purchase price and the value assigned to the
19.9% interest in UPC Broadband France are subject to a review
of certain historical financial information of Noos and UPC
Broadband France. In this regard,
100,000,000
($121,669,000) of the cash consideration is being held in escrow
pending final determination of the purchase price. For
additional information, see note 5 to the accompanying
condensed consolidated financial statements.

Suez 19.9% equity interest in UPC Broadband
France consists of 85.0 million shares of Class B
common stock of UPC Broadband France (the UPC Broadband France
Class B Shares). Subject to the terms of a call option
agreement, UPC France, the parent company of UPC Broadband
France, has the right through June 30, 2005 to purchase
from Suez all of the UPC Broadband France Class B Shares
for 85,000,000
($105,706,000), subject to adjustment, plus interest. The
purchase price for the UPC Broadband France Class B Shares
may be paid in cash, UGC Class A Common Stock or LMI
Series A Common Stock. Subject to the terms of a put
option, Suez may require UPC France to purchase the UPC
Broadband France Class B Shares at specific times prior to
or after the third, fourth or fifth anniversaries of the
purchase date. UPC France will be required to pay the then fair
market value, payable in cash or marketable securities, for the
UPC Broadband France Class B Shares or assist Suez in
obtaining an offer to purchase the UPC Broadband France
Class B Shares. UPC France also has the option to purchase
the UPC Broadband France Class B Shares from Suez shortly
after the third, fourth or fifth anniversaries of the purchase
date at the then fair market value in cash or marketable
securities.

During the third quarter of 2004, UGCs
Board of Directors authorized a $100 million share
repurchase program. As of September 30, 2004, UGC had
repurchased 787,391 shares of UGC Class A common
stock. UGC may use its cash to make further purchases from time
to time in the open market or in private transactions, subject
to market conditions.

Management of UGC believes that they will be able
to meet their current and long-term liquidity, acquisition and
capital needs through their existing cash, operating cash flow
and available borrowings under their existing credit facilities.
However, to the extent that UGC management plans to grow their
business through acquisitions, UGC management believes that they
will need additional sources of financing, most likely to come
from the capital markets in the form of debt or equity financing
or a combination of both.

Other Subsidiaries.Puerto Rico Cable and Pramer generally fund their own investing
and financing activities with cash from operations and bank
borrowings, as necessary. Due to covenants in their respective
loan agreements, we generally are not entitled to the cash
resources or cash generated by operating activities of these two
consolidated subsidiaries. Another subsidiary of our company
posts cash collateral equal to the outstanding borrowings under
the Puerto Rico Cable bank facility ($50,000,000 at
September 30, 2004). At September 30, 2004,
Pramers U.S. dollar denominated bank borrowings
aggregated $12,391,000. During 2002, following the devaluation
of the Argentine peso, Pramer failed to make certain required
payments due under its bank credit facility. Since that time,
Pramer has been in technical default under its bank credit
facility. However, the bank lenders have not provided notice of
default or requested acceleration of the payments due under the
facility. Pramer and the banks are negotiating the refinancing
of this credit facility and all amounts due under this facility
are classified as current in the accompanying condensed
consolidated balance sheets.

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| |                      
| | ---------------------
| | Historical Cash Flows

Due to the fact that we began consolidating UGC
on January 1, 2004, our cash flows for the nine months
ended September 30, 2004 are not comparable to the cash
flows for the nine months ended September 30, 2003.
Accordingly, the following discussion focuses on the cash flows
for the nine months ended September 30, 2004. During the
nine months ended September 30, 2004, the cash provided by
our operating activities was $511,855,000. This amount is lower
than our operating cash flow for the period of $655,236,000 due
to cash paid for interest (net of interest and dividends
received) and changes in working capital items. During the nine
months ended September 30, 2004, the cash used by our
investing activities was $874,998,000. Such amount includes net
cash paid for acquisitions of $428,156,000 and capital
expenditures of $325,262,000. During the nine months ended
September 30, 2004, the cash provided by our financing
activities was $2,100,638,000. Such amount includes net proceeds
of $735,661,000 from the LMI Rights Offering, contributions from
Liberty of $704,250,000, net proceeds received on a consolidated
basis from the issuance of stock by subsidiaries of
$486,457,000, and net borrowings of debt of $235,758,000.

We define free cash flow as cash provided by
operating activities less capital expenditures. We believe our
presentation of free cash flow provides useful information to
investors because it can be used to measure our ability to
service debt and fund new investment opportunities. Free cash
flow is not a GAAP measurement of liquidity and investors should
view free cash flow as a supplement to, and not a substitute
for, GAAP cash flows from operating, investing, and financing
activities. Our free cash flow for the nine months ended
September 30, 2004 was $186,593,000.

During the nine months ended September 30,
2003, cash contributions from Liberty funded most of the
$413,322,000 that was invested in and loaned to our affiliates,
principally J-COM.

Our cash flows are subject to variations based on
foreign currency exchange rates. See related discussion under
Quantitative and Qualitative Disclosures about
Market Risk below.

Critical Accounting Policies, Judgments and
Estimates

The discussion and analysis of our financial
condition and results of operations are based upon our condensed
consolidated financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial
statements required us to make estimates and assumptions that
affected the reported amounts of assets and liabilities, revenue
and expenses, and related disclosure of contingent assets and
liabilities at the date of our financial statements. Actual
results may differ from these estimates under different
assumptions or conditions. Critical accounting policies are
defined as those policies that are reflective of significant
judgments and uncertainties, which would potentially result in
materially different results under different assumptions and
conditions. We believe our judgments and related estimates
associated with the carrying value of our investments, the
carrying value of our long-lived assets, the valuation of our
acquisition related assets and liabilities, and the valuation of
our deferred tax assets to be critical in the preparation of our
consolidated financial statements. These accounting estimates or
assumptions are critical because of the levels of judgment
necessary to account for matters that are inherently uncertain
or highly susceptible to change. See our Registration Statement
on Form S-1, as amended (File No. 333-116157), as
filed with the Securities and Exchange Commission for a detailed
discussion of these items. Additionally, with respect to the
three and nine months ended September 30, 2004, we believe
our judgment and related estimates associated with the
consolidation of Old UGC while in Chapter 11 bankruptcy
proceedings to be critical in the preparation of the
accompanying condensed consolidated financial statements for the
three and nine months ended September 30, 2004.



| |                         
| | ------------------------
| | Consolidation of Old UGC

Old UGC is a wholly-owned subsidiary of UGC that
owns VTR and an interest in Austar United. Old UGC filed a
voluntary petition for relief under Chapter 11 of the
U.S. Bankruptcy Code with the U.S. Bankruptcy Court
for the Southern District of New York on January 12, 2004.
We continue to

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consolidate the financial position and results of
operations of Old UGC while in bankruptcy, for the following
primary reasons:




| |   |                                                                                                                                                                              
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | UGC is the sole shareholder and majority creditor
    of Old UGC (direct and indirect holder of 98% of the Old UGC
    Senior Notes);                                        
|
| |  | UGC negotiated a restructuring agreement that
    provides for it to continue to be Old UGCs controlling
    equity holder upon Old UGCs emergence from
    bankruptcy; and
|
| |  | The bankruptcy proceedings are expected to be
    completed in less than one year.                                                                                           

For additional information, see note 12 to
the accompanying condensed consolidated financial statements.

Off Balance Sheet Arrangements and Aggregate
Contractual Obligations



| |                                   
| | ----------------------------------
| | Off Balance Sheet
    Arrangements

At September 30, 2004, Liberty guaranteed
¥13,620,821,000 ($123,814,000) of the bank debt of J-COM,
an equity affiliate that provides broadband services in Japan.
Libertys guarantees expire as the underlying debt matures
and is repaid. The debt maturity dates range from 2004 to 2019.
In connection with the spin off, we have agreed to indemnify
Liberty for any amounts it is required to fund under these
arrangements.

At September 30, 2004, we had severally
guaranteed certain transponder and equipment lease obligations
of Sky Latin America aggregating $92,950,000 and $3,407,000,
respectively. Such amounts were not reflected in our condensed
consolidated balance sheet at September 30, 2004. In
connection with the execution of certain transactions and
agreements subsequent to September 30, 2004, our guarantees
of the obligations under these transponder leases were
terminated and our guarantees of the obligations under these
equipment leases will be terminated no later than
December 31, 2004. See related discussion above.

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



| |                        
| | -----------------------
| | Contractual Commitments

Information concerning the amount and timing of
our consolidated contractual commitments as of
September 30, 2004 are as follows (amounts in thousands):

|                            |  |                                                 |         |           |  |           |           |            |  |       |           |  |  |  |         |  |  |  |           | 
|--------------------------- |  | ----------------------------------------------- | ------- | --------- |  | --------- | --------- | ---------- |  | ----- | --------- |  |  |  | ------- |  |  |  | --------- | 
|                            |  |                                                
|                            |  | Payments due during periods ended September 30,
|                            |  |                                                
|                            |  | 2005                                            |         | 2006-2007 |  | 2008-2009 |           | Thereafter |  | Total
|                            |  |                                                 |         |           |  |           |           |            |  |      
|Debt                        |  | $                                               | 90,052  |           |  |           | 1,018,076 |            |  |       | 2,587,764 |  |  |  | 652,970 |  |  |  | 4,348,862 | 
|Operating lease obligations |  |                                                 | 91,435  |           |  |           | 106,455   |            |  |       | 76,486    |  |  |  | 126,114 |  |  |  | 400,490   | 
|Programming commitments     |  |                                                 | 76,567  |           |  |           | 62,407    |            |  |       | 31,932    |  |  |  | 18,301  |  |  |  | 189,207   | 
|Other commitments           |  |                                                 | 112,542 |           |  |           | 22,725    |            |  |       | 11,434    |  |  |  | 15,812  |  |  |  | 162,513   | 
|                            |  |                                                 |         |           |  |           |           |            |  |       |           |  |  |  |         |  |  |  |           | 
|Total contractual payments  |  | $                                               | 370,596 |           |  |           | 1,209,663 |            |  |       | 2,707,616 |  |  |  | 813,197 |  |  |  | 5,101,072 | 
|                            |  |                                                 |         |           |  |           |           |            |  |       |           |  |  |  |         |  |  |  |           | 



|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

We are exposed to market risk in the normal
course of our business operations due to our investments in
various 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. We have established policies, procedures
and internal processes governing our management of market risks
and the use of financial instruments to manage our exposure to
such risks.

I-54



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##### 





| |                     
| | --------------------
| | Investment Portfolio

We invest our cash in liquid instruments that
meet high credit quality standards and generally have maturities
at the date of purchase of less than three months. UGC is
exposed to exchange rate risk with respect to $556,036,000 of
cash it has invested in currencies other than the
U.S. dollar. Of this amount, $537,225,000 is denominated in
euros, the majority of which is expected to be used for
acquisitions and other euro-denominated commitments.

We are also exposed to equity price fluctuations
related to our investments in equity securities. At
September 30, 2004, the aggregate carrying value of our
equity method and available-for-sale investments that was
subject to price risk was $1,278,345,000. For additional
information concerning our available-for-sale investments, see
note 8 to the accompanying condensed consolidated financial
statements.



| |                      
| | ---------------------
| | Foreign Currency Risk

We are exposed to unfavorable and potentially
volatile fluctuations of the U.S. dollar (our functional
currency) against the currencies of our operating subsidiaries
and affiliates. Because our functional currency is the
U.S. dollar, any increase (decrease) in the value of the
U.S. dollar against any foreign currency in which we have
funding commitments effectively reduces (increases) the
U.S. dollar equivalent of such funding commitments. At the
same time, any increase (decrease) in the value of the
U.S. dollar against any foreign currency that is the
functional currency of one of our operating subsidiaries or
affiliates will cause us to experience unrealized foreign
currency translation losses (gains) with respect to amounts
already invested in such foreign currencies. We and our
operating subsidiaries and affiliates are also exposed to
foreign currency risk to the extent that we enter into
transactions denominated in currencies other than our respective
functional currencies.

We generally do not hedge our foreign currency
exchange risk because of the long-term nature of our interests
in foreign affiliates. However, in order to reduce our foreign
currency exchange risk related to our investment in J-COM, we
have entered into collar agreements with respect to
¥30 billion ($272,702,000). These collar agreements
have a weighted average remaining term of approximately
4 months, an average call price of ¥106/
U.S. dollar and an average put price of ¥112/
U.S. dollar. We had also entered into forward sales
contracts with respect to the Japanese yen. During the second
quarter of 2004, we paid $10,593,000 to settle our yen forward
sales contracts. As a result, we had no yen forward sales
contracts outstanding at September 30, 2004.

We are also exposed to foreign exchange rate
fluctuations related to our operating subsidiaries
monetary assets and liabilities and the financial results of
foreign subsidiaries when their respective financial statements
are translated into U.S. dollars during consolidation.
Assets and liabilities of foreign subsidiaries for which the
functional currency is the local currency are translated at
period-end exchange rates and the statements of operations are
translated at actual exchange rates when known, or at the
average exchange rate for the period. Exchange rate fluctuations
on translating foreign currency financial statements into
U.S. dollars that result in unrealized gains or losses are
referred to as translation adjustments. Cumulative translation
adjustments are recorded in accumulated other comprehensive
income (loss) as a separate component of 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 income as
unrealized (based on period-end translations) or realized upon
settlement of the transactions. Cash flows from operations in
foreign countries are translated at actual exchange rates when
known, or at the average rate for the period. Certain items,
such as investments in debt and equity securities of foreign
subsidiaries, equipment purchases, programming costs, notes
payable and notes receivable (including intercompany amounts)
and certain other charges are denominated in a currency other
than the respective companys functional currency, which
results in foreign exchange gains and losses recorded in the
condensed consolidated statements of operations. Accordingly, we
may experience economic loss and a negative impact on earnings
and equity with respect to our holdings solely as a result of
foreign currency exchange rate fluctuations. Our primary
exposure is currently to the euro as over 50% of our
U.S. dollar revenue was derived from countries where the
euro is the functional currency. In addition, our operating
results are also

I-55



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##### 



significantly impacted by changes in the exchange
rates for the Japanese yen, Chilean peso and, to a lesser
degree, other local currencies in Europe. The relationship
between the euro, Japanese yen and Chilean peso and the
U.S. dollar, which is our reporting currency, is shown
below, per one U.S. dollar:


|                   |  |           |       |          |  |         |        |  |  |  |        | 
|------------------ |  | --------- | ----- | -------- |  | ------- | ------ |  |  |  | ------ | 
|                   |  |          
|                   |  | Spot rate
|                   |  |          
|                   |  |           |       | Japanese |  | Chilean
|                   |  | Euro      |       | Yen      |  | Peso   
|                   |  |           |       |          |  |        
|September 30, 2004 |  |           | .8041 |          |  |         | 110.01 |  |  |  | 608.90 | 
|December 31, 2003  |  |           | .7933 |          |  |         | 107.37 |  |  |  | 593.80 | 
|September 30, 2003 |  |           | .8564 |          |  |         | 111.47 |  |  |  | 660.97 | 

|                   |                    |              |  |          |  |         |  |        |  |  |  |        | 
|------------------ | ------------------ | ------------ |  | -------- |  | ------- |  | ------ |  |  |  | ------ | 
|                   |                    |             
|                   |                    | Average rate
|                   |                    |             
|                   |                    |              |  | Japanese |  | Chilean
|                   |                    | Euro         |  | Yen      |  | Peso   
|                   |                    |              |  |          |  |        
|Nine months ended: |                    |              |  |          |  |         |  |        |  |  |  |       
|                   | September 30, 2004 |              |  | .8154    |  |         |  | 108.56 |  |  |  | 614.70 | 
|                   | September 30, 2003 |              |  | .8969    |  |         |  | 118.19 |  |  |  | 709.77 | 



| |                                          
| | -----------------------------------------
| | Inflation and Foreign Investment
    Risk

Certain of our operating companies operate in
countries where the rate of inflation is higher than that in the
United States. While our affiliated companies attempt to
increase their subscription rates to offset increases in
operating costs, there is no assurance that they will be able to
do so. Therefore, operating costs may rise faster than
associated revenue, resulting in a material negative impact on
reported earnings. We are also impacted by inflationary
increases in salaries, wages, benefits and other administrative
costs, the effects of which to date have not been material. Our
foreign operating companies are all directly affected by their
respective countries government, economic, fiscal and
monetary policies and other political factors.



| |                    
| | -------------------
| | Interest Rate Risks

We are exposed to changes in interest rates
primarily as a result of our borrowing and investment
activities, which include fixed and floating rate investments
and borrowings by our operating subsidiaries used to maintain
liquidity and fund their respective business operations. The
nature and amount of our long-term and short-term debt are
expected to vary as a result of future requirements, market
conditions and other factors. Our primary exposure to variable
rate debt is through the EURIBOR-indexed and LIBOR-indexed debt
of UGC. UGC maintains a mix of fixed and variable rate debt and
enters into various derivative transactions pursuant to
UGCs policies to manage exposure to movements in interest
rates. UGC monitors its interest rate risk exposures using
techniques including market value and sensitivity analyses. UGC
manages the credit risks associated with its derivative
financial instruments through the evaluation and monitoring of
the creditworthiness of the counterparties. Although the
counterparties may expose UGC to losses in the event of
nonperformance, UGC does not expect such losses, if any, to be
significant. UGC uses interest rate exchange agreements to
exchange, at specified intervals, the difference between fixed
and variable interest amounts calculated by reference to an
agreed-upon notional principal amount. UGC uses interest rate
cap agreements to lock in a maximum interest rate should
variable rates rise, but enable it to otherwise pay lower market
rates.

During the first and second quarters of 2004, UGC
purchased interest rate caps for approximately $21,442,000 that
capped the variable interest rate on notional amounts totaling
2.25 billion
to
2.6 billion
($2.8 billion to $3.2 billion) at 3% and 4% for 2005
and 2006, respectively. During the first quarter of 2003, UGC
purchased an interest rate cap that capped the variable interest
rate at 3% on a notional amount of
2.7 billion
($3.4 billion) for 2003 and 2004. UGC has also entered into
a cross currency and interest rate swap pursuant to which a
notional amount of $347,500,000 was swapped at an average rate
of 1.13 per
U.S. dollar until July 2005, with the interest rate capped
at 2.35%. At September 30, 2004, the fair value of the
interest rate swap derivative contracts was a
31,053,000
($38,618,000) liability and the fair value of the interest rate
cap derivative contracts was a
4,344,000
($5,402,000) asset.

I-56



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##### 



For the nine months ended September 30,
2004, the weighted-average interest rate on our variable rate
indebtedness was 6.2%. If market interest rates had been higher
by 50 basis points during this period, our consolidated
interest expense would have increased by approximately
$14 million for the nine months ended September 30,
2004.



| |                       
| | ----------------------
| | Derivative Instruments

We have entered into total return debt swaps in
connection with (i) bank debt of a subsidiary of UPC, and
(ii) public debt of Cablevision. Under the total return
debt swaps, a counterparty purchases a specified amount of the
underlying debt security for the benefit of our company. We have
posted collateral with the counterparties equal to 30% of the
counterpartys purchase price for the purchased
indebtedness of the UPC subsidiary and 90% of the
counterpartys purchase price for the purchased
indebtedness of Cablevision. We record a derivative asset equal
to the posted collateral and such asset is included in other
assets in the accompanying condensed consolidated balance
sheets. We earn interest income based upon the face amount and
stated interest rate of the underlying debt securities, and pay
interest expense at market rates on the amount funded by the
counterparty. In the event the fair value of the underlying
purchased indebtedness of the UPC subsidiary declines by 10% or
more, we are required to post cash collateral for the decline,
and we record an unrealized loss on derivative instruments. The
cash collateral related to the UPC subsidiary indebtedness is
further adjusted up or down for subsequent changes in the fair
value of the underlying indebtedness or for foreign currency
exchange rate movements involving the euro and U.S. dollar.
At September 30, 2004, the aggregate purchase price of debt
securities underlying our total return debt swap arrangements
involving the indebtedness of the UPC subsidiary and Cablevision
was $121,738,000. As of such date, we had posted cash collateral
equal to $49,661,000. In the event the fair value of the
purchased debt securities were to fall to zero, we would be
required to post additional cash collateral of $72,077,000. In
addition, the aggregate principal amount of the UPC subsidiary
indebtedness that is the subject of our total return debt swaps
was approximately $108,904,000 at September 30, 2004.
Accordingly, if at September 30, 2004, we had acquired the
UPC subsidiary indebtedness pursuant to the total return swaps,
our consolidated indebtedness at September 30, 2004 would
have been reduced by $108,904,000. Subsequent to
September 30, 2004, the counterparty to the Cablevision
total return debt swap, with our consent, entered into a
participation agreement with a third party, which, if
consummated, would result in the termination of our liability
under this debt swap and the return of our collateral.

Prior to the spin off, Liberty contributed to our
company 10,000,000 shares of News Corp. Class A Common
Stock, together with a related variable forward transaction. The
forward, which expires on September 17, 2009, provides
(i) us with the right to effectively require the
counterparty to buy 10,000,000 News Corp. Class A Common
Stock at a price of $15.72 per share, or an aggregate price
of $157,200,000, which we refer to as the Floor Price, and
(ii) the counterparty with the effective right to require
us to sell 10,000,000 shares of News Corp. Class A
Common Stock at a price of $26.19 per share. The fair value
of the forward was a $12,255,000 asset at September 30,
2004. At any time during the term of the forward, we can require
the counterparty to advance the full Floor Price. Provided we do
not draw an aggregate amount in excess of the present value of
the Floor Price, as determined in accordance with the forward,
we may elect to draw such amounts on a discounted or
undiscounted basis. As long as the aggregate advances are not in
excess of the present value of the Floor Price, undiscounted
advances will bear interest at prevailing three-month LIBOR and
discounted advances will not bear interest. Amounts advanced up
to the present value of the Floor Price are secured by the
underlying shares of News Corp. Class A Common Stock. If we
elect to draw amounts in excess of the present value of the
Floor Price, those amounts will be unsecured and will bear
interest at a negotiated interest rate. During the third quarter
of 2004, we received undiscounted advances aggregating
$126,000,000 under the forward. Such advances were subsequently
repaid during the quarter.



| |            
| | -----------
| | Credit Risk

In addition to the risks described above, we are
also exposed to the risk that our counterparties will default on
their obligations to us under the above-described derivative
instruments. Based on our assessment of the credit worthiness of
the counterparties, we do not anticipate any such default.

I-57



---



##### 





|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

In accordance with Exchange Act Rules 13a-15
and 15d-15, we carried out an evaluation, under the supervision
and with the participation of management, including our chief
executive officer, principal accounting officer and principal
financial officer (the Executives), of the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this report. Based on that evaluation, the Executives
concluded that our disclosure controls and procedures were
effective as of September 30, 2004 to provide reasonable
assurance that information required to be disclosed in our
reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms.

There has been no change in our internal controls
over financial reporting that occurred during the nine months
ended September 30, 2004 that has materially affected, or
is reasonably likely to materially affect, our internal controls
over financial reporting.

Section 404 of the Sarbanes-Oxley Act of
2002 requires management to assess as of the end of each fiscal
year, the effectiveness of a companys internal control
over financial reporting and its independent auditors must
attest to such assessment. While LMI is not required to
implement these requirements until December 31, 2005, UGC
must implement these requirements for the first time in
connection with the preparation of its annual report for the
year ending December 31, 2004. UGC has prepared an internal
plan of action for compliance and UGC is in the process of
reviewing, documenting and testing its internal control systems
and processes. While UGC anticipates that it will be able to
comply on a timely basis with the new requirements, UGC may
encounter problems or delays in completing the implementation of
any changes necessary to allow UGC to make a favorable
assessment and UGCs independent auditors to attest to such
assessment.

I-58



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##### 



LIBERTY MEDIA INTERNATIONAL, INC.

PART II  OTHER
INFORMATION



|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings

In 2000, certain of UGCs subsidiaries
pursued a transaction with Excite@Home, which if completed,
would have merged UGCs chello broadband subsidiary with
Excite@Homes international broadband operations to form a
European Internet business. The transaction was not completed,
and discussions between the parties ended in late 2000. On
November 3, 2003, UGC received a complaint filed on
September 26, 2003 by Frank Morrow, on behalf of the
General Unsecured Creditors Liquidating Trust of At Home
Corporation in the United States Bankruptcy Court for the
Northern District of California, styled as In re At Home
Corporation, Frank Morrow v. UnitedGlobalCom, Inc.
et al. (Case No. 01-32495-TC). In general, the
complaint alleges breach of contract and fiduciary duty by UGC
and Old UGC. The action has been stayed by the Bankruptcy Court
in the Old UGC bankruptcy proceedings. The plaintiff had filed a
claim in the bankruptcy proceedings of approximately
$2.2 billion. On September 16, 2004, the Bankruptcy
Court held that the claim against Old UGC was estimated at zero.
Although no assurance can be given, UGC believes that the
ultimate outcome of this matter will not have a material adverse
effect on its financial position or results of operations.



|        |                
|------- | ---------------
|Item 2. | Use of Proceeds

On July 19, 2004, our registration statement
on Form S-1, as amended (File No. 333-116157), was
declared effective by the Securities and Exchange Commission.
The registration statement registered the offer and sale of up
to 28,245,000 shares of our Series A common stock and
up to 1,690,000 shares of our Series B common stock
acquirable upon exercise of an equal number of the corresponding
series of our subscription rights, which were distributed pro
rata to holders of record of our common stock at 5:00 p.m.,
New York City time, on July 26, 2004. Each whole
Series A right entitled the holder thereof to purchase one
share of our Series A common stock for a subscription price
of $25.00 per share, and each whole Series B right
entitled the holder thereof to purchase one share of our
Series B common stock for a subscription price of
$27.50 per share. The rights offering expired in accordance
with its terms on August 23, 2004. An aggregate of
28,245,000 shares of our Series A common stock and
1,211,157 shares of our Series B common stock were
issued to properly exercising rightsholders.

In the rights offering, we incurred expenses
aggregating $3,771,000, which consisted of SEC registration fees
and third party vendor fees, such as printer costs, and we
received approximately $739,432,000 in gross proceeds. We used
the net proceeds of the rights offering to repay notes payable
in the aggregate principal amount of $116,666,000 to Liberty and
to repay $30,000,000 of certain other indebtedness. We intend to
use the remaining net proceeds for general corporate purposes,
including for acquisitions and to make other investments.



|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

| |   |    |  |  |  |                                                                                                                                                                                                                                        
| | - | -- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3 | .1 |  |  |  | Restated Certificate of Incorporation of the
    Registrant (incorporated by reference to Exhibit 3.1 to the
    Registrants Registration Statement on Form 10 as
    filed on April 2, 2004 (File No. 000-50671) (the
    Form 10))
| | 3 | .2 |  |  |  | Bylaws of the Registrant (incorporated by
    reference to Exhibit 3.2 to the Form 10 Amendment)                                                                                                                                       
| | 4 | .1 |  |  |  | Specimen certificate for shares of Series A
    common stock, par value $.01 per share, of the Registrant
    (incorporated by reference to Exhibit 4.1 to the
    Form 10)                                                            
| | 4 | .2 |  |  |  | Specimen certificate for shares of Series B
    common stock, par value $.01 per share, of the Registrant
    (incorporated by reference to Exhibit 4.2 to the
    Form 10)                                                            

II-1



---



##### 



| |    |    |  |  |  |                                                                                                                                                                                                                                                                                                                
| | -- | -- |  |  |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .1 |  |  |  | Stock and Loan Purchase Agreement, dated as of
    March 15, 2004, among Suez SA, MédiaRéseaux SA,
    UPC France Holding BV and UnitedGlobalCom, Inc.
    (UGC) (incorporated by reference to
    Exhibit 10.1 to UGCs Form 8-K, dated
    July 1, 2004 (File No. 000-49658))                              
| | 10 | .2 |  |  |  | Amendment to the Purchase Agreement, dated as of
    July 1, 2004, among Suez SA, MédiaRéseaux SA, UPC
    France Holding BV and UGC (incorporated by reference to
    Exhibit 10.2 to UGCs Form 8-K, dated
    July 1, 2004 (File No. 000-49658))                                                            
| | 10 | .3 |  |  |  | Shareholders Agreement, dated as of July 1,
    2004, among UGC, UPC France Holding BV and Suez SA (incorporated
    by reference to Exhibit 10.3 to UGCs Form 8-K,
    dated July 1, 2004 (File No. 000-49658))                                                                                              
| | 10 | .4 |  |  |  | Chapter 11 Plan of Reorganization Jointly
    Proposed by Old UGC, Inc. and UGC, dated September 21, 2004
    (incorporated by reference to Exhibit 99.1 to UGCs
    Form 8-K, dated September 22, 2004 (File
    No. 000-49658))                                                                             
| | 10 | .5 |  |  |  | Disclosure Statement pursuant to
    Section 1125 of the Bankruptcy Code for Chapter 11
    Plan of Reorganization Jointly Proposed by Old UGC, Inc. and
    UGC, dated September 21, 2004 (incorporated by reference to
    Exhibit 99.2 to UGCs Form 8-K, dated
    September 22, 2004 (File No. 000-49658))
| | 31 | .1 |  |  |  | Rule 13a-14(a)/15d-14(a) Certification.                                                                                                                                                                                                                                                                        
| | 31 | .2 |  |  |  | Rule 13a-14(a)/15d-14(a) Certification.                                                                                                                                                                                                                                                                        
| | 31 | .3 |  |  |  | Rule 13a-14(a)/15d-14(a) Certification.                                                                                                                                                                                                                                                                        
| | 32 |    |  |  |  | Section 1350 Certification.                                                                                                                                                                                                                                                                                    

II-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 INTERNATIONAL, INC.                                                       
|                       
|Date: November 12, 2004 |  | By: |  | /s/ JOHN C. MALONE                                                                      
|                        |  |     |  | John C. MalonePresident and Chief Executive Officer                                     
|                       
|Date: November 12, 2004 |  | By: |  | /s/ GRAHAM HOLLIS                                                                       
|                        |  |     |  | Graham HollisSenior Vice President and Treasurer
    (Principal Financial Officer)      
|                       
|Date: November 12, 2004 |  | By: |  | /s/ BERNARD G. DVORAK                                                                   
|                        |  |     |  | Bernard G. DvorakSenior Vice President and Controller
    (Principal Accounting Officer)

II-3



---



##### 



EXHIBIT INDEX

Listed below are the exhibits that are filed as a
part of this Report (according to the number assigned to them in
Item 601 of Regulation S-K):

| |    |    |  |                                                                                                                                                                                                                                                                                                                
| | -- | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3  | .1 |  | Restated Certificate of Incorporation of the
    Registrant (incorporated by reference to Exhibit 3.1 to the
    Registrants Registration Statement on Form 10 as
    filed on April 2, 2004 (File No. 000-50671) (the
    Form 10))                                                                        
| | 3  | .2 |  | Bylaws of the Registrant (incorporated by
    reference to Exhibit 3.2 to the Form 10 Amendment)                                                                                                                                                                                                               
| | 4  | .1 |  | Specimen certificate for shares of Series A
    common stock, par value $.01 per share, of the Registrant
    (incorporated by reference to Exhibit 4.1 to the
    Form 10)                                                                                                                                    
| | 4  | .2 |  | Specimen certificate for shares of Series B
    common stock, par value $.01 per share, of the Registrant
    (incorporated by reference to Exhibit 4.2 to the
    Form 10)                                                                                                                                    
| | 10 | .1 |  | Stock and Loan Purchase Agreement, dated as of
    March 15, 2004, among Suez SA, MédiaRéseaux SA,
    UPC France Holding BV and UnitedGlobalCom, Inc.
    (UGC) (incorporated by reference to
    Exhibit 10.1 to UGCs Form 8-K, dated
    July 1, 2004 (File No. 000-49658))                              
| | 10 | .2 |  | Amendment to the Purchase Agreement, dated as of
    July 1, 2004, among Suez SA, MédiaRéseaux SA, UPC
    France Holding BV and UGC (incorporated by reference to
    Exhibit 10.2 to UGCs Form 8-K, dated
    July 1, 2004 (File No. 000-49658))                                                            
| | 10 | .3 |  | Shareholders Agreement, dated as of July 1,
    2004, among UGC, UPC France Holding BV and Suez SA (incorporated
    by reference to Exhibit 10.3 to UGCs Form 8-K,
    dated July 1, 2004 (File No. 000-49658))                                                                                              
| | 10 | .4 |  | Chapter 11 Plan of Reorganization Jointly
    Proposed by Old UGC, Inc. and UGC, dated September 21, 2004
    (incorporated by reference to Exhibit 99.1 to UGCs
    Form 8-K, dated September 22, 2004 (File
    No. 000-49658))                                                                             
| | 10 | .5 |  | Disclosure Statement pursuant to
    Section 1125 of the Bankruptcy Code for Chapter 11
    Plan of Reorganization Jointly Proposed by Old UGC, Inc. and
    UGC, dated September 21, 2004 (incorporated by reference to
    Exhibit 99.2 to UGCs Form 8-K, dated
    September 22, 2004 (File No. 000-49658))
| | 31 | .1 |  | Rule 13a-14(a)/15d-14(a) Certification.                                                                                                                                                                                                                                                                        
| | 31 | .2 |  | Rule 13a-14(a)/15d-14(a) Certification.                                                                                                                                                                                                                                                                        
| | 31 | .3 |  | Rule 13a-14(a)/15d-14(a) Certification.                                                                                                                                                                                                                                                                        
| | 32 |    |  | Section 1350 Certification.