QVC Group Inc (QVCGA) 2006 Q2 法說會逐字稿

Good day, everyone, and welcome to the Liberty Media Corporation quarterly conference call. [OPERATOR INSTRUCTIONS] This presentation includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about financial guidance, business strategies, market potential, future financial performance, news service and product launches and other matters that are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including without limitation, possible changes in market acceptance of new including -- of new products or services, competitive issues, regulatory issues and continued access to capital on terms acceptable to Liberty Media. These forward-looking statements speak only as of the date of this presentation, and Liberty Media expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in Liberty Media's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Please refer to the publicly filed documents of Liberty Media, including the most recent Form 10-Q. for additional information about Liberty Media and about the risks and uncertainties related to Liberty Media's business, which may effect the statements made in this presentation. On today's call we will discuss certain non-GAAP financial measures. The required reconciliations can be found on the Liberty Media website at www.libertymedia.com.

At this time for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr. Greg Maffei. Please go ahead, sir.

Thank you, and good morning, everyone, and thank you for joining us today. I'm pleased to be hosting our first quarterly call since the issuance of the Liberty Interactive and Liberty Capital tracking stocks. On today's call, we'll cover the quarterly performance of both of these groups. and I'm joined on the call today by QVC President and CEO, Mike George, and QVC's CFO and President of International Operations, Bill Costello. From Starz we have Bob Clasen, President and CEO and Bill Myers, CFO. And from Liberty, we have our Chairman, Dr. Malone, as well as many other senior executives, including our General Counsel, Charles Tanabe. We'll all be available for questions after the call. I'll open today by discussing LINTA's attributed businesses, including significant events during the quarter, financial results and our liquidity picture, and I'll follow that with a similar review of LCAPA and its attributed businesses. Then we'll open up the call for questions.

Well, at LINTA we continued a high pace of activity in the second quarter. On May 9th our shareholders approved the issuance of the Liberty Interactive and the Liberty Capital tracking stock. We took this step to assist the capital markets at better understanding and valuing our businesses, and to give investors a choice in the kinds of businesses in which they wish to invest. Because Liberty Media's the issuer of both trackers, we've been able to maintain operating and other efficiencies, including possible income tax benefits and the ability to share the expense of various corporate functions that might not be available if the stocks were issued by separate companies. The second quarter was highlighted by strong financial results at the businesses attributed to Liberty Interactive. Combined, the LINTA businesses reported 16% revenue growth and a 19% OCF increase, driven by strong operating results at QVC and the inclusion of Provide Commerce, which we acquired in February. Last month we reached an agreement to acquire BUYSEASONS, Inc., the operator of online costume retailer, buycostumes.com, the world's largest online-only retailer of costumes and accessories. This acquisition furthers our strategy of adding direct-to-consumer businesses -- web businesses that can generate efficiencies with other Liberty affiliates and benefit from the promotional power of the strong video engine at QVC.

Finally, we repurchased 19.3 million shares of LINTA stock during the quarter. The businesses attributed to LINTA have significant liquidity and as we've mentioned, we are monitoring opportunities to put that liquidity to work to enhance returns for our shareholders. During the quarter, it was our belief that repurchasing LINTA stock was an efficient use of our excess liquidity, as the applied trading multiple of QVC's pro forma operating cash flow has fluctuated between eight and nine times. We will report quarterly on our continued share repurchase activity.

Now, let's take a closer look at the quarter. As I mentioned previously, Liberty Interactive turned in a good financial performance during the second quarter, highlighted by another strong performance at QVC. Overall, Liberty Interactive attributive businesses experienced 16% revenue growth, and as I said, 19% growth in operating cash flow. This was driven in part by the inclusion of a full quarter of Provide Commerce results. However, the primary driver was 10% revenue growth and 17% operating cash flow growth at QVC. This was particularly impressive, given the difficult comparison to a very strong second quarter in 2005, and the lack-lustre performance of other video commerce companies. Looking more closely, domestic revenue and operating cash flow at QVC grew 10% and 14% respectively, as the Company increased sales to existing subscribers, particularly in the areas of accessories and jewelry. Domestic shipments increased 8% to 28.4 million units in the quarter and the average selling price grew 3% from $42.42 to $43.67. Sales via the internet continued to increase as a percentage of total sales, as QVC.com accounted for 20% domestic revenue in the quarter, up from 18% in the same period in the prior year.

While the international business was negatively impacted by foreign exchange, overall revenue increased 10% and OCF grew 25%. This was primarily due to subscriber growth in all markets and increased sales to existing customers in Germany and Japan. QVC Japan had a particularly impressive quarter, with 25% revenue and 35% OCF growth, 33% and 44% respectively in yen. This was driven primarily by a 40% increase in units shipped and improved operating leverage. Overall, international operating cash flow growth was driven by the revenue increase and margin improvements, as gross margins increased by 210-basis points to 38.8%. Execution remains the religion of QVC and no one in the business does it better. While QVC's primary competitor was experiencing a revenue decline in the U.S., QVC's business grew double digits without subscriber growth. This is all due to execution. At QVC, they say the customer votes every day of every minute and QVC responds by picking the right products to air at the right times to meet that customer demand. We remain comfortable with the guidance that we provided in April and, therefore, it remains unchanged.

Provide Commerce, our new web business, reported good quarterly results and completed a strong fiscal 2006 on June 30. For the quarter, revenue was up 27% and OCF grew 37%. These results, while strong, were aided by the timing of the Easter holiday, as Easter fell in the fiscal third quarter in 2005 and the fourth quarter this year. For the full year -- the full fiscal year ended June 30th that Provide previously had, Provide's revenue and operating cash flow increased by just over 25% on a normalized basis, excluding certain deal-related costs and purchase accounting adjustments. We are pleased with this acquisition, and expect continued strong performance from Provide as it expands its flower delivery business and enhances its gifting lines. Also Provide and QVC continue to work together to devise ways for their businesses to leverage one another and drive top-line synergies. We will report more on these efforts as they progress. Finally, we announced last month an agreement to acquire BUYSEASONS, the owner of buycostumes.com, the largest online only retailer of costumes. As I mentioned, this is another step in our strategy of acquiring direct-to-consumer brands and products that fit strategically our commerce businesses. We look forward to closing this transaction and welcoming buycostumes and its management team to the Liberty family.

Now let's look at liquidity. In addition to our strong operating performance, we continue to main a strong capital structure and good liquidity at the businesses attributed to LINTA. LINTA has attributed cash and public investments of just shy of $4 billion, and currently has just under $6 billion in debt. With more than $1.5 billion in annual operating cash flow, the LINTA businesses maintain significant liquidity to grow organically and through acquisition and to shrink LINTA equity as Liberty management deems appropriate. Now, let's turn to Liberty Capital. The LCAPA has also had an active quarter. As I mentioned a few minutes ago, the LCAPA tracking stock was -- sorry, the LCAPA tracking stock was issued simultaneously with LINTA following approval of our shareholders on May 9th. The businesses attributed to LCAPA turned in results as expected.

The group's largest business, Starz Entertainment Group, reported a modest revenue increase, while reduced marketing commitments combined with subgrowth and moderating programming expense increases drove a 6% operating cash flow growth. In May, we completed the sale of our half of Court TV to Time Warner for $735 million and are pleased with the value this transaction provided to our shareholders. Shortly after the Court sale, we announced an agreement to exchange all of our IDT interests and cash for IDT Entertainment, a subsidiary of IDT, and the assumption of its debt. Our IDT stock and our investment in its subsidiaries, had been a passive and a liquided position that did not logically fit with our other LCAPA portfolio and assets. The exchange for IDT Entertainment provides us with a business that we control and that we believe is highly complimentary to the Starz Entertainment Group. Also during the quarter, the value of our News Corp stake increased by nearly 15% to just under $10 billion. This increase represents about $8.75 per LC APA share.

Now let's take a closer look at the quarter. For the businesses and investments attributed to Liberty Capital, the combined income statement is a smaller part of the story. Nonetheless, Starz is showing strides in improving its financial performance. While revenue grew modestly, OCF showed a 6% gain. Overall, LCAPA reported a 9% gain due to the increase of Fund Technologies and revenue growth at TruePosition. LCAPA reported an 18% OCF increase, primarily attributed to gains at TruePosition and the OCF growth at Starz. Now let's take a closer look at those LCAPA businesses. As I mentioned earlier, the income statement is only part of the LCAPA story, but in that area, Starz continues to show strides towards improving financial performance. Subscription units continue to grow, as Starz subscription units increased 6% during the quarter and those of Encore grew 8%. Together, these drove modest 2% revenue growth. On the cost side, programming cost increases have moderated and are moderating, while SG&A has declined, as the elimination of certain marketing commitments under our new Comcast agreement have more than offset the increased marketing spend since the launch of our innovative new product, Vongo. Starz was pleased during the quarter to announce its broadband distribution agreement, as AT&T agreed to offer Vongo to its high-speed internet customers. We will continue to spend behind Vongo to increase the content offering, raise awareness of the service, and drive consumer uptake. For remainder of 2006, these expenses, as well as marketing costs associated with Starz traditional services, may outpace the reduction in other marketing commitments. As such, our guidance remains unchanged, as we expect full year results to be substantially similar to those achieved in 2005.

Finally, we continue to make progress in reducing complexity and focusing our assets at LCAPA. As I mentioned, we were pleased with the sale of Court TV -- our interest in Court TV. While a great asset, it logically fits better in the Time Warner portfolio, and the sale generated additional cap liquidity for us and the opportunity to redeploy the proceeds to more strategic areas. This deal furthers -- pending exchange of our IDT interests for IDT Entertainment also makes good strategic sense. This deal furthers our strategy of converting investments into strategic operating businesses that have synergies with our current companies and gives Starz the capability to create a wide array of CG-animated and live action programming for domestic and international distribution in all major channels, including broadcast syndication, premium television, theatrical and home video DVD.

There's been quite a bunch of speculation about other potential deals that would take us out of some of our passive equity positions and provide us with cash and/or additional strategic assets. We continue to work towards such transactions, but have nothing to report today. It remains our objective to simplify the portfolio of assets and focus our efforts in a manageable number of areas, including gaming and IP content delivery, and may well evolve into other areas over time. More to come on this. Now, let's turn to the liquidity picture at LCAPA businesses. The LCAPA business are also in a position of financial strength. LCAPA has approximately $17 billion of public investments and derivatives and $2.1 billion of cash and liquid investments, which together, at $19 billion, are only partially offset by $4.6 billion face amount of debt. This provides LCAPA with significant flexibility to grow its businesses and, as with LINTA, Liberty management may look to shrink LCAPA equity in the future, if that is deemed the best use of liquidity to enhance shareholder returns.

With that, let me thank you for listening today and I would now like to open it up to questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll take the first question from Robert Peck with Bear, Stearns.

Hi, guys. Congratulations. I wanted to focus really quickly on Asia and impending competition and what you heard maybe Mindy Grossman's doing over there, or what you're expecting as far as turned-up competition from HSN and how QVC's sort of looking at some of the changes in the competitive landscape going forward? Thanks.

Well, I'll start and then I'll ask Mike George to comment as well. First, I w'd note that we are of always mixed emotions with the success at HSN, because we do own about 22% of its parent. So we are happy to see their success, as long as it's not at the expense of our 100%-owned Company, QVC. I think HSN has had a long history of managements coming in with -- and many good managers with exciting plans and they've yet to have the kind of success or track record of QVC and the focus that QVC has had and the continuity of management and has been a highlight and one of its absolute strengths. So I'm not sure there's a fundamental change going on, but we have great respect for Mindy Grossman and what she has done at many places and is likely to do at HSN. We remain confident of QVC's growth prospects and plans. Mike, do you have anything?

Yes, I'd just add that, Greg, that you know we really just focus on our business. What we find quarter after quarter, if we're executing well, we'll get the sales we need. It tends to be relatively independent of the performance of our direct competitors, and even somewhat independent of the performance of the broader retail market. So I think this is a -- this quarter is a good example of that and so that's, that's really our focus.

Thank you. Next question?

We'll now go to Philip Oleson with UBS.

Yes, just a question in terms of some of the strategic investments. Any update on the status of your conversations with News Corp. with respect to that block? A lot, obviously, has been in the press about that. Just if you could maybe provide a little more insight as to where those discussions are currently?

Well, I would -- I think I would echo Rupert Murdoch's comments. I understand he had some of them on the call yesterday, the News earnings call, that we have ongoing dialogue with them about a host of options. I think the dialogue is productive, headed in the right direction, but there can be no assurances whether we'll be able to achieve a deal or for what assets we'll likely end up with. John, do you want to add anything there?

No, I think that says it all.

I guess then, just as a follow-up, assuming that you can achieve a deal and if there is a meaningful cash component as part of any transaction, what would you view as the immediate or medium-term use for that cash?

Well, I think consistent with our overall strategy, we would look at the opportunity to add strategic assets, particularly to the businesses that we have that we think have the best growth prospects, but we would also consider equity shrink if we thought that we had an attractively priced equity security at one of our businesses. Now, I would note one of the things that we've stated historically, and I would reiterate is, in some ways the decision to do equity shrink at a Company like Liberty Interactive is easier than it is at a Company like Liberty Capital. Today Liberty Interactive has a very strong set of earnings assets led by QVC, but also Provide. It has the ability to repay any debt that we take on, whereas at LCAP, there is not a sufficient amount of earning assets to do that. So if we are shrinking, we are effectively in the process of somewhat of a liquidation, and I think our first choice would be to think about strategic assets rather than looking at a liquidation. However, if we were to end up with a number of large earning assets at LCAP, we didn't think that the market was fully valuing them, and those earning assets had an opportunity and a capability to repurch -- repay any debt that we incurred through repurchases, the decision might be easier.

With the tracking stock structure, given that the proceeds would kind of reside -- the proceeds from a neutral monetization would reside at LCAP, can those -- is there an efficient way to be able to kind of channel that money over to LINTA to be able to shrink the equity there?

Well, in general, the LINTA cash is for the benefit of the LINTA shareholders and the LCAP cash is for the benefit of the LCAP shareholders. Any transactions that were done that were outside that family would have -- obviously have to be at arm's length and be approved bit board of directors and to the benefit clearly of the group that was utilizing the cash. So I think that's not an impossibility, but it's probably a higher hurdle than imagining just using your own cash.

Okay, and then two quick last questions. In terms of the share repurchases, the rational for no repurchases at LCAP, is that just kind of -- as you explained, now that you don't have the earnings capacity to be able to support higher leverage?

Think that's primarily it. I think also, in general, we-- if you had taken a pool and bet around this Company among the management team on where those stocks would initially trade -- in fact we had such a pool -- the consensus would have been higher for Liberty Interactive and lower for Liberty Capital. Not that we don't think that the value is ultimately there, but as we have said in the past, it's somewhat episodic. It is dependent upon having the right kind of transactions with people like News Corp. or Time Warner, and finding ways to tax efficiently get out of those passive equity positions and likely convert them into a attractive operating businesses. So there's a couple of steps that have to happen before we think full value can be realized -- or fair value can be realized at Liberty Capital. Conversely at Liberty Interactive, we have a strategy in place, one that we like, one that seems to be working based on the results we're seeing today. So that decision is somewhat easier. The business throws off cash, it has earning capability, it is performing, it's on a strategy that we like. So the decision about repurchase is relatively cleaner and we voted with our feet.

But now at the -- at the LINTA, the repurchases seem to have been entirely funded with increased borrowings on the QVC facility rather than available cash. Kind of why not -- you know, why would you fund those with incremental debt rather than just using cash on hand?

Well, I think that there's a -- we're arranging our financing -- finances at LINTA and at QVC to best utilize the cash available. There are some requirements to fund a credit card program. There are some requirements for cash internationally and not all of it's easily available in the most tax efficient manner, and that's part of what drove our borrowings.

All right. Thank you.

We'll take our next question from Jason Bazinet with Citigroup.

Hi. Real quickly, I think we're modeling about $50 million a quarter or so for Provide Commerce. I was wondering if you could provide any color in terms of what we should be layering in for the BUYSEASONS acquisition? My second question is your mix shifts more towards the internet channel. Should we be thinking about any sort of change in the EBITDA margin on the -- via the internet channel versus the traditional -- traditional channels for QVC, either up or down? Then third, you alluded to some margin expansion due to your own branded credit card. Is that -- should we view that as sort of a one-time phenomena or something that's recurring? Thanks so much.

As far as the first one, it's very hard to say. You know, the $50 million a quarter Provide because Provide has a highly seasonal business.

Okay.

And it's quite the opposite that it has very low revenue in some quarters than in the quarter that incorporates Easter and Mother's Day and Valentine's Day, if that happens to be one quarter, or it may be two quarters, depending on the timing of Easter. That can be a very large quarter and as much as 40%, 45% of the revenue of the business.

Okay.

Generally 10%, 20%, 30%, 40%, kind of in their fiscal year.

Okay.

But it can be as high at 45 if you get Easter in that same quarter. So it's 40-ish, something like that. So it's very seasonal.

Okay.

BUYCOSTUMES is small. It is a small company. We're not disclosing it because of the size, it is obviously not material in that sense, but I would also reiterate that it is highly seasonal. If you think logically about when costumes are sold, and you have little kids who are out there at Halloween, you might imagine. That's when we have-- we certainly do have costumes around parties and the like, but we're highly seasonal in the -- we will become highly seasonal in that business in the quarter in which Halloween falls.

Got it.

Your second question was around the internet, and if you could just reiterate or hone it, because I'm not sure I caught it exactly.

I was just wondering as we think about modeling the margins going forward -- the EBITDA margins for QVC, I was wondering if there's any sort of, you know, either higher or lower EBITDA margin as you sell more more units through the internet channel versus QVC's traditional channels of distribution?

We've said before, and I'll reiterate again, the internet is the most profitable domestic channels, logically, even compared to our automated voice response systems, which are highly efficient. The internet is a more efficient response system. In addition, in some cases we're not required, if the product was not on air in the last 24 hours, to be paying commission. That can drive the margin. And lastly, the continued availability and what gets sold there on the internet skews -- the highest skewing group in there is health and beauty. That is the highest rate of purchase on the internet among our product lines, and the continuity and reorder business that we get there tend to skew and push our overall margins up, as well. I would think our internet business is higher --

Okay.

-- margin than any of our other segments basically.

Okay.

The one thing I would say is that's been a slow and gradual trend. You've seen that. We've obviously gone from zero domestically to 20% domestically in the internet and I don't expect anything radical to continue. I think we said at these kind of revenue, thinking maybe 20, 30-basis points of improvement year-over-year in the domestic margin.

Okay.

That would be a long-term trend and the internet would be a part of that. Bill Costello, do you want to add anything on that and perhaps comment on the credit card?

Nothing on that. With regard to the credit card, the reason we've had some nice improvement in that, because we had much less write-offs in this year's second quarter, as well as the first. We're about $1.5 million less in write-offs in each quarter or close to $3 million for the half. That's really much an economy thing, a timing thing in terms of what's going on in the external market. I don't know if you can say it's going to keep on like that, but what's really driven it is the amount of write-offs. We haven't changed our credit formulas or made credit easier or harder, it's just the way the write-offs run.

Understood. That's very helpful. Thank you.

Next question, please.

[OPERATOR INSTRUCTIONS] We'll move to Robert Routh with Jefferies & Company.

Yes, good morning. Just a few quick questions. First, I'm wondering if you can comment a little bit on the Liberty Interactive assets, other than QVC and Provide and BUYCOSTUMES. As far as the Interactive core stock and the Expedia stock, do you consider those positions strategic long-term, or do you think you may look to somehow monetize them in some way, shape or form, tax efficiently, to make more of a pureplay home shopping, retailing, e-commerce entity?

I think we look at those as very interesting long-term strategic positions. We are -- particularly at IAC and Expedia, we have over 20% of the equity and eventually we'll have control of those businesses, so there's a strategic element in that sense. Currently we do not have a lot of strategic undertakings with them. We do a board representation at both businesses. At GSI, we're around 20% and we have board representation there, as well. And we like the growth prospects, in general, of those business. Obviously Expedia in particular has had a tough run here in a travel market that's been tough, and it's probably had a tougher run than some of the other travel companies. But, you know, we don't get a lot of strategic value out of them today, but we see, I think, the opportunity, given that control and so we weigh that and we'll continue to weigh that.

Okay, great. And then--

John do you want to add anything?

Yes, all I would say is obviously the market pricing of those two businesses have been a drag on valuations for LINTA this year. The businesses are unleveraged and in the case of IEC have substantial excess cash, and yet they have been shrinking their equities fairly aggressively. So we think that a continuation of that should ultimately give high returns on our equity, as those businesses continue to grow, particularly IAC's businesses. In the case of Expedia, we think it's a cyclical business. Actually does better in down travel cycles than in up travel cycles. Barry is also coming to the end now of his split-off Morris Trust restriction, so his ability to consider recapitalization's further and more aggressive stock repurchases or other potential transactions is now -- becomes feasible in this timeframe. It's been just about a year now since the split took place and so I wouldn't personally be surprised to see some more aggressive behavior now in those two companies, of one kind or another. From our point of view, obviously we would, in the short run, like to see a higher return on our invested equity, i.e., more leverage, and a more aggressive buyback. And in the long run, we would like to see those businesses positioned so that they could become long-term assets that we would own and control. But I wouldn't rule out anything. I mean the private equity markets are putting pretty high valuations on them, so we'll see.

Okay, great. And then just two quick follow-ups. I'm wondering if you could comment a little bit as to why you think, given how man -- what the percentage of your sales are coming off the internet now, why QVC and other home shopping networks are not getting an internet-type multiple, because It would seem as though eventually they are going to and that would make sense. Finally on the LCAPA side, if you could comment on TruePosition. I know you mentioned it, but just given what it is, I'm just curious as how much strategic value you see in that now, as we're entering a realm where it seems as though it would have significant strategic value to the Company?

On the internet question, I think we would be loathe to project what the market will do. We think your fundamental point that these are increasingly internet-related businesses and, frankly, if you look at QVC, it's a unique animal. It's had a 20-year track record of growth. It has that growth while spinning off relatively, if not absolutely high amounts of cash flow -- free cash flow, which are not required to be reinvested to fuel that growth, absolutely a rare animal. When you look at the comp store growth, again, we have 1% type subgrowth, so all of the growth you're seeing here domestically is comp store growth. When you look at that kind of comp store growth, very few, if any, retailers out there of any scale will have this kind of growth and, again, combined with the free cash flow generation relatively unique, if not absolutely unique. And your point about valuation, I think you can watch our actions on share repurchase and think we are in fundamental agreement.

Yes, and I'd also say with respect to Q, it is a unique asset. It's probably substantially underleveraged at this point, given the fact that it does throw so much free cash, given the fact that it's marginal cost of debt financing after tax -- it is a full taxpayer -- is about 3%, and I think we would all be unhappy if long-term ROEs didn't substantially exceed 3%. So, you know, I think that's kind of unique about it and I don't think the market really understands, even compared with other internet retailers, how much free cash QVC throws off.

The only one with anything like our kind of free cash flow margins that we know of in the internet space and retailing is eBay. Really if you look at the list of who else has those kind of free cash flow generation margins and growth, there's no one else.

Okay, great. And on True Position?

I'm going to let Mark Carlton, our TruePosition expert, among other qualifications, comment.

Our folks at TruePosition continue to execute their plan. I think we remain bullish on location-based services in general, both to consumers and to enterprises. I think it's something we probably would have predicted would have happened a little bit sooner, but I think we're beginning to see it now as more handheld devices and mobile devices and the carriers, as well, begin to launch services. So the TruePosition guys continue to push ahead with their plan on both the equipment and network side and the services side, and we're still bullish about it.

Okay, great. Thank you very much.

Thank you, Robert.

We'll now take a question from [Michael Schwartz] with [inaudible] Capital.

Hi, guys. Thanks. Question more related to potential tax efficient transactions with your equity positions. You know, the market's obviously aware of the News Corp. potential transaction. What about some other of your holdings, you know, like a Sprint or Motorola, are you looking at ways to tax efficiently get out of those positions, as well?

We look at tax efficient ways to get rid of, or redeploy all of our positions, to be more polite about it.

Sure.

Sprint is more complicated. They completed a merger which was -- had its own tax issues with Sprint/Nextel, and then they subsequently did a spin of Embark, both of which complicate, at least for a period, tax efficient 355 transactions, for example, or other tax efficient transactions, with them. Motorola is -- we certainly would be interested in finding a tax efficient way to relieve ourselves of that stock, but we are effectively hedged on the value, so we're not really exposed for quite a long time, given our exchangeables and our underlying position and the hedges we have in place. So if you look and move the dial on, you know, closing out the gap -- the space between after tax value and pretax value at LCAPA, roughly 50% is News Corp., and the next biggest hunk is Time Warner and the next biggest hunk is Sprint, and you fall way off the map after that.

One thing you did mention was that you potentially looking to redeploy the proceeds into, you know, other assets, et cetera. I mean would you also be looking to potentially repay some of your debt?

Probably not our first priority.

Okay.

But can't say, you know, weight market conditions at any time.

Yes. Would you -- would you be involved in other hedging methodologies if you were to get rid of the majority of the equity and have these exchangeables outstanding?

Well, as you know, the exchangeables are, in effect, a straight debt position and we've also saw the call on the equity. So we would have to be fairly comfortable with the -- that we weren't exposed on the call. One could imagine a case if the call were struck at, you know, $45 and the underlying stock was at $20, your risk -- and it was going to expire in a rela -- or mature in a relatively short period of time, your risk on the call is not that great. Maybe you go naked on that. But if you had something that was close to the money and you were going to have the exchangeable outstanding for a long period of time, you probably wouldn't want to undertake some kind of hedging mechanism.

And how do you actively monitor that?

We have a very smart treasury group, which is here in the room. Dave, Laura, Neil, and others who are actively involved in making sure that we're not exposed on that.

All right. That's great. Have you been buying back or repaying any of your debt recently, in the last quarter?

I don't think we were going to disclose that on this call, other than we disclosed in the Q what actions we've taken. I think we're-- as a policy matter, we said we're going disclose our share repurchases on the call on a quarterly basis and report on what we've actually repurchased on the earnings call in the prior quarter and that will be the limitation on the call, and then any other actions will be in the Q.

Okay, great. Thanks a lot.

Thank you.

Our next question will come from Matthew Harrigan with Janco Partners.

Two questions. Howard Jonus over at IDT used to wax fairly enthusiastically about the power of the animation engines that they had and the distributed engineering in places like Israel and India and all that, do you really view this acquisition as providing some nice ancillary programming for Starz? Or are you really going to do full blown if the optical releases? I know they had projects in the pipeline, like Yankee Irving, but it's a tough business, as Peter Turner pointed out yesterday on the Fox call. I'm sure you're not going to do Ice Age or something like, but I'd be curious as just how broad your ambitions are beyond which you elaborated on earlier. And I'll hold my second question.

Okay, on the -- On just one thought and then I'm going to turn it over to Bob Clasen with Starz. We obviously thought that Howard Jonus' waxing was a worthy story because we decided to buy it. We do think that there are some interesting differentiating factors around the animation business at IDT. We are cognizant, certainly, of the increased competitive landscape where four or five years ago you had four or five computer generated animation pictures a year, you're now up to 16 or 17. So the market's gotten far more competitive, so we're certainly cognizant of. But. we are very enthused about the projects in the pipeline including the renames Yankee Irving, now Everybody's Hero. And I'll let Bob go.

Yes, the animation piece of IDT entertainment was not the driver in terms of our decision to go ahead and make the acquisition. They are sitting there with Anchor Fave, Film Roman, a live action production group. They are -- they do the Simpsons on a contract basis and they have in the pipeline a variety of animation and live action projects generating over $200 million in revenue. So there is a whole business there. The first animation project, although it's been high profile, is Everyone's Hero coming out September 15th at your local theaters, and the next film that is in production is actually a joint venture with Vanguard, John Williams who did Shrek. It's not coming out until 2009. So while this is an important aspect of the acquisition, and we do believe that with our kids and family and our variety of 16 channels, there are places to put a lot of this content. The real driver was developing other distribution channels and production facilities, so we're now moving to the home video business, syndication, foreign sales, and potentially theatrical distribution. Presumably if this deal closes in the next few weeks, we would be reporting very completely about what the plan is. But the animation piece, while it's been high profile in the press, was not the driver.

Great. And my second question was over at Liberty Capital, I know you've got a number of online gaming businesses that are interesting. That's one of the aspects you really haven't commented on so far. So you still see a lot of strategic activity laying that business out further?

I think, if you look in our portfolio at Liberty Capital, one of the most interesting growth areas, if not the most, is around the casual gaming space and potentially in other area is including how gaming and social networking interact, hardly a new concept this day, but I think there's a lot we can do in our portfolio and even in the MMOG space, the massively multiplayer online games. I think there are areas we are looking at, dialogue we are having with companies now. We like the space. We think we have some interesting assets there already. We think it's a growth space, one that is not as consolidated and is available for greater entry by ourselves, and so we are looking hard at it and I expect we'll do more things.

Great. Thank you.

We'll now move to Troy Huttonstein with RG Capital.

Hi, guys. My question relates to Liberty Global. I know you guys have made some comments before in the past, is there any further thoughts on getting involved with them again or not?

This is the Liberty Interactive and Liberty Capital call. and I'm not being flip, but we don't have any -- they're our tenant in the building, but other than that, we don't have that much to do with them. We have a common chairman and maybe he would like to add any commentary on it.

Oh, Liberty Global is doing fine. [LAUGHTER]

So I think their call's tomorrow. All kidding aside, I'm sure they'd be happy to pick up.

I just referring to in the past I guess you've made comments that there's been a lot of activity over there and LBO's and what not, maybe somebody was inquire about them, maybe you guys could get back involved with the,I guess is what I was alluding to.

Just personally they're the kind of a business that I love, because it's recurring, growing [leverageable] tax shelter tax flow. And at the present time they're trading relatively cheap compared to what we see private equity players paying. So if that became an opportunity for Liberty Capital, that would be fine with me, but I don't think that that's a primary focus at this point, of Liberty Capital's plans to deploy their capital.

Okay. Fair enough. Thanks, guys.

Thank you.

We'll now move to Davis Smith with Western Assets.

Greg, I just kind of had a question about the BUYCOSTUMES business. When you went and did Provide, you were getting a business which sort of created a stepping away from, a step in the distribution process. I guess I don't understand the costume business enough. Is there something here that allows you to step away from a point on the distribution that gives you some sort of advantage here?

I think -- we like BUYCOSTUMES for a bunch of reasons. I think we are -- it's had a tremendous growth track record. It's got a seemingly discernible advantage both in brand and online presence in terms of being a pure online costume retailer. There are others out there, but it is the fastest growing and seemingly most successful and they do have, if not unique, valuable sourcing relationships, primarily in the Far East but elsewhere as well, that we think are -- provide them with advantage. So when you combine that, we like the overall shape of the business and we think there are some interesting opportunities to do promotion, again, with QVC. In fact, they were in dialogue with QVC about a branding relationship and co-marketing relationship before we came across them as a potential investment opportunity.

Okay. Good.

Mr. Smith, do you have any further questions?

No, that's fine. Thank you.

Thank you.

[OPERATOR INSTRUCTIONS] We'll now move to Robert Schiffman with Credit Suisse.

Help me just with this concept. You guys have tons of cash, you generate considerable free cash flow, you've got [leverageable] assets, you're looking for leverage returns. What's holding you back from the ultimate equity shrink and going private is just the premium you have to pay takes away all the upside or just why doesn't that work?

I certainly wouldn't rule anything out. We continue to shrink and we'll see where the world takes us.

Okay. Just sort of separate follow-ups. The rest of sort of traditional media continues to sell off. Do you see any level of value yet for sort of traditional radio broadcasting, printing, and since you guys still have a pretty big piece in Time Warner, if you were running the show, would you be doing anything different right now at that entity?

I think on the first one, there are certainly, you know, pockets within print and radio and TV that are interesting. I know very little about radio. Know limited amounts about the other two, but we certainly look at those [inaudible]. We have people who fortunately know more than I do. But we look at those and there are interesting opportunities and, frankly, they probably qualify as -- in the world of private equity, I was reading something in the Financial Times, you have to buy -- if you look at the leverage capabilities on some modest leverage basis, there's enough private equity to buy a total 15% percent of the S&P, so surely those will get swept in and sucked up at some point and many have them have been attempted, either by the owners of the controlled business, like [M Edser], et cetera. So I think you'll continue to see those as they are potentially slower growth, but highly [leverageable] assets, yet become attractive LBO candidates. [inaudible] effectively that's a leverage play by another competitor,. You know that, will all go on -- John, please weigh in.

There's a ton of old media that -- whose owners regard it as undervalued, and there's a lot of equity shrink going on. The question is, does it take private equity to catalyze that or is this going to be a systematic shrink process, but there's no question that the gap between valuation between private companies and private equity deals is very large, you know. Somebody mentioned LGI the other day. We got outbid at what looks to us like 12.5 times cash flow for a cable property in which we had large synergies versus--

And the buyer didn't.

And the buyer didn't. And our equity's trading at probably sub eight. So you run as a public company into this dilemma of how can you justify paying 12, 13 times when you're trading at eight. On the other hand, from a tax point of view in the traditional business, it's nice to buy assets and have extended depreciation into the future. So a lot of it has to do with your time horizon. And, you know, the private equity guys have generally a short time horizon and, therefore, the long-term technological risks that we perceive don't bother them as much because they figure they'll be gone within the timeframe before those technology -- technological damage, if it ever does happen, happens. So that's-- I mean the debate about the newsprint business goes back 25, 30 years in terms of when will new technology start to devalue newspapers, and I can remember, we even had a symposium on that subject. So it continues. I mean the dialogue continues. Does it fall off a cliff? I mean Rupert himself, who is probably the most knowledgeable guy in the newspaper business, said he wouldn't buy anymore, but he wouldn't sell the ones he's got. So, you know, it's just a big cash machine right at the moment that most of the owners have very low tax bases in, and so you're better off harvesting the cash strength than you are giving the government 40% of the proceeds. And I think that's -- that's trapped a lot of these assets inside big public corporations and is a substantiate reason for the undervaluation of a lot of public corporations.

You mentioned Time Warner.

I think- - I'm sure we have any great insight for [Dick Parsons] or [Jeff Eucus], we wished them well and push the value up [inaudible] big shareholders. I think some of the actions that they're taking obviously to capture internet advertising makes sense for the long-term and hopefully they will execute well.

Okay. Thanks again.

And at this time, there are no further questions. I'll turn it back over to the speakers for any closing remarks.

Well, I just want to say thank you for joining us today and I appreciate your attention to Liberty Media, both Liberty Interactive and Liberty Capital and look forward to speaking with you next quarter, if not earlier.

And that does conclude the conference call for today. Thank you for your participation, and have a great day.