UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549

FORM 10-Q

 

 

For the quarterly period ended June 30, 2015

OR

 

 

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 July 31, 2015 was:

 

Series A common stock		102,068,624
Series B common stock		9,873,972
Series C common stock		223,571,881

 

 

 

 

 

 

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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- 36
	Item 4. Controls and Procedures.	I- 37
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

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited)

 

	June 30, 2015			December 31, 2014
	amounts in millions
Assets
Current assets:
Cash and cash equivalents	$	790		681
Trade and other receivables, net		332		235
Short term marketable securities (note 4)		51		199
Deferred income tax assets		957		931
Other current assets		348		270
Total current assets		2,478		2,316
Investments in available-for-sale securities and other cost investments (note 5)		654		816
Investments in affiliates, accounted for using the equity method (note 6)		752		851
Property and equipment, at cost		2,321		2,215
Accumulated depreciation		(604)		(501)
		1,717		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)		1,125		1,166
Other assets, at cost, net of accumulated amortization		367		326
Total assets	$	31,111		31,207

 

  (continued)

 

See accompanying notes to condensed consolidated financial statements.

I- 3

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Table of Contents

 

 

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (Continued)

(unaudited)

 

		June 30, 2015			December 31, 2014
		amounts in millions,
		except share amounts
Liabilities and Equity
Current liabilities:
Accounts payable and accrued liabilities		$	939		712
Current portion of debt			258		257
Deferred revenue			1,756		1,641
Other current liabilities			17		40
Total current liabilities			2,970		2,650
Long-term debt, including $941 million and $990 million measured at fair value at June 30, 2015 and December 31, 2014, respectively (note 8)			6,299		5,595
Deferred income tax liabilities			2,529		2,438
Other liabilities			354		348
Total liabilities			12,152		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   102,061,485 shares at June 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   9,873,972 shares at June 30, 2015 and December 31, 2014			—		—
Series C common stock, $.01 par value. Authorized 2,000,000,000 shares; issued and outstanding   223,561,046 shares at June 30, 2015 and 228,781,948 shares December 31, 2014			2		2
Additional paid-in capital			—		—
Accumulated other comprehensive earnings (loss), net of taxes			(40)		(21)
Retained earnings			11,112		11,416
Total stockholders' equity			11,075		11,398
Noncontrolling interests in equity of subsidiaries			7,884		8,778
Total equity			18,959		20,176
Commitments and contingencies (note 9)
Total liabilities and equity		$	31,111		31,207

 

See accompanying notes to condensed consolidated financial statements.

I- 4

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Operations

(unaudited)

 

		Three months ended					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		amounts in millions
Revenue:
Subscriber revenue		$	936		869		1,843		1,710
Other revenue			286		291		460		461
Total revenue			1,222		1,160		2,303		2,171
Operating costs and expenses, including stock based compensation (note 2):
Cost of subscriber services (exclusive of depreciation shown separately below):
Revenue share and royalties			331		201		544		396
Programming and content			61		62		123		128
Customer service and billing			94		90		186		182
Other			34		34		65		64
Subscriber acquisition costs			137		124		259		247
Other operating expense			103		111		133		155
Selling, general and administrative			199		215		401		431
Depreciation and amortization			92		92		176		182
			1,051		929		1,887		1,785
Operating income (loss)			171		231		416		386
Other income (expense):
Interest expense			(83)		(62)		(160)		(115)
Share of earnings (losses) of affiliates, net (note 6)			—		(12)		(37)		(47)
Realized and unrealized gains (losses) on financial instruments, net (note 4)			40		25		12		(40)
Other, net			6		(1)		8		(38)
			(37)		(50)		(177)		(240)
Earnings (loss) before income taxes			134		181		239		146
Income tax (expense) benefit			(35)		(75)		(121)		32
Net earnings (loss)			99		106		118		178
Less net earnings (loss) attributable to the noncontrolling interests			38		56		76		106
Net earnings (loss) attributable to Liberty stockholders		$	61		50		42		72
Basic net earnings (loss) attributable to Liberty stockholders per common share (note 3)		$	0.18		0.15		0.12		0.21
Diluted net earnings (loss) attributable to Liberty stockholders per common share (note 3)		$	0.18		0.14		0.12		0.21

 

 

See accompanying notes to condensed consolidated financial statements.

I- 5

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Table of Contents

 

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Comprehensive Earnings (Loss)

(unaudited)

 

		Three months ended					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		amounts in millions
Net earnings (loss)		$	99		106		118		178
Other comprehensive earnings (loss), net of taxes:
Foreign currency translation adjustments			(31)		—		(31)		—
Unrealized holding gains (losses) arising during the period			—		—		—		(3)
Share of other comprehensive earnings (loss) of equity affiliates			5		2		(2)		5
Other comprehensive earnings (loss)			(26)		2		(33)		2
Comprehensive earnings (loss)			73		108		85		180
Less comprehensive earnings (loss) attributable to the noncontrolling interests			24		56		62		106
Comprehensive earnings (loss) attributable to Liberty stockholders		$	49		52		23		74

 

See accompanying notes to condensed consolidated financial statements.

I- 6

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Table of Contents

LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements Of Cash Flows

(unaudited)

 

 

		Six months ended
		June 30,
		2015			2014
		amounts in millions
Cash flows from operating activities:
Net earnings		$	118		178
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization			176		182
Stock-based compensation			91		98
Excess tax benefit from stock-based compensation			(35)		(12)
Share of (earnings) loss of affiliates, net			37		47
Realized and unrealized (gains) losses on financial instruments, net			(12)		40
Losses (gains) on dilution of investment in affiliate			1		54
Deferred income tax expense (benefit)			81		(61)
Other, net			14		(8)
Changes in operating assets and liabilities
Current and other assets			(156)		(55)
Payables and other liabilities			367		101
Net cash provided (used) by operating activities			682		564
Cash flows from investing activities:
Investments in and loans to cost and equity investees			—		(169)
Cash proceeds from sale of investments			149		247
Cash (paid) for acquisitions, net of cash acquired			—		(47)
Proceeds (payments) on financial instruments, net			(19)		—
Capital expended for property and equipment			(139)		(111)
Purchases of short term investments and other marketable securities			(32)		(292)
Sales of short term investments and other marketable securities			180		67
Other investing activities, net			(22)		36
Net cash provided (used) by investing activities			117		(269)
Cash flows from financing activities:
Borrowings of debt			1,343		1,948
Repayments of debt			(661)		(1,573)
Repurchases of Liberty common stock			(300)		—
Subsidiary shares repurchased by subsidiary			(1,084)		(946)
Funding of subsidiary share repurchase program			—		(246)
Excess tax benefit from stock-based compensation			35		12
Taxes paid in lieu of shares issued for stock-based compensation			(27)		(12)
Other financing activities, net			4		—
Net cash provided (used) by financing activities			(690)		(817)
Net increase (decrease) in cash and cash equivalents			109		(522)
Cash and cash equivalents at beginning of period			681		1,088
Cash and cash equivalents at end of period		$	790		566

 

See accompanying notes to condensed consolidated financial statements.

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LIBERTY MEDIA CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statement Of Equity

(unaudited)

Six months ended   June 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			—		—		—		—		—		—		42		76		118
Other comprehensive loss			—		—		—		—		—		(19)		—		(14)		(33)
Stock-based compensation			—		—		—		—		58		—		—		32		90
Minimum withholding taxes on net share settlements of stock-based compensation			—		—		—		—		(27)		—		—		—		(27)
Excess tax benefits on stock-based compensation			—		—		—		—		27		—		—		—		27
Series A Liberty stock repurchases			—		—		—		—		(300)		—		—		—		(300)
Shares repurchased by subsidiary			—		—		—		—		(84)		—		—		(1,010)		(1,094)
Shares issued by subsidiary			—		—		—		—		(22)		—		—		22		—
Reclassification (note 1)			—		—		—		—		346		—		(346)		—		—
Other			—		—		—		—		2		—		—		—		2
Balance at June 30, 2015		$	—		1		—		2		—		(40)		11,112		7,884		18,959

 

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

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(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 X M 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, 201 4 , 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. 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, 201 4 .

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 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, 201 7 .   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. This standard will more closely align the presentation of debt issuance costs under GAAP with the presentation under comparable International Financial Reporting Standards. The amendments in this new accounting standard are effective for financial statements issued for fiscal years be ginning 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 consolidated balance sheets, the Company does not believe that the standard will significantly impact its financial statements and related disclosures.

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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 June 30, 2015 . In order to maintain a zero balance in the additional paid-in capital account, we reclassified the amount of the deficit ( $346 million) to retained earnings as of June 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 is intended to be tax-free to stockholders of Liberty. 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 e very   four shares of common stock held by them as of the record date for the Broadband S pin -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 compan ies. 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 eac h of Liberty Interactive, Starz and Liberty Broadband , respectively, including certain cross-indemnities. Pursuant to the Services Agreements, Liberty provide s Liberty Interactive, Starz, TripCo and Liberty Broadband with 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

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of these services . Under the Facilities Sharing Agreements, Liberty shares office space and related amenities at its corporate headqu arters with Liberty Interactive, TripCo and Liberty Broadband .  Under these various agreements approximately $6 million of these allocated expenses were reimbursed to Liberty during each of the three months ended   June 30, 2015 and 2014 ,   and $12   million and $8 million for the six months ended June 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					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		(amounts in millions)
Cost of subscriber services:
Programming and content		$	4		5		8		9
Customer service and billing			2		1		3		2
Other			2		2		4		4
Other operating expense			4		4		8		8
Selling, general and administrative			35		37		68		75
		$	47		49		91		98

 

During the six months ended   June 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 weighted average grant-date fair value of $12.15 per share and $38.20 per share, respectively . The performance-based options and performance-based restricted stock units cliff vest in one year, subject to satisfaction of certain performance objectives.

 

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

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Liberty calculates the GDFV 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 s 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		(316)		$	22.34
Forfeited/Cancelled		(2)		$	32.29
Outstanding at June 30, 2015		2,889		$	23.30		3.7	years		$	37
Exercisable at June 30, 2015		2,430		$	23.10		3.6	years		$	31

 

 

		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		(619)		$	22.01
Forfeited/Cancelled		(5)		$	32.20
Outstanding at June 30, 2015		11,571		$	29.33		5.3	years		$	82
Exercisable at June 30, 2015		4,928		$	22.81		3.6	years		$	65

 

As of June 30, 2015 , the total unrecognized compensation cost related to unvested Awards was approximately $75 million .  Such amount will be recognized in the Company's condensed consolidated statements of operations over a weighted average period of approximately 2.8  years.

As of June 30, 2015 , Liberty reserved 14.5 million shares of Series A and Series C common stock for issuance under exercise privileges of outstanding stock Awards.

SIRIUS XM - Stock-based Compensation

SIRIUS XM grant ed   various types of stock awards to its employees and members of its board of directors during the six months ended   June 30, 2015 . As of June 30, 2015 , SIRIUS XM has approximately 250 million options outstanding of which approximately 102 million are exercisable, each with a weighted-average exercise price per share of $2.77 and $2.27 , respectively. The aggregate intrinsic value of SIRIUS XM options outstanding and exercisable as of June 30, 2015 is $257 million and $165 million, respectively. The stock-based compensation related to SIRIUS XM was $37 million and

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$35 million for the three months ended   June 30, 2015 and 2014 , respectively   and $74 million and $71 million for the six months ended   June 30, 2015 and 2014 , respectively . As of June 30, 2015 , the total unrecognized compensation cost related to unvested SIRIUS XM stock options and restricted stock units was $168 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 2.1  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 six months ended June 30, 2015 are 22 million potential common shares because their inclusion would be antidilutive.

 

		Liberty Common Stock
		Three months		Six months		Three months		Six months
		ended		ended		ended		ended
		June 30, 2015		June 30, 2015		June 30, 2014		June 30, 2014
		numbers of shares in millions
Basic EPS		339		340		341		341
Potentially dilutive shares		3		3		4		4
Diluted EPS		342		343		345		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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Liberty's assets and liabilities measured at fair value are as follows:

 

 

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 included in the table above are included in the Other assets, at cost, net of accumulated amortization 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					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		amounts in millions
Fair Value Option Securities		$	9		78		(22)		63
Cash convertible notes (a)			49		(82)		49		(23)
Change in fair value of bond hedges (a)			(46)		4		(38)		(88)
Other derivatives (b)			28		25		23		8
		$	40		25		12		(40)

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(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:

 

		June 30,			December 31,
		2015			2014
		amounts in millions
Fair Value Option Securities
Time Warner, Inc. (a)		$	372		363
Viacom, Inc. (b)			120		273
Other equity securities (a)			63		55
Other debt securities			25		54
Total Fair Value Option Securities			580		745
AFS and cost investments
Live Nation Entertainment, Inc. ("Live Nation") debt securities			24		24
Other AFS and cost investments			50		47
Total AFS and cost investments			74		71
		$	654		816

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Unrealized Holding Gains and Losses

 

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

 

 

 

 

 

 

 

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(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 June 30, 2015 and the carrying amount at December 31, 2014:

 

		June 30, 2015								December 31, 2014
		Percentage		Fair Value			Carrying			Carrying
		ownership		(Level 1)			amount			amount
		dollar amounts in millions
Live Nation (a)		27	%	$	1,477		$	375		396
SIRIUS XM Canada		37	%	$	204			176		237
Other		various			NA			201		218
							$	752		851

 

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

 

		Three months ended					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		amounts in millions
Charter (b)		$	NA		(25)		NA		(53)
Live Nation (a)			1		11		(17)		(3)
SIRIUS XM Canada			3		—		(4)		1
Other			(4)		2		(16)		8
		$	—		(12)		(37)		(47)

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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 six months ended June 30, 2014, in addition to Liberty’s share of losses of Charter the Company recognized $4 million and $50 million in losses, respectively, due to warrant and stock option exercises at Charter below Liberty's book basis per share. Dilution losses are 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.

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SIRIUS XM Canada

 

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 percentage based royalty for certain types of subscription revenue earned by SIRIUS XM Canada each month for the distribution of Sirius and XM channels, royalties for activation fees and reimbursement for other charges. At June 30, 2015, SIRIUS XM has approximately $5 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 $4 million in current related party assets at June 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 $13 million in revenue for each of the three months ended June 30, 2015 and 2014 and $26 million and $24 million for the six months ended June 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 $30 million during the three months ended June 30, 2015 and 2014 and   $8 million and $34 million during the six months ended June 30, 2015 and 2014, respectively.

 

(7)   Intangible Assets

Goodwill and Intangible Assets Not Subject to Amortization

There were no c hanges in the carrying amounts of goodwill or other intangible assets   not subject to amortization during the six months ended   June 30, 2015 .    

Intangible Assets Subject to Amortization

 

		June 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		(151)		687		838		(122)		716
Licensing agreements			316		(66)		250		316		(52)		264
Other			563		(375)		188		532		(346)		186
Total		$	1,717		(592)		1,125		1,686		(520)		1,166

 

Amortization expense for intangible assets with finite useful lives was $40 million and $41 million for the three months ended June 30, 2015 and 2014 , respectively , and $72 million and $77 million for the six months ended June 30, 2015 and 2014, respectively . Based on its amortizable intangible assets as of June 30, 2015 , Liberty expects that amortization expense will be as follows for the next five years (amounts in millions):

 

 

Remainder of 2015		$	74
2016		$	152
2017		$	142
2018		$	102
2019		$	99

 

 

 

 

 

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(8)  Long-Term Debt

Debt is summarized as follows:

 

Liberty 1.375% Cash Convertible Notes due 2023

On October 17, 2013, Liberty issued $1 billion aggregate principal amount of 1.375% Cash Convertible Senior Notes due 2023 ("Convertible Notes").  The Convertible Notes will mature on October 15, 2023 unless earlier repurchased by us or converted.  Interest on the Convertible Notes is payable semi-annually in arrears on April 15 and October 15 of each year at a rate of 1.375% per annum. All conversion of the Convertible Notes will be settled solely in cash, and not through the delivery of any securities.  The initial conversion rate for the Convertible Notes was 5.5882 shares of Liberty Series A common stock per $1,000 principal amount of Convertible Notes, which is equivalent to an initial conversion price of $178.95 per share of Liberty Series A common stock.  During the year ended December 31, 2014, in connection with the issuance of Series C common stock and the Broadband Spin- Off,   as discussed in note 1, the conversion rate was adjusted to 21.0859 shares of Series A common stock per $1,000 principal amount of Convertible Notes and an adjusted conversion price of $4 7.43 per share of Liberty Series A common stock . Holders of the Convertible Notes may convert their notes at their option at any time prior to the close of business on the second business day immediately preceding the maturity date of the notes under the following circumstances: (1) during any fiscal quarter after the fiscal quarter ending December 31, 2013, if the last reported sale price of our Series A common stock for at least 20 trading days in the period of 30 consecutive trading days ending on the last trading day of the immediately preceding fiscal quarter is equal to or more than 130% of the conversion price of the notes on the last day of such preceding fiscal quarter; (2) during the five business ‑ day period after any five consecutive trading day period, which we refer to as the measurement period, in which the trading price per $1,000 principal amount of notes for each trading day of that measurement period was less than 98% of the product of the last reported sale price of our  Series A common stock and the applicable conversion rate on each such day; or (3) upon the occurrence of specified corporate transactions.  Liberty has elected to account for this instrument using the fair value option.  Accordingly, changes in the fair value of this instrument are recognized as unrealized gains (losses) in the statement of operations.  As of June 30, 2015 , the Convertible Notes are classified as a long term liability in the condensed consolidated balance sheet, as the conversion conditions have not been met as of such date.

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Additionally, contemporaneously with the issuance of the Convertible Notes, Liberty entered into privately negotiated cash convertible note hedges and purchased call options (the “Bond Hedge Transaction”). The Bond Hedge Transaction covered approximately 5,588,200 shares of Liberty Series A common stock, subject to anti-dilution adjustments pertaining to the Convertible Notes, which was equal to the number of shares of Liberty Series A common stock initially underlying the Convertible Notes.  The Bond Hedge Transaction is 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 in the event that the volume-weighted average price per share of the Liberty Series A common stock, as measured under the cash convertible note hedge transactions on each trading day of the relevant cash settlement averaging period or other relevant valuation period, is greater than the strike price of $178.95 per share of Liberty Series A common stock, which corresponded to the initial conversion price of the Convertible Notes. During the year ended December 31, 2014, in connection with the issuance of Liberty Series C common stock and the Broadband Spin-Off, as discussed in note 1, the number of shares covered by the Bond Hedge Transaction was adjusted to 21,085,900 shares of Liberty Series A common stock and the strike price was adjusted to $47.43 per share of Liberty Series A common stock, which corresponds to the adjusted conversion price of the Convertible Notes. Liberty paid approximately $299 million for the Bond Hedge Transaction.  The expiration of these instruments is October 15, 2023 . The fair value of these instruments is included in Other assets, at cost, net of accumulated amortization as of June 30, 2015 and December 31, 2014   in the accompanying condensed consolidated balance sheet s , with changes in the fair value recor ded as unrealized gains (losses) on financial instruments in the accompanying condensed consolidated statement s of operations.

Margin Loans

During the year ended December 31, 2013, in connection with Liberty's acquisition of Charter common stock and warrants, as discussed in note 6, Liberty, through certain of its wholly-owned subsidiaries, entered into several 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 certain other 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.

 

$1 Billion Margin Loan due 2015

 

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 with incremental borrowings through the prior year end. 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. Bo rrowings under this agreement bore 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 and such assets and available credit were not available to satisfy the debts and other obligations of Liberty and its other subsidiaries . Given the non-SIRIUS XM market value of the eligible pledged shares as of April 30, 2013, the initial interest rate on the loan wa s   LIBOR plus   2% which did not change   during the duration of the period that the loan was outstanding .  Interest on the term loan wa s payable on the first business day of each calendar quarter, and interest wa s 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. Additionally, up to $1 billion in loans may have been extended under the loan agreement in the form of incremental loans, subject to the satisfaction of certain conditions.  During October 2014, Liberty refinanced this margin loan arrangement for a similar financial instrument with a term loan of $250 million and a $750 million undrawn line of credit.  The term loan and any drawn portion of the revolver carries an interest rate of LIBOR plus an applicable spread between 1.75% and 2.50% (based on value of collateral) with the undrawn portion carrying a fee of 0.75% . As of December 31,

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2014 , shares of SIRIUS XM, Live Nation, Time Warner, Inc. and Viacom, Inc. common stock were pledged as collateral pursuant to this agreement. Due to the sale of shares of Viacom, Inc. held by Liberty during the six months ended months ended June 30, 2015 (note 5), shares of Viacom, Inc. are no longer pledged as collateral pursuant to this agreement as of June 30, 2015 . Borrowings outstanding under this margin loan bear interest at a rate of 2.03% per annum at June 30, 2015 .  The maturity of the new arrangement is October 28, 2015.  Other terms of the loan are substantially similar to the previous arrangement. As of June 30, 2015 , availability under the revolving line of credit was $750 million.

 

As of June 30, 2015 , the values of shares pledged as collateral pursuant to the $1 billion margin loan due 2015 is as follows:

 

		Number of Shares Pledged
		as Collateral as of		Share value as of
Investment		June 30, 2015		June 30, 2015
		amounts in millions
SIRIUS XM		150.0		$	560
Live Nation		12.0		$	330
Time Warner, Inc.		3.6		$	316
Time, Inc.		0.5		$	12

 

The outstanding margin loan contains various affirmative and negative covenants that restrict the activities of the borrower. The loan agreement does not include any financial covenants.

 

SIRIUS XM 5.375% Senior Notes due 2025

 

In March 2015, S IRIUS XM issued $ 1.0 billion principal amount of new senior notes due 2025 which bear interest at an annual rate 5.375% (“SIRIUS XM 5.375% Senior Notes due 2025 ”) with an original issuance discount of $11 million.   The SIRIUS XM 5.375% Senior Notes due 2025 are recorded net of the remaining unamortized discount.

 

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. In June 2015, SIRIUS XM amended the agreement to increase the total borrowing capacity unde r the Credit Facility to $1,750 million and to extend the maturity to June 2020. The Credit Facility is secured by substantially all SIRIUS XM's assets and the assets of their subsidiaries. Interest on borrowings is payable on a month ly 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 as of June 30, 2015 was   0.30% per annum and is payable on a quarterly basis.

As of June 30, 2015 , availability under the Credit Facility was $1,750 million .  

 

Other subsidiary debt

Other subsidiary debt is comprised of SIRIUS XM capital leases and other borrowings at ANLBC.  In 2014, ANLBC, through a wholly-owned subsidiary, purchased 82 acres of land for the purpose of constructing a Major League Baseball facility and development of a mixed-use complex adjacent to the ballpark.  The new facility is expected to cost approximately $672 million and ANLBC expects to spend approximately $50 million in other costs and equipment related to the new ballpark.  Funding for the ballpark will be split between ANLBC, Cobb County and Cobb-Marietta Coliseum and Exhibit Hall Authority. Cobb-Marietta Coliseum and Exhibit Hall Authority and Cobb County (collectively the “Authority ”) will be responsible for funding $392 million of ballpark related construction and ANLBC will be responsible for remainder of cost, including cost overruns.  Cobb-Marietta Coliseum and Exhibit Hall Authority will issue $ 368 million in bonds that are expected to close   and fund in the second half of 2015 ,   based on court rulings which validated the financing

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during June 2015 .  In order to maintain an April 2017 opening of the ballpark, ANLBC agreed to advance funds to cover project related costs until the Cobb-Marietta Coliseum and Exhibit Hall Authority bonds are funded.  Funding for ballpark initiatives by ANLBC has come from cash reserves and utilization of two credit facilities with a capacity of $ 3 50 million . As of June 30, 2015 , ANLBC has borrowed approximately $185 million under these two facilities. 

Due to ANLBC providing the initial funding of the project and its ownership of the land during the initial construction period, until the initial reimbursement by the Authority at which time the land will be conveyed to the Authority, ANLBC has been deemed the owner (for accounting purposes) of the stadium during the construction period and costs have been classified as construction in progress (“CIP”), within the Property and equipment, net line item.   Future costs of the project will continue to be captured in CIP along with a corresponding liability in other liabilities, for amounts funded by the Authority.  At the end of construction an additional determination will need to be made to determine whether the transaction will qualify for sale-leaseback accounting treatment. 

In addition, ANLBC through affiliated entities and outside development partners are in the process of developing land around the ballpark for a mixed-use complex that is expected to feature retail, residential, office, hotel and entertainment opportunities.  The estimated cost for mixed-use development is $452 million, of which ANLBC affiliated entities are expected to fund approximately $363   million through a mix of debt and equity.    

As of June 30, 2015 , approximately $169 million has been spent to-date on the baseball facility and mixed-use development, a portion of which is expected to be reimbursed.  

 

Debt Covenants

The SIRIUS XM Credit Facility contains certain financial covenants related to SIRIUS XM’s leverage ratio.  Additionally, SIRIUS XM’s Credit Facility and other borrowings contain certain non-financial covenants.  The Company and SIRIUS XM are in compliance with all debt covenants.

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, not reported at fair value, are as follows (amounts in millions):

 

		June 30, 2015
SIRIUS XM 5.875% Senior Notes due 2020		$	674
SIRIUS XM 5.75% Senior Notes due 2021		$	615
SIRIUS XM 5.25% Senior Secured Notes due 2022		$	421
SIRIUS XM 4.25% Senior Notes due 2020		$	497
SIRIUS XM 4.625% Senior Notes due 2023		$	473
SIRIUS XM 6% Senior Notes due 2024		$	1,537
SIRIUS XM 5.375% Senior Notes due 2025		$	964

 

Due to the variable rate nature of the Credit Facility, margin loans and other debt the Company believes that the carrying amount approxim ates fair value at June 30, 2015 . 

(9)    Commitments and Contingencies

Guarantees

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

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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, 2015 aggregated $343 million, which is payable as follows: $64 million in 201 5 ,   $59 million in 201 6 ,   $61 million in 201 7 ,   $54 million in 201 8 and $105 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 entered judgment in favor of Liberty in the amount of approximately €945 million, including prejudgment interest. The parties negotiated a stay of the execution of the judgment during the pendency of the appeal.  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 matter has been fully briefed and oral argument before the Second Circuit is expected prior to the end of 2015. T he amount that Liberty may ultimately recover in connection with the final resolution of the action, if any, is uncertain. Any recovery by Liberty will not be reflected in our financial statements until such time as the final disposition of this matter has been reached.

 

I n August and September 2013 , SIRIUS XM wa s   named as a defendant in three class action suits and one additional suit, which challenge the use and public performance via satellite radio and the Internet of sound recordings fixed prior to February 15, 1972 under California, New York and/or Florida law.  The plaintiffs in each of these suits purport to seek in excess of $100 million in compensatory damages along with unspecified punitive damages and injunctive relief.

These cases are titled Flo & Eddie Inc. v. Sirius XM Radio Inc. , No. 2:13-cv-5693-PSG-RZ (C.D. Cal.), Flo & Eddie, Inc. v. Sirius XM Radio Inc. , No. 1:13-cv-23182-DPG (S.D. Fla.), and Flo & Eddie, Inc. v. Sirius XM Radio Inc. , No. 1:13-cv-5784-CM (S.D.N.Y.) (collectively, the “ Flo & Eddie  C ases”), and Capitol Records LLC et al. v. Sirius XM Radio Inc. , No. BC-520981 (Super. Ct. L.A. County) (the “ Capitol Records  C ase”). Each of the three Flo & Eddie Cases are in different procedural postures: a class has been certified in the case pending in the Central District of California and

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SIRIUS XM has filed a motion seeking interlocutory appeal of that decision, SIRIUS XM was granted summary judgment in the case pending in the Southern District of Florida and the plaintiffs have filed a notice to appeal that decision , and in the case pending in the Southern District of New York SIRIUS XM has been granted the right to appeal the trial court’s denial of its motion for summary judgment. Additional information concerning each of these actions is publicly available in court filings under their docket numbers.  

In June 2015, SIRIUS XM entered into a settlement agreement with the plaintiffs in the Capitol Records  C ase, Capitol Records LLC, Sony Music Entertainment, UMG Recordings, Inc., Warner Music Group Corp. and ABKCO Music & Records, Inc., to settle th e case in its entirety (the “Capitol Settlement”) .     Pursuant to the settlement agreement, SIRIUS XM agreed to pay the plaintiffs, in the aggregate, $210 million and the plaintiffs will dismiss the case with prejudice. SIRIUS XM paid the set tlement amount during July 2015 . The settlement resolves all past claims as to SIRIUS XM’s use of pre-1972 recordings owned or controlled by the plaintiffs and enables SIRIUS XM, without any additional payment, to reproduce, perform and broadcast such recordings in the United States through December 31, 2017.  As part of the settlement, SIRIUS XM has the right, to be exercised before December 31, 2017, to enter into a license with each plaintiff to reproduce, perform and broadcast pre-1972 recordings owned or controlled by the plaintiffs from January 1, 2018 through December 31, 2022.  The royalty rate for each such license will be determined by negotiation or, if the parties are unable to agree, binding arbitration.  The plaintiffs have represented and warranted to S IRIUS XM that in the United States they own, control or otherwise have the right to settle with respect to approximately 80% of the pre-1972 recordings SIRIUS XM has historically played. 

Pursuant to the Capitol S ettlement, SIRIUS XM recorded  a   $210 million liability, which is included in the Accounts payable and accrued expenses line item within the unaudited condensed consolidated balance sheet as of June 30, 2015 and recognized approximately $108 million to Revenue share and royalties within the unaudited condensed consolidated statement of operations during the three and six months ended June 30, 2015.  The amount recognized during the current period relates to SIRIUS XM’s use of pre-1972 sound recordings prior to June 30, 2015. Of the remaining $102 million of the settlement, approximately $39 million was recorded to Other current assets and approximately $6 3 million was recorded to Other long-term assets within the unaudited condensed consolidated balance sheets as of June 30, 2015, which will be amortized to Revenue share and royalties within the unaudited condensed consolidated statement of operations over the future service period of Ju ly 2015 through December 2017.

 

In addition, in August 2013, SoundExchange, Inc. filed a complaint in the United States District Court for the District of Columbia alleging that SIRIUS XM underpaid royalties for statutory licenses during the 2007-2012 rate period in violation of the regulations established by the Copyright Royalty Board for that period.  SoundExchange principally alleges that SIRIUS XM improperly reduced its calculation of gross revenues, on which the royalty payments are based, by deducting non-recognized revenue attributable to pre-1972 recordings and Premier package revenue that is not “separately charged” as required by the regulations.  SoundExchange is seeking compensatory damages of not less than $50 million and up to $100 million or more, payment of late fees and interest, and attorneys’ fees and costs.

 

In August 2014, the United States District Court for the District of Columbia granted SIRIUS XM’s motion to dismiss the complaint without prejudice on the grounds that the case properly should be pursued before the Copyright Royalty Board rather than the district court.  In December 2014, SoundExchange filed a petition with the Copyright Royalty Board requesting an order interpreting the applicable regulations.  At this point SIRIUS XM cannot estimate the reasonably possible loss, or range of loss, which could be incurred if the plaintiffs were to prevail in the allegations, but SIRIUS XM believes it has substantial defenses to the claims asserted and intend s to defend these actions vigorously.

 

SIRIUS XM is also a defendant in several purported class action suits, which were commenced in February 2012, January 2013, January 2015 ,   April 2015 and July 2015 , in the United States District Court for the Eastern District of Virg inia, Newport News Division, the United States District Court for the Southern District of California , the United States District Court for the Northern District of Illinois   and the United States District Court for the Middle District of Florida  

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that allege that SIRIUS XM, or certain call center vendors acting on its behalf, made numerous calls which violate provisions of the Telephone Consumer Protection Act of 1991 (the “TCPA”). The plaintiffs in these actions allege, among other things, that SIRIUS XM called mobile phones using an automatic telephone dialing system without the consumer’s prior consent or, alternatively, after the consumer revoked their prior consent and, in one of the actions, that SIRIUS XM violated the TCPA’s call time restrictions. The plaintiffs in these suits are seeking various forms of relief, including statutory damages of $500 for each violation of the TCPA or, in the alternative, treble damages of up to $1,500 for each knowing and willful violation of the TCPA, as well as payment of interest, attorneys’ fees and costs, and certain injunctive relief prohibiting violations of the TCPA in the future. Plaintiffs in certain of these suits have filed a motion with the Judicial Panel on Multidistrict Litigation to transfer these purported class actions, and other allegedly related cases, to the United States District Court for the Northern District of Illinois for consolidated or coordinated pretrial proceedings. SIRIUS XM believes it has substantial defenses to the claims asserted in these actions and intends to defend them vigorously.

 

SIRIUS XM has notified certain of its call center vendors of these actions and requested that they defend and indemnify it against these claims pursuant to the provisions of their existing or former agreements with SIRIUS XM. SIRIUS XM believes it has valid contractual claims against certain call center vendors in connection with these claims and intends to preserve and pursue its rights to recover from these entities.

 

With respect to the SIRIUS XM matters described above, it was determined, based on current knowledge, that the amount of loss or range of loss that is reasonably possible is not reasonably estimable.  However, these matters are inherently unpredictable and subject to significant uncertainties, many of which are beyond SIRIUS XM’s control.  As such, there can be no assurance that the final outcome of these matters will not materially and adversely affect the business, financial condition, results of operations, or cash flows.

 

(10)    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 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, churn 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.

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For the six months ended June 30, 2015, the Company has identified SIRIUS XM as its reportable segment. SIRIUS XM is a consolidated subsidiary that provides a subscription based satellite radio service.  SIRIUS XM broadcasts music, sports, entertainment, comedy, talk, news, traffic and weather channels as well as infotainment services in the United States on a subscription fee basis through its two proprietary satellite radio systems - the Sirius system and the XM system.  Subscribers can also receive music and other channels, plus features such as SiriusXM On Demand and MySXM, over SIRIUS XM’s Internet radio service, including through applications for mobile devices. 

The Company's 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 are the same as those described in the Company's summary of significant policies in the Company's annual financial statements filed on Form 10-K.

Performance Measures

 

		Three months ended  June 30,
		2015					2014
					Adjusted				Adjusted
		Revenue			OIBDA		Revenue		OIBDA
		amounts in millions
SIRIUS XM		$	1,119		420		1,025		369
Corporate and other			103		(2)		135		3
		$	1,222		418		1,160		372

 

 

 

		Six months ended June 30,
		2015					2014
					Adjusted				Adjusted
		Revenue			OIBDA		Revenue		OIBDA
		amounts in millions
SIRIUS XM		$	2,195		824		2,013		704
Corporate and other			108		(33)		158		(38)
		$	2,303		791		2,171		666

 

 

 

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Other Information

 

The following table provides a reconciliation of segment Adjusted OIBDA to Earnings (loss) from continuing operations before income taxes:

 

		Three months ended					Six months ended
		June 30,					June 30,
		2015			2014		2015		2014
		amounts in millions
Consolidated segment Adjusted OIBDA		$	418		372		791		666
Legal settlement (note 9)			(108)		—		(108)		—
Stock-based compensation			(47)		(49)		(91)		(98)
Depreciation and amortization			(92)		(92)		(176)		(182)
Interest expense			(83)		(62)		(160)		(115)
Share of earnings (losses) of affiliates, net			—		(12)		(37)		(47)
Realized and unrealized gains (losses) on financial instruments, net			40		25		12		(40)
Other, net			6		(1)		8		(38)
Earnings (loss) from continuing operations before income taxes		$	134		181		239		146