QVC Group Inc (QVCGA) 2007 Q4 法說會逐字稿

Good day, everyone, and welcome to the Liberty Media Corporation fourth quarter earnings conference call. Today's call is being recorded. (OPERATOR INSTRUCTIONS). This presentation includes certain forward-looking statements within the earnings of the Private Securities Litigation Reform Act of 1995 including statements about financial guidance, business strategies, market potential, future financial performance, new service and product launches an 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 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 disclaimed any obligation or undertaking to disseminate any updates or revisions to any forward-looking statements contained here in to reflect any change in Liberty Media's expectations with regard there to 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-K for additional information about Liberty Media and about the risks and uncertainties related to Liberty Media's business which may affect the statements made in this presentation. On today's call we will discuss certain non-GAAP financial measures. The required reconciliation, preliminary note and schedules one through three can be found at the end of this presentation.

Nothing contained here in shall constitution of solicitation to buy or an offer to sell shares of the reclassified Liberty Capital tracking stock or Liberty Entertainment tracking stock. The offer and sale of Liberty tracking stocks and the proposed reclassification will only be made pursuant to the Liberty effective registration statement. Liberty stockholders and other investors are urged to read the registration statement including the proxy prospectus contained therein filed by Liberty with the SEC because it contains important information about the transaction. A copy of the registration statement and the proxy statement prospectus are available free of charge at the SEC website, http://www.SEC.gov. 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.

Thank you. And thank you all for joining us today and for your interest in Liberty Media. We've had another active year to report on and I'm going to discuss a little bit today with some help from others. We're going to talk about our operational performance at our controlled subsidiaries were going to talk about some transactions that were announced and or completed during the year and I'm going to talk to you a little about some recent developments that have happened after the end of the calendar year and a little bit about what we expect to be doing or attempting to do in 2008.

On the call with me today I have QVC CEO, Mike George and CFO, Don O'Connell. Starz Chairman and CEO, Bob Clasen, President and COO, Bill Meyers and EVP and CFO, Glenn Curtis. Several other senior Liberty Media Executives are on the call as well, including Chris Shean our controller who will discuss some results.

Let me start by talking about LCAPA. Finally, and I emphasize that word, we closed our exchange with News Corp. It did not seem like just yesterday we did that deal. It seems like a long time ago but we're very happy to have it done. We're thrilled to have Chase and the entire DirecTV team joining part of the Liberty family. We're excited about the prospects of working together. There were, certainly doubters at the time we did that deal. People who thought that we were getting the lesser end of the bargain, we were being forced into this trade. You can come up with whatever analogy or suggestion you want. We believed and do believe that DTV's management was absolutely on the right track. We believe in the strength of satellite as a video platform. We believe it would be good demand for HD and video breadth. We believe in the power sports and other (inaudible) content and we believe that there would be or could be slowing demand for the triple play. Fortunately, those things have come to pass and DirecTV had a fabulous 2007 and looks to be continuing forward in 2008. This is a great deal for Liberty on several fronts. First, since we announced the deal, it is accreted substantially. On the basis of just sort of the raw numbers and the swap, we're up about $3 billion.

Secondly, we have a substantially increased tax basis and you know that sort of matters to Liberty. We're up about $5 billion in terms of the tax base of the assets that we received versus the assets we gave. We have enormously increased financial flexibility given the under leveraged balance sheet of DirecTV where it currently has less than one time debt just looking at the solid subsidiaries there and as I said, we continue to be impressed with the strong performance of DirecTV. As they outlined in their investor presentation this morning, DTV's subgrowth continues, it's churn is down, it's ARPU is up and it seemingly has not been affected by economic conditions. It's outperformed its peers substantially. And that doesn't even look at the sort of hidden gems in there like Latin America which had another fabulous year. So we're very excited about what DirecTV is go doing and we're excited about how we can work together and how it can create a strategic center for Liberty Entertainment and really for Liberty Media as a whole.

The next phase of our efforts at Liberty Capital will be the issuance of the Liberty Entertainment tracker. We expect that to begin Tuesday -- trading Tuesday morning. In the fourth quarter, the shareholders approved Liberty Entertainment as you know. And in Liberty Entertainment we'll have the following attributed assets - - 41% of DirecTV, all of Starz Entertainment and our three regional Sports Networks, Seattle, Denver and Pittsburgh, our 50% interest in the Game Show Network, GSN and our 100% interest in FUN and equity interest in WildBlue. We'll be attributing $550 million in exchangeable debt and about $1 billion of cash. Liberty Capital, let's call it new Liberty Capital for this purpose will have all of the attributed assets, businesses and liabilities that were previously in Liberty Capital except for those I just mentioned are going into Liberty Entertainment. Why are we doing this? The purpose of these new trackers is hopefully they continue to reduce complexity at Liberty Entertainment in particular. To allow investors to further focus their investment in the vehicle that is most attractive to them. To create a currency, we hope, for enhanced financial flexibility and to further concentrate what we consider are noncore assets at that new Liberty Capital. So during 2007, we did a whole host of 355 transactions which -- and other transaction which have the impact of producing flexibility and tax efficiently reducing our exposure.

We exchanged our interest in CBS for a CBS affiliate in Green Bay and cash. We exchanged a portion of our interest in Time Warner for the Atlanta Braves, Leisure Arts and cash, and in the fourth quarter we also purchased the balance of FUN Technologies to bring our interest up to 100%.

During the year LCAPA had good performance in it's operating units led by Starz which had truly spectacular operating cash flow growth. Chris is going to cover more about that later and Bob Clasen will talk to you about how they're doing this year. But there were good results at several other Liberty Capital businesses and I already mentioned the strong results at DirecTV. Finally looking at Liberty Capital we bought back about 11.5 million shares for $1.3 billion.

Turning to LINTA, Liberty Interactive. Operating results were more challenged in a difficult retail environment and QVC's growth in particular was slowed. We are and remain confident in the long-term outlook and strategy at QVC and you'll hear more about that from Mike George. And we also had good to very good growth at our e-commerce companies and affiliates. And Chris will cover some more -- Chris Shean will cover of those details, momentarily. We made additional e-commerce acquisitions, Backcountry, a leading provider of ski and other outdoor gear. It had a tremendous year and is continuing to do very well in 2008. And Bodybuilding.com, which we closed right at year-end, had a very good finish and continues to look like a great business that we're very happy to be involved with. Both of these businesses fit well with our e-commerce businesses that we already had, provided BUYSEASONS. Why, great growth, good strategic fit, leaders in niche categories with great management teams and exciting great growth prospects. So we're very happy with those.

Finally rounding out on the balance side a little bit, we continued to repurchase shares at Liberty Interactive. We bought 56 million shares during the year for $1.2 billion, that represents just about 16% of the shares outstanding since we began Liberty Interactive or it began trading in May of 2006 and we still have financial flexibility with leverage just under 4 times on the operating units both own a trailing and pro forma basis. And finally to finish on Liberty Interactive, we bought or rather purchased 14 million additional shares of IAC. Obviously due to the pending litigation about -- with IAC, I'm going to be limited in what I can comment upon. So with that, let me turn it over to Chris and let him talk about Liberty Capital's results first.

Thanks, Greg. The current slide is a quick snapshot of Liberty Capitals results for the fourth quarter and full year. During 2007, Liberty Capital's revenue increased 26% to just over $1.6 billion, while operating cash flow declined 56% to $45 million. LCAPA's largest attributing operating asset, Starz Entertainment which I point out does not include Starz Media, is continuing to strengthen its cash flow. Meanwhile, the addition of some new business units materially impacted both revenue and operating cash flow.

During the fourth quarter, Liberty Capital experienced 4% revenue growth while operating cash flow decreased due to a modest decline at Starz Entertainment and the addition of new business units. Taking a closer look at Liberty Capital, as I just mentioned, it's attributed revenue grew 4% in the fourth quarter and 26% in 2007 while OCF declined in both periods. Revenue growth in both periods resulted from modest revenue growth at Starz Entertainment, coupled with the inclusion of Starz Media and the Atlanta Braves, partially offset by lower GAAP revenue at TruePosition which we mentioned in previous calls has had some revenue recognition problems from an accounting standpoint that continues to cause or impact its accounting treatment. The decline in OCF was primarily driven by the inclusion of a sizable full-year operating cash flow deficit at Starz Media and losses at TruePosition, again partially offset by significant growth at Starz Entertainment and the inclusion of the Atlanta Braves. Fourth quarter decline in OCF was due primarily to the Starz Media and TruePosition. As Greg mentioned a few minutes ago, we're pleased to have completed the exchange transaction with News Corp and are now finalizing the reclassification of the Liberty Capital tracking stock which was approved by our shareholders in October. We also made further progress during the year monetizing some of our noncontrolled and nonstrategic equity stakes through Section 355 Exchanges with both Time Warner and CBS.

As we continued our efforts to complete the News Exchange during the second half of the year, we did not use any of the significant capital resources attributed to Liberty Capital to repurchase common stock. Earlier in the year, we repurchased 11.5 million shares of LCAPA representing approximately 8.2% of the shares outstanding. Upon issuance of the new trackers we expect to hold large cash reserves and have access to capital at both the Liberty Capital group, I guess we should say the new Liberty Capital group, and the soon to be formed Liberty Entertainment group.

Now taking a quick look at Starz, Starz Entertainment continued to experience solid subscriber growth during 2007, as Starz average subscribers increased 8%, while Encore's grew 9% of the year. This subscriber growth, along with a higher effective rate due to the retroactive effects of revenue recognition on our DirecTV contract extension, resulted in 3% revenue growth. Our growth for the year was partially mitigated by the fixed rate agreement Starz has entered into in recent years and the shift of former Adelphia subscribers to lower rate, Comcast and Time Warner affiliation agreements. Starz operating cash flow increased 42% in 2007 as programming cost reductions of 7% were only modestly offset by higher SG&A expenses. Starz also was aided on the operating expense side by third quarter reversal of an accrual or reserve that had set up for music copyright fees in which we had a more favorable settlement. This reduction in programming cost during 2007, resulted from the lower effective rates for the movies that were shown partially offset by increase cost from a higher ratio of first-run movie exhibitions.

In the fourth quarter, revenue continued its full year trend, growing 3%, primarily due to subscriber growth, partially diluted by the previously mentioned fix rate agreements. Operating expenses grew 5% during the quarter, as the Company increased it's marketing activity, resulting in a 4% decline in operating cash flow. Now Bob Clasen would like to say a few words about Starz Entertainment and Starz Media.

Starz Entertainment did have a strong year in 2007 with an increase in our cash flow by 78 million that 42% that Chris referred to, largely because of reduced cost for movies and because of continued growth in subscribers. This year we've begun to roll out our first efforts in the original programming arena. This will provide us can exclusive proprietary programming that can run on our channels and generate future revenue through home video and syndication. We premiere our first two half hour original comedy series in January. In September we will premier our first hour long original drama, Crash, based on the Academy Award Winning Best Picture. This is a joint project with Lion's Gate.

We expect to continue to increase the amounts of original programming on our channels at a modest but study pace over the coming years. We are also launching this year a nationwide branding campaign to generate increased consumer awareness for our originals and for the Starz brand.

On the Starz Media side in 2007 we realized losses associated with the startup of Overture Films and costs related to projects that had been greenlet prior to the acquisition of the Company in August 2006. As a result of the production in marketing costs at Overture and Starz Media for this year, we expect the losses to continue as we create a library of product for our various distribute networks. Overture has assembled an impressive slate of films for 2008 and released the first one, Mad Money, in January. Now what will be a great product for our Anchor Bay Home video division and for the Starz and Encore channels later this year. The next Overture Film, Sleepwalking with Charlize Theron and Dennis Hopper will premier March 14, and then the third film, The Visitor will premier on April 11. In other theatrical initiatives are Starz Media Toronto Animation studio's last year contracted for work on three animated theatrical films and our film Roman Studio performed the animation for the hit Simpson Movies which premiere last summer and it continues to produce the television series as well as the new Simpson Ride at Universal Studios. Anchor Bay Entertainment continued to release limited theatrical films which then go to home video. Our next one, the Grand, starring Woody Harrelson will premier in theaters March 21st.

On a television side, Starz Media during 2007 produced television movies for Lifetime and Sci-Fi and found additional overseas market for the hit animated Children's series, Wow! Wow! Wubbzy! which is aired on Nick Jr. and Noggin here in the United States. We're pleased with the progress we made on all fronts last year and we look forward to more of the same in 2008. I'll now return it back to Chris.

Thanks, Bob. Lets now take a quick look at Liberty Capitals liquidity situation. The LCAPA of business remained in a position of financial strain. At the year-end LCAPA was attributed with approximately $15.6 billion of public investments and derivatives. This represented a $1.25 billion decline from the end of the third quarter largely due to market value decreases in our News Corp position. In addition to its public holdings, Liberty Capital had attributed cash and liquid investments of about 2.7 billion at year-end. Total cash and public holdings approximated $18.3 billion and were only partially offset by $5.3 billion face amount of attributed debt. Upon issuance of the new tracking stocks approximately $1 billion of cash and $550 million of LCAPA debt will be attributed to the Liberty Entertainment group with the new LCAPA retaining the balance of the cash and debt. The DirecTV investment and the RSNs received in the News Corp exchange will be attributed to the Liberty Entertainment group. Both Liberty Entertainment and Liberty Capital will have significant financial flexibility with which -- which will play and important role in the strategic direction of both groups going forward.

Now let's take a look at Liberty Interactive businesses. This quick snapshot of the fourth quarter and full year revenue and OCF performance indicated that Liberty Interactive attributed businesses continued a slower pace of revenue growth and experienced flat operating cash flow for the year and any decline in OCF during the fourth quarter. QVC is the principal driver of performance among the Liberty interactive attributed assets and its performance slowed in 2007. This was primarily driven by the continuation of difficult retail market conditions, challenging comparisons with last year's strong results from the same periods, and continuing operational challenges at QVC's international businesses, most notably Japan and Germany. We'll talk a bit more about this shortly.

Looking more closely at Liberty Interactive, for the year, Liberty Interactive's businesses achieved 6% revenue growth while operating cash flow was largely flat. As I will discuss in a bit more detail in a moment, the pace of revenue growth slowed at QVC in 2007 and operating cash flow remained at prior year levels. Provide Commerce and BUYSEASON which were required in 2006 experienced modest fourth quarter revenue growth and delivered solid full year revenue gains. Backcountry, which was acquired in June, experienced 6% -- 60% revenue expansion during the quarter and 68% growth for the year, coupled with strong gains in operating cash flow. At year-end we completed the acquisition of a controlling interest in Bodybuilding.com, which is a leading Sports Nutrition Electronic Retailer and is the most visited body building and fitness site in the world. We're pleased to add Bodybuilding to our existing group of e-commerce businesses and are excited about its prospects. Bodybuilding results will be consolidated beginning in the fourth quarter of this year and the business will be attributed to the Liberty Interactive group.

As Greg mentioned earlier, we repurchased a significant number of Liberty Interactive shares during the year. During the fourth quarter, we repurchased 20 million shares for $403 million. In total, we repurchased more than 56 million shares in 2007, for $1.2 billion. Since inception of the Liberty Interactive share repurchase program we have now reacquire nearly 16% of the original outstanding share count. We continue to believe in share repurchase as a good means of enhancing shareholder value and will continue to evaluate opportunities to cost effectively shrink Liberty Interactive equity.

Now, let's take a closer look at QVC's 2007 performance. QVC experienced consolidated revenue growth of 5% to $7.4 billion in 2007 while OCF was largely unchange at $1.65 billion. Revenue growth, while slower than 2006 levels, was achieved without promotional efforts and we believe the business is poised for long-term health. Operating cash flow comparisons were impacted by a one-time $15 million reversal of franchise tax reserves which increased OCF in the fourth quarter of 2006. And comparatively lower gross margins stemming from changes in product mix in the fourth quarter of 2007. Domestic revenue grew 5% in 2007 to $5.2 billion, mainly due to a product mix shift away from jewelry, to the home and apparel and accessories categories. Total units shipped in 2007 increased 2% to 122.2 million, while the average selling price grew 3% to $46.05. Domestic OCF increased 1% for the year to $1.24 billion while the operating cash flow margin declined 80 basis points to 23.9% primarily due to difficult comparisons stemming from the previously mentioned 2006 franchise tax reserve reversal.

QVC.com sales continue to grow as a percentage of overall domestic sales pricing from 20% in 2006, to 22% this year. International revenue increased 5% to $2.2 billion for the year while OCF declined 4% to $408 million. The revenue growth was due to favorable foreign currency exchange rates in the UK and Germany, partially offset by operational challenges in Germany and the ongoing effect of changes in the enforcement of Japan's regulation of the marketing of health and beauty aids. The operating cash flow decline was due to lower gross margins that were the result of higher inventory obsolescence provisions, higher commission expense as a percentage of net revenue, and costs associated with the opening of a new distribution center in Japan. Excluding the effect of exchange rates. International revenue declined 1% in 2007 while OCF declined 9%. International operating cash flow margins declined 170 basis points during the year, to 18.6%.

As we've discussed throughout the year, QVC's German and Japanese operations faced market challenges in 2007. The German business was impacted by revenue declines across all product categories as average selling price and units shipped declined, resulting in a 6% local currency revenue decline. The German business also experienced a lower gross margin percentage primarily due to a higher inventory obsolescence provision and to a lesser extent lower initial product margins. Japan's revenue in local currency decreased 2% for the year as businesses faced heighten regulatory focus on the markets of HBA products.. QVC management in Japan has continued to shift product away from the health and beauty category to jewelry and fashion and is experiencing productivity gained in these areas. QVC UK continued to show improved results with revenue increasing 7% in local currency during the year.

Now let's examine QVC's fourth quarter results. Their fourth quarter results showed a continuation of the slower growth that was experienced throughout the year. Consolidated revenue for the quarter grew 4% while OCF declined 5%. Domestically QVC experienced 4% revenue growth and a 5% decline in OCF. Revenue growth was primarily due to increased sales of electronics in the home category, while the operating cash flow decline was largely the result of difficult comparisons stemming from the previously mentioned franchise tax reserve adjustment in the prior year. QVC.com accounted for 22.5% of the sales in the fourth quarter. QVC's International revenue grew 4% during the quarter while operating cash flow declined 4%. Revenue growth stemmed from favorable exchange rates in all markets, partially offset by the continued challenges in Germany and Japan. The operating cash flow decline was due it lower gross margins that were the result of higher inventory obsolescence provisions higher commission expense as a percentage of net revenue and costs associated with opening the new distribution center in Japan. Excluding the effect of exchange rates, international revenue declined 4% in the quarter, while OCF declined 11%. International operating cash flow margins declined 160 basis points during the quarter, to 20.5%.

Before I review the Liberty Interactive liquidity picture, I'm going to turn the call over to QVC President and CEO, Mike George who will discuss QVC in a bit more detail. Mike.

Thanks, Chris. As Chris mentioned, we saw a modest sales rebound in the U.S. from the low levels of Q3. I think a solid result versus the rest of the retail marketplace, but clearly below the levels that we would like to see. We saw continued softness in the jewelry category which has been a challenge all year and some softness in the apparel business as well. The bright spot was consumer electronics. We saw a very high-take rate in categories like GPS units, LCD TVs and personal computers. And as Chris mentioned, our OCF was very challenged in the U.S., primarily for regions of margin mix and these one-time costs -- one-time benefits that we did not anniversary as Chris mentioned. So the mixed shift out of apparel and jewelry into consumer electronics clearly had a big negative impact on the margin rate in the quarter. One of the things we've talked about on prior calls is that we try to maintain very stable margins, we do not move to do a lot of promotional activity when sales are weak. We maintain that philosophy in the quarter. We do not take excessive markdowns or have heavy promotions. So what you see in the OCF result really is an outcome of this mixed shift into the home electronics category. That's something we'll watch but we're not overly concerned about it. Over time we think we can continue to maintain relatively stable margins. To the extent those categories are growing quickly, they will have some depressive effect on our net margins but we think the Q4 result was really exaggerated from what we would normally expect to see.

There is also a modest impact of us opening the new distribution center in Florence, which also weighed down our OCF in the quarter and we'll anniversary that middle of next year. We did keep a tight control on expenses. And maintained fairly clean inventory levels given the general softness in the market. So we do not have any big concerns in those areas.

We launched our new brand identity and brand campaign in Q4 which we felt very good about and launched a complete makeover of the website in early November which gives us a lot to build on. Although it did slow the rate of growth in the internet in Q4, as customers got used to the new site, we think that's more of a one-time issue with the transition to the new site. We felt very good about the business in the U.K. They've continued to improve their results all year. And if anything, results are a little bit better than they appear because there was a protracted Royal Mail strike in October. So we had very tough results in October due to the Mail strike and then a very nice rebound in November and December. We did see a little bit of decline in OCF yield in U.K., primarily due to the signing of a new long-term contract for DTT Carriage and some of the one-time expense associated with the Mail strike but overall I feel very good about our business in the U.K.

Germany on the other hand continues to be a challenge. The story is consistent with past calls. Our topline results were weak, especially in the jewelry category and also in apparel, although we saw a little bit of strengthening in the home store. Despite the poor overall results though, we did feel that we've made some steps, some positive steps in the turn around program. We have been focusing on trying to move much more to an every day pricing strategy as opposed to a promotional orientation which that business had adopted in the prior couple of years. And we made some progress there. We reduced the amount of business done at promotional prices, increased the every day price business, and stabilized our initial margins. So our initial margins were much healthier than in Q3 and again much less promotional activity. Our second priority in Germany is to continue to add new programs and brands to diversify the mix and we added over 40 new concepts in the quarter. That's a big increase from prior quarters. And I think that bodes well for the future. Both of those initiatives did hurt the top line velocity, so this is something that is going to take a while to build. But as you know, we're committed to rebuilding the business in a very methodical way and trying to develop an approach that will be healthy for the long-term.

Japan, as Chris mentioned, also continued to struggle due to the regulatory issues. We began discussing those in Q1. They have continued to build through the course of the year as we had to take more and more products off of the channel to meet regulatory requirements in health, beauty, and fitness. We probably reached the low water mark in around October, so this has created an increasing level of challenges as we've gone through the year but we do feel good about our progress offsetting those losses with very strong gains in apparel, accessories and jewelry. So if anything, we're probably a little bit ahead of schedule in growing those businesses and on the flip side, the impact of the regulations has been even more severe than we anticipated when we first started discussing it. So we are looking -- it will take us until October to fully anniversary -- October of '08, to fully anniversary the pull back in those categories, although the comparisons start to get easier in March but not fully offset until October. And with that, I'll turn it back to Chris.

Thanks, Mike. Let's take a look at some Liberty Interactive balance sheet metrics. We continue to maintain a strong capital structure in good liquidity at the businesses attributed to Liberty Interactive the group has attributed cash and public investments of $4.8 billion and has $7.2 billion of attributed debt. Excluding the value of the positions in Expedia and IEC, Liberty Interactive year ending attributed net debt of just over $6.6 billion, equated to a multiple of approximately 3.9 times annual operating cash flow. As previously stated, we would be comfortable sustains net debt levels of four to five times OCF. As a result, the Liberty Interactive businesses are approaching optimal leverage but we do feel like we have remaining capacity to pursue growth in capital structure, management objectives. Now with that, I think Greg would like to quickly recap the year and talk about what is ahead for 2008.

Thanks, Chris. Well, I think you've heard all of this. Active year. Got the news deal which took far longer from a regulatory perspective than we had anticipated or hoped but we got it done; you, the shareholders were kind enough to approve our new tracking stock. We did get some complexity out of Liberty Capital. We hope to do more. And we had good operating results at Starz, as Bob Clasen and Chris both talked about. And we got a large self tender done.

At Liberty Interactive, in what is a very difficult retail environment and some self-inflected issues, we performed okay, we're still, as we said, very confident about the business. And we believe management has a firm handle on what was wrong and where we're headed. We added two strong complementary e-commerce businesses that fit perfectly our profile. We would love to add a whole bunch more like that. Unfortunate they do not exist or certainly not at any price we're willing to pay. But we'll be judicious and look at them going forward. We bought the additional IAC shares and we made significant share repurchases at Liberty Interactive of its own stock.

So let me turn to the last slide and talk a little bit about where wore headed. As I said we're imminently expected to introduce our new tracker to become official Monday at 5:00 p.m. and start trading Tuesday morning. And Liberty Media, LMDIA, rather or Liberty Entertainment, we're going to develop and implement a strategy for our new DirecTV holding. We really just closed that yesterday. We are -- have some ideas about where we want to go, but they're still in formation and we'll be talking quite a lot more with the direct management team about that. We do hope to utilize some of the financial flexibility at Liberty Entertainment, LMDIA to make strategic acquisitions and we'll look at ways to optimize that capital structure. At LINTA, Liberty Interactive, we're hoping for improved operational performance at QVC and targeting that. We will be seeking additional strategic e-commerce acquisitions, but if you look at when we spent the capital at Liberty Interactive since its formation, the vast, vast majority has gone to share repurchase and I expect that over 2008, you'll get more of the same. I will be out there looking for strategic acquisitions. We would not find the number that we wish, or the size that we wish, at the price that we're willing to pay. And therefore, much of the excess free cash flow will go to share repurchase. We'll work to perfect and that's sounds like a nice neutral word, perfect our IAC in Expedia Stakes and we'll continue to actively manage the capital structure.

And lastly at New Liberty Capital, which will sort of be the rough-co of left over businesses, we're going to continue our efforts to reduce complexity, and transition out of the past of assets that we have in there to more operating assets in cash. So with that, let me thank you for listening and if my self or the management team can answer questions, we're happy to do so.

(OPERATOR INSTRUCTIONS). Our first question comes from Kit Spring with Stifle.

Hi, guys. Could you talk about what assets you might potentially want out of Sprint, Motorola or Time Warner, and which of those you think are most likely. And then maybe also talk a little bit about the value of the derivatives hedging those positions, if there have been any changes that you can discuss? Thanks.

Sure. So just to -- because there surely will be confusion. Those -- all of those positions and all of those derivatives will be in new Liberty Capital. And all of those positions are hedged to some degree or other. So looking at what is in Sprint that might be interesting, we've had some preliminary discussions mostly frankly with the old management team at Sprint, not so much with the new. They understandably might not look at us at their first priority, settling without with what we've got to do. They have other challenges, which we understand. And there are certainly some spectrum assets or some perhaps long distance fiber business which would be worth talking about. Are they highly strategic to us? No. That's part of the reason why this is a Liberty Capital deal. And you would have to figure that out, whether they would actually qualify as a good operating business for example in the case of some of the spectrum.

So on Motorola had very limited conversations with Motorola about some kind of swaps. Very limited. And really has harder to see because that is just -- they're not a Company that has been selling a lot of businesses and I guess that's potentially could change. There is talk of change at Motorola. We'll see. Time Warner, in some ways, a Company we've done one transaction with, and a Company that is likely a seller or potentially a seller of businesses, and we being able to offer them tax-free transactions, I would think that's one where you have the highest likelihood. And while nothing is imminent, you can imagine them being a seller of assets that we might like and frankly might understand better or might be able to run better, given the media characterization and nature of them and the other business that are out there for example, at Motorola would be more of a technology oriented business. Neal Dermer, Vice President of Finance. Do you want to make some general comments about what has happened to the derivatives.

They've gone up in value and the stock have gone down. So that's really the only change, other than the some provisions expiring.

Thank you.

Thank you.

We'll hear next from Benjamin Swinburne with Morgan Stanley.

Hi, , guys, good afternoon. Good afternoon. Since we are effectively talking I think about three trackers I'll ask three questions one for each so each one gets some

Very clever, you tried to slide that one by.

Maybe Mike, on QVC, just to give us a sense for the exposure on the jewelry side and what is happening with commodity prices, particularly gold, this continues to be an issue every quarter. Can you put some-- into context how big the jewelry is in each of your big markets and what the gross margin differential is so we can understand the mix shift trend over time going forward. And then, Greg, at Rough-Co, you have a Time Warner put call coming up, or I guess call put in the next couple of months. With a do you want to do with that position? Do you want to go, affectively naked, I don't know if there is a hedge on that stock anymore or at least on a majority of it. Any thoughts on what you want to do with the Time Warner position. And last on LMDIA, with DirecTV do you think it creates value at that tracker to consolidate the DirecTV business is that you believe investors will look at as a consolidated asset and assign less of a discount?

Mike, thank you. Do you want to start with talking about jewelry in Q.

Sure. I would not get into specific numbers on jewelry mix but I'll try to frame it. So jewelry as a general statement across our markets typically runs as a percent of the total business in the low 20%. Although gold, as a portion of jewelry is going to be a 25% let's say of the jewelry business so when you just focus on gold, we're getting the biggest impact of the commodity increases. That's just the portion of that 20, 25% jewelry mix. Again, I would not reveal specific margins. The jewelry margin is a little bit higher than the Company average as is the apparel margin. But also to put it in context, the jewelry business has been soft in the U.S., we'll say flat to up 2%. It's actually rebounded and was positive in the U.K. and was positive in Japan. Positive meaning growing as fast or faster than the base business. Germany it's soft and U.S. its soft. So it's soft in two of the four markets. It's in the low 20s as a percent of the business and it's our goal again to try to maintain stable margins.

So even with that softness I'm not giving up on us being able to keep our margin rates fairly flat over time. But what hurt us in Q4 is a little bit of unique combination of particular weaknesses in jewelry and apparel and very high strength in consumer electronics which is substantially lower margin than the rest of our businesses. And it was really that combination that caused a big margin swing. Over a long period of time, we do not anticipate that overall margins will decline in any material way due to the jewelry issue.

Great. So on the Time Warner exchangeable, we recently, there is an upcoming, as those who are not aware, there is an upcoming opportunity for the holders of that debt, to put that debt to us. We recently, I think it was last week, issued a press release saying if they did put that debt to us we would intend to pay it off with cash rather than Time Warner stock or Liberty Media, one of our trackers, both alternatives which were available to us. I don't anticipate that will get put to us because based on where that debt is currently trading, given the strength of the convertible market and where the Time Warner stock is, unless things change dramatically my understanding is the bonds are trading at well above par and more likely to get put. But if it gets put to us we're likely to settle it in cash and find other ways to raise capital as needed when needed against the Time Warner stock. We have, today, effectively are hedged against any run in the Time Warner stock because we have sufficient Time Warner stock to settle that issue if we choose in Time Warner stock but we don't choose to.

On the DirecTV and Liberty Entertainment, LMDIA, what will we do there, I think we will -- I think, that will depend, we love the business. We have been, as I mentioned earlier, very impressed with the management team. Their strategy and what is going on there. It was fascinating to read the Wall Street Journal today to suggest we had major challenges in front of us when that was what was suggested 18 months ago or 15 months ago when it was struck and business performed as I mentioned already far better than the peer group. Better than the other major satellite player, better than any of the major cable players so we're very happy with where they're going and what we will do going forward will be dependent on price and how we formulate and complete our strategy. So do not think we're ready to say that today but we like the business. We're enthused about it. And I think we'll likely true to work with them more closely over time.

Thanks, Greg.

We've move on to Jeffries & Company and Andy Baker.

Thank you for taking the question. Two questions. One, for Bob, it was a couple of years you said you were going to get this business up to $275 million of the operating cash and every stared at you with blank faces and you did it now. So I guess question is how does growth go forward, now that arguably that easy lifting is done and special as you roll out more contents you're creating yourself. And then for Greg, forgive me if I've been out of the loop, but are you still standing by on the LINTA side, the long-term guidance of sort of low double-digit operating cash flow growth?

Bob, after you.

I didn't think it was that easy.

He doesn't like what your doing for the difficulty there.

The answer comes in four or five different areas. First of all, we think we're just going to scratch the surface with what to do with digital worth, both with our affiliates and with consumer electronics. The market has jumped up around us and we think there is an opportunity for us given especially the long-term movie deals that we have, to continue to look for ways to capitalize on that and then internet and the digital. The whole entrance into originals is the opportunity to move top line.

As I said, the first project is a joint venture with Lion's Gate so we're not just licensing content, we're owning content and of course in Starz Media from of our own, but from Liberty Entertainment perspective this is a chance to use the content to sell overseas, to sell through our own home video Company, have our own people at media syndicate it. And so we think there is some synergies there and we think there is an opportunity no short form. And we're doing a lot, looking at our own movie libraries, we're looking at the internet and we're looking with our affiliates to see ways that in mogul as well as on their own affiliate website, there are ways we can provide content for them that is in short form that lets generate revenue. So it's around the edges. We have a gigantic reasonably stable business and now it's a matter of looking outside the core to these other opportunities.

And does this pressure the cost side?

There is always pressure on the cost side when so much of your revenue comes from affiliates -- on the cost side, I'm sorry. On the cost side, no. On the cost side we expect that we're going to be more efficient buyers over time of content. Both Sony and Disney, widely for them, extended their agreements last year and I think its four and five years from now that they still have content coming to us under those old agreements. We think that as we look to the market today, we would like other content to put around that at 40 and 50 and 60% less than we would have been paying even three and four years ago.

So if I could -- one way to look at this, is we're having a very positive tail wind of reduced costs in programming. Largely driven by the declining prices in film. And in fact, our level is artificially high for a period because of those long-term contracts we have with Sony and Disney. So there is actually (inaudible) further decline based on when those move to a larger market rate or more market rate and what Bob and his team are doing is reinvesting a portion in relatively small portion of that programming stake and budget in more original and more ways to do to reach directly to customers and ( Inaudible) for the channel and properties. We think it's a great strategy.

The other point on the cost side is that about 10% of the new output movies which is the bulk of our expense, we're now buying from ourselves through overture films.

And then on the second part, do we stand by the long-term growth rate for LINTA? Yes. I'll em embellish it a teeny bit. If you look, the obvious variable there has been QVC. It looks like a wave cycle in terms of its growth. Back four years ago it was 4% and then it was 8% and then it was 12%. When it we look like we're in a down year in '07 because of that. But we have no reason to believe fundamentally there is a variation in the long-term growth rate that it will be cyclical, it will move around, that's why we don't give quarterly guidance versus annual guidance but we're comfortable with that long-term rate. (inaudible)

Great. When can you get back in the market after announcing the LINTA.

I don't think we make publicly our windows, trading windows.

Fair enough. Thanks.

Our next question comes from Jason Bazinet with city.

I was wondering if you could remind us about the flexibility and the mechanism which you would, if you choose to do so, convert Liberty Media and the new Liberty Capital into asset backed securities.

Jason, I think that would be -- there are a bunch of issues around how we did that. The most important of which is obviously ensuring that there is continuity on all sides of that, if there were hard spins and they became asset backed that they were five-year triggered or businesses that we've owned -- substantially owned in their entirety in five years on all of those and I'm not sure candidly right now if we would qualify for that but there is judgments in all of those.

And does that have to include Liberty Interactive or just that's a separate -- that's a separate --

Well if you're asking could we imagine a scenerio where we just spun Liberty Entertainment away on its own?

Correct.

That's certainly a doable scenario. Not necessarily suggesting it's one we plan on doing.

Understood. Thank you.

There's no reason you can't spin one of the three hard.

Okay. Thank you.

We'll move now to Doug Mitchelson with Deutsche Bank.

One question for Greg. So the current Liberty stock prices reflected a pretty large discount asset to value despite the entertainment tracker from last week.

Arguable massive.

Arguably massive. There is always going to be moving parts but with Dr. Malone charged with raising as much cash as possible at Liberty Capital and at Liberty Entertainment to repurchase shares, could you walk us through the potential sources of cash, in each of those trackers, I know it's attribution, but at each of those trackers.

Well Liberty Entertainment has attributed to it, $550 million of exchangeable debt. Which is long-term. It needs it be serviced but it's not current about trying to handle the maturity. It has roughly $1 billion of cash. You could imagine coming up with some sort of a Reg U loan, probable not anywhere near the maximum of what a Reg U loan could do against the DirecTV stock at Liberty Entertainment but that is a sort of capital. But I would discount. It's not a 50% source of capital. And the second is what borrowings we could generate against Starz Entertainment, which has a healthy cash flow and certainly could generate some capital in this marketplace less than in some, but still we're comfortable if we were -- needed to borrow against Liberty Entertainment. There is at least those two sources as well as its own cash.

Liberty Capital, we have also come out with a substantial cash load, just shy of $2 billion. And it will have borrowing capacity really only against the derivatives that are in there. There are no operating businesses that are -- that could probably generate substantial amounts you can maybe get a little out of the Braves given the Major League facilities they have in place but they're not substantial. The big one would be borrowing derivatives and that could also be several billion dollars depending on the conditions, maybe up to 2.

Okay. And does it make sense that --

Just to be clear. We've always been -- I should not leave that comment without noting, we have never been enthusiastic about borrowing against those positions when you do not have takeouts and liquidity and taxable exits. Why we felt better about borrowing against Liberty Interactive is you have a cash flow generating business that can re pay the debt, directly, you do not have to sell an asset to pay taxes to repay the debt. So if you took that metric, you're really left with only the cash at Liberty Capital and you're left with only the cash and the borrowing capacity against Starz at Liberty Entertainment that and would substantially reduce your borrowing.

And I guess one other source of cash could be if DirecTV paid dividends.

Surely that would -- if any operating business that we own a piece of paid a dividend we would receive our pro rata share. We are a substantial holder at DirecTV and we talked about their ability to have more leverage, but it's not something certainly we can dictate. We would like to think that we'll have positive dialogue and influence, but they have a board that of which we'll be a minority and they have obligations to awful their shareholders.

Right. Thank you.

Our next question today comes from Jeff Fidele with Acuity Asset Management.

Yes, hi. I wanted to go back to the security exchangeable for a moment. Back to the envelope, looking at it here, we think that the day past the put date, the value of the bond will drop below par, at least the fair value of the bond would drop below par, which would probably induce most holders of the convertible debt to put them. I guess later in March. I just wanted to get your thoughts of perhaps strategically in terms of the hedge, I think the convertible bond is a hedge for the Time Warner piece. The put would leave you long Time Warner share that's under lie that entire bond. And in addition, I guess I would just like to understand how you guys think strategically about the exchangeable debt in light of some the recent IRS challenges to the tax features embedded in I think all of those exchangeable. Thank you.

So we will see where its marketplace takes its debt and where it's put. I think I mentioned our expectation is we would settle in cash.

Right.

What we would then be long, some amount. Either ranging from $1 to $1.7 billion if you took it to the max, 1.6 billion something of Time Warner stock and we would considerate the time whether we thought Time Warner stock was under valued, fully valued, a good source of liquidity if we needed liquidity in way of debt. We are not obligated to go out and find a source of liquidity because for handle that we have three sources of liquidity, the cash of the balance sheet that is already in new Liberty Capital, the borrowing that we could bridge either temporarily against the Sprint position and the Motorola position, those derivatives that we talked about earlier and the potential to do a longer-term facility if we so chose against Time Warner then would be free and clear Time Warner stock and our understanding and it's not just -- we've done a little bit of homework, because the convert market is pretty good, and the opportunities for us to refinance that are pretty good if we so chose and I think we'd weigh that at the time. As far as any IRS issues and what that does, I think we're comfortable with where we're going on that and I do not think that will be a factor in our decision making.

Thank you.

Thank you.

We'll move to April Horace with Janco Partners.

Hi. Thanks. I was wondering, D TV had said now that the transaction has been closed, they were going to address their balance sheet, speedily and I was wondering if you could expand on that as well as now that Time Warner Inc., is talking about breaking up, does that speed up the emergency to potentially change or expedite a transaction with Time Warner?

I'll answer the first one and you can repeat the first part of the second one because I missed that. I think I only heard secondhand. I didn't listen to the entire invest yore presentation with Chase and his team. But I understand they're going to move on it expeditiously and we will hopefully be part of the dialogue. We literally joined the board yesterday. We've had neither Dr. Malone have been to any Board meetings. We're hoping to be joined by a third colleague on the Board, in due process so I think on an all aboard cycle we'll talk about alternatives and hopefully will be a positive voice in that discussion. You asked something about what changes with Time Warner and I'm afraid I didn't catch the first part.

I apologize. Time Warner Inc., is talking about breaking up and I think they were talking about spinning out Time Warner Cable, they've talked about break up AOL into two pieces and I'm wonder nothing I'm stepped up conversations with Time Warner Inc. so you do not find yourself in the same position as (inaudible) I'm not sure those are comparable positions.

Because of the exchangeable that's we talked about earlier, we're enthusiastic in having the Time Warner stock go up. So we're all for that. So any of these restructuring actions or announcements or planned or discussed restructuring actions that they take that have a positive impact on the stock, we're all for it. Secondarily, I think we achieved -- we and Time Warner went through a difficult process and difficult in the sense it was harder to navigate between baseball rules, the IRS rules and our desires and their desires and got through it and would love to find a way to do another transaction for an asset if they were sellers and we were buyers because I think we could work well through that. So if they do that process, if there are things they do sell, which would be attractive and we could go another 355 exchange that would generate cash and or an attractive asset, tax-free to both parties, allow it to get out of our Time Warner stock in a tax efficient manner and that's something we've had preliminary dialogue about in ideas but nothing substantive today and I do not think anything changes other than perhaps helping us with our exchangeable and maybe freeing up more assets.

Okay. Thanks. That's all I've got. Thank you.

Thank you.

We have time for one last question. We'll move now to Bear Stearns and Robert Peck.

Hi. This is Victor Anthony calling in for Robert Peck. I jut have two quick questions. One, your e-commerce acquisitions have been rather diverse. I wonder if you could give us a sense of your e-commerce M&A strategy. For example what verticals are you targeting the size of the acquisitions, et cetera. And how are you leveraging those acquisitions across each other at QVC. And second I was wondering if there is anything that prevents you, maybe tax issues from converting LINTA back into Liberty Capital stock considering the share price performance over past two months. I just want to know whether or not that's crossed your mind. Thanks.

On e-commerce, I think we've talked to some degree about that, at our investor day and the like, there are a couple of strategies here. First and foremost to find attractive businesses with good progress, good protection, the so-called Warren buffet mote and have good growth characteristics and strong management teams and are attractively valued in price given their growth prospects on a stand alone I think we found that in most of those businesses and most are performing well.

In addition, we think there are some synergies that run both across the e-commerce businesses, in terms of not only cross promotion and sharing best practices around things like paid and natural search, but around content strategies, around procurement, around a host other areas where those teams are working together and Frankly, there are things that that country has done for example with being a trusted voice, which is a powerful influence against perhaps what Bodybuilder can do given its strengthens with body space and content that could be shared well across with provide being a more of a content site for flowers and provide strength and understanding and how to attract customers and they're very sophisticated at customer acquisition costs, can be shared across the others. So there has been some good synergies and I think that's a positive for all of them. The other synergy we look for is one where we can see video promotion and the potential promotion from not only QVC.com but the linear site QVC. And we've had some success at that. First and foremost with Provide. We fiddled with the formula and have been doing better recently. So while that is not the basis alone on which we buy these businesses, that's sort of the third or second set of upside and we look for that, probably more at Pro-Flowers in certain times of the year or BUYSEASON which has also been promoted at QVC by the costumes aspect than probably Backcountry, which is more of an out door sale and not necessarily it's logical fit with the QVC audience. So that's kind of where we're going.

As far as verticals, we're fairly wide open. Our first choice would be ones we thought could be promoted on QVC but we're not going to be limited by that. As far as size, I think anything from 50 million to 5 billion. That having been said, while that sounds like an enormous range. If you start looking at how many attractive, independent, stand-alone e-commerce businesses at reasonable valuation there's are that fit that criteria, the field narrows quickly. So as a said, we did four, one done before we did the spin -- or rather the creation of the tracker, LINTA, and still 90% of our capital has gone to share repurchase, not acquisition. Excluding that first one. As far as bringing LINTA back in, I don't know why we would bring LINTA into LCAPA, new LCAPA. Sort of because I said the rump of what is left, the pieces that frankly are less strategic, that are harder to unwind, that's going to be a long-term project that will keep people here occupied for a while. We're hoping to get more clarity, more focus, stronger operating businesses that are logical and fit together at Liberty Interactive and the same at Liberty Entertainment. So it would sort of be counter our strategy and I do not think it would be positive for either of those stocks merging back in. So don't see that as part of our plan. Of course things could change but that's not where we're added today.

Thanks.

So operator, I guess that's it. And so I want to thank everybody for joining us today. And for your interest in Liberty Media. And we'll look forward to seeing you again soon or on the next call.

This concludes today's teleconference. Thank you, all, and have a good day.