Annual report pursuant to Section 13 and 15(d)

Basis Of Presentation

v2.4.0.6
Basis Of Presentation
 12 Months Ended
Dec. 31, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Basis Of Presentation
Basis of Presentation
The accompanying consolidated financial statements of Liberty Media Corporation (formerly named Liberty Spinco, Inc.; see discussion below pertaining to the Spin-Off) ("Liberty" or the "Company" unless the context otherwise requires) represent a combination of the historical financial information of (1) certain video programming and other media related assets and businesses previously attributed to the Starz tracking stock group and the Capital tracking stock group of Liberty Interactive Corporation ("Liberty Interactive" and formerly named Liberty Media Corporation) further described in note 2 and (2) Liberty Media Corporation and its consolidated subsidiaries for the period following the date of the Split-Off (defined below). The Split-Off has been accounted for at historical cost due to the pro rata nature of the distribution.
During the second quarter of 2010, Liberty Interactive announced that its board of directors authorized its management to proceed with a plan to separate its Liberty Capital and Liberty Starz tracking stock groups from its Liberty Interactive tracking stock group (the "Split-Off"). The Split-Off was completed on September 23, 2011 following the satisfaction of all conditions to the Split-Off. The Split-Off was effected by means of a redemption of all of the outstanding Liberty Capital common stock and Liberty Starz common stock of Liberty Interactive in exchange for all of the common stock of Liberty, which at the time of the Split-Off held all of the businesses, assets and liabilities attributed to the Capital and Starz tracking stock groups of Liberty Interactive in accordance with the terms of a Reorganization Agreement (described below). Immediately following the Split-Off Liberty utilized a tracking stock capital structure similar to that used by Liberty Interactive prior to the Split-Off, with two tracking stock groups: one tracking the businesses, assets and liabilities previously attributed to Liberty Interactive's Capital Group ("Capital Group") and the other tracking the businesses, assets and liabilities that were previously attributed to Liberty Interactive's Starz Group ("Starz Group"). As further discussed in note 2, Liberty eliminated its tracking stock structure in November 2011 through the conversion of Liberty Starz common stock into Liberty Capital common stock.
These financial statements have been presented using the historical presentation of the Liberty Interactive attributed financial information as a basis for the consolidated financial statements. Previous transactions of the Liberty Capital group and Liberty Starz group have been reflected as transactions of Liberty and the historical transactions of the Liberty Interactive group have been treated as transactions of Liberty Interactive for purposes of these financial statements. Previous transactions between either the Liberty Starz group or the Liberty Capital group and the Liberty Interactive group, including all reattributions, have been reflected at historical cost on a prospective basis (i.e., treated as book value transfers rather than retroactive as-if poolings). All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Following the Split-Off, Liberty and Liberty Interactive operate as separate publicly traded companies, and neither has any stock ownership, beneficial or otherwise, in the other. In connection with the Split-Off, Liberty and Liberty Interactive entered into certain agreements in order to govern ongoing relationships between the two companies after the Split-Off and to provide for an orderly transition. These agreements include a Reorganization Agreement, a Services Agreement, a Facilities Sharing Agreement and a Tax Sharing Agreement.
The Reorganization Agreement provides for, among other things, the principal corporate transactions required to effect the Split-Off and provisions governing the relationship between Liberty and Liberty Interactive with respect to and resulting from the Split-Off, including cross-indemnities. Pursuant to the Services Agreement, Liberty provides Liberty Interactive with general and administrative services including legal, tax, accounting, treasury and investor relations support. Liberty Interactive will reimburse Liberty for direct, out-of-pocket expenses incurred by Liberty in providing these services and for Liberty Interactive's allocable portion of costs associated with any shared services or personnel based on an estimated percentage of time spent providing services to Liberty Interactive. Prior to the Split-Off these costs were being allocated between the tracking stock groups and these amounts have not been significantly different following the completion of the Split-Off. Under the Facilities Sharing Agreement, Liberty Interactive shares office space with Liberty and related amenities at Liberty's corporate headquarters. Under these various agreements approximately $10 million and $2 million of these allocated expenses were reimbursed to Liberty during the year ended December 31, 2012 and 2011 (since the Split-Off date).
The Tax Sharing Agreement provides for the allocation and indemnification of tax liabilities and benefits between Liberty Interactive and Liberty and other agreements related to tax matters. Among other things, pursuant to the Tax Sharing Agreement, Liberty has agreed to indemnify Liberty Interactive, subject to certain limited exceptions, for losses and taxes resulting from the Split-Off to the extent such losses or taxes (i) result primarily from, individually or in the aggregate, the breach of certain restrictive covenants made by Liberty (applicable to actions or failures to act by Liberty and its subsidiaries following the completion of the Split-Off), (ii) result from the Liberty Capital common stock or the Liberty Starz common stock not being treated as stock of Liberty, or being treated as Section 306 stock within the meaning of Section 306(c) of the Internal Revenue Code of 1986, as amended (the "Code"), for U.S. federal income tax purposes, (iii) result from the Liberty Interactive common stock, the Liberty Capital common stock, or the Liberty Starz common stock not being treated as stock of Liberty Interactive, or being treated as Section 306 stock within the meaning of Section 306(c) of the Code, for U.S. federal income tax purposes, (iv) result from Section 355(e) of the Code applying to the Split-Off as a result of the Split-Off being part of a plan (or series of related transactions) pursuant to which one or more persons acquire a 50-percent or greater interest (measured by vote or value) in the stock of Liberty, or (v) result from deferred intercompany items or excess loss accounts that are triggered by the Split-Off, and that would otherwise be allocated to Liberty. In addition, Liberty will be required to indemnify Liberty Interactive for any losses or taxes resulting from the failure of the LEI split-off (a previously completed split-off by Liberty Interactive) and related restructuring transactions to be a tax-free transaction described under Sections 355 and 368(a)(1)(D) (including any such losses or taxes arising as a result of the completion of the Split-Off), except to the extent that such losses or taxes result primarily from, individually or in the aggregate, a breach of certain restrictive covenants made by Liberty Interactive (applicable to actions or failures to act by Liberty Interactive and its subsidiaries following the completion of the Split-Off).
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.
During August 2012, the Board of Directors of Starz (formerly known as Liberty Media Corporation) authorized a plan to distribute to the stockholders of Starz shares of a wholly-owned subsidiary, Liberty Media Corporation ("Liberty" and the “Company” formerly known as Liberty Spinco, Inc.), that holds, as of January 11, 2013, all of the businesses, assets and liabilities of Starz not associated with Starz, LLC (with the exception of the Starz, LLC office building) (the "Spin-Off"). The transaction was effected as a pro-rata dividend of shares of Liberty to the stockholders of Starz. The businesses, assets and liabilities not included in Liberty are part of a separate public company which was renamed Starz. Due to the relative significance of Liberty to Starz (the legal spinnor) and senior management's continued involvement with Liberty following the Spin-Off, Liberty will be treated as the "accounting successor" to Starz for financial reporting purposes, notwithstanding the legal form of the Spin-Off previously described. Therefore, the historical financial statements of Starz will continue to be the historical financial statements of Liberty and will present Starz as discontinued operations upon completion of the Spin-Off in the first quarter of 2013. Therefore, for purposes of these financial statements Liberty is treated as the spinnor for purposes of discussion and as a practical matter of describing all the historical information contained herein. The Spin-Off is intended to be tax-free to stockholders of Liberty.
Subsequent to December 31, 2012 two fairly significant transactions were completed which will significantly change the financial statements of Liberty. On January 11, 2013 Liberty completed the Spin-Off, previously discussed, whereas Liberty and Starz are separate public companies. Starz has been treated as an asset held and used, for purposes of these statements as the transaction was not completed until after December 31, 2012 and will be presented as discontinued operations in the first quarter of 2013. Additionally on January 18, 2013 Liberty settled a block transaction with a financial institution taking possession of an additional 50,000,000 shares of SIRIUS XM Radio, Inc. ("SIRIUS XM") as well as converting its remaining SIRIUS XM Convertible Perpetual Preferred Stock, Series B-1, par value $0.001 per share, into 1,293,509,076 shares of SIRIUS XM Common Stock. As a result of these two transactions Liberty holds more than 50% of the capital stock of SIRIUS XM entitled to vote on any matter, including the election of directors. Following the transactions, Liberty also appointed certain directors to the board of directors and effectively controls the board as of January 18, 2013. This will result in the application of purchase accounting and the consolidation of SIRIUS XM in the first quarter of 2013. Liberty will record a significant gain in the first quarter of 2013 associated with application of purchase accounting based on the difference between fair value and the carrying value of the ownership interest Liberty has in SIRIUS XM.
The Pro Forma summarized combined unaudited balance sheets and statements of operation of Liberty using the historical financial statements for both Starz, LLC and SIRIUS XM, not giving effect to any purchase accounting related differences (valuation information was not available at the time for any initial purchase price allocation) which would significantly change these amounts, as if the transactions discussed above occurred for the Balance Sheet data as of such dates and for the Statement of Operations data as if they had occurred on January 1, 2010, are as follows:
Summary Balance Sheet Data:
 
December 31, 2012
 
December 31, 2011
 
amounts in millions
(unaudited)
Current assets
$
2,602

 
3,281

Investments in available-for-sale securities
$
1,392

 
1,859

Investments in equity method affiliates
$
575

 
482

Other assets
$
7,929

 
6,928

Total assets
$
12,498

 
12,550

Long-term debt
$
2,222

 
2,684

Other liabilities
$
3,828

 
5,591

Noncontrolling interests in equity of subsidiaries
$
2,020

 
350

Equity
$
4,428

 
3,925

Summary Operations Data:
 
Years ended December 31,
 
2012
 
2011
 
2010
 
amounts in millions
(unaudited)
Revenue
$
3,770

 
$
4,424

 
3,241

Operating income (loss)
789

 
1,206

 
377

Interest expense
(272
)
 
(321
)
 
(361
)
Share of earnings (loss) of affiliates
(21
)
 
(7
)
 
(57
)
Realized and unrealized gains (losses) on financial instruments, net
232

 
68

 
260

Less earnings (loss) attributable to the noncontrolling interests
1,737

 
210

 
19

Net Earnings (loss) from continuing operations attributable to Liberty stockholders:
 
 
 
 
 
 
Liberty Capital group
$
1,531

 
726

 
856

 
Liberty Starz group
NA

 
(13
)
 
44

 
 
 
 
 
 
 
Pro Forma basic net earnings (loss) from continuing operations attributable to Liberty stockholders per common share (note 3):
 
 
 
 
 
 
Liberty Capital group
$
12.76

 
8.54

 
9.51

 
Liberty Starz group
NA

 
(0.25
)
 
0.88

 
 
 
 
 
 
 
Pro Forma diluted net earnings (loss) from continuing operations attributable to Liberty stockholders per common share (note 3):
 
 
 
 
 
 
Liberty Capital group
$
12.35

 
8.25

 
9.20

 
Liberty Starz group
NA

 
(0.25
)
 
0.85



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