Why Liberty Media's Numbers Look Smaller

A new accounting rule is hurting the big cable company's reported financials.
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An accounting change will take a slice out of 2002 revenue and earnings for

Discovery Communications

, the brainiac-friendly media operation half-owned by

Liberty Media

(L) - Get Report

.

Wednesday evening's disclosure came as Liberty, which owns stakes in multiple media properties and operates the Starz Encore movie channels, updated analysts on its finances and outlook for the coming year.

The new numbers at Discovery result from new industrywide accounting guidance requiring certain costs historically presented as expenses to be netted against revenue. In the case of Discovery -- the results of which Liberty reports in its financials as a share of losses of affiliates -- that means that costs such as amortization expense related to the launch of new channels will reduce Discovery's revenue and operating cash flow -- two numbers that analysts look at when trying to sort out Liberty's value.

The change, says Liberty, will have "absolutely no effect" on how Liberty operates the business or values the business, nor will it have any effect on cash flows.

To give an idea of how it will affect 2002 numbers, Liberty said the accounting treatment, had it been in place in 2001, would have cut revenue from $1.9 billion to $1.6 billion and reduced operating cash flow from $463 million to $331 million.

On a pro forma basis -- that is, as if the new accounting rule were indeed in place last year -- Discovery's revenue is expected to grow 10%, Liberty said, and its operating cash flow is expected to grow 40%.

Liberty's shares fell 10 cents to $12 Wednesday.