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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2013
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                to            
Commission File Number 001-35707
LIBERTY MEDIA CORPORATION
(Exact name of Registrant as specified in its charter)
State of Delaware
(State or other jurisdiction of
incorporation or organization)
 
37-1699499
(I.R.S. Employer
Identification No.)
12300 Liberty Boulevard
 
 
Englewood, Colorado
(Address of principal executive offices)
 
80112
(Zip Code)
Registrant's telephone number, including area code: (720) 875-5400
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý    No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ý
 
Accelerated filer o
 
Non-accelerated filer o (do not check if smaller
reporting company)
 
Smaller reporting company o
Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes o    No ý
The number of outstanding shares of Liberty Media Corporation's common stock as of July 31, 2013 was:
Series A common stock
110,639,418

Series B common stock
9,876,578

 


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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited)
 
June 30,
2013
 
December 31, 2012
 
amounts in millions
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
937

 
603

Trade and other receivables, net
259

 
25

Deferred income tax assets
939

 
—

Other current assets
230

 
211

Assets of discontinued operations - current (note 2)
—

 
1,372

Total current assets
2,365

 
2,211

Investments in available-for-sale securities and other cost investments (note 6)
1,270

 
1,392

Investments in affiliates, accounted for using the equity method (note 7)
3,415

 
3,341

 
 
 
 
Property and equipment, at cost
2,023

 
329

Accumulated depreciation
(250
)
 
(172
)
 
1,773

 
157

Intangible assets not subject to amortization (note 8):
 
 
 
    Goodwill
14,221

 
200

    FCC licenses
8,600

 
—

    Other
1,074

 
144

 
23,895

 
344

Intangible assets subject to amortization, net (note 8)
987

 
108

Other assets, at cost, net of accumulated amortization
179

 
32

Assets of discontinued operations (note 2)
—

 
740

Total assets
$
33,884

 
8,325


(continued)


See accompanying notes to condensed consolidated financial statements.
I- 1
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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Continued)
(unaudited)
 
June 30,
2013
 
December 31, 2012
 
amounts in millions, except share amounts
Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
    Accounts payable and accrued liabilities
$
651

 
35

    Current portion of debt (note 9)
4

 
—

    Deferred revenue
1,619

 
24

    Deferred credit on executory contracts
106

 
—

    Other current liabilities
44

 
33

    Liabilities of discontinued operations - current (note 2)
—

 
293

        Total current liabilities
2,424

 
385

Long-term debt (note 9)
4,359

 
—

Deferred income tax liabilities
2,364

 
817

Deferred revenue
148

 
37

Other liabilities
276

 
90

Liabilities of discontinued operations (note 2)
—

 
564

        Total liabilities
9,571

 
1,893

Stockholders' equity:
 
 
 
    Preferred stock, $.01 par value. Authorized 50,000,000 shares; no shares issued
—

 
—

Series A common stock, $.01 par value. Authorized 2,000,000,000 shares; issued and outstanding 110,630,488 shares at June 30, 2013 and 111,852,001 shares at December 31, 2012
1

 
1

Series B common stock, $.01 par value. Authorized 75,000,000 shares; issued and outstanding 9,876,578 shares at June 30, 2013 and 9,886,838 shares at December 31, 2012
—

 
—

Series C common stock, $.01 par value. Authorized 2,000,000,000 shares; zero issued and outstanding shares at June 30, 2013 and December 31, 2012
—

 
—

    Additional paid-in capital
3,153

 
3,348

    Accumulated other comprehensive earnings (loss), net of taxes
(15
)
 
12

    Retained earnings
11,237

 
3,079

        Total stockholders' equity
14,376

 
6,440

Noncontrolling interests in equity of subsidiaries
9,937

 
(8
)
        Total equity
24,313

 
6,432

Commitments and contingencies (note 10)

 

        Total liabilities and equity
$
33,884

 
8,325


See accompanying notes to condensed consolidated financial statements.
I- 2
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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements Of Operations
(unaudited)
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions
Revenue:
 
 
 
 
 
 
 
    Subscriber revenue
$
813

 
—

 
1,448

 
—

    Other revenue
265

 
135

 
419

 
170

Total Revenue
1,078

 
135

 
1,867

 
170

Operating costs and expenses:
 
 
 
 
 
 
 
    Cost of subscriber services (note 3):
 
 
 
 
 
 
 
        Revenue share and royalties
159

 
—

 
283

 
—

        Programming and content
61

 
—

 
115

 
—

        Customer service and billing
81

 
—

 
147

 
—

        Other
27

 
—

 
49

 
—

    Subscriber acquisition costs
133

 
—

 
230

 
—

    Other operating expense (note 3)
108

 
81

 
150

 
106

    Selling, general and administrative (note 3)
185

 
41

 
339

 
74

    Depreciation and amortization
88

 
11

 
158

 
20

 
842

 
133

 
1,471

 
200

        Operating income (loss)
236

 
2

 
396

 
(30
)
Other income (expense):
 
 
 
 
 
 
 
    Interest expense
(28
)
 
(2
)
 
(39
)
 
(5
)
    Dividend and interest income
13

 
21

 
25

 
43

    Share of earnings (losses) of affiliates, net (note 7)
(21
)
 
1,281

 
(4
)
 
1,293

  Realized and unrealized gains (losses) on financial instruments, net (note 5)
61

 
(73
)
 
158

 
38

    Gains (losses) on transactions, net (note 1 and 6)
2

 
—

 
7,481

 
—

    Other, net
(1
)
 
8

 
(6
)
 
10

 
26

 
1,235

 
7,615

 
1,379

Earnings (loss) from continuing operations before income taxes
262

 
1,237

 
8,011

 
1,349

 Income tax (expense) benefit
(104
)
 
(370
)
 
257

 
(410
)
Earnings (loss) from continuing operations
158

 
867

 
8,268

 
939

 Earnings (loss) from discontinued operations, net of taxes (note 2)
—

 
71

 
—

 
150

Net earnings (loss)
158

 
938

 
8,268

 
1,089

 Less net earnings (loss) attributable to the noncontrolling interests
62

 
1

 
110

 
2

Net earnings (loss) attributable to Liberty stockholders
$
96

 
937

 
8,158

 
1,087

 
 
 
 
 
 
 
 

(continued)



See accompanying notes to condensed consolidated financial statements.
I- 3
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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements Of Operations (Continued)
(unaudited)
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions,
except per share amounts
Basic net earnings (loss) from continuing operations attributable to Liberty stockholders per common share (note 4):
 
 
 
 
 
 
 
Series A and Series B common stock
$
0.81

 
7.29

 
68.55

 
7.83

Diluted net earnings (loss) from continuing operations attributable to Liberty stockholders per common share (note 4):
 
 
 
 
 
 
 
Series A and Series B common stock
$
0.79

 
7.05

 
67.42

 
7.57

Basic net earnings (loss) attributable to Liberty stockholders per common share (note 4):
 

 
 
 
 
 
 
Series A and Series B common stock
$
0.81

 
7.87

 
68.55

 
9.06

Diluted net earnings (loss) attributable to Liberty stockholders per common share (note 4):
 

 
 
 
 
 
 
Series A and Series B common stock
$
0.79

 
7.62

 
67.42

 
8.77


See accompanying notes to condensed consolidated financial statements.
I- 4
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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements Of Comprehensive Earnings (Loss)
(unaudited)
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions
Net earnings (loss)
$
158

 
938

 
8,268

 
1,089

Other comprehensive earnings (loss), net of taxes:
 
 
 
 
 
 
 
Foreign currency translation adjustments
—

 
—

 
(6
)
 
—

Unrealized holding gains (losses) arising during the period
(2
)
 
(5
)
 
2

 
(2
)
Recognition of previously unrealized (gains) losses on available-for-sale securities, net
—

 
—

 
(26
)
 
—

    Other
—

 
3

 
—

 
(1
)
        Other comprehensive earnings (loss)
(2
)
 
(2
)
 
(30
)
 
(3
)
Comprehensive earnings (loss)
156

 
936

 
8,238

 
1,086

Less comprehensive earnings (loss) attributable to the noncontrolling interests
62

 
1

 
110

 
2

Comprehensive earnings (loss) attributable to Liberty stockholders
$
94

 
935

 
8,128

 
1,084


See accompanying notes to condensed consolidated financial statements.
I- 5
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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements Of Cash Flows
(unaudited)
 
Six months ended
June 30,
 
2013
 
2012
 
amounts in millions
Cash flows from operating activities:
 
 
 
Net earnings
$
8,268

 
1,089

Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
 
(Earnings) loss from discontinued operations
—

 
(150
)
Depreciation and amortization
158

 
20

Stock-based compensation
89

 
11

Cash payments for stock-based compensation
(1
)
 
(3
)
Share of (earnings) loss of affiliates, net
4

 
(1,293
)
Realized and unrealized (gains) losses on financial instruments, net
(158
)
 
(38
)
Losses (gains) on transactions, net
(7,481
)
 
—

Deferred income tax expense (benefit)
(275
)
 
395

Noncash interest expense
(40
)
 
—

Other noncash charges (credits), net
5

 
(4
)
Changes in operating assets and liabilities
 
 
 
Current and other assets
77

 
(29
)
Payables and other liabilities
(39
)
 
71

Net cash provided (used) by operating activities
607

 
69

Cash flows from investing activities:
 
 
 
Cash proceeds from dispositions of securities
—

 
87

 Cash (paid) for acquisitions, net of cash acquired
408

 
—

Proceeds (payments) on financial instruments, net
12

 
(311
)
Investments in and loans to cost and equity investees
(2,584
)
 
(207
)
Repayment of loans by cost and equity investees
16

 
43

Capital expended for property and equipment
(64
)
 
(4
)
Purchases of short term investments and other marketable securities
(163
)
 
(331
)
Sales of short term investments and other marketable securities
229

 
620

Net (increase) decrease in restricted cash
—

 
691

Other investing activities, net
(59
)
 
—

Net cash provided (used) by investing activities
(2,205
)
 
588

Cash flows from financing activities:
 
 
 
Borrowings of debt
2,809

 
—

Repayments of debt
(845
)
 
(750
)
Repurchases of Liberty common stock
(140
)
 
(234
)
Subsidiary shares repurchased by subsidiary
(1,109
)
 
—

Other financing activities, net
17

 
3

Net cash provided (used) by financing activities
732

 
(981
)
Net cash provided (used) by discontinued operations:
 
 
 
Cash provided (used) by operating activities
—

 
62

Cash provided (used) by investing activities
—

 
(3
)
Cash provided (used) by financing activities
550

 
(2
)
Change in available cash held by discontinued operations
650

 
(57
)
Net cash provided (used) by discontinued operations
1,200

 
—

Net increase (decrease) in cash and cash equivalents
334

 
(324
)
Cash and cash equivalents at beginning of period
603

 
970

Cash and cash equivalents at end of period
$
937

 
646


See accompanying notes to condensed consolidated financial statements.
I- 6
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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement Of Equity
(unaudited)
Six months ended June 30, 2013
 
Stockholders' equity
 
 
 
 
 
 
Preferred Stock
 
Series A
 
Series B
 
Series C
 
Additional Paid-in Capital
 
Accumulated
other
comprehensive
earnings
 
Retained
earnings
 
Noncontrolling
interest in
equity of
subsidiaries
 
Total equity
 
amounts in millions
Balance at January 1, 2013
 
$
—

 
$
1

 
$
—

 
$
—

 
$
3,348

 
$
12

 
$
3,079

 
$
(8
)
 
$
6,432

Net earnings
 
—

 
—

 
—

 
—

 
—

 
—

 
8,158

 
110

 
8,268

Other comprehensive loss
 
—

 
—

 
—

 
—

 
—

 
(30
)
 
—

 
—

 
(30
)
Stock-based compensation
 
—

 
—

 
—

 
—

 
24

 
—

 
—

 
59

 
83

Series A stock repurchases
 
—

 
—

 
—

 
—

 
(140
)
 
—

 
—

 
—

 
(140
)
Non-controlling interest recognized with acquisition of a controlling interest in a subsidiary
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
10,841

 
10,841

Shares repurchased by subsidiary
 
—

 
—

 
—

 
—

 
30

 
—

 
—

 
(1,173
)
 
(1,143
)
Shares issued by subsidiary
 
—

 
—

 
—

 
—

 
(32
)
 
—

 
—

 
99

 
67

Distribution to stockholders for split-off of Starz
 
—

 
—

 
—

 
—

 
(77
)
 
3

 
—

 
9

 
(65
)
Balance at June 30, 2013
 
$
—

 
$
1

 
$
—

 
$
—

 
$
3,153

 
$
(15
)
 
$
11,237

 
$
9,937

 
$
24,313


See accompanying notes to condensed consolidated financial statements.
I- 7

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)

(1)   Basis of Presentation
The accompanying condensed consolidated financial statements of Liberty Media Corporation (formerly named Liberty Spinco, Inc.) ("Liberty" or the "Company" unless the context otherwise requires) represent a combination of the historical financial information of (1) certain video programming and other media related assets and businesses previously attributed to the Starz tracking stock group and the Capital tracking stock group of Liberty Interactive Corporation ("Liberty Interactive" and formerly named Liberty Media Corporation) further described in note 2 and (2) Liberty Media Corporation and its consolidated subsidiaries for the period following the date of the Split-Off (defined below). See discussion below pertaining to the Spin-Off (defined below). The Split-Off has been accounted for at historical cost due to the pro rata nature of the distribution.
In September 2011, Liberty Interactive completed the split-off of its former wholly-owned subsidiary (then known as Liberty Media Corporation) ("the Split-Off"), which at the time of the Split-Off held all of the businesses, assets and liabilities attributed to Liberty Interactive's Capital and Starz tracking stock groups. In January 2013, this entity (now named Starz) spun-off (the “Spin-Off”) the Company its then-former wholly owned subsidiary, Liberty Media Corporation, which, at the time of the Spin-Off, held all of the businesses, assets and liabilities of Starz not associated with Starz, LLC (with the exception of the Starz, LLC office building). The transaction was effected as a pro-rata dividend of shares of Liberty to the stockholders of Starz. Due to the relative significance of Liberty to Starz (the legal spinnor) and senior management's continued involvement with Liberty following the Spin-Off, Liberty is being treated as the "accounting successor" to Starz for financial reporting purposes, notwithstanding the legal form of the Spin-Off previously described. Therefore, the historical financial statements of the company formerly known as Liberty Media Corporation continue to be the historical financial statements of Liberty, and Starz, LLC is presented as discontinued operations. Therefore, for purposes of these condensed consolidated financial statements, Liberty is treated as the spinnor for purposes of discussion and as a practical matter for describing all the historical information contained herein.

Following the Split-Off and Spin-Off, Liberty, Liberty Interactive and Starz operate as separate publicly traded companies, none of which has any stock ownership, beneficial or otherwise, in the other. In connection with the Split-Off and Spin-Off, Liberty entered into certain agreements with Liberty Interactive and Starz, respectively, in order to govern ongoing relationships between the companies and to provide for an orderly transition. These agreements include Reorganization Agreements, Services Agreements, Facilities Sharing Agreements, a Lease Agreement (in the case of the Spin-Off only) and Tax Sharing Agreements. The Reorganization, Services and Facilities Sharing Agreements entered into with Liberty Interactive were assigned from Starz to Liberty in connection with the Spin-Off.

The Reorganization Agreements provide for, among other things, provisions governing the relationships between Liberty and each of Liberty Interactive and Starz following the Split-Off and Spin-Off, respectively, including certain cross-indemnities. Pursuant to the Services Agreements, Liberty provides Liberty Interactive and Starz with general and administrative services including legal, tax, accounting, treasury and investor relations support. Liberty Interactive and Starz reimburse Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services and for Liberty Interactive's and Starz's respective allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to each respective company. Under the Facilities Sharing Agreements, Liberty shares office space and related amenities at its corporate headquarters with Liberty Interactive and Starz. Under these various agreements approximately $6 million and $1 million of these allocated expenses were reimbursed to Liberty during the three months ended June 30, 2013 and 2012, respectively, and approximately $9 million and $3 million of these allocated expenses were reimbursed to Liberty during the six months ended June 30, 2013 and 2012, respectively. Under the Lease Agreement, Starz leases its corporate headquarters from Liberty. The Lease Agreement with Starz for their corporate headquarters requires a payment of approximately $3 million annually, subject to certain increases based on the Consumer Price Index.



I- 8



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

In connection with the Spin-Off, Liberty and Starz entered into a Tax Sharing Agreement which provides for the allocation and indemnification of tax liabilities and benefits between Liberty and Starz and other agreements related to tax matters. Among other things, pursuant to the Tax Sharing Agreement, Liberty has agreed to indemnify Starz, subject to certain exceptions, for taxes and tax-related losses resulting from the Spin-Off and the Split-Off, except to the extent such taxes or losses result from (i) the breach of certain restrictive covenants made by Starz or (ii) Section 355(e) of the Code applying to the Spin-Off or the Split-Off as a result of the Spin-Off or Split-Off being part of a plan (or series of related transactions) pursuant to which one or more persons acquire a 50-percent or greater interest in the stock of Starz. With respect to the Split-Off, the IRS has examined the transaction, and during 2012, the IRS and Liberty Interactive entered into a Closing Agreement which provides that the Split-Off qualified for tax-free treatment to Liberty Interactive and Starz.   In April 2013, the IRS completed its review of the Spin-Off and notified the parties that it agreed with the nontaxable characterization of the transaction.
Liberty, through its ownership of interests in subsidiaries and other companies, is primarily engaged in the media, communications and entertainment industries primarily in North America.
The accompanying (a) condensed consolidated balance sheet as of December 31, 2012, which has been derived from audited financial statements, and (b) the interim unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the results for such periods have been included. Certain amounts included in the accompanying financial statements for 2012 have been reclassified and adjusted to conform to the 2013 financial statement presentation. During the current period we changed the presentation of Net sales (purchases) of short term investments and other marketable securities to present gross amounts in the consolidated statement of cash flows, in order to conform to GAAP requirements. The results of operations for any interim period are not necessarily indicative of results for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in Liberty's Annual Report on Form 10-K for the year ended December 31, 2012.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company considers (i) fair value measurement, (ii) accounting for income taxes, (iii) assessments of other-than-temporary declines in fair value of its investments and (iv) the expected depreciable lives of satellites and spacecraft control facilities to be its most significant estimates.
Liberty holds investments that are accounted for using the equity method. Liberty does not control the decision making process or business management practices of these affiliates. Accordingly, Liberty relies on management of these affiliates to provide it with accurate financial information prepared in accordance with GAAP that the Company uses in the application of the equity method. In addition, Liberty relies on audit reports that are provided by the affiliates' independent auditors on the financial statements of such affiliates. The Company is not aware, however, of any errors in or possible misstatements of the financial information provided by its equity affiliates that would have a material effect on Liberty's condensed consolidated financial statements.
On January 18, 2013, Liberty settled a block transaction with a financial institution taking possession of an additional 50 million common shares of SIRIUS XM Radio, Inc. ("SIRIUS XM"), for cash consideration of approximately $161 million, as well as converting its remaining SIRIUS XM Convertible Perpetual Preferred Stock, Series B-1, par value $0.001 per share, into 1,293,509,076 shares of SIRIUS XM Common Stock. As a result of these


I- 9



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

two transactions Liberty holds more than 50% of the common stock of SIRIUS XM entitled to vote on any matter, including the election of directors. Following the transactions, Liberty designated and SIRIUS XM's board of directors appointed certain directors and Liberty effectively controls the board as of January 18, 2013. This resulted in the application of purchase accounting and the consolidation of SIRIUS XM in the first quarter of 2013. Liberty recorded a gain in the six months ended June 30, 2013 of approximately $7.5 billion associated with the application of purchase accounting based on the difference between fair value and the carrying value of the ownership interest Liberty had in SIRIUS XM prior to the acquisition of the controlling interest. The gain on the transaction was excluded from taxable income, additionally, the difference between the book basis and tax basis of SIRIUS XM, as previously accounted for under the equity method, was relieved as a result of the transaction. The fair value of our ownership interest previously held ($10,215 million) and the fair value of the initial noncontrolling interest ($10,286 million) was determined based on the trading price (level 1) of SIRIUS XM on the last trading day prior to the acquisition of the controlling interest. Additionally, the noncontrolling interest includes the fair value of SIRIUS XM's fully vested options (level 2), the fair value of warrants outstanding (level 2) and the intrinsic value of a beneficial conversion feature accounted for in purchase accounting. Following the transaction date SIRIUS XM is a consolidated subsidiary with just less than a 50% noncontrolling interest accounted for in equity and the condensed consolidated statements of operations.
Initial purchase price allocation for SIRIUS XM is as follows (amounts in millions):
Fair value of SIRIUS XM equity interests
$
10,372

Fair value of SIRIUS XM debt securities
253

Noncontrolling interest
10,841

 
$
21,466

 
 
Cash and cash equivalents
$
569

Receivables
210

Property, plant and equipment
1,714

Goodwill
14,021

FCC Licenses
8,600

Tradenames
930

Intangible assets subject to amortization
930

Other assets
480

Debt
(2,490
)
Deferred revenue
(1,565
)
Deferred income tax liabilities, net
(900
)
Other liabilities assumed
(1,033
)
 
$
21,466


The initial purchase price allocation is subject to change upon receipt of the final valuation analysis for SIRIUS XM. The primary balances still subject to analysis are the property, plant and equipment, deferred revenue and other liabilities. Goodwill is calculated as the excess of the consideration transferred over the identifiable net assets acquired and represents the future economic benefits expected to arise from other intangible assets acquired that do not qualify for separate recognition, including assembled workforce and noncontractual relationships. SIRIUS XM applied purchase accounting for the acquisition of XM Satellite Radio Holdings, Inc. in 2008 and has entered into many of its operating agreements at market rates in recent years, therefore, the carrying value of the identifiable net assets are reflected at amounts near their fair value. Accordingly, a large percentage of Liberty's purchase price was allocated to goodwill.


I- 10



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

The Pro Forma summarized combined unaudited balance sheet and statement of operations of Liberty using the historical financial statements for SIRIUS XM, giving effect to purchase accounting related adjustments made at the time of acquisition and excluding the impact of the gain, as if the transaction discussed above occurred for the Balance Sheet data as of such date and for the Statement of Operations data as if they had occurred on January 1, 2012, are as follows:
Summary Pro Forma Balance Sheet Data:
 
December 31, 2012
 
amounts in millions
(unaudited)
Current assets
$
4,039

Investments in equity method affiliates
$
859

Property, plant and equipment, net
$
1,871

Intangible assets not subject to amortization
$
23,895

Intangible assets subject to amortization, net
$
1,036

Other assets
$
1,980

Total assets
$
33,680

Long-term debt
$
2,486

Deferred tax liabilities, net
$
2,936

Other liabilities
$
3,894

Noncontrolling interests in equity of subsidiaries
$
10,833

Stockholders' Equity
$
13,531

Summary Pro Forma Operations Data:
 
Three months ended June 30, 2012
 
Six months ended June 30, 2012
 
amounts in millions
(unaudited)
Revenue
$
970

 
1,808

Operating income (loss)
205

 
351

Interest expense
(49
)
 
(106
)
Share of earnings (loss) of affiliates
5

 
(16
)
Earnings (loss) attributable to the noncontrolling interests
1,584

 
1,629

Net Earnings (loss) from continuing operations attributable to Liberty stockholders
1,636

 
1,752

 
 
 
 
 
Pro Forma basic net earnings (loss) from continuing operations attributable to Liberty stockholders per common share (note 4):
 
 
 
 
Series A and B common stock
$
13.75

 
14.60

Pro Forma diluted net earnings (loss) from continuing operations attributable to Liberty stockholders per common share (note 4):
 
 
 
 
Series A and B common stock
$
13.30

 
14.13


This Pro Forma information is not representative of Liberty's future financial position, future results of operations or future cash flows nor does it reflect what Liberty's financial position, results of operations or cash flows would have been if these transactions happened previously and Liberty controlled or discontinued owning these entities during the periods presented.


I- 11



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

(2) Discontinued Operations
As discussed in note 1, the Spin-Off was completed on January 11, 2013. At the time of the Spin-Off, Liberty owned all the assets, businesses and liabilities except for Starz. This transaction has been accounted for at historical cost due to the pro rata nature of the distribution. Additionally, due to the short period between the end of the year and the distribution date Liberty did not record any results for Starz in discontinued operations for the statement of operations due to the insignificance of such amounts for that period except for the distribution of approximately $1.2 billion of cash from Starz prior to the distribution reflected in the condensed consolidated statements of cash flows.
Following the Spin-Off, Liberty and Starz operate as separate, publicly traded companies, and neither has any stock ownership, beneficial or otherwise, in the other. As discussed in note 1, in connection with the Spin-Off, Liberty and Starz entered into certain agreements in order to govern certain of the ongoing relationships between the two companies after the Spin-Off and to provide for an orderly transition.
The condensed consolidated financial statements and accompanying notes of Liberty have been prepared to reflect Starz as discontinued operations. Accordingly, the relevant financial statement balances and activities of the businesses, assets and liabilities owned by Starz at the time of Spin-Off (for periods prior to the Spin-Off) have been excluded from the respective captions in the accompanying condensed consolidated balance sheets, statements of operations, comprehensive earnings and cash flows in such condensed consolidated financial statements.
Certain combined financial information for Starz, which is included in earnings (loss) from discontinued operations, is as follows:
 
 
Three months ended June 30, 2012
 
Six months ended June 30, 2012
 
 
amounts in millions
Revenue
 
$
403

 
808

Earnings (loss) before income taxes
 
$
95

 
215

A summary of certain asset and liability amounts for Starz included in assets or liabilities of discontinued operations, is as follows:
 
December 31, 2012
 
amounts in millions
Assets
 
Cash and cash equivalents
$
750

Trade and other receivables, net
$
261

Program rights, including current portion
$
679

 
 
Liabilities
 
Accrued liabilities
$
245

Debt, including current portion
$
540



I- 12



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

Earnings per share impact of discontinued operations

The earnings per share from discontinued operations, discussed above, is as follows:
 
Three months ended June 30, 2012
 
Six months ended June 30, 2012
Basic earnings (losses) from discontinued operations attributable to Liberty shareholders per common share (note 4):
 
Series A and Series B common stock
$
0.58

 
1.23

Diluted earnings (losses) from discontinued operations attributable to Liberty shareholders per common share (note 4):
 
 
 
Series A and Series B common stock
$
0.57

 
1.20


(3)   Stock-Based Compensation
Prior to the Split-Off, Liberty Interactive granted, and Liberty has since granted, to certain of its directors, employees and employees of its subsidiaries options and stock appreciation rights ("SARs") to purchase shares of its common stock (collectively, "Awards"). The Company measures the cost of employee services received in exchange for an Award of equity instruments (such as stock options and restricted stock) based on the grant-date fair value of the Award, and recognizes that cost over the period during which the employee is required to provide service (usually the vesting period of the Award). The Company measures the cost of employee services received in exchange for an Award of liability instruments (such as SARs that will be settled in cash) based on the current fair value of the Award, and remeasures the fair value of the Award at each reporting date.
In connection with the Spin-Off in January 2013, all outstanding Awards with respect to Liberty Capital common stock ("Liberty Capital Award") were adjusted pursuant to the anti-dilution provisions of the incentive plans under which the equity awards were granted, such that a holder of a Liberty Capital Award received (other than those held by Starz employees, as discussed below):
i.
an adjustment to the exercise price or base price, as applicable, and number of shares relating to the Liberty Capital Award (as so adjusted, a "Liberty Award") and
ii.
an equity award relating to shares of Starz common stock (a "Starz Award").
The exercise prices and number of shares subject to the Liberty Award and the Starz Award were determined based on 1) the exercise prices and number of shares subject to the Liberty Capital Award, 2) the pre-distribution trading price of Liberty Capital common stock and 3) the post-distribution trading prices of Liberty common stock and Starz common stock, such that (other than those held by Starz employees, as discussed below) all of the pre-distribution intrinsic value of the Liberty Capital Award was allocated between the Liberty Award and the Starz Award for the Company's corporate employees and directors. For employees of Starz, LLC, the pre-distribution intrinsic value of the vested Liberty Capital Award was allocated between a vested Liberty Award and a vested Starz Award, while the pre-distribution intrinsic value of the unvested Liberty Capital Award was maintained solely within an unvested Starz Award.
Following the Spin-Off, employees of Liberty and Starz hold Awards in both Liberty common stock and Starz common stock. The compensation expense relating to the employees of Liberty is recorded at Liberty and the compensation expense relating to employees of Starz is recorded at Starz.


I- 13



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

Included in the accompanying condensed consolidated statements of operations are the following amounts of stock-based compensation, a portion of which relates to SIRIUS XM as discussed below:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
(amounts in millions)
Cost of subscriber services:
 
 
 
 
 
 
 
Programming and content
$
4

 
—

 
7

 
—

 Customer service and billing
1

 
—

 
2

 
—

Other
2

 
—

 
3

 
—

Other operating expense
3

 
—

 
6

 
—

Selling, general and administrative
38

 
5

 
71

 
11

 
$
48

 
5

 
89

 
11

During the six months ended June 30, 2013, the Company did not grant any options to purchase shares of Series A common stock.
Liberty Interactive previously calculated, and Liberty calculates, the grant-date fair value for all of its equity classified awards and the subsequent remeasurement of its liability classified awards using the Black-Scholes Model. Liberty estimates the expected term of the Awards based on historical exercise and forfeiture data. The volatility used in the calculation for Awards is based on the historical volatility of Liberty common stock and the implied volatility of publicly traded Liberty options. Liberty uses a zero dividend rate and the risk-free rate for Treasury Bonds with a term similar to that of the subject Awards.
Liberty—Outstanding Awards
The following table presents the number and weighted average exercise price ("WAEP") of Awards to purchase Liberty common stock granted to certain officers, employees and directors of the Company and certain Awards of employees of Starz.
 
Series A
 
Liberty
 
WAEP
 
numbers of Awards in thousands
Outstanding at January 1, 2013
5,219

 
$
98.77

Granted
—

 
$
—

Exercised
(70
)
 
$
56.30

Forfeited/Cancelled/Exchanged
(4
)
 
$
69.06

Spin-Off adjustment
(1,195
)
 
$
83.25

Outstanding at June 30, 2013
3,950

 
$
91.09

Exercisable at June 30, 2013
1,861

 
$
87.48



I- 14



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

The following table provides additional information about outstanding Awards to purchase Liberty common stock at June 30, 2013.
 
No. of
outstanding
Awards
(000's)
 
WAEP of
outstanding
Awards
 
Weighted
average
remaining
life
 
Aggregate
intrinsic
value
(000's)
 
No. of
exercisable
Awards
(000's)
 
WAEP of
exercisable
Awards
 
Weighted
average
remaining
life
 
Aggregate
intrinsic
value
(000's)
Series A
3,950

 
$
91.09

 
5.9 years
 
$
140,905

 
1,861

 
$
87.48

 
5.4 years
 
$
73,098

As of June 30, 2013, the total unrecognized compensation cost related to unvested Liberty Awards was approximately $87 million, including compensation associated with the option exchange that occurred in December 2012. Such amount will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.0 years.
As of June 30, 2013, Liberty reserved 4.0 million Series A common stock for issuance under exercise privileges of outstanding stock Awards.
SIRIUS XM - Stock-based Compensation
During the six months ended June 30, 2013, SIRIUS XM granted stock options and restricted stock units to its employees, consultants and members of its board of directors. As of June 30, 2013, SIRIUS XM has approximately 266 million options outstanding of which approximately 82 million are exercisable, each with a weighted-average exercise price per share of $2.03 and $2.70, respectively. The stock-based compensation related to SIRIUS XM stock options was $33 million and $59 million for the three and six months ended June 30, 2013, respectively. As of June 30, 2013, the total unrecognized compensation cost related to unvested SIRIUS XM stock options was $294 million. The SIRIUS XM unrecognized compensation cost will be recognized in the Company's consolidated statements of operations over a weighted average period of approximately 2.5 years.
(4)   Earnings Attributable to Liberty Media Corporation Stockholders Per Common Share
Basic earnings (loss) per common share ("EPS") is computed by dividing net earnings (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS presents the dilutive effect on a per share basis of potential common shares as if they had been converted at the beginning of the periods presented.
Series A and Series B Common Stock
The basic and diluted EPS calculations are based on the following weighted average outstanding shares of common stock, based on the conversion ratio of 1 to 1 utilized in the Split-Off, prior to the Split-Off, and the actual common stock after the Split-Off. Excluded from diluted EPS for the three and six months ended June 30, 2013 are approximately one million potential common shares because their inclusion would be anti-dilutive.
 
Liberty Common Stock
 
Three months ended June 30, 2013
 
Six months ended June 30, 2013
 
Three months ended June 30, 2012
 
Six months ended June 30, 2012
 
numbers of shares in millions
Basic EPS
119

 
119

 
119

 
120

  Potentially dilutive shares
2

 
2

 
4

 
4

Diluted EPS
121

 
121

 
123

 
124



I- 15



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)


(5)   Assets and Liabilities Measured at Fair Value
For assets and liabilities required to be reported at fair value, GAAP provides a hierarchy that prioritizes inputs to valuation techniques used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are inputs, other than quoted market prices included within Level 1, that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability. Liberty does not have any assets or liabilities required to be measured at fair value considered to be Level 3.
Liberty's assets and liabilities measured at fair value are as follows:
 
 
 
Fair Value Measurements at June 30, 2013
Description
Total
 
Quoted prices
in active markets
for identical assets
(Level 1)
 
Significant other
observable
inputs
(Level 2)
 
 
 
amounts in millions
Cash equivalents
$
173

 
173

 
—

Available-for-sale securities
$
1,239

 
865

 
374

The majority of Liberty's Level 2 financial assets are investments in debt related instruments. The Company notes that these assets are not always traded publicly or not considered to be traded on "active markets," as defined in GAAP. The fair values for such instruments are derived from a typical model using observable market data as the significant inputs. Accordingly, those Available-for-sale securities and debt related instruments are reported in the foregoing table as Level 2 fair value.
Realized and Unrealized Gains (Losses) on Financial Instruments
Realized and unrealized gains (losses) on financial instruments are comprised of changes in the fair value of the following:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions
Fair Value Option Securities
$
54

 
58

 
136

 
131

Other derivatives
7

 
(131
)
 
22

 
(93
)
 
$
61

 
(73
)
 
158

 
38



I- 16



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

(6)   Investments in Available-for-Sale Securities and Other Cost Investments
All marketable equity and debt securities held by the Company are classified as available-for-sale ("AFS") and are carried at fair value generally based on quoted market prices. GAAP permits entities to choose to measure many financial instruments, such as AFS securities, and certain other items at fair value and to recognize the changes in fair value of such instruments in the entity's statement of operations (the "fair value option"). The Company previously entered into economic hedges for certain of its non-strategic AFS securities (although such instruments were not accounted for as fair value hedges by the Company). Changes in the fair value of these economic hedges were reflected in the Company's statement of operations as unrealized gains (losses). In order to better match the changes in fair value of the subject AFS securities and the changes in fair value of the corresponding economic hedges in the Company's financial statements, the Company elected the fair value option for those of its AFS securities which it considers to be non-strategic ("Fair Value Option Securities"). Accordingly, changes in the fair value of Fair Value Option Securities, as determined by quoted market prices, are reported in realized and unrealized gains (losses) on financial instruments in the accompanying condensed consolidated statements of operations.
Investments in AFS securities, including Fair Value Option Securities separately aggregated, and other cost investments are summarized as follows:
 
June 30,
2013
 
December 31,
2012
 
amounts in millions
Fair Value Option Securities
 
 
 
  Time Warner, Inc. (a)
$
256

 
211

  Time Warner Cable, Inc. (a)
266

 
230

  Viacom, Inc. (a)
247

 
192

  CenturyLink, Inc. (a)
64

 
70

  Barnes & Noble, Inc.
266

 
262

  Other equity securities
77

 
58

  Other debt securities
25

 
56

      Total Fair Value Option Securities
1,201

 
1,079

AFS and cost investments
 
 
 
  SIRIUS XM debt securities (b)
—

 
249

  Live Nation Entertainment, Inc. ("Live Nation") debt securities
24

 
25

    Other AFS and cost investments
45

 
39

      Total AFS and cost investments
69

 
313

 
$
1,270

 
1,392


(a)
See note 9 for details regarding the number and fair value of shares pledged as collateral pursuant to certain margin loan agreements as of June 30, 2013.
(b)
During the six months ended June 30, 2013, as discussed in note 1, Liberty acquired an additional 50 million common shares and acquired a controlling interest in SIRIUS XM and as a result consolidates SIRIUS XM as of such date. Therefore, the related SIRIUS XM debt securities are considered effectively settled upon consolidation.



I- 17



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

Unrealized Holding Gains and Losses
Unrealized holding gains and losses related to investments in AFS securities are summarized below.
 
June 30, 2013
 
December 31, 2012
 
Equity
securities
 
Debt
securities
 
Equity
securities
 
Debt
securities
 
amounts in millions
Gross unrealized holding gains
$
5

 
1

 
2

 
37

Gross unrealized holding losses
$
—

 
—

 
—

 
—


Liberty reclassified approximately $40 million of previously unrealized gains in the condensed consolidated statement of operations in gains (losses) on transactions, net for the six months ended June 30, 2013 due to the application of purchase accounting and the effective settlement of SIRIUS XM debt securities previously accounted for as available-for-sale securities through other comprehensive earnings (loss). Additionally, Liberty had no securities in a loss position greater than a year.

(7)   Investments in Affiliates Accounted for Using the Equity Method
Liberty has various investments accounted for using the equity method. The following table includes the Company's carrying amount and percentage ownership of the more significant investments in affiliates at June 30, 2013 and the carrying amount at December 31, 2012:
 
June 30, 2013
 
December 31, 2012
 
Percentage
ownership
 
Fair Value (Level 1)
 
Carrying
amount
 
Carrying
amount
 
 
 
dollar amounts in millions
Charter Communications (a) (d)
27
%
 
$
3,326

 
2,528

 
NA

SIRIUS XM (b)
NA

 
NA

 
NA

 
2,766

Live Nation (c) (d)
27
%
 
807

 
405

 
406

 SIRIUS XM Canada (b)
38
%
 
308

 
278

 
NA

 Other
various

 
N/A

 
204

 
169

 
 

 
 

 
$
3,415

 
3,341



I- 18



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

The following table presents the Company's share of earnings (losses) of affiliates:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions
Charter Communications, Inc. (a)
$
(37
)
 
—

 
(37
)
 
—

SIRIUS XM (b)
—

 
1,276

 
8

 
1,309

Live Nation
11

 
—

 
(8
)
 
(16
)
SIRIUS XM Canada (b)
—

 
—

 
1

 
—

Other
5

 
5

 
32

 
—

 
$
(21
)
 
1,281

 
(4
)
 
1,293


(a)
As discussed below, Liberty acquired an approximate 27% interest in Charter Communications, Inc. during the six months ended June 30, 2013 for approximately $2.6 billion.

(b)
On January 18, 2013, as discussed in note 1, Liberty acquired an additional 50 million common shares and acquired a controlling interest in SIRIUS XM and as a result consolidates SIRIUS XM as of such date. SIRIUS XM has an investment in SIRIUS XM Canada that was recorded at fair value in purchase accounting. See discussion below of SIRIUS XM Canada.

(c)
During the first quarter of 2013, Liberty acquired an additional 1.7 million shares of Live Nation for approximately $19 million which increased our ownership percentage, at the time of acquisition, to approximately 27%.

(d)
See note 9 for details regarding the number and fair value of shares pledged as collateral pursuant to certain margin loan agreements as of June 30, 2013.

SIRIUS XM Canada

In the acquisition of SIRIUS XM, Liberty acquired an interest in SIRIUS XM Canada which SIRIUS XM accounts for as an equity method affiliate. Liberty recognized the investment at fair value, based on the market price per share (level 1), on the date of acquisition.

In 2005, SIRIUS XM entered into agreements to provide SIRIUS XM Canada with the right to offer SIRIUS XM satellite radio service in Canada. The agreements have an initial ten year term and Sirius XM Canada has the unilateral option to extend the agreements for an additional five year term. SIRIUS XM receives a 15% royalty for all subscriber fees earned by SIRIUS XM Canada each month for its basic service and an activation fee for each gross activation of a SIRIUS XM Canada subscriber on the satellite radio system. SIRIUS XM Canada is obligated to pay SIRIUS XM a total of $70 million for the rights to broadcast and market National Hockey League (“NHL”) games for a ten year term. SIRIUS XM recognizes these payments on a gross basis as a principal obligor. The estimated fair value of deferred revenue from SIRIUS XM Canada as of the acquisition date was approximately $21 million, which is amortized on a straight-line basis through 2020, the end of the expected term of the agreements. SIRIUS XM provides chip sets as well other services and SIRIUS XM Canada reimburses SIRIUS XM for such costs. At June 30, 2013, SIRIUS XM has approximately $45 million and $21 million in related party assets and liabilities, respectively, related to these agreements described above with SIRIUS XM Canada which are recorded in other assets and other liabilities, respectively, in the condensed consolidated balance sheet. Additionally, SIRIUS XM recorded approximately $23


I- 19



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

million in revenue, for the period from acquisition to June 30, 2013, associated with these various agreements in the other revenue line in the condensed consolidated statements of operations.

Charter Communications, Inc.

In May 2013, Liberty Media completed a transaction with investment funds managed by, or affiliated with, Apollo Management, Oaktree Capital Management and Crestview Partners to acquire approximately 26.9 million shares of common stock and approximately 1.1 million warrants in Charter Communications, Inc. ("Charter") for approximately $2.6 billion, which represents an approximate 27% beneficial ownership in Charter and a price per share of $95.50. Liberty accounts for the investment in Charter as an equity method affiliate based on the ownership interest obtained and the board seats held by Liberty appointed individuals. Liberty funded the purchase with a combination of cash of approximately $1.2 billion on hand and new margin loan arrangements on approximately 20.3 million Charter common shares, approximately 720 million SIRIUS XM common shares, approximately 8.1 million Live Nation common shares and a portion of Liberty's available for sale securities. Liberty allocated the purchase price between the shares of common stock and the warrants acquired in the transaction by determining the fair value of the publicly traded warrants and allocating the remaining balance to the shares acquired, which resulted in an excess basis in the investment of $2.5 billion. The excess basis was primarily allocated to franchise fees, customer relationships, debt and goodwill based on a preliminary valuation of Charter assets's and liabilities.

(8) Intangible Assets
Goodwill
Changes in the carrying amounts of goodwill are as follows:
 
SIRIUS XM
 
ANLBC
 
Other
 
Total
 
amounts in millions
Balance at January 1, 2013
$
—

 
180

 
20

 
200

Acquisitions (1)
14,021

 
—

 
—

 
14,021

Balance at June 30, 2013
$
14,021

 
180

 
20

 
14,221

(1)
The increase to SIRIUS XM goodwill was the result of the acquisition of a controlling interest in SIRIUS XM in January 2013, see note 1 for further discussion.
Other major intangible assets not subject to amortization, not separately disclosed, are SIRIUS XM tradenames ($930 million) and ANLBC franchise rights ($143 million) at June 30, 2013. The increase from December 31, 2012 was due to the acquisition of SIRIUS XM in January 2013 as discussed in note 1.


I- 20



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

Intangible Assets Subject to Amortization
Intangible assets subject to amortization are comprised of the following:
 
June 30, 2013
 
December 31, 2012
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
Gross
carrying
amount
 
Accumulated
amortization
 
Net
carrying
amount
 
amounts in millions
Customer relationships
$
621

 
(45
)
 
576

 
51

 
(23
)
 
28

Licensing agreements
329

 
(28
)
 
301

 
—

 
—

 
—

Other
550

 
(440
)
 
110

 
515

 
(435
)
 
80

    Total
$
1,500

 
(513
)
 
987

 
566

 
(458
)
 
108

Additions to intangible assets subject to amortization were the result of the acquistion of SIRIUS XM, see note 1 for additional details on the acquisition. The range of useful lives assigned to intangibles acquired are from 6 years to 15 years.
Amortization expense for intangible assets with finite useful lives was $55 million and $9 million for the six months ended June 30, 2013 and 2012, respectively. Based on its amortizable intangible assets as of June 30, 2013, Liberty expects that amortization expense will be as follows for the next five years (amounts in millions):
Remainder of 2013
$
57

2014
$
111

2015
$
93

2016
$
75

2017
$
74

(9) Long-Term Debt
Debt is summarized as follows:
 
 
 
Carrying value
 
Outstanding Principal June 30, 2013
 
 
June 30,
2013
 
December 31,
2012
 
amounts in millions
SIRIUS XM 8.75% Senior Notes due 2015
$
621

 
692

 
—

SIRIUS XM 7% Exchangeable Senior Subordinated Notes due 2014
491

 
535

 
—

SIRIUS XM 7.625% Senior Notes due 2018
549

 
609

 
—

SIRIUS XM 5.25% Senior Notes due 2022
400

 
408

 
—

SIRIUS XM 4.25% Senior Notes due 2020
500

 
495

 
—

SIRIUS XM 4.625% Senior Notes due 2023
500

 
494

 
—

SIRIUS XM Credit Facility
—

 
—

 
—

Margin Loans
1,120

 
1,120

 
—

      Other debt
10

 
10

 
—

Total debt
$
4,191

 
4,363

 
—

Less current maturities
 
 
4

 
—

Total long-term debt
 
 
$
4,359

 
—



I- 21



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

Margin Loans
During the three months ended June 30, 2013, in connection with Liberty's acquisition of Charter common stock and warrants, as discussed in note 7, Liberty, through certain of its wholly-owned subsidiaries, entered into three different margin loans with various financial institutions (“lender parties”) in order to fund the purchase. Each agreement contains language that indicates that Liberty, as borrower and transferor of underlying shares as collateral, has the right to exercise all voting, consensual and other powers of ownership pertaining to the transferred shares for all purposes, provided that Liberty agrees that it will not vote the shares in any manner that would reasonably be expected to give rise to transfer or other certain restrictions. Similarly, the loan agreements indicate that no lender party shall have any voting rights with respect to the shares transferred, except to the extent that a lender party buys any shares in a sale or other disposition made pursuant to the terms of the loan agreements. The margin loans consist of the following:

$1 Billion Margin Loan due 2014
On April 30, 2013, Liberty Siri MarginCo, LLC, a wholly owned subsidiary of Liberty, entered into a margin loan agreement whereby Liberty Siri MarginCo, LLC borrowed $250 million pursuant to a term loan and $450 million pursuant to a revolving credit facility with various lender parties. Shares of SIRIUS XM, Live Nation, Time Warner, Inc., Viacom, Inc., CenturyLink, Inc., and Time Warner Cable, Inc. common stock were pledged as collateral pursuant to this agreement. Borrowings under this agreement bear interest equal to the three-month LIBOR plus a spread, based on the market value of the non-SIRIUS XM shares pledged as collateral pursuant to the agreement. Given the non-SIRIUS XM market value of the eligible pledged shares as of April 30, 2013, the initial interest rate on the loan is LIBOR plus 2%. Interest on the term loan is payable on the first business day of each calendar quarter, and interest is payable on the revolving line of credit on the last day of the interest period applicable to the borrowing of which such loan is a part. During June 2013, Liberty Siri MarginCo, LLC repaid $250 million outstanding under the revolving credit facility. Therefore, as of June 30, 2013, availability under the revolving line of credit was $550 million. Additionally, up to $1 billion in loans may be extended under the loan agreement in the form of incremental loans, subject to the satisfaction of certain conditions.

$670 Million Margin Loan due 2015
At closing on May 1, 2013, LMC Cheetah 2, LLC, a wholly owned subsidiary of Liberty, entered into a margin loan agreement with an availability of $670 million pursuant to a term loan with various lender parties ("$670 Million Margin Loan due 2015") whereby LMC Cheetah 2, LLC borrowed $370 million. Shares of Charter common stock were pledged as collateral pursuant to this agreement. The $670 Million Margin Loan due May 1, 2015 bears interest equal to the three-month LIBOR plus 3.25%, payable on the first day of each of February, May, August and November throughout the term of the loan. As of June 30, 2013, Liberty has fully drawn the $670 Million Margin Loan due 2015 (see below).

$300 Million Margin Loan due 2014
At closing on May 1, 2013, LMC Cheetah 3, LLC, a wholly owned subsidiary of Liberty, entered into a margin loan agreement whereby LMC Cheetah 3, LLC borrowed $300 million pursuant to a term loan. Shares of Charter common stock were pledged as collateral pursuant to this agreement. The $300 Million Margin Loan due June 1, 2014 bears interest equal to the three-month LIBOR plus 5.00%, payable on the first day of each September, December, March and June throughout the term of the loan. During June 2013, Liberty repaid in full the principal and accrued interest on amounts drawn pursuant to this agreement and borrowed an additional $300 million pursuant to the $670 Million Margin Loan due 2015, discussed above.



I- 22



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

As of June 30, 2013, the value of shares pledged as collateral pursuant to all three margin loan agreements is as follows:
 
 
Number of Shares Pledged
 


 
as Collateral as of
 
Share value as of
Investment
 
June 30, 2013
 
June 30, 2013
 
 
amounts in millions
SIRIUS XM
 
719.9

 
$
2,412

Charter
 
20.3

 
$
2,510

Live Nation
 
8.1

 
$
125

Time Warner, Inc.
 
4.4

 
$
256

Viacom, Inc.
 
3.5

 
$
240

CenturyLink, Inc.
 
1.8

 
$
64

Time Warner Cable, Inc.
 
1.1

 
$
125


Each of the margin loans contain various affirmative and negative covenants that restrict the activities of the borrower. The loan agreements do not include any financial covenants.

SIRIUS XM 8.75% Senior Notes due 2015
In March 2010, SIRIUS XM issued $800 million aggregate principal amount of 8.75% Senior Notes due 2015 (the “8.75% Notes”). Interest is payable semi-annually in arrears on April 1 and October 1 of each year at a rate of 8.75% per annum. Substantially all of their domestic wholly-owned subsidiaries guarantee their obligations under the 8.75% Notes on a senior unsecured basis. Liberty owns approximately $150 million principal amount of the outstanding debentures and these notes are considered effectively settled on a consolidated basis. The premium associated with the 8.75% Notes was recorded in purchase accounting as the difference between fair value and the outstanding principal amount at the date of acquisition. This premium is being amortized over the remaining period to maturity through interest expense.

During the three months ended June 30, 2013, SIRIUS XM purchased approximately $29 million of the 8.75% Notes. The aggregate purchase price for these 8.75% Notes was approximately $33 million, including accrued interest. Subsequent to June 30, 2013, SIRIUS XM repurchased approximately $18 million of the 8.75% Notes at a purchase price of approximately $20 million, including accrued interest.
  
SIRIUS XM 7% Exchangeable Senior Subordinated Notes due 2014

In August 2008, SIRIUS XM issued $550 million aggregate principal amount of 7% Exchangeable Senior Subordinated Notes due 2014 (the “Exchangeable Notes”). The Exchangeable Notes are senior subordinated obligations and rank junior in right of payment to SIRIUS XM's existing and future senior debt and equally in right of payment with SIRIUS XM's existing and future senior subordinated debt. Substantially all of SIRIUS XM's domestic wholly-owned subsidiaries have guaranteed the Exchangeable Notes on a senior subordinated basis.

Interest is payable semi-annually in arrears on June 1 and December 1 of each year at a rate of 7% per annum. The Exchangeable Notes mature on December 1, 2014. The Exchangeable Notes are exchangeable at any time at the option of the holder into shares of SIRIUS XM's common stock at an initial exchange rate of 533.3333 shares of common stock per $1,000 principal amount of Exchangeable Notes, which is equivalent to an approximate exchange price of $1.875 per share of common stock. If a holder of the Exchangeable Notes elects to exchange the notes in connection


I- 23



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

with a corporate transaction that constitutes a fundamental change, the exchange rate will be increased by an additional number of shares of common stock determined by the indenture governing the Exchangeable Notes. Due to a special cash dividend in December 2012, the conversion rate increased to 543.1372 shares per common stock per $1,000 principal amount. Liberty owns approximately $11 million of principal amount of the outstanding debentures which are considered effectively settled on a consolidated basis. The premium associated with the Exchangeable Notes was recorded in purchase accounting as the difference between fair value less the intrinsic value of the conversion feature and the outstanding principal amount at the date of acquisition. This premium is being amortized over the remaining period to maturity through interest expense.

As a result of the acquisition of the additional 50 million shares of SIRIUS XM, a fundamental change occurred under the indenture governing the Exchangeable Notes. In accordance with the indenture, on February 1, 2013, SIRIUS XM made an offer to each holder of the Exchangeable Notes to: (i) repurchase his or her Exchangeable Notes at a purchase price in cash equal to $1,000 per $1,000 principal amount of the Exchangeable Notes (plus accrued and unpaid interest to, but excluding March 1, 2013); (ii) exchange his or her Exchangeable Notes for SIRIUS XM's common stock, at an exchange rate of 581.3112 shares per $1,000 principal amount of Notes, or (iii) retain his or her Exchangeable Notes pursuant to their terms through maturity on December 1, 2014, or otherwise transfer or exchange them in the ordinary course. Following the expiration of this offer, the exchange rate for the Exchangeable Notes reverted to 543.1372 shares of common stock per $1,000 principal amount of Exchangeable Notes.

In connection with this offer, $48 million in principal amount of the Exchangeable Notes were converted resulting in the issuance of approximately 28 million shares of SIRIUS XM common stock during the first quarter of 2013, considered to be a non-cash financing activity. As a result of this conversion, Liberty retired approximately $48 million in principal amount of the Exchangeable Notes and recognized a proportionate share of unamortized premium to noncontrolling interest. No loss was recognized as a result of the exchange.

SIRIUS XM 7.625% Senior Notes due 2018

In October 2010, SIRIUS XM issued $700 million aggregate principal amount of 7.625% Senior Notes due 2018 (the “7.625% Notes”). Interest is payable semi-annually in arrears on May 1 and November 1 of each year at a rate of 7.625% per annum. The 7.625% Notes mature on November 1, 2018. Substantially all of SIRIUS XM's domestic wholly-owned subsidiaries guarantee SIRIUS XM's obligations under the 7.625% Notes. Liberty owns approximately $50 million principal amount of the 7.625% Notes and these notes are considered effectively settled on a consolidated basis. The premium associated with the 7.625% Notes was recorded in purchase accounting as the difference between fair value and the outstanding principal amount at the date of acquisition. This premium is being amortized over the remaining period to maturity through interest expense.

During the three months ended June 30, 2013, SIRIUS XM purchased approximately $101 million of the 7.625% Notes for an aggregate purchase price of approximately $113 million, including accrued interest. Subsequent to June 30, 2013, SIRIUS XM repurchased approximately $60 million of outstanding 7.625% Notes at an aggregate purchase price of approximately $67 million.

SIRIUS XM 5.25% Senior Notes due 2022
In August 2012, SIRIUS XM issued $400 million aggregate principal amount of 5.25% Senior Notes due 2022 (the “5.25% Notes”). Interest is payable semi-annually in arrears on February 15 and August 15 of each year at a rate of 5.25% per annum. The 5.25% Notes mature on August 15, 2022. Substantially all of SIRIUS XM's domestic wholly-owned subsidiaries guarantee SIRIUS XM's obligations under the 5.25% Notes. The premium associated with the 5.25% Notes was recorded in purchase accounting as the difference between fair value and the outstanding principal


I- 24



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

amount at the date of acquisition. This premium is being amortized over the remaining period to maturity through interest expense.

SIRIUS XM Senior Secured Revolving Credit Facility
In December 2012, SIRIUS XM entered into a five-year Senior Secured Revolving Credit Facility (the "Credit Facility") with a syndicate of financial institutions for $1,250 million. The Credit Facility is secured by substantially all SIRIUS XM's assets and the assets of their subsidiaries. The proceeds of loans under the Credit Facility will be used for working capital and other general corporate purposes, including financing acquisitions, share repurchases and dividends. Interest on borrowings is payable on a quarterly basis and accrues at a rate based on LIBOR plus an applicable rate. SIRIUS XM is required to pay a variable fee on the average daily unused portion of the Credit Facility which is currently 0.30% per annum and is payable on a quarterly basis. The Credit Facility contains customary covenants, including a maintenance covenant.

As of June 30, 2013, availability under the Credit Facility was $1,250 million.

SIRIUS XM Senior Notes Due 2020 and 2023

In May 2013, SIRIUS XM issued $500 million of Senior Notes due 2020 which bear interest at an annual rate of 4.25% and $500 million of Senior Notes due 2023 which bear interest at an annual rate of 4.625%. SIRIUS XM received gross proceeds of $1 billion from the sale of the notes before deducting the initial purchasers' commissions and estimated offering fees and expenses. Interest on the notes is payable semi-annually in arrears on May 15 and November 15 of each year. Substantially all of SIRIUS XM's domestic wholly-owned subsidiaries guarantee SIRIUS XM's obligations under the notes. Proceeds from this offering are used for general corporate purposes.

As of June 30, 2013, SIRIUS XM was in compliance with all debt covenants.

SIRIUS XM 5.75% Senior Notes Due 2021

Subsequent to June 30, 2013, SIRIUS XM announced that it intends to offer $600 million of 5.75% Senior Notes due 2021. SIRIUS XM intends to use the net proceeds from any such offering, together with cash on-hand, to redeem its outstanding 8.75% Notes. This offering has not commenced as of the date of these financial statements.
Fair Value of Debt
The fair value, based on quoted market prices of the same instruments but not considered to be active markets (Level 2), of SIRIUS XM's publicly traded debt securities is as follows (amounts in millions):
 
June 30, 2013
SIRIUS XM 8.75% Senior Notes due 2015
$
685

SIRIUS XM 7% Exchangeable Senior Subordinated Notes due 2014
$
930

SIRIUS XM 7.625% Senior Notes due 2018
$
601

SIRIUS XM 5.25% Senior Notes due 2022
$
391

SIRIUS XM 4.25% Senior Notes due 2020
$
474

SIRIUS XM 4.625% Senior Notes due 2023
$
470

Due to the variable rate nature of the Credit Facility, margin loans and other debt the Company believes that the carrying amount approximates fair value at June 30, 2013.


I- 25



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)


(10) Commitments and Contingencies
Guarantees
The Company continues to guarantee Starz, LLC's obligations under two of its studio output agreements. At June 30, 2013, the Company's guarantees for obligations for films released by such date aggregated $195 million. The Guarantee associated with these studio output agreements is expected to lapse in November of 2013 for one studio and November of 2014 for the other studio. While the guarantee amount for films not yet released is not determinable, such amounts are expected to be significant. The Company considered whether a liability associated with the Guarantee was considered necessary at the time of Spin-Off and determined that based on a number of scenarios associated with this Guarantee due to the financial well-being of Starz, the anticipated financial performance of Starz over the next two years and Starz's availability under its Credit Facility, that no liability was considered necessary.
In connection with agreements for the sale of assets by the Company or its subsidiaries, the Company may retain liabilities that relate to events occurring prior to its sale, such as tax, environmental, litigation and employment matters. The Company generally indemnifies the purchaser in the event that a third party asserts a claim against the purchaser that relates to a liability retained by the Company. These types of indemnification obligations may extend for a number of years. The Company is unable to estimate the maximum potential liability for these types of indemnification obligations as the sale agreements may not specify a maximum amount and the amounts are dependent upon the outcome of future contingent events, the nature and likelihood of which cannot be determined at this time. Historically, the Company has not made any significant indemnification payments under such agreements and no amount has been accrued in the accompanying condensed consolidated financial statements with respect to these indemnification guarantees.
Employment Contracts
The Atlanta Braves and certain of their players and coaches have entered into long-term employment contracts whereby such individuals' compensation is guaranteed. Amounts due under guaranteed contracts as of June 30, 2013 aggregated $160 million, which is payable as follows: $37 million in 2013, $48 million in 2014, $42 million in 2014, $16 million in 2016 and $17 million thereafter. In addition to the foregoing amounts, certain players and coaches may earn incentive compensation under the terms of their employment contracts.
Operating Leases
The Company and its subsidiaries lease business offices, have entered into satellite transponder lease agreements and use certain equipment under lease arrangements.
Litigation
The Company has contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Although it is reasonably possible the Company may incur losses upon conclusion of such matters, an estimate of any loss or range of loss cannot be made. In the opinion of management, it is expected that amounts, if any, which may be required to satisfy such contingencies will not be material in relation to the accompanying condensed consolidated financial statements.
In connection with a commercial transaction that closed during 2002 among Liberty, Vivendi Universal S.A. (“Vivendi”) and the former USA Holdings, Inc., Liberty brought suit against Vivendi and Universal Studios, Inc. in the United States District Court for the Southern District of New York, alleging, among other things, breach of contract and fraud by Vivendi. On June 25, 2012, a jury awarded Liberty damages in the amount of €765 million, plus prejudgment interest, in connection with a finding of breach of contract and fraud by the defendants. On January 17, 2013, the court


I- 26



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)

entered judgment in favor of Liberty in the amount of approximately €945 million, including prejudgment interest. Vivendi has filed notice of its appeal of the judgment to the United States Court of Appeals for the Second Circuit, and, in that court, Liberty intends to seek a higher rate of pre-judgment interest than what the district court awarded. The case is stayed pending the appeal and the appeal in this case has been consolidated with the expected appeal of a class action brought against Vivendi by other shareholders. The amount that Liberty may ultimately recover in connection with the final resolution of the action, if any, and the timing of the resolution of the action is uncertain. Any recovery by Liberty will not be reflected in our consolidated financial statements until such time as the final disposition of this matter has been reached.

(11) Information About Liberty's Operating Segments
The Company, through its ownership interests in subsidiaries and other companies, is primarily engaged in the media, communications and entertainment industries. The Company identifies its reportable segments as (A) those consolidated subsidiaries that represent 10% or more of its consolidated annual revenue, annual Adjusted OIBDA or total assets and (B) those equity method affiliates whose share of earnings represent 10% or more of the Company's annual pre-tax earnings. The segment presentation for prior periods has been conformed to the current period segment presentation.
The Company evaluates performance and makes decisions about allocating resources to its operating segments based on financial measures such as revenue and Adjusted OIBDA. In addition, the Company reviews nonfinancial measures such as subscriber growth and penetration.
The Company defines Adjusted OIBDA as revenue less operating expenses, and selling, general and administrative expenses excluding all stock-based compensation. The Company believes this measure is an important indicator of the operational strength and performance of its businesses, including each business's ability to service debt and fund capital expenditures. In addition, this measure allows management to view operating results and perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes depreciation and amortization, stock-based compensation, separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. The Company generally accounts for intersegment sales and transfers as if the sales or transfers were to third parties, that is, at current prices.
For the six months ended June 30, 2013, the Company has identified the following businesses as its reportable segments:
•
SIRIUS XM — consolidated subsidiary that provides a subscription based satellite radio service. SIRIUS XM broadcasts to subscribers over approximately 130 digital-quality channels, including more than 60 channels of 100% commercial-free music, plus exclusive channels of sports, news, talk, entertainment, traffic, weather and data through its two proprietary satellite radio systems - the Sirius system and the XM system.
•
ANLBC — consolidated subsidiary that owns and operates the Atlanta Braves Major League Baseball franchise.
The Company's reportable segments are strategic business units that offer different products and services. They are managed separately because each segment requires different technologies, differing revenue sources and marketing strategies. The accounting policies of the segments that are also consolidated subsidiaries are the same as those described in the Company's summary of significant policies.


I- 27



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)


Performance Measures
 
Six months ended June 30,
 
2013
 
2012
 
Revenue
 
Adjusted
OIBDA
 
Revenue
 
Adjusted
OIBDA
 
amounts in millions
SIRIUS XM
$
1,667

 
622

 
—

 
—

ANLBC
132

 
21

 
102

 
5

Corporate and other
68

 
—

 
68

 
(4
)
 
$
1,867

 
643

 
170

 
1

 
Three months ended June 30,
 
2013
 
2012
 
Revenue
 
Adjusted
OIBDA
 
Revenue
 
Adjusted
OIBDA
 
amounts in millions
SIRIUS XM
$
938

 
354

 
—

 
—

ANLBC
109

 
20

 
99

 
22

Corporate and other
31

 
(2
)
 
36

 
(4
)
 
$
1,078

 
372

 
135

 
18

 
 
 
 
 
 
 
 
Other Information
 
June 30, 2013
 
Total
assets
 
Investments
in affiliates
 
Capital
expenditures
 
amounts in millions
SIRIUS XM
$
29,455

 
278

 
60

ANLBC
595

 
38

 
2

Corporate and other
3,834

 
3,099

 
2

 
$
33,884

 
3,415

 
64



I- 28



LIBERTY MEDIA CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Continued)
(unaudited)



The following table provides a reconciliation of segment Adjusted OIBDA to earnings (loss) from continuing operations before income taxes:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions
Consolidated segment Adjusted OIBDA
$
372

 
18

 
643

 
1

Stock-based compensation
(48
)
 
(5
)
 
(89
)
 
(11
)
Depreciation and amortization
(88
)
 
(11
)
 
(158
)
 
(20
)
Interest expense
(28
)
 
(2
)
 
(39
)
 
(5
)
Dividend and interest income
13

 
21

 
25

 
43

Share of earnings (losses) of affiliates, net
(21
)
 
1,281

 
(4
)
 
1,293

Realized and unrealized gains (losses) on financial instruments, net
61

 
(73
)
 
158

 
38

Gains (losses) on transactions, net
2

 
—

 
7,481

 
—

Other, net
(1
)
 
8

 
(6
)
 
10

Earnings (loss) from continuing operations before income taxes
$
262

 
1,237

 
8,011

 
1,349




I- 29

Item 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations

Certain statements in this Quarterly Report on Form 10-Q constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding our business, product and marketing strategies; new service offerings; revenue growth and subscriber trends at SIRIUS XM Radio, Inc. ("SIRIUS XM"); the recoverability of our goodwill and other long-lived assets; the performance of our equity affiliates; our projected sources and uses of cash; our potential participation in SIRIUS XM's stock repurchase program; and the anticipated non-material impact of certain contingent liabilities related to legal and tax proceedings and other matters arising in the ordinary course of business. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will result or be achieved or accomplished. The following include some but not all of the factors (as they relate to our consolidated subsidiaries and equity affiliates) that could cause actual results or events to differ materially from those anticipated:
•
consumer demand for our products and services and our ability to adapt to changes in demand;
•
competitor responses to our products and services;
•
uncertainties inherent in the development and integration of new business lines and business strategies;
•
uncertainties associated with product and service development and market acceptance, including the development and provision of programming for satellite radio and telecommunications technologies;
•
one of our consolidated businesses depends in large part upon automakers;
•
our ability to attract and retain subscribers at a profitable level in the future is uncertain;
•
our future financial performance, including availability, terms and deployment of capital;
•
our ability to successfully integrate and recognize anticipated efficiencies and benefits from the businesses we acquire;
•
the ability of suppliers and vendors to deliver products, equipment, software and services;
•
interruption or failure of our information technology and communication systems, including the failure of our satellites, could negatively impact our results and brand;
•
royalties for music rights have increased and may continue to do so in the future;
•
the outcome of any pending or threatened litigation;
•
availability of qualified personnel;
•
changes in, or failure or inability to comply with, government regulations, including, without limitation, regulations of the Federal Communications Commission, and adverse outcomes from regulatory proceedings;
•
changes in the nature of key strategic relationships with partners, vendors and joint venturers;
•
general economic and business conditions and industry trends including the current economic downturn;
•
consumer spending levels, including the availability and amount of individual consumer debt;
•
rapid technological changes;
•
our indebtedness could adversely affect the operations and could limit the ability of our subsidiaries to react to changes in the economy or our industry;
•
if we fail to protect the security of personal information about our customers, we could be subject to costly government enforcement actions or private litigation and our reputation could suffer;
•
capital spending for the acquisition and/or development of telecommunications networks and services;
•
the regulatory and competitive environment of the industries in which we, and the entities in which we have interests, operate; and
•
threatened terrorist attacks and ongoing military action in the Middle East and other parts of the world and political unrest in international markets.
For additional risk factors, please see Part I, Item 1 of our Annual Report on Form 10-K for the year ended December 31, 2012, as supplemented by Part II, Item 1A of this Quarterly Report on Form 10-Q. These forward-looking statements and such risks, uncertainties and other factors speak only as of the date of this Quarterly Report, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in our expectations with regard thereto, or any other change in events, conditions or circumstances on which any such statement is based.


I- 30

The following discussion and analysis provides information concerning our results of operations and financial condition. This discussion should be read in conjunction with our accompanying condensed consolidated financial statements and the notes thereto and our Annual Report on Form 10-K for the year ended December 31, 2012.
Explanatory Note
On January 11, 2013, Liberty Media Corporation ("Liberty" or "the Company" formerly known as Liberty Spinco, Inc.) was spun-off, through the distribution of shares of Liberty by means of a pro-rata dividend from Starz (previously Liberty Media Corporation) (the "Spin-Off"), which was previously an indirect, wholly owned subsidiary of Liberty Interactive Corporation ("Liberty Interactive," formerly known as Liberty Media Corporation).
Due to the relative significance of Liberty to Starz (the legal spinnor) and senior management's continued involvement with Liberty following the Spin-Off, Liberty has been treated as the "accounting successor" to Starz for financial reporting purposes, notwithstanding the legal form of the Spin-Off previously described. Therefore, the historical financial statements of Starz continue to be the historical financial statements of Liberty. Therefore, for purposes of this Form 10-Q, Liberty is treated as the spinnor for purposes of discussion and as a practical matter of describing all the historical information contained herein.

On January 18, 2013, Liberty settled a block transaction with a financial institution taking possession of an additional 50,000,000 common shares of SIRIUS XM as well as converting its remaining SIRIUS XM Convertible Perpetual Preferred Stock, Series B-1, par value $0.001 per share, into 1,293,509,076 shares of SIRIUS XM Common Stock. As a result of these two transactions Liberty holds more than 50% of the capital stock of SIRIUS XM entitled to vote on any matter, including the election of directors. This resulted in the application of purchase accounting and the consolidation of SIRIUS XM in the first quarter of 2013. We note that in prior periods SIRIUS XM was treated as an equity method affiliate.
Overview
We own controlling and non-controlling interests in a broad range of media, communications and entertainment companies. Our more significant operating subsidiaries, which are also our principal reportable segments, are Sirius XM Radio, Inc. ("SIRIUS XM") and Atlanta National League Baseball Club, Inc. ("ANLBC"). SIRIUS XM provides a subscription based satellite radio service. SIRIUS XM broadcasts to subscribers over approximately 130 digital-quality channels, including more than 60 channels of 100% commercial-free music, plus exclusive channels of sports, news, talk, entertainment, traffic, weather and data through its two proprietary satellite radio systems - the Sirius system and the XM system. ANLBC owns the Atlanta Braves, a major league baseball club, as well as certain of the Atlanta Braves' minor league clubs.
Our "Corporate and Other" category includes our other consolidated subsidiaries and corporate expenses.
In addition to the foregoing businesses, we hold an ownership interest in Live Nation Entertainment, Inc. ("Live Nation"), Charter Communications, Inc. ("Charter"), and through SIRIUS XM, SIRIUS XM Canada, which we account for as equity method investments; and we continue to maintain investments and related financial instruments in public companies such as Time Warner, Inc., Time Warner Cable, Inc., Viacom, Inc. and Barnes & Noble, Inc., which are accounted for at their respective fair market values and are included in corporate and other.
Discontinued Operations
As discussed above, as of January 11, 2013, all of the businesses, assets and liabilities of Starz not associated with Starz, LLC (with the exception of the Starz, LLC office building) (the "Spin-Off") were spun-off. The transaction was effected as a pro-rata dividend of shares of Liberty to the stockholders of Starz. The businesses, assets and liabilities not included in Liberty are part of a separate public company which was renamed Starz. Due to the relative significance of Liberty to Starz (the legal spinnor) and senior management's continued involvement with Liberty following the Spin-Off, Liberty has been treated as the "accounting successor" to Starz for financial reporting purposes, notwithstanding the legal form of the Spin-Off previously described. Therefore, the historical financial statements of Starz continue to be the historical financial statements of Liberty and the operations of Starz have been presented as discontinued operations.


I- 31


Results of Operations—Consolidated
General.    We provide in the tables below information regarding our Consolidated Operating Results and Other Income and Expense, as well as information regarding the contribution to those items from our reportable segments. The "corporate and other" category consists of those assets or businesses which do not qualify as a separate reportable segment. For a more detailed discussion and analysis of the financial results of the principal reporting segments see "Results of Operations—Businesses" below.
Consolidated Operating Results
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions
Revenue
 
 
 
 
 
 
 
SIRIUS XM
$
938

 
—

 
1,667

 
—

ANLBC
109

 
99

 
132

 
102

Corporate and other
31

 
36

 
68

 
68

 
$
1,078

 
135

 
1,867

 
170

Adjusted OIBDA
 
 
 
 
 
 
 
SIRIUS XM
$
354

 
—

 
622

 
—

ANLBC
20

 
22

 
21

 
5

Corporate and other
(2
)
 
(4
)
 
—

 
(4
)
 
$
372

 
18

 
643

 
1

Operating Income (Loss)
 
 
 
 
 
 
 
SIRIUS XM
$
243

 
—

 
423

 
—

ANLBC
10

 
14

 
4

 
(7
)
Corporate and other
(17
)
 
(12
)
 
(31
)
 
(23
)
 
$
236

 
2

 
396

 
(30
)

Revenue.    Our consolidated revenue increased $943 million and increased $1,697 million for the three and six months ended June 30, 2013, as compared to the corresponding periods in the prior year. The increase was primarily due to the acquisition of SIRIUS XM on January 18, 2013 and increased revenue at ANLBC. See "Results of Operations—Businesses" below for a more complete discussion of the results of operations of certain of our subsidiaries, including a discussion of the SIRIUS XM results on a comparative basis.

Adjusted OIBDA.    We define Adjusted OIBDA as revenue less operating expenses and selling, general and administrative ("SG&A") expenses excluding all stock-based compensation. Our chief operating decision maker and management team use this measure of performance in conjunction with other measures to evaluate our businesses and make decisions about allocating resources among our businesses. We believe this is an important indicator of the operational strength and performance of our businesses, including each business's ability to service debt and fund capital expenditures. In addition, this measure allows us to view operating results, perform analytical comparisons and benchmarking between businesses and identify strategies to improve performance. This measure of performance excludes such costs as depreciation and amortization, stock-based compensation, separately reported litigation settlements and restructuring and impairment charges that are included in the measurement of operating income pursuant to GAAP. Accordingly, Adjusted OIBDA should be considered in addition to, but not as a substitute for, operating income, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. See note 11 to the accompanying condensed consolidated financial statements for a reconciliation of Adjusted OIBDA to Earnings (loss) from continuing operations before income taxes.
Consolidated Adjusted OIBDA increased $354 million and increased $642 million for the three and six months ended June 30, 2013 , as compared to the corresponding period in the prior year. The increase was primarily driven by


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the acquisition of SIRIUS XM and an improvement in Adjusted OIBDA for ANLBC. See "Results of Operations—Businesses" below for a more complete discussion of the results of operations of certain of our subsidiaries.

Stock-based compensation.    Stock-based compensation includes compensation related to (1) options and stock appreciation rights ("SARs") for shares of our common stock that are granted to certain of our officers and employees, (2) phantom stock appreciation rights ("PSARs") granted to officers and employees of certain of our subsidiaries pursuant to private equity plans and (3) amortization of restricted stock grants.
We recorded $89 million and $11 million of stock compensation expense for the six months ended June 30, 2013 and 2012, respectively. The increase in stock compensation expense in 2013 relates to two items: the additional stock-based compensation from SIRIUS XM and an increase in the amortization of unrecognized compensation expense which increased due to the option exchange program that occurred in December 2012. As of June 30, 2013, the total unrecognized compensation cost related to unvested Liberty equity awards was approximately $87 million. Such amount will be recognized in our consolidated statements of operations over a weighted average period of approximately 2.0 years. Additionally, as of June 30, 2013, the total unrecognized compensation cost related to unvested SIRIUS XM stock options was $294 million. The SIRIUS XM unrecognized compensation cost will be recognized in our consolidated statements of operations over a weighted average period of approximately 2.5 years.
Operating income.    Our consolidated operating income increased $234 million and increased $426 million for the three and six months ended June 30, 2013, respectively, as compared to the corresponding periods in the prior year. The increase is primarily the result of the acquisition of SIRIUS XM. See "Results of Operations—Businesses" below for a more complete discussion of the results of operations of certain of our subsidiaries.
Other Income and Expense
Components of Other Income (Expense) are presented in the table below.
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions
Other income (expense):
 
 
 
 
 
 
 
Interest expense
$
(28
)
 
(2
)
 
(39
)
 
(5
)
Dividend and interest income
13

 
21

 
25

 
43

Share of earnings (losses) of affiliates
(21
)
 
1,281

 
(4
)
 
1,293

Realized and unrealized gains (losses) on financial instruments, net
61

 
(73
)
 
158

 
38

Gains (losses) on transactions, net
2

 
—

 
7,481

 
—

Other, net
(1
)
 
8

 
(6
)
 
10

 
$
26

 
1,235

 
7,615

 
1,379

Interest expense.    Consolidated interest expense increased $26 million and $34 million for the three and six months ended June 30, 2013, respectively, as compared to the corresponding periods in the prior year. The increase was primarily due to the acquisition of SIRIUS XM and the interest expense related to the debt that was acquired.
Dividend and interest income. Consolidated dividend and interest income decreased $8 million and $18 million for the three and six months ended June 30, 2013, respectively, as compared to the corresponding periods in the prior year. The decrease from prior periods is primarily due to the reduction in interest income recognized on certain debt instruments in SIRIUS XM that are considered effectively settled upon consolidation.


I- 33

Share of earnings (losses) of affiliates.    The following table presents our share of earnings (losses) of affiliates:
 
Three months ended
June 30,
 
Six months ended
June 30,
 
2013
 
2012
 
2013
 
2012
 
amounts in millions
SIRIUS XM
$
—

 
1,276

 
8

 
1,309

Charter
(37
)
 
—

 
(37
)
 
—

Live Nation
11

 
—

 
(8
)
 
(16
)
SIRIUS XM Canada
—

 
—

 
1

 
—

Other
5

 
5

 
32

 
—

 
$
(21
)
 
1,281

 
(4
)
 
1,293