Table of Contents

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

OR

 

 

 

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

 

37-1699499

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

12300 Liberty Boulevard
Englewood, Colorado

 

80112

(Address of principal executive offices)

 

(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     No 

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     No 

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 

 

Accelerated filer 

 

Non-accelerated filer 
(do not check if smaller
reporting company)

 

Smaller reporting company 

 

Indicate by check mark whether the Registrant is a shell company as defined in Rule 12b-2 of the Exchange Act. Yes     No 

The number of outstanding shares of Liberty Media Corporation's common stock as of October 31, 2015 was:

 

 

 

 

Series A common stock

 

102,081,574

Series B common stock

 

9,870,966

Series C common stock

 

222,261,779

 

 

 

 

 

 


 

Table of Contents

 

Table of Contents

 

 

 

 

LIBERTY MEDIA CORPORATION Condensed Consolidated Balance Sheets (unaudited) 

I-3

LIBERTY MEDIA CORPORATION Condensed Consolidated Balance Sheets (Continued) (unaudited) 

I-4

LIBERTY MEDIA CORPORATION Condensed Consolidated Statements Of Operations (unaudited) 

I-5

LIBERTY MEDIA CORPORATION Condensed Consolidated Statements Of Comprehensive Earnings (Loss) (unaudited) 

I-6

LIBERTY MEDIA CORPORATION Condensed Consolidated Statements Of Cash Flows (unaudited) 

I-7

LIBERTY MEDIA CORPORATION Condensed Consolidated Statement of Equity (unaudited) 

I-8

LIBERTY MEDIA CORPORATION Notes to Condensed Consolidated Financial Statements 

I-9

 

 

 

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

I-27

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

I-37

 

Item 4. Controls and Procedures.

I-38

 

 

 

 

 

 

Part II - Other Information 

II-1

 

Item 1. Legal Proceedings

II-1

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

II-3

 

Item 6. Exhibits

II-4

 

 

 

SIGNATURES 

II-5

EXHIBIT INDEX 

II-6

 

 

I-2


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

 

 

 

 

 

 

 

 

September 30, 2015

    

December 31, 2014

 

 

amounts in millions

 

Assets

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

$

588

 

681

 

Trade and other receivables, net

 

278

 

235

 

Short term marketable securities (note 4)

 

19

 

199

 

Deferred income tax assets

 

840

 

931

 

Other current assets

 

385

 

270

 

Total current assets

 

2,110

 

2,316

 

Investments in available-for-sale securities and other cost investments (note 5)

 

541

 

816

 

Investments in affiliates, accounted for using the equity method (note 6)

 

759

 

851

 

 

 

 

 

 

 

Property and equipment, at cost

 

2,443

 

2,215

 

Accumulated depreciation

 

(656)

 

(501)

 

 

 

1,787

 

1,714

 

Intangible assets not subject to amortization (note 7):

 

 

 

 

 

Goodwill

 

14,345

 

14,345

 

FCC licenses

 

8,600

 

8,600

 

Other

 

1,073

 

1,073

 

 

 

24,018

 

24,018

 

Intangible assets subject to amortization, net (note 7)

 

1,112

 

1,166

 

Other assets, at cost, net of accumulated amortization

 

353

 

326

 

Total assets

$

30,680

 

31,207

 

 

 (continued)

 

See accompanying notes to condensed consolidated financial statements.

I-3


 

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

 

 

 

 

 

 

 

 

 

    

September 30, 2015

    

December 31, 2014

 

 

 

amounts in millions,

 

 

 

except share amounts

 

Liabilities and Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

755

 

712

 

Current portion of debt

 

 

256

 

257

 

Deferred revenue

 

 

1,717

 

1,641

 

Other current liabilities

 

 

33

 

40

 

Total current liabilities

 

 

2,761

 

2,650

 

Long-term debt, including $960 million and $990 million measured at fair value at September 30, 2015 and December 31, 2014, respectively (note 8)

 

 

6,546

 

5,595

 

Deferred income tax liabilities

 

 

2,429

 

2,438

 

Other liabilities

 

 

502

 

348

 

Total liabilities

 

 

12,238

 

11,031

 

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 102,075,228 shares at September 30, 2015 and 104,505,449 shares at December 31, 2014

 

 

1

 

1

 

Series B common stock, $.01 par value. Authorized 75,000,000 shares; issued and outstanding 9,870,966 shares at September 30, 2015 and 9,873,972 shares December 31, 2014

 

 

 —

 

 —

 

Series C common stock, $.01 par value. Authorized 2,000,000,000 shares; issued and outstanding 223,504,935 shares at September 30, 2015 and 228,781,948 shares December 31, 2014

 

 

2

 

2

 

Additional paid-in capital

 

 

 —

 

 —

 

Accumulated other comprehensive earnings (loss), net of taxes

 

 

(46)

 

(21)

 

Retained earnings

 

 

11,037

 

11,416

 

Total stockholders' equity

 

 

10,994

 

11,398

 

Noncontrolling interests in equity of subsidiaries

 

 

7,448

 

8,778

 

Total equity

 

 

18,442

 

20,176

 

Commitments and contingencies (note 9)

 

 

 

 

 

 

Total liabilities and equity

 

$

30,680

 

31,207

 

 

See accompanying notes to condensed consolidated financial statements.

I-4


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

    

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

amounts in millions

 

Revenue:

 

 

 

 

 

 

 

 

 

 

Subscriber revenue

 

$

969

 

892

 

2,812

 

2,602

 

Other revenue

 

 

315

 

292

 

775

 

753

 

Total revenue

 

 

1,284

 

1,184

 

3,587

 

3,355

 

Operating costs and expenses, including stock based compensation (note 2):

 

 

 

 

 

 

 

 

 

 

Cost of subscriber services (exclusive of depreciation shown separately below):

 

 

 

 

 

 

 

 

 

 

Revenue share and royalties

 

 

239

 

204

 

783

 

600

 

Programming and content

 

 

68

 

66

 

191

 

194

 

Customer service and billing

 

 

94

 

94

 

280

 

276

 

Other

 

 

33

 

33

 

98

 

97

 

Subscriber acquisition costs

 

 

133

 

120

 

392

 

367

 

Other operating expense

 

 

93

 

119

 

226

 

274

 

Selling, general and administrative

 

 

207

 

209

 

608

 

640

 

Depreciation and amortization

 

 

96

 

90

 

272

 

272

 

 

 

 

963

 

935

 

2,850

 

2,720

 

Operating income (loss)

 

 

321

 

249

 

737

 

635

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(84)

 

(70)

 

(244)

 

(185)

 

Share of earnings (losses) of affiliates, net (note 6)

 

 

29

 

(6)

 

(8)

 

(53)

 

Realized and unrealized gains (losses) on financial instruments, net (note 4)

 

 

(200)

 

(15)

 

(188)

 

(55)

 

Other, net

 

 

4

 

(8)

 

12

 

(46)

 

 

 

 

(251)

 

(99)

 

(428)

 

(339)

 

Earnings (loss) before income taxes

 

 

70

 

150

 

309

 

296

 

Income tax (expense) benefit

 

 

(29)

 

(63)

 

(150)

 

(31)

 

Net earnings (loss)

 

 

41

 

87

 

159

 

265

 

Less net earnings (loss) attributable to the noncontrolling interests

 

 

63

 

54

 

139

 

160

 

Net earnings (loss) attributable to Liberty stockholders

 

$

(22)

 

33

 

20

 

105

 

 

 

 

 

 

 

 

 

 

 

 

Basic net earnings (loss) attributable to Liberty stockholders per common share (note 3)

 

$

(0.07)

 

0.10

 

0.06

 

0.31

 

Diluted net earnings (loss) attributable to Liberty stockholders per common share (note 3)

 

$

(0.07)

 

0.10

 

0.06

 

0.30

 

 

 

See accompanying notes to condensed consolidated financial statements.

I-5


 

Table of Contents

 

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Comprehensive Earnings (Loss)

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

amounts in millions

 

Net earnings (loss)

 

$

41

 

87

 

159

 

265

 

Other comprehensive earnings (loss), net of taxes:

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(9)

 

 —

 

(40)

 

 —

 

Unrealized holding gains (losses) arising during the period

 

 

 —

 

(1)

 

 —

 

(4)

 

Share of other comprehensive earnings (loss) of equity affiliates

 

 

(1)

 

(8)

 

(3)

 

(3)

 

Other comprehensive earnings (loss)

 

 

(10)

 

(9)

 

(43)

 

(7)

 

Comprehensive earnings (loss)

 

 

31

 

78

 

116

 

258

 

Less comprehensive earnings (loss) attributable to the noncontrolling interests

 

 

59

 

54

 

121

 

160

 

Comprehensive earnings (loss) attributable to Liberty stockholders

 

$

(28)

 

24

 

(5)

 

98

 

 

See accompanying notes to condensed consolidated financial statements.

I-6


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Cash Flows

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

Nine months ended

 

 

 

September 30,

 

 

    

2015

    

2014

 

 

 

amounts in millions

 

Cash flows from operating activities:

 

 

 

 

 

 

Net earnings

 

$

159

 

265

 

Adjustments to reconcile net earnings to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

272

 

272

 

Stock-based compensation

 

 

147

 

151

 

Excess tax benefit from stock-based compensation

 

 

(18)

 

(11)

 

Share of (earnings) loss of affiliates, net

 

 

8

 

53

 

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

 

 

188

 

55

 

Losses (gains) on dilution of investment in affiliate

 

 

1

 

67

 

Deferred income tax expense (benefit)

 

 

98

 

9

 

Other, net

 

 

19

 

(16)

 

Changes in operating assets and liabilities

 

 

 

 

 

 

Current and other assets

 

 

(141)

 

(72)

 

Payables and other liabilities

 

 

142

 

28

 

Net cash provided (used) by operating activities

 

 

875

 

801

 

Cash flows from investing activities:

 

 

 

 

 

 

Investments in and loans to cost and equity investees

 

 

 —

 

(169)

 

Cash proceeds from sale of investments

 

 

175

 

247

 

Cash (paid) for acquisitions, net of cash acquired

 

 

 —

 

(47)

 

Proceeds (payments) on financial instruments, net

 

 

(88)

 

(30)

 

Capital expended for property and equipment

 

 

(176)

 

(153)

 

Purchases of short term investments and other marketable securities

 

 

(51)

 

(349)

 

Sales of short term investments and other marketable securities

 

 

231

 

68

 

Other investing activities, net

 

 

(40)

 

32

 

Net cash provided (used) by investing activities

 

 

51

 

(401)

 

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings of debt

 

 

1,779

 

2,218

 

Repayments of debt

 

 

(818)

 

(1,660)

 

Repurchases of Liberty common stock

 

 

(303)

 

 —

 

Subsidiary shares repurchased by subsidiary

 

 

(1,648)

 

(1,650)

 

Excess tax benefit from stock-based compensation

 

 

18

 

11

 

Taxes paid in lieu of shares issued for stock-based compensation

 

 

(51)

 

(30)

 

Other financing activities, net

 

 

4

 

 —

 

Net cash provided (used) by financing activities

 

 

(1,019)

 

(1,111)

 

Net increase (decrease) in cash and cash equivalents

 

 

(93)

 

(711)

 

Cash and cash equivalents at beginning of period

 

 

681

 

1,088

 

Cash and cash equivalents at end of period

 

$

588

 

377

 

 

See accompanying notes to condensed consolidated financial statements.

I-7


 

Table of Contents

 

 

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement Of Equity

(unaudited)

Nine months ended September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

    

 

    

 

    

 

    

 

    

 

    

Accumulated

    

 

    

Noncontrolling

    

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

other

 

 

 

interest in

 

 

 

 

 

Preferred

 

 

 

 

 

 

 

Paid-in

 

comprehensive

 

Retained

 

equity of

 

Total

 

 

    

Stock

    

Series A

    

Series B

    

Series C

    

Capital

    

earnings

    

earnings

    

subsidiaries

    

equity

 

 

 

amounts in millions

 

Balance at January 1, 2015

 

$

 —

 

1

 

 —

 

2

 

 —

 

(21)

 

11,416

 

8,778

 

20,176

 

Net earnings

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

 —

 

20

 

139

 

159

 

Other comprehensive loss

 

 

 —

 

 —

 

 —

 

 —

 

 —

 

(25)

 

 —

 

(18)

 

(43)

 

Stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

94

 

 —

 

 —

 

48

 

142

 

Minimum withholding taxes on net share settlements of stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

(51)

 

 —

 

 —

 

 —

 

(51)

 

Excess tax benefits on stock-based compensation

 

 

 —

 

 —

 

 —

 

 —

 

8

 

 —

 

 —

 

 —

 

8

 

Liberty Series A and Series C stock repurchases

 

 

 —

 

 —

 

 —

 

 —

 

(303)

 

 —

 

 —

 

 —

 

(303)

 

Shares repurchased by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

(111)

 

 —

 

 —

 

(1,536)

 

(1,647)

 

Shares issued by subsidiary

 

 

 —

 

 —

 

 —

 

 —

 

(37)

 

 —

 

 —

 

37

 

 —

 

Reclassification (note 1)

 

 

 —

 

 —

 

 —

 

 —

 

399

 

 —

 

(399)

 

 —

 

 —

 

Other

 

 

 —

 

 —

 

 —

 

 —

 

1

 

 —

 

 —

 

 —

 

1

 

Balance at September 30, 2015

 

$

 —

 

1

 

 —

 

2

 

 —

 

(46)

 

11,037

 

7,448

 

18,442

 

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

(1)   Basis of Presentation

The accompanying condensed consolidated financial statements include all the accounts of Liberty Media Corporation and its controlled subsidiaries (formerly named Liberty Spinco, Inc.) ("Liberty" or the "Company" unless the context otherwise requires).  All significant intercompany accounts and transactions have been eliminated.

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 significant subsidiaries include Sirius XM Holdings Inc. ("SIRIUS XM") and the Atlanta National League Baseball Club, Inc. ("ANLBC"). Our significant investment accounted for under the equity method is Live Nation Entertainment, Inc. ("Live Nation"). 

The accompanying (a) condensed consolidated balance sheet as of December 31, 2014, 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 (“SEC”). 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. The results of operations for any interim period are not necessarily indicative of results for the full year. Additionally, certain prior period amounts have been reclassified for comparability with current period presentation.  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, 2014.

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 determination of the useful life of SIRIUS XM’s broadcast/transmission system to be its most significant estimates.

In May 2014, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on revenue from contracts with customers.  The new guidance requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated guidance will replace most existing revenue recognition guidance in GAAP when it becomes effective and permits the use of either a retrospective or cumulative effect transition method. This guidance is currently effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017.  The Company is currently evaluating the effect that the updated standard will have on its revenue recognition and has not yet selected a transition method but does not believe the standard will significantly impact its financial statements and related disclosures.

In April 2015, the FASB issued new accounting guidance on the presentation of debt issuance costs,  which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability. The new guidance intends to simplify the presentation of debt issuance costs. In August 2015, the FASB issued new accounting guidance on the presentation or subsequent measurement of debt issuance costs related to line of credit arrangements, which provides that such cost may be presented as an asset and amortized ratably over the term of the line of credit arrangement, regardless of whether there are outstanding borrowings on the arrangement. The amendments in these new accounting standards are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those years.  Early adoption is permitted for financial statements that have not been previously issued and retrospective application is required for each balance sheet presented.  We plan to adopt this new guidance in the fourth quarter of 2015.  The Company is evaluating the effect that the new guidance will have on its consolidated financial statements and related disclosures but other than a reclassification of deferred loan costs on the

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

consolidated balance sheets, the Company does not believe that the standards will significantly impact its financial statements and related disclosures.

As a result of the Broadband Spin-Off (defined below) and repurchases of Series A common stock, the Company’s additional paid-in capital balance was in a deficit position as of September 30, 2015. In order to maintain a zero balance in the additional paid-in capital account, we reclassified the amount of the deficit ($399 million) to retained earnings as of September 30, 2015.

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.

During 2014, Liberty’s board approved the issuance of shares of its Series C common stock to holders of its Series A and Series B common stock, effected by means of a dividend. On July 23, 2014, holders of Series A and Series B common stock as of 5:00 p.m., New York City time, on July 7, 2014, the record date for the dividend, received a dividend of two shares of Series C common stock for each share of Series A or Series B common stock held by them as of the record date. The impact of the Series C common stock issuance has been reflected retroactively due to the treatment of the dividend as a stock split for accounting purposes.

On November 4, 2014, Liberty completed the spin-off to its stockholders common stock of a newly formed company called Liberty Broadband Corporation ("Liberty Broadband") (the “Broadband Spin-Off”). Shares of Liberty Broadband were distributed to the shareholders of Liberty as of a record date of 5:00 p.m., New York City time, on October 29, 2014. Liberty Broadband is comprised of, among other things, (i) Liberty’s former interest in Charter Communications, Inc. (“Charter”), (ii) Liberty’s former subsidiary TruePosition, Inc. (“TruePosition”), (iii) Liberty’s former minority equity investment in Time Warner Cable, Inc. ("Time Warner Cable"), (iv) certain deferred tax liabilities, as well as liabilities related to Time Warner Cable call options and (v) initial indebtedness, pursuant to margin loans entered into prior to the completion of the Broadband Spin-Off. Prior to the transaction, Liberty Broadband borrowed funds under margin loans and made a final distribution to Liberty of approximately $300 million in cash. The Broadband Spin-Off was intended to be tax-free to stockholders of Liberty, and in September 2015, Liberty entered into a closing agreement with the IRS which provides that the Broadband Spin-Off qualified for tax-free treatment. In the Broadband Spin-Off, record holders of Liberty’s Series A, Series B and Series C common stock received one share of the corresponding series of Liberty Broadband common stock for every four shares of Liberty common stock held by them as of the record date for the Broadband Spin-Off, with cash paid in lieu of fractional shares. The Company’s former investments in and results of Charter and Time Warner Cable are no longer included in the results of Liberty from the date of the completion of the Broadband Spin-Off forward. Based on the relative significance of TruePosition to Liberty, the Company concluded that discontinued operations presentation of TruePosition is not necessary.

Liberty has entered into certain agreements with Liberty Interactive Corporation (“Liberty Interactive”), Starz, Liberty TripAdvisor Holdings, Inc. (“TripCo”) and Liberty Broadband, all of which are separate publicly traded companies, in order to govern relationships between the companies. None of these entities has any stock ownership, beneficial or otherwise, in any of the others. These agreements include Reorganization Agreements (in the case of Starz and Liberty Broadband only), Services Agreements, Facilities Sharing Agreements, a Lease Agreement (in the case of Starz only) and Tax Sharing Agreements (in the case of Starz and Liberty Broadband only).

The Reorganization Agreements provide for, among other things, provisions governing the relationships between Liberty and each of Liberty Interactive, Starz and Liberty Broadband, respectively, including certain cross-indemnities. Pursuant to the Services Agreements, Liberty provides Liberty Interactive, Starz, TripCo and Liberty Broadband with

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

general and administrative services including legal, tax, accounting, treasury and investor relations support. Liberty Interactive, Starz, TripCo and Liberty Broadband reimburse Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services and, in the case of Liberty Interactive and Starz, 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, while TripCo and Liberty Broadband pay an annual fee for the provision of these services. Under the Facilities Sharing Agreements, Liberty shares office space and related amenities at its corporate headquarters with Liberty Interactive, TripCo and Liberty Broadband.  Under these various agreements approximately $1 million and $4 million of these allocated expenses were reimbursed to Liberty during the three months ended September 30, 2015 and 2014, respectively, and $13 million and $12 million for the nine months ended September 30, 2015 and 2014, 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.

(2)   Stock-Based Compensation

Liberty grants, to certain of its directors, employees and employees of its subsidiaries, restricted stock, restricted stock units, stock 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 equity classified Award (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 a liability classified Award (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.

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 

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

(amounts in millions)

 

Cost of subscriber services:

 

 

 

 

 

 

 

 

 

 

Programming and content

 

$

5

 

4

 

13

 

13

 

Customer service and billing

 

 

1

 

2

 

4

 

4

 

Other

 

 

2

 

2

 

6

 

6

 

Other operating expense

 

 

5

 

4

 

13

 

12

 

Selling, general and administrative

 

 

43

 

41

 

111

 

116

 

 

 

$

56

 

53

 

147

 

151

 

 

During the nine months ended September 30, 2015, the Company granted a total of approximately 2.4 million options to purchase shares of Series C common stock. A portion of the options granted was comprised of 676 thousand options with a weighted average grant-date fair value (“GDFV”) of $10.86 per share that vest annually over 3 years and 1.3 million options with a weighted average GDFV of $15.52 per share that vest 50% each on December 31, 2019 and 2020. 

 

In connection with our CEO’s employment agreement, Liberty also granted 420 thousand performance-based options of Series C common stock and 34 thousand performance-based restricted stock units of Series C common stock. Such options and restricted stock units had a fair value of $12.15 per share and $38.20 per share, respectively, at the time they were granted. The performance-based options and performance-based restricted stock units cliff vest in one year, subject to satisfaction of certain performance objectives. Performance objectives, which are both objective and subjective, are

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

considered in determining the timing and amount of the compensation expense recognized. As the satisfaction of the performance objectives becomes probable, the Company records compensation expense. The value of the subjective portion of the grant is remeasured at each reporting period.

 

The Company did not grant any options to purchase Series A or Series B common stock during the nine months ended September 30, 2015.  

Liberty calculates the GDFV for all of its equity classified awards and the subsequent remeasurement of its liability classified and certain performance-based 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 tables present 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

 

 

    

    

    

 

    

Weighted

    

Aggregate

 

 

 

 

 

 

 

average

 

intrinsic

 

 

 

Liberty

 

 

 

remaining

 

value

 

 

 

Awards (000's)

 

WAEP

 

life

 

(millions)

 

Outstanding at January 1, 2015

 

3,207

 

$

23.21

 

 

 

 

 

 

 

Granted

 

 —

 

$

 —

 

 

 

 

 

 

 

Exercised

 

(330)

 

$

22.09

 

 

 

 

 

 

 

Forfeited/Cancelled

 

(2)

 

$

32.16

 

 

 

 

 

 

 

Outstanding at September 30, 2015

 

2,875

 

$

23.33

 

3.5

years

 

$

36

 

Exercisable at September 30, 2015

 

2,418

 

$

23.14

 

3.3

years

 

$

30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series C

 

 

    

    

    

 

    

Weighted

    

Aggregate

 

 

 

 

 

 

 

average

 

intrinsic

 

 

 

Liberty

 

 

 

remaining

 

value

 

 

 

Awards (000's)

 

WAEP

 

life

 

(millions)

 

Outstanding at January 1, 2015

 

9,833

 

$

26.71

 

 

 

 

 

 

 

Granted

 

2,362

 

$

38.29

 

 

 

 

 

 

 

Exercised

 

(634)

 

$

21.79

 

 

 

 

 

 

 

Forfeited/Cancelled

 

(5)

 

$

32.20

 

 

 

 

 

 

 

Outstanding at September 30, 2015

 

11,556

 

$

29.35

 

5.1

years

 

$

68

 

Exercisable at September 30, 2015

 

4,922

 

$

22.85

 

3.3

years

 

$

57

 

 

As of September 30, 2015, the total unrecognized compensation cost related to unvested Awards was approximately $64 million.  Such amount will be recognized in the Company's condensed consolidated statements of operations over a weighted average period of approximately 3.1 years.

As of September 30, 2015, Liberty reserved 14.4 million shares of Series A and Series C common stock for issuance under exercise privileges of outstanding stock Awards.

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

SIRIUS XM - Stock-based Compensation

SIRIUS XM granted various types of stock awards to its employees and members of its board of directors during the nine months ended September 30, 2015. As of September 30, 2015, SIRIUS XM has approximately 316 million options outstanding of which approximately 130 million are exercisable, each with a weighted-average exercise price per share of $3.14 and $2.45, respectively. The aggregate intrinsic value of SIRIUS XM options outstanding and exercisable as of September 30, 2015 is $216 million and $178 million, respectively. The stock-based compensation expense related to SIRIUS XM was $41 million and $39 million for the three months ended September 30, 2015 and 2014, respectively and $115 million and $110 million for the nine months ended September 30, 2015 and 2014, respectively. As of September 30, 2015, the total unrecognized compensation cost related to unvested SIRIUS XM stock options and restricted stock units was $236 million.  The SIRIUS XM unrecognized compensation cost will be recognized in the Company's condensed consolidated statements of operations over a weighted average period of approximately 2.8 years.

(3)   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, Series B and Series C Common Stock

The basic and diluted EPS calculations are based on the following weighted average outstanding shares of common stock.  As discussed in note 1, on July 23, 2014 the Company completed a stock dividend of two shares of Series C common stock for every share of Series A or Series B common stock held as of the record date.  Therefore, the prior period outstanding share amounts for purposes of the calculation of EPS have been retroactively adjusted for comparability.

Excluded from diluted EPS for the three and nine months ended September 30, 2015 are 24 million potential common shares because their inclusion would be antidilutive.

 

 

 

 

 

 

 

 

 

 

 

 

 

Liberty Common Stock

 

 

 

Three months

 

Nine months

 

Three months

 

Nine months

 

 

 

ended

 

ended

 

ended

 

ended

 

 

    

September 30, 2015

    

September 30, 2015

    

September 30, 2014

    

September 30, 2014

 

 

 

numbers of shares in millions

 

Basic EPS

 

335

 

338

 

341

 

341

 

Potentially dilutive shares

 

3

 

3

 

5

 

4

 

Diluted EPS

 

338

 

341

 

346

 

345

 

 

 

 

(4)   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.

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Liberty's assets and liabilities measured at fair value are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

 

Fair Value Measurements at

 

 

 

September 30, 2015

 

December 31, 2014

 

 

    

 

 

    

Quoted

    

 

    

 

    

Quoted

    

 

  

 

 

 

 

 

prices

 

 

 

 

 

prices

 

 

 

 

 

 

 

 

in active

 

Significant

 

 

 

in active

 

Significant

 

 

 

 

 

 

markets

 

other

 

 

 

markets

 

other

 

 

 

 

 

 

for identical

 

observable

 

 

 

for identical

 

observable

 

 

 

 

 

 

assets

 

inputs

 

 

 

assets

 

inputs

 

Description

 

Total

 

(Level 1)

 

(Level 2)

 

Total

 

(Level 1)

 

(Level 2)

 

 

 

amounts in millions

 

Cash equivalents

 

$

393

 

393

 

 —

 

507

 

507

 

 —

 

Short term marketable securities

 

$

19

 

 —

 

19

 

199

 

 —

 

199

 

Available-for-sale securities

 

$

485

 

436

 

49

 

769

 

691

 

78

 

Financial instrument assets

 

$

310

 

148

 

162

 

305

 

96

 

209

 

Debt

 

$

960

 

 —

 

960

 

990

 

 —

 

990

 

 

The majority of Liberty's Level 2 financial assets and debt are primarily investments in debt related instruments and certain derivative instruments. The Company notes that these assets and liabilities 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 or a trading price of a similar asset or liability is utilized.  Accordingly, those available-for-sale securities, financial instruments and debt or debt related instruments are reported in the foregoing table as Level 2 fair value. The financial instrument assets classified as Level 1 in the table above are included in the Other current assets line item in the condensed consolidated balance sheets and the financial instrument assets classified as Level 2 in the table above are included in the Other assets line item in the condensed consolidated balance sheets.

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 

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

amounts in millions

 

Fair Value Option Securities

 

$

(117)

 

(30)

 

(139)

 

33

 

Cash convertible notes (a)

 

 

(19)

 

41

 

30

 

18

 

Change in fair value of bond hedges (a)

 

 

(9)

 

(24)

 

(47)

 

(112)

 

Other derivatives (b)

 

 

(55)

 

(2)

 

(32)

 

6

 

 

 

$

(200)

 

(15)

 

(188)

 

(55)

 


(a)

Liberty issued $1 billion of cash convertible notes in October 2013 which are accounted for at fair value (Level 2), as elected by Liberty at the issuance of the notes. Contemporaneously with the issuance of the convertible notes, Liberty entered into privately negotiated cash convertible note hedges, which are expected to offset potential cash payments Liberty would be required to make in excess of the principal amount of the convertible notes, upon conversion of the notes. The bond hedges are marked to market based on the trading price of underlying securities and other observable market data as the significant inputs (Level 2). See note 8 for additional discussion of the convertible notes and the bond hedges. 

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

(b)

Derivatives are marked to market based on the trading price of underlying securities and other observable market data as the significant inputs (Level 2). During September 2014, Liberty entered into a forward contract to acquire up to 15.9 million shares of Live Nation common stock. Prior to the contract’s original expiration during March 2015, the Company extended the contract through October 15, 2015 with the expiration to occur on the sixtieth day following the completion of the counterparty’s initial hedge, which will be November 27, 2015. The counterparty acquired the maximum number of Live Nation shares of common stock at a volume weighted average share price of $24.91 per share during September 2015. Although the contract will expire during November, Liberty has until December 2, 2015 to settle the contract.

 

(5)   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:

 

 

 

 

 

 

 

 

 

    

September 30,

    

December 31,

 

 

 

2015

 

2014

 

 

 

amounts in millions

 

Fair Value Option Securities

 

 

 

 

 

 

Time Warner, Inc. (a)

 

$

292

 

363

 

Viacom, Inc. (b)

 

 

80

 

273

 

Other equity securities (a)

 

 

64

 

55

 

Other debt securities

 

 

25

 

54

 

Total Fair Value Option Securities

 

 

461

 

745

 

AFS and cost investments

 

 

 

 

 

 

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

 

 

24

 

24

 

Other AFS and cost investments

 

 

56

 

47

 

Total AFS and cost investments

 

 

80

 

71

 

 

 

$

541

 

816

 


(a)

See note 8 for details regarding the number and fair value of shares pledged as collateral pursuant to certain margin loan agreements as of September 30, 2015.

(b)

During the nine months ended September 30, 2015,  Liberty sold 1.8 million shares of Viacom common stock for approximately  $122 million in proceeds.

Unrealized Holding Gains and Losses

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

 

There were no unrealized holding gains and losses related to investments in AFS securities as of September 30, 2015 or December 31, 2014.

 

 

 

 

 

 

 

(6)   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 September 30, 2015 and the carrying amount at December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

    

Percentage

    

Fair Value

    

Carrying

    

Carrying

 

 

 

ownership

 

(Level 1)

 

amount

 

amount

 

 

 

dollar amounts in millions

 

Live Nation (a)

 

27

%

$

1,292

 

$

395

 

396

 

SIRIUS XM Canada

 

37

%

$

174

 

 

160

 

237

 

Other

 

various

 

 

NA

 

 

204

 

218

 

 

 

 

 

 

 

 

$

759

 

851

 

 

The following table presents the Company's share of earnings (losses) of affiliates:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

Nine months ended

 

 

 

September 30,

 

September 30,

 

 

    

2015

    

2014

    

2015

    

2014

 

 

 

amounts in millions

 

Charter (b)

 

$

NA

 

(34)

 

NA

 

(87)

 

Live Nation (a)

 

 

23

 

21

 

6

 

18

 

SIRIUS XM Canada

 

 

1

 

2

 

(3)

 

3

 

Other

 

 

5

 

5

 

(11)

 

13

 

 

 

$

29

 

(6)

 

(8)

 

(53)

 


(a)

See note 8 for details regarding the number and fair value of shares pledged as collateral pursuant to certain margin loan agreements as of September 30, 2015.

(b)

As discussed in note 1, Liberty’s investment in Charter was spun off as part of the Broadband Spin-Off, which was completed on November 4, 2014. Our share of losses related to Charter included $21 million and $53 million of losses due to the amortization of the excess basis of our investment during the three and nine months ended September 30, 2014, respectively,

 

Charter Communications, Inc.

 

In May 2013, Liberty 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 for approximately $2.6 billion, which represented an approximate 27% beneficial ownership in Charter (including warrants on an as if converted basis) at the time of purchase, and a price per share of $95.50. Liberty accounted 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 on hand and debt (as discussed in note 8).  During the three and nine months ended September 30, 2014, in addition to Liberty’s share of losses of Charter, the Company recognized $11 million and $61 million in losses, respectively, due to warrant and stock option exercises at Charter below Liberty's book basis per share. Dilution losses are

I-16


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

included in the other, net line in the accompanying condensed consolidated statements of operations. As discussed in note 1, Liberty’s investment in Charter was spun off to stockholders as part of the Broadband Spin-Off, which was completed on November 4, 2014. Liberty ceased recording the results of Charter in its financial statements as of the date of the completion of the Broadband Spin-Off.

 

SIRIUS XM Canada

 

SIRIUS XM has entered into agreements to provide SIRIUS XM Canada with the right to offer SIRIUS XM satellite radio service in Canada. The various license and services agreements with SIRIUS XM Canada will expire in 2017 and 2020. SIRIUS XM receives a percentage based royalty of 10% and 15% for certain types of subscription revenue earned by SIRIUS XM Canada for the distribution of Sirius and XM platforms, respectively, royalties for activation fees and premium services and reimbursement for other charges. At September 30, 2015, SIRIUS XM has approximately $3 million and $12 million in current and noncurrent related party liabilities, respectively, related to these agreements described above with SIRIUS XM Canada which are recorded in current and noncurrent other liabilities, respectively, in the Company’s condensed consolidated balance sheet.  Additionally, SIRIUS XM has approximately $9 million in current related party assets at September 30, 2015 due to programming and chipset costs for which SIRIUS XM Canada reimburses SIRIUS XM that are recorded in other current assets in the Company’s condensed consolidated balance sheet. SIRIUS XM recorded approximately $18 million and $12 million in revenue for the three months ended September 30, 2015 and 2014, respectively, and $44 million and $36 million for the nine months ended September 30, 2015 and 2014, respectively, associated with these various agreements in the other revenue line in the condensed consolidated statements of operations.  SIRIUS XM Canada declared dividends to SIRIUS XM of $4 million and $5 million during the three months ended September 30, 2015 and 2014, respectively, and $12 million and $39 million during the nine months ended September 30, 2015 and 2014, respectively.

 

(7)   Intangible Assets

Goodwill and Intangible Assets Not Subject to Amortization

There were no changes in the carrying amounts of goodwill or other intangible assets not subject to amortization during the nine months ended September 30, 2015.   

Intangible Assets Subject to Amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30, 2015

 

December 31, 2014

 

 

    

Gross

    

 

    

Net

    

Gross

    

 

    

Net

 

 

 

carrying

 

Accumulated

 

carrying

 

carrying

 

Accumulated

 

carrying

 

 

 

amount

 

amortization

 

amount

 

amount

 

amortization

 

amount

 

 

 

amounts in millions

 

Customer relationships

 

$

838

 

(165)

 

673

 

838

 

(122)

 

716

 

Licensing agreements

 

 

316

 

(74)

 

242

 

316

 

(52)

 

264

 

Other

 

 

593

 

(396)

 

197

 

532

 

(346)

 

186

 

Total

 

$

1,747

 

(635)

 

1,112

 

1,686

 

(520)

 

1,166

 

 

Amortization expense for intangible assets with finite useful lives was $44 million and $38 million for the three months ended September 30, 2015 and 2014, respectively, and $116 million and $115 million for the nine months ended 

I-17


 

Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

September 30, 2015 and 2014, respectively. Based on its amortizable intangible assets as of September 30, 2015, Liberty expects that amortization expense will be as follows for the next five years (amounts in millions):

 

 

 

 

 

 

 

Remainder of 2015

    

$

33

 

2016

 

$

158

 

2017

 

$

147

 

2018

 

$

102

 

2019

 

$

102

 

 

 

 

 

 

(8) Long-Term Debt

Debt is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

Outstanding

 

Carrying value

 

    

Principal